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A Letter to Shareholders

Dear Fellow Shareholders,

I am pleased to report that your company posted record earnings per share in 2021 of $1.81, from $1.72 in 2020. While many financial institutions had a down year in 2020 and recovered in 2021, The First of Long Island Corporation has continued to grow earnings per share in each of the past two years, continuing a nine-year trend of record earnings per share.

Net income in 2021 totaled $43.1 million, up from $41.2 million in 2020. Return on equity was 10.34% and return on assets was 1.04%, comparable to 10.47% and 1.00%, respectively, in 2020. Book value per share increased to $17.81 at year-end 2021 from $17.11 at year-end 2020. Cash dividends per share increased to $.78 from $.74 in 2020.

Building Value

Two years ago, in my first CEO letter to shareholders, I laid out our key strategic initiatives to improve on our many years of success. A primary focus discussed was expanding our lending teams to better develop and retain customer relationships. Led by Chief Lending Officer, Chris Hilton, we established a middle market team of four, hired an East End of Long Island lending team leader, added commercial relationship managers in both Brooklyn and Queens, added a portfolio manager to our commercial real estate team, and strengthened the loan administration team by adding an operations director. We also hired a residential mortgage sales manager and added two residential mortgage originators all with a focus on generating more business through branch and other internal referrals.

Working in tandem with our experienced lending teams is a top-quality credit department. Led by Chief Credit Officer, Mike Spolarich, we complemented a long-tenured team of analysts by adding a senior credit officer and four senior analysts. Our years of exceptional credit quality has always been supported by a strong Credit Department and we appreciate its value. Strengthening this team allows us to maintain our long-established underwriting standards while reducing our processing time to better meet customer needs.

After taking the helm two years ago one of my first priorities was to stabilize our eroding net interest margin. Over the decade from 2010 to 2019 our margin contracted from 3.84% to 2.57%, respectively, largely in conjunction with our broker driven growth in residential mortgages. During that period residential mortgages increased their mix in the loan portfolio from 37% to 51%. Over the past two years the percentage of the loan portfolio in residential mortgages decreased to 39%. Although our residential mortgage business remains a critical component of our loan portfolio, this planned adjustment now represents a more desired mix. Our focus on generating more residential business through our retail and lending outlets resulted in 45% of the number of residential mortgages originated in 2021 coming from internal sources.

Prior to 2020 almost all the residential mortgage originations came through external brokers driving down loan yields and our net interest margin. To reverse this trend we deployed a combined strategy of increasing our lending teams to foster relationship business while in unison changing the mix of loans to a greater percentage of commercial lending. Under Mr. Hilton we successfully increased the percentage of the loan portfolio in commercial loans to 60% at year-end 2021 from 47% at year-end 2019.

Our net interest margin initiatives are led by Chief Financial Officer, Jay McConie, who works closely with our branches and lenders to oversee our balance sheet management and maximize rate opportunities. He also administers the Company’s stock repurchase plan to optimize capital levels, return on equity and earnings per share. Mr. McConie has actively managed our cost of funds lower through numerous deleveraging programs to pay off high-cost swaps, promotional CDs and other long-term debt. These tactics along with a better loan mix helped improve the net interest margin in each of the last two years going from 2.57% in 2019, to 2.64% in 2020, to 2.74% in 2021.

Branch Optimization

In my 2020 CEO letter I also talked about the need to identify efficiencies in our existing branch footprint mainly to address locations near one another particularly in these times of shifting customer behavior. Led by Chief Retail Officer, Rick Perro, we executed on a branch optimization strategy that closed and consolidated fourteen branches over the past two years. We still believe that extending our market, acquiring new customers, and serving existing customers includes the need for physical branches especially in additional geographies. The Bank opened two branches over the past two years on the East End of Long Island in Riverhead and East Hampton with a third East End location in Southampton scheduled to open shortly.

As consolidation eliminates long-standing local banks in the East End market, we identified a need for a truly local, relationship-based community bank like First National Bank LI. We are unique as the “last-standing” independent bank that opened on Long Island roughly a century ago. Combined with our history of consistently strong financial performance and outstanding customer service for consumers and businesses of all sizes, we plan to promote these competitive advantages.

