The First of Long Island Corporation

Welcome to the first of Long Island Corporation's first quarter 2024 earnings conference call. On the call today are Chris Becker, President and Chief Executive Officer, and Janet Burnell, Senior Executive Vice President and Chief Financial Officer. Today's call is being recorded. A copy of the earnings release is available on the corporation's website at fnbli.com and on the earnings call webpage at https:// forward slash forward slash www.cstproxy.com forward slash FNBLI forward slash earnings forward slash 2024 forward slash Q1. Before we begin, the company would like to remind everyone that this call may contain certain statements that constitute forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contained in any such statements, including as set forth in companies' filings with the U.S. Securities and Exchange Commission. Investors should also refer to our 2023 10-K filed on March 8, 2024, for a list of risk factors that could cause actual results to differ materially from those indicated or implied by such statements. I would now like to turn the call over to Chris Becker.

Thank you. Good afternoon, and welcome to the first of Long Island Corporation's earnings call for the first quarter of 2024. Just last week, we held our annual stockholders meeting and covered a number of key topics of interest. Please visit the investor relations page of our FNBLI website to replay that presentation. It focuses on the key strengths of our organization, the causes of the current earnings challenges, how an improving yield curve can lift performance, and the many benefits of our recent technology upgrades. Focusing on our strengths, capital remains strong at the end of the first quarter with a leverage ratio of 10%, and a tangible common equity ratio of 8.9 percent. We had ample liquidity on March 31, 2024 of $1.5 billion with a balance of collateral for potential borrowings at both the Federal Home Loan Bank of New York and the Federal Reserve Bank, as we believe both are an appropriate source for day-to-day liquidity needs. The Federal Reserve Bank is working to eliminate the stigma of being the lender of last resort especially with recent reports and discussions regarding the Federal Home Loan Bank System's charter of supporting low- and moderate-income housing initiatives versus its role as a primary source of liquidity for banks. Our C&I loans, including owner-occupied commercial mortgages, increased 6 percent since year-end, and we are encouraged by recent activity that is not yet reflected in our March 31, 2024 loan pipeline of $113 million, up from $86 million at year-end 2023. Our credit quality remained rock solid through March 31, 2024, with charge-offs, non-performing loans, and past due loans remaining at single-digit basis points as a percentage of total loans. Non-interest income had a good first quarter and was slightly ahead of our guidance of $2.6 million per quarter in 2024. Non-interest expense was slightly below our guidance of $6.25 million per quarter in 2024. We have a new technology platform to support our future growth. We are opening our fourth branch on the east end of Long Island during the second quarter of this year and continuing our growing momentum in that area. and we are staying disciplined in a difficult environment. We do not bend on credit quality. We focus on adding one relationship banker at a time and looking to build long-standing relationships. Our deposit base has a history of being loyal through good and bad news in the banking world, and we want to keep it that way. As anticipated, our net interest margin was lower in the first quarter of 2024. The drop was largely related to our average funding mix as approximately $100 million shifted from average deposits to average wholesale funds when comparing the first quarter of 2024 to the fourth quarter of 2023. We also had $62.5 million of wholesale funding reprice from a weighted average cost of 1.36% to 4.78%. Regarding the drop in deposits during the fourth quarter of 2023, 34.2 million in tax escrow deposits were used to make real estate tax payments, and municipal deposits were down 97.5 million. Escrow deposits build back throughout the year as monthly loan payments are received. Municipal deposits were 46.6 million higher at March 31, 2024. when compared to the linked quarter. The fluctuations in tax escrow and municipal deposits are common for our bank in the fourth quarter. Real estate tax payments are made every year in the fourth quarter, and municipal deposits have been down in the fourth quarter four of the last five years by an average of 54.4 million. Our commercial and consumer relationship deposits remain stable. and non-interest bearing checking deposits were 33% of total deposits at the end of the first quarter. Please note that while average deposits were lower during the quarter, quarter end deposits were higher than year end 2023 by over $55 million. As of the end of the first quarter, there are no significant tranches of wholesale funding, including any brokered CDs that are not at or close to market rates. Our retail CDs maturing over the next 12 months are largely at current market rates, especially after approximately 87 million in maturities in April and May that are paying very close to 4 percent and are expected to reprice at an estimated 50 to 70 basis points higher. Barring any significant changes in our funding mix or short-term rates moving higher, we believe our margin should be at the bottom. We expect it will fluctuate within a narrow band for the remainder of 2024, although continued improvement in our funding mix or more favorable yield curve may improve margin in the second half of the year. Janet Vernell will now take you through other financial highlights of the first quarter. Janet.

