The First Of Long Island: Solid Yielding Bank To Own Under $20 (NASDAQ:FLIC)

The First of Long Island Corporation (NASDAQ:FLIC) is a regional bank that we think can be comfortably bought under $20 a share. While the company has had to adjust to a rising rate environment, and the recently reported earnings reflected some of these pressures, we think you can own this shareholder friendly bank going forward. We are pretty bullish on the bank moving forward. In this column we analyze and discuss a number of the key metrics that we follow in the many regional banks we cover that you should be aware of if you are considering buying this stock. In our opinion, the return metrics are strong. On top of that the dividend yield is solid, just over 4%, and we believe rates being higher means most banks are going to do very well in 2023. We think shares are a buy. Let us discuss

First of Long Island Q2 2022 headline performance

On the back of a growing loan base, as well as a growing deposit base that increased, as well as decent margins, The First of Long Island bank saw revenues that were slightly ahead of expectations. The revenues also increased from a year ago.

In Q2 2022, The First of Long Island reported a top-line revenue figure of $32.7 million. In addition, The First of Long Island saw a 10% increase in this key metric year-over-year. This was well above the estimates for $31.2 million.

This was welcomed headline news because overall performance has been mixed in the sector, at least in terms of the banks we have been examining. Some banks have seen flat to down revenues versus last year, while others saw strong increases. Because this is a smaller regional bank it is subject to revenue fluctuation, but the higher loan balances and decent portfolio yields bolstered revenues.

There was a significant improvement revenues but we saw an uptick in loss provisions this quarter and in the first half of 2022. In H2 2022 the provision for credit losses increased $2.8 million from the credit of $1.6 million in the H1 2021. This was from a jump in outstanding mortgage loans and the bank making qualitative adjustments for current conditions. That said, net income for Q2 2022 was $12.5 million and increased $1.1 million, or 9.6%, from $11.4 million a year ago.

There was also an increase in net interest income of $2.8 million, and again there was a loan loss provision of $1.2 million. On a per share basis, the net income increased. The First of Long Island saw EPS of $0.54 this quarter, up $0.06 from last year. However, better days are ahead with the prospects of a still strong economy in 2022 and a benefit from better rates. Many of the loans on the books were doled out before the big rate increase. We expect net interest income to continue to improve moving forward.

Looking more into First of Long Island’s loans and deposits

Growth in loans and deposits are key for regional banks. Going back to 2020 we want to remind you that the PPP loans of the time helped boost many regional banks loan portfolio balances, so a direct comp is somewhat misleading. As we move forward growth in both of these metrics is critical, but PPP loans are fading out.

The average balance of loans increased $277 million, or 9.2% over Q2 2021. Not bad at all. While PPP loan differences accounted for some of this there was also an increase in mortgage loans, stemming from increased competition among banks and originators. It is worth noting that commercial mortgages have rebounded, and grew significantly since a year ago. Long Island is booming again, with life back to normal, and businesses and tourists have returned in a big way.

That said, total deposits increased from $3.32 billion to $3.61 billion this year. That means there are more assets on hand to lend out to customers. As rates rise this is critical. The bank will be able to lend this money out at much higher rates. The so-called spread on what is lent out vs. the cost of funds should widen in 2023 easily. What about the quality of the assets here?

First of Long Island’s asset quality

It is great to see loan growth but we need a sense of the quality of assets on the books. If things are poor, it could mean the bank is taking risky loans on. That said, we saw mostly strong trends in asset quality metrics, and this is quite bullish. One metric that hit banks last year was the massive provisions for loan losses. Some banks have seen huge improvements on this front, and as we mentioned given the much larger loan base and the macro risk out there, First of Long Island had a $1.2 million provision.

Another key metric to watch is the bank’s allowance for credit losses. Well the allowance for credit losses to total loans was just 0.93% at the end of Q2 2022. Being under 1% is huge, and this was a 3 basis point improvement from the start of the year. Since COVID hit, there has been a sizable reduction in credit loss allowances. Nonaccrual loans, troubled debt restructurings, and loans past due 30 through 89 days still remain at low levels as well.

The return on assets improved to 1.18% from 1.08% a year ago. The return on equity improved sharply to 12.94% from 11.2% last year. Great moves. We continue to see solid improvement on both of these metrics as the bank is able to lend out at higher rates, so long as the local economy remains robust.

We see both return metrics as improving in 2023 as rates rise and the net interest spread widens.

We think the company is shareholder friendly

The bank is also shareholder friendly. They keep buying back shares which is great. In Q2 they repurchased $5.3 million of stock, or over 286,000 shares. This boosts shareholder value and EPS power. We like it. Second, the company recently raised its dividend by 5.1% to $0.20 quarterly. Based on the present share price of $20 the stock yields 4%. That is a high yield for a regional bank, so you are paid to wait.

Final thoughts

Key metrics are improving. The loan loss provisions are a precaution. The local economy is strong again, and loans and deposits are both rising. The buybacks help, and we love the yield here. Buy the stock under $20.