Why FLIC Faces a Rocky Road Ahead: A High-Risk Investment Alert

The First of Long Island Corporation (FLIC) has long been a regional banking staple, but recent developments suggest investors should proceed with caution. Despite its May 2025 merger approval with ConnectOne Bancorp, FLIC’s financial risks—spanning integration challenges, deteriorating credit quality, and macroeconomic headwinds—are mounting. Here’s why the stock could underperform in the coming quarters.

1. Merger-Related Risks: Costs and Uncertainty Ahead

FLIC’s merger with ConnectOne, finalized in late April 行, aims to create a $14 billion banking entity. While the Federal Deposit Insurance Corporation (FDIC) approved the deal, regulatory and operational hurdles remain. Merger-related expenses have already strained noninterest costs: in Q1 2025, system conversions alone cost $468,000, and legal fees could rise if investor lawsuits over the merger’s fairness resurface.

The merger also introduces integration risks. Combining two banks’ systems, staff, and client bases is inherently risky. A misstep could delay cost synergies, prolong operational inefficiencies, and disrupt customer relationships.

2. Credit Quality Deterioration: A Growing Threat

FLIC’s provision for credit losses jumped to $168,000 in Q1 2025, reversing a $381,000 reversal in Q4 2024. Nonperforming loans totaled $3.5 million as of March 2025, and the allowance for credit losses now stands at 0.89% of total loans—up from 0.73% in late 2023. These metrics signal heightened credit risk, which could worsen if the U.S. economy enters stagflation (as FLIC’s forward-looking statements warn).

3. Earnings Pressure: Margins and Revenue Challenges

FLIC’s net interest margin, a critical profit driver, remains under siege. Interest income fell $1.4 million in Q1 2025 due to a $156.6 million decline in average interest-earning assets. While deposit costs dropped, the net interest margin improved only marginally to 1.91%. Meanwhile, noninterest income fell $57,000 year-over-year, and total deposits have shrunk $51.9 million since 2024.

Earnings are already reeling: FLIC’s 2024 net income plunged 34.9%, and Q1 2025 earnings dropped further to $0.17 per share. Analysts project a slight rebound to $0.29 in Q2 2025, but this depends on cost controls and merger synergies that may not materialize quickly enough.

4. Liquidity and Capital Risks

FLIC’s uninsured deposits now represent 49.5% of total deposits—a red flag. If depositors lose confidence, liquidity could strain even with $878.1 million in available funds. The leverage ratio, while strong at 10.29%, faces pressure from merger-related capital demands.

5. Macroeconomic and Regulatory Uncertainties

FLIC’s exposure to sectors like manufacturing and consumer discretionary leaves it vulnerable to stagflation. Rising tariffs and inflation could squeeze borrowers’ repayment capacity, worsening credit metrics. Meanwhile, regulatory shifts—such as the Federal Reserve’s stance on interest rates and the CFPB’s reduced oversight—add unpredictability.

Stock Performance: A Mixed Picture

While FLIC’s YTD return of 4.91% edges out the S&P 500’s 4.36%, its long-term performance lags. The stock has returned just 8.78% over five years versus the S&P 500’s 97.49%. Analysts’ “Moderate Buy” rating hinges on merger success, but technical indicators suggest a bearish trend.

Conclusion: Risks Outweigh Rewards

FLIC’s risks are substantial and multifaceted. The merger, while a potential growth catalyst, carries execution risks that could amplify costs and disrupt operations. Credit deterioration, margin pressures, and macroeconomic uncertainty further cloud its outlook.

Key data points underscore the caution:
- Earnings Decline: 34.9% drop in 2024 net income.
- Credit Metrics: Allowance for credit losses up to 0.89%, nonperforming loans at $3.5 million.
- Dividend Sustainability: A $0.21 quarterly dividend faces pressure if earnings fail to recover.
- Stock Performance: Lagging long-term gains versus broader markets.

Investors seeking stability or dividend reliability may want to look elsewhere. Until FLIC proves it can navigate these risks successfully, the stock remains a high-risk play.