The following is management's discussion and analysis ofThe First of Long Island Corporation's financial condition and operating results during the periods included in the accompanying consolidated financial statements and should be read in conjunction with such financial statements. The Corporation's financial condition and operating results principally reflect those of its wholly-owned subsidiary,The First National Bank of Long Island , and subsidiaries wholly-owned by the Bank, either directly or indirectly,FNY Service Corp. , The First ofLong Island REIT, Inc. andThe First of Long Island Agency, Inc. The consolidated entity is referred to as the Corporation and the Bank and its subsidiaries are collectively referred to as the Bank. The Bank's primary service area isNassau andSuffolk Counties on Long Island and the NYC boroughs ofQueens ,Brooklyn andManhattan .
Overview
Net income and earnings per share for the first half of 2022 were$24.6 million and$1.06 , respectively, compared to$22.7 million and$.95 , respectively, for the same period last year. Dividends per share increased 5.3%, from$.38 for the first half of 2021 to$.40 for the current period. Returns on average assets ("ROA") and average equity ("ROE") for the first half of 2022 were 1.18% and 12.43%, respectively, compared to 1.10% and 11.09%, respectively, for the same period last year. Book value per share was$16.48 at the close of the current period, compared to$17.81 at year-end 2021. Analysis of Earnings - Six Month Periods. Net income for the first six months of 2022 was$24.6 million , an increase of$1.9 million versus the same period last year. The increase is primarily due to growth in net interest income of$4.9 million and noninterest income of$695,000 , excluding 2021 securities gains. These items were partially offset by increases in the provision for credit losses of$2.8 million and income tax expense of$364,000 . The increase in net interest income reflects a favorable shift in the mix of funding as an increase in average checking deposits and a decline in average interest-bearing liabilities resulted in average checking deposits comprising a larger portion of total funding. Also contributing to the increase was a decline in interest expense in 2022 related to the maturity and termination of the Bank's interest rate swap and lower rates on non-maturity and time deposits. The average cost of interest-bearing liabilities declined 22 basis points ("bps") from .76% for the first six months of 2021 to .54% for the current six-month period. The increase in net interest income also reflects growth in average loans outstanding for the first six months of 2022 driven mainly by commercial mortgage originations. The loan portfolio yield declined from 3.55% for the 2021 period to 3.49% for the current period as most originations throughJune 30, 2022 were committed before the recent rate increases at yields lower than the overall loan portfolio and average SBA PPP loans declined$141 million . PPP income declined$2.9 million to$1.0 million when comparing the six-month periods. The weighted average yield on the PPP portfolio was 14.6% for the current six-month period. During the second quarter of 2022, we originated$236 million of loans with a weighted average rate of approximately 3.51% which includes$152 million of commercial mortgages at a weighted average rate of 3.50%. The mortgage loan pipeline was$125 million with a weighted average rate of 4.40% atJune 30, 2022 . We currently anticipate new loan originations in the second half of 2022 will be lower than the first half of 2022. Net interest margin for the first six months of 2022 was 2.93% versus 2.70% for the 2021 period. Significant increases in short-term interest rates due to major shifts in monetary policy could present challenges in maintaining or growing net interest income and margin. The direction of net interest income and margin for the remainder of 2022 is also largely dependent on changes in the yield curve and competitive and economic conditions. Customers are starting to seek higher deposit rates. Additional rate hikes by theFederal Reserve coupled with significant upward movements in the bond market yields could intensify the pressure on our cost of funds while offering better yields on securities purchased for our investment portfolio. The provision for credit losses increased$2.8 million when comparing the six-month periods from a credit of$1.6 million in the 2021 period to a charge of$1.2 million in the 2022 period. The provision for the current six-month period was mainly due to an increase in outstanding mortgage loans partially offset by qualitative adjustments for current conditions and historical loss rates. 19