Thank you, Chris. Good afternoon, everyone. The company recognized net income of $4.4 million for the first quarter of 2024, down from $6.5 million in the first quarter of 2023. The decrease was largely attributed to lower net interest income of $5.5 million, a $1.1 million credit provision for loan losses in 2023, partially offset by the loss on sale of securities of 3.5 million in the first quarter of 2023. Net income was also down 6.1 million in the linked quarter. That decrease was mainly the result of lower net interest income of 1.8 million and an increase in salaries and employee benefits of 1.9 million due to the reversal of incentive accruals taken in the linked quarter. After excluding the loss on the sale of securities in 2023, Non-interest income of $2.8 million exceeded non-interest income recorded in the first quarter of 2023 of $2.5 million. The quarter's non-interest income also exceeded the linked quarter total of $2.4 million. Better service charge income on deposit accounts and BOLI income helped in both quarter comparisons. Non-interest expense totaled $16.2 million, which is a decline of 360%. of 365,000, or 2.2%, compared to the first quarter of 2023. The linked quarter had a lot of noise related to the reversal of incentive accruals, so the comparison is not as meaningful. Gross loans declined $11.5 million from the prior quarter end, mainly related to $21.2 million of amortization and other paydowns of residential mortgages and home equity lines. This decline was offset by continued growth in our commercial portfolios, as Chris mentioned. The overall loan yield of 4.14% was up five basis points from the linked quarter. Loan yield for the first quarter of 2023 was 3.70%. Total deposits increased $55.5 million from year-end. The mix of deposits continues to change as customers move out of non-interest-bearing checking accounts and interest-bearing alternatives. As Chris mentioned, average deposits were down approximately $100 million from the linked quarter. The average cost of deposits was 2.64 percent for the first quarter of 2024, 2.43 percent for the linked quarter, and 1.40 percent for the first quarter of 2023. Other borrowings averaged $523.1 million for the first quarter as the drop in deposits was supplemented partially by these advances. The average cost of these borrowings was 4.82% in the first quarter of 2024, 4.59% in the linked quarter, and 3.79% in the first quarter of 2023. Net interest income and the net interest margin for the first quarter reflects the challenges described above. The purchase of the fixed to floating swap and the repositioning of a portion of the investment securities portfolio in the first quarter of 2023 continued to positively impact the income statement above the line. Yet the pace of the repricing of the liability side of the balance sheet continued to outpace the repricing of the assets on the balance sheet. Net interest income for the first quarter of 2024 declined $1.8 million from the linked quarter and $5.5 million from the first quarter of 2023. The net interest margin calculated to 1.79 percent in the first quarter of 2024, 2.0 percent in the linked quarter, and 2.34 percent in the first quarter of 2023. The yield on total earning assets was 4.10 in the first quarter of 2024, 4.0% in the linked quarter, and 3.61% in the first quarter of 2023. Cost of total interest bearing liabilities is 3.47% in the first quarter of 2024, 3.15% in the linked quarter, and 1.96% in the first quarter of 2023. No provision was booked to the allowance for credit losses during the quarter commercial real estate market remains under heightened scrutiny, especially in the New York metropolitan area, in the wake of credit problems disclosed by New York Community Bank at year-end 2023. Although the New York State Housing Stability and Tenant Protection Act passed in 2019, most recently the ripple impact of the legislation is negatively affecting the rent-regulated multifamily real estate market in the New York metropolitan area. Management has provided detailed disclosures on our CRE portfolio, including our multifamily portfolio, in an 8K furnished on March 1, 2024, and in our recent annual meeting presentation. We believe the credit quality of the loan portfolio remains strong. The reserve coverage ratio on March 31, 2024, is 88 basis points, compared to 89 basis points at year-end 2023. Book value per share was 16.78 on March 31st, 2024 versus $16.43 on March 31st, 2023. The accumulated other comprehensive loss component of the stockholders' equity is mainly comprised of a net unrealized loss in the available for sale securities portfolio due to the higher market interest rates. The company repurchased shares during the first quarter of 2024 at a cost of $2 million. and the bank declared its quarterly cash dividend of 21 cents per share. The effective tax rate for the first quarter of 2024 was 6.2 as the tax-advantaged assets of loans in our REIT subsidiary, municipal bonds, and BOLI were a larger portion of taxable income during the quarter. With that, I turn it back to our operator for questions.