New Channels Through Technology

Supporting our lending teams and branches is our line of competitive digital products. In 2020 we began refocusing resources to continually improve our digital offerings. Last year I talked about upgrades for P2P payments, new technology to enhance customer flexibility in transferring funds and enhancements to our mobile app. Led by Chief Information Officer, Susanne Pheffer, we made further progress in 2021 including accepting residential mortgage applications online via an automated backend system to process these applications. Also implemented were an eSign solution, payee positive pay for our commercial cash management suite and our mobile banking now includes access to monthly statements. Adding this necessary functionality opens the Bank to “next generation” customers and expands our markets beyond our physical footprint. The management team actively pursues strategic partnerships with FinTechs to implement initiatives as well as consider technological advances. Our Board of Directors currently uses an ad hoc FinTech Committee to provide appropriate oversight of customer facing and back-office technology.

My 2020 letter also spoke to improving service charge income. After steadily increasing quarterly service charges on deposit accounts from approximately $600,000 per quarter to approximately $1 million per quarter, the pandemic pushed the number back to approximately $700,000 per quarter and that number has remained consistent through year-end 2021. The excess liquidity in the economy resulting from numerous government stimulus programs has kept deposit balances high; thus, customers are meeting minimum balance requirements to cover service charges and keeping uncollected/overdraft activity down. Bringing uncollected/overdraft fees back to historical levels will likely be unattainable as the industry is moving to lower fees or even eliminating these types of service charges. Regardless of some setbacks on this initiative, we are making progress with our transition from our legacy trust and investment management business to a third-party retail investment program through LPL Financial branded as First Investments. The timing of starting this transition at the beginning of the pandemic has caused delays in hiring investment representatives and held up court approvals needed to transfer trusts. Our revenue has decreased during this transition, but we know this partnership is our best long-term avenue to grow this business.

A Brand Built on Extraordinary Service

In 2020 we conducted market research and began the work needed to improve our name recognition and increase our brand exposure. Although the Bank is well recognized in many areas of Nassau and western Suffolk Counties, potential customers in several communities within our targeted markets did not recognize our prior long-standing branding. Led by our Chief Risk Officer, Janet Verneuille, and our more recently hired Director of Marketing and Public Relations, we are pleased with the progress made on this initiative over the past two years. The Bank is widely using the new logo and tagline in our advertising both print and digital. Our updated custom designed website and investor relations page are continually enhanced. We now communicate with customers through our “Let’s Connect” links on the website, we added a First Investments webpage to promote our strategic partnership with LPL Financial, and we are active on LinkedIn, Facebook and Instagram platforms. Most of our branches proudly display our renewed branding, and all electronic platforms are updated. Our “Customer-First” branding is taking hold and the marketing department is formalizing marketing plans, a social media strategy, developing marketing materials for target markets, and using data analytics to deliver greater efficiencies across all marketing channels including targeted digital advertising programs.

Renovations of our leased space at 275 Broadhollow Road in Melville, N.Y. for a state-of-the-art branch and corporate office space are nearing completion and we expect to take occupancy beginning the first quarter of 2022. This space offers opportunities for collaboration allowing us to be even more nimble and innovative. Supporting our brand image is the signage at the Melville location that lights up the LIE and Route 110. Of course, our Bank’s Main Office will remain in Glen Head, N.Y. where it all started 95 years ago in 1927.

With Gratitude

I am sure everyone is tired of the pandemic. I know I am; however, I cannot thank our staff enough for their continued flexibility and customer dedication throughout the past two years.

To make the progress the Bank has made on our strategic initiatives over the past two years is due to their tremendous efforts under the most difficult circumstances. They deliver on our service promise to our customers and to each other, and prove every day that when you Go First you Go Far.

Our Board of Directors are valuable partners in our success. They provide thoughtful oversight and continuing support for our initiatives. Our management team continues to excel in effort, dedication and outcomes. We thank new customers for joining us and existing customers for continuing to maintain their banking relationships with First National Bank LI. They all make our job rewarding. To our shareholders, everything we do is focused on increasing shareholder value over the long-term.


Christopher Becker
President and Chief Executive Officer