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The increase in noninterest income of$695,000 is primarily attributable to a final transition payment from LPL Financial for the conversion of the Bank's retail broker and advisory accounts. The increase also includes higher fees from debit and credit cards and income from bank-owned life insurance ("BOLI"). These amounts were partially offset by a decrease in investment services income as the shift to an outside service provider resulted in a revenue sharing agreement and less assets under management. Noninterest expense remained flat at$32.2 million when comparing the six-month periods. Decreases in salaries and benefits expense due to a net reduction in branch locations and staff were partially offset by the hiring of seasoned banking professionals in lending, technology and other areas. Occupancy and equipment expense was stable as lower rent, depreciation and maintenance and repair costs from the 2021 branch closures were largely offset by the cost of new branch locations on the east end of Long Island and the relocation to new corporate office space inMelville, N.Y. Income tax expense increased$364,000 and the effective tax rate (income tax expense as a percentage of pre-tax book income) decreased from 20.6% to 20.2% when comparing the six-month periods. The decrease in the effective tax rate is mainly due to the purchase of BOLI inDecember 2021 and the Corporation being in a capital tax position forNew York State and NYC purposes. The increase in income tax expense is due to higher pre-tax earnings in the current six-month period as compared to the 2021 period partially offset by the lower effective tax rate. Asset Quality. The Bank's allowance for credit losses to total loans (reserve coverage ratio) was .93% atJune 30, 2022 as compared to .96% atDecember 31, 2021 . The decrease in the reserve coverage ratio was mainly due to qualitative adjustments for current conditions and historical loss rates. Nonaccrual and modified loans and loans past due 30 through 89 days are at very low levels. Key Initiatives. We continue focusing on strategic initiatives supporting the growth of our balance sheet and a profitable relationship banking business. Such initiatives include improving the quality of technology through continuing digital enhancements, optimizing our branch network across a larger geography, using new branding and "CommunityFirst" focus to improve name recognition, enhancing our website and social media presence including the promotion of FirstInvestments, and ongoing recruitment of experienced banking professionals to support our growth and technology initiatives. We also continue to focus on the areas of cybersecurity, environmental, social and governance practices. The consolidation of our back-office staff into a single location at275 Broadhollow Road inMelville, N.Y. took place inApril 2022 . DuringJuly 2022 , the Bank entered into a conditional contract to sell substantially all of itsGlen Head properties to a real estate investor. 20
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Net Interest Income
Average Balance Sheet; Interest Rates and Interest Differential. The following table sets forth the average daily balances for each major category of assets, liabilities and stockholders' equity as well as the amounts and average rates earned or paid on each major category of interest-earning assets and interest-bearing liabilities. Six Months Ended June 30, 2022 2021 Average Interest/ Average Average Interest/ Average (dollars in thousands) Balance Dividends Rate Balance Dividends Rate Assets: Interest-earning bank balances$ 33,674 $ 97 .58 %$ 184,641 $ 96 .10 % Investment securities: Taxable (1) 432,303 3,708 1.72 445,712 3,982 1.79 Nontaxable (1) (2) 315,418 5,015 3.18 357,924 5,648 3.16 Loans (1) (2) 3,220,953 56,151 3.49 3,008,594 53,459 3.55 Total interest-earning assets 4,002,348 64,971 3.25 3,996,871 63,185 3.16 Allowance for credit losses (30,059) (32,256) Net interest-earning assets 3,972,289 3,964,615 Cash and due from banks 33,106 34,228 Premises and equipment, net 37,942 38,399 Other assets 144,329 133,715$ 4,187,666 $ 4,170,957 Liabilities and Stockholders' Equity: Savings, NOW & money market deposits$ 1,713,883 1,564 .18$ 1,786,527 2,260 .26 Time deposits 319,206 2,100 1.33 371,919 3,897 2.11 Total interest-bearing deposits 2,033,089 3,664 .36 2,158,446 6,157 .58 Short-term borrowings 88,091 684 1.57 56,813 700 2.48 Long-term debt 196,268 1,868 1.92 229,593 2,311 2.03 Total interest-bearing liabilities 2,317,448 6,216 .54 2,444,852 9,168 .76 Checking deposits 1,442,398 1,285,761 Other liabilities 29,342 28,509 3,789,188 3,759,122 Stockholders' equity 398,478 411,835$ 4,187,666 $ 4,170,957 Net interest income (2)$ 58,755 $ 54,017 Net interest spread (2) 2.71 % 2.40 % Net interest margin (2) 2.93 % 2.70 % (1) The average balances of loans include nonaccrual loans. The average balances of investment securities include unrealized gains and losses on AFS securities in the 2021 period and exclude such amounts in the 2022 period. Unrealized gains and losses were immaterial in 2021. (2) Tax-equivalent basis. Interest income on a tax-equivalent basis includes the additional amount of interest income that would have been earned if the Corporation's investment in tax-exempt loans and investment securities had been made in loans and investment securities subject to federal income taxes yielding the same after-tax income. The tax-equivalent amount of$1.00 of nontaxable income was$1.27 in each period presented, using the statutory federal income tax rate of 21%. 21
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Rate/Volume Analysis. The following table sets forth the effect of changes in volumes and rates on tax-equivalent interest income, interest expense and net interest income. The changes attributable to the combined impact of volume and rate have been allocated to the changes due to volume and the changes due to rate. Six Months Ended June 30, 2022 Versus 2021 Increase (decrease) due to changes in: Net (in thousands) Volume Rate Change Interest Income: Interest-earning bank balances$ (133) $ 134 $ 1 Investment securities: Taxable (122) (152) (274) Nontaxable (676) 43 (633) Loans 3,676 (984) 2,692 Total interest income 2,745 (959) 1,786 Interest Expense: Savings, NOW & money market deposits (89) (607) (696) Time deposits (496) (1,301) (1,797) Short-term borrowings 300 (316) (16) Long-term debt (321) (122) (443) Total interest expense (606)
(2,346) (2,952)
Increase (decrease) in net interest income
Net Interest Income Net interest income on a tax-equivalent basis for the six months endedJune 30, 2022 was$58.8 million , an increase of$4.7 million , or 8.8%, from the same period of 2021. The increase in net interest income reflects a favorable shift in the mix of funding as an increase in average checking deposits of$156.6 million , or 12.2%, and a decline in average interest-bearing liabilities of$127.4 million , or 5.2%, resulted in average checking deposits comprising a larger portion of total funding. Also contributing to the increase was a decline in interest expense of$1.9 million related to the maturity and termination of the Bank's interest rate swap and lower rates on nonmaturity and time deposits. The average cost of interest-bearing liabilities declined 22 bps from .76% for the first six months of 2021 to .54% for the current six-month period. The increase in net interest income also reflects growth of$212.4 million in average loans outstanding to$3.2 billion for the first six months of 2022 driven mainly by commercial mortgage originations. The loan portfolio yield declined from 3.55% for the 2021 period to 3.49% for the current period as most originations throughJune 30, 2022 were committed before the recent rate increases at yields lower than the overall loan portfolio and average SBA PPP loans declined$141.3 million . PPP income declined$2.9 million to$1.0 million when comparing the six-month periods. The weighted average yield on the PPP portfolio was 14.6% for the current six-month period. During the second quarter of 2022, we originated$236 million of loans with a weighted average rate of approximately 3.51% which includes$152 million of commercial mortgages at a weighted average rate of 3.50%. The mortgage loan pipeline was$125 million with a weighted average rate of 4.40% atJune 30, 2022 . We currently anticipate new loan originations in the second half of 2022 will be lower than the first half of 2022. Net interest margin for the first six months of 2022 was 2.93% versus 2.70% for the 2021 period. Significant increases in short term interest rates due to major shifts in monetary policy could present challenges in maintaining or growing net interest income and margin. The direction of net interest income and margin for the remainder of 2022 is also largely dependent on changes in the yield curve and competitive and economic conditions. Customers are starting to seek higher deposit rates. Additional rate hikes by theFederal Reserve coupled with significant upward movements in the bond market yields could intensify the pressure on our cost of funds while also offering better yields on securities purchased for our investment portfolio.
Noninterest Income
Noninterest income includes BOLI, service charges on deposit accounts, gains or losses on sales of securities, and all other items of income, other than interest, resulting from the business activities of the Corporation.
The increase in noninterest income of$695,000 , excluding$606,000 of gains on sales of securities in 2021, is primarily attributable to a final transition payment of$477,000 from LPL Financial for the conversion of the Bank's retail broker and advisory accounts. The increase also includes higher fees from debit and credit cards of$339,000 and income from BOLI of$320,000 . These amounts were 22
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partially offset by a decrease in investment services income of$472,000 as the shift to an outside service provider resulted in a revenue sharing agreement and less assets under management. Noninterest Expense Noninterest expense is comprised of salaries and employee benefits, occupancy and equipment expense and other operating expenses incurred in supporting the various business activities of the Corporation. Noninterest expense remained flat at$32.2 million when comparing the six-month periods of 2021 and 2022. Decreases in salaries and benefits expense of$179,000 due to a net reduction in branch locations and staff were partially offset by the hiring of seasoned banking professionals in lending, technology and other areas. Occupancy and equipment expense was stable at$6.3 million as lower rent, depreciation and maintenance and repair costs from the 2021 branch closures were largely offset by the costs of new branch locations on the east end of Long Island and the relocation to new corporate office space inMelville, N.Y.
Income Taxes
Income tax expense increased$364,000 and the effective tax rate decreased from 20.6% to 20.2% when comparing the six-month periods. The decrease in the effective tax rate is mainly due to the purchase of$20 million of BOLI inDecember 2021 and the Corporation being in a capital tax position forNew York State and NYC purposes. The increase in income tax expense is due to higher pre-tax earnings in the current six-month period as compared to the 2021 period partially offset by the lower effective tax rate.
Results of Operations - Second Quarter 2022 Versus Second Quarter 2021
Net income for the second quarter of 2022 of$12.5 million increased$1.1 million , or 9.6%, from$11.4 million earned in the same quarter of last year. The increase is mainly due to growth in net interest income of$2.8 million , or 10.3%, for substantially the same reasons discussed above with respect to the six-month periods. Partially offsetting this was an increase in the provision for credit losses of$1.3 million mainly due to strong loan originations in the current quarter. Also offsetting the increase in net interest income was an increase of$600,000 in noninterest expense due to the hiring of seasoned banking professionals, the cost of new branch locations on the east end of Long Island and the relocation of corporate offices.
Critical Accounting Policies and Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported asset and liability balances and revenue and expense amounts. Our determination of the ACL is a critical accounting estimate because it is based on our subjective evaluation of a variety of factors at a specific point in time and involves difficult and complex judgements about matters that are inherently uncertain. In the event that management's estimate needs to be adjusted based on additional information that comes to light after the estimate is made or changes in circumstances, such adjustment could result in the need for a significantly different ACL and thereby materially impact, either positively or negatively, the Bank's results of operations. The Bank's Allowance for Credit Losses Committee ("ACL Committee"), which is a management committee chaired by the Chief Credit Officer, meets on a quarterly basis and is responsible for determining the ACL after considering the results of credit reviews performed by the Bank's independent loan review consultants and the Bank's credit department. In addition, and in consultation with the Bank's Chief Financial Officer, the ACL Committee is responsible for implementing and maintaining accounting policies and procedures surrounding the calculation of the required allowance. The Loan Committee reviews and approves the Bank's Loan Policy at least once each calendar year. The Bank's ACL is reviewed and ratified by the Loan Committee on a quarterly basis and is subject to periodic examination by theOffice of the Comptroller of the Currency ("OCC"), whose safety and soundness examination includes a determination as to the adequacy of the allowance to absorb current expected credit losses. The ACL is a valuation amount that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the Bank's loan portfolio. The allowance is established through provisions for credit losses charged against income. When available information confirms that specific loans, or portions thereof, are uncollectible, these amounts are charged against the ACL, and subsequent recoveries, if any, are credited to the allowance. Management estimates the ACL balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical loss information from the Bank's own loan portfolio has been compiled sinceDecember 31, 2007 and generally provides a starting point for management's assessment of expected credit losses. A historical look-back period that begins in 2007 covers an entire economic cycle and impacts the average historical loss rates used to calculate the final ACL. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term as well as for current and potential future changes in economic conditions over a one year to two year forecasting horizon, such as unemployment rates, GDP, vacancy rates or other relevant factors. The immediate reversion method is applied for periods beyond the forecasting horizon. The ACL is an amount that 23
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management currently believes will be adequate to absorb expected lifetime losses in the Bank's loan portfolio. The process for estimating credit losses and determining the ACL as of any balance sheet date is subjective in nature and requires material estimates and judgements. Actual results could differ significantly from those estimates. The ACL is measured on a collective (pool) basis when similar risk characteristics exist. Management segregates its loan portfolio into eleven distinct pools: (1) commercial and industrial; (2) small business credit scored; (3) multifamily; (4) owner-occupied; (5) other commercial real estate; (6) construction and land development; (7) residential mortgage; (8) revolving home equity; (9) consumer; (10) municipal loans; and (11) SBA PPP loans. The vintage method is applied to measure the historical loss component of lifetime credit losses inherent in most of its loan pools. For the revolving home equity and small business credit scored pools, the PD/LGD method is used to measure historical losses; no historical loss method was applied to the SBA PPP loan pool. Management believes that the methods selected fairly reflect the historical loss component of expected losses inherent in the Bank's loan portfolio. However, since future losses could vary significantly from those experienced in the past, on a quarterly basis management adjusts its historical loss experience to reflect current conditions and reasonable and supportable forecasts. In doing so, management considers a variety of Q-factors and then subjectively determines the weight to assign to each in estimating losses. The factors include: (1) changes in lending policies and procedures; (2) experience, ability and depth of lending staff; (3) trends in the nature and volume of loans; (4) changes in the quality of the loan review function; (5) delinquencies; (6) environmental risks; (7) current and forecasted economic conditions as judged by things such as national and local unemployment levels and GDP; (8) changes in the value of underlying collateral as judged by things such as median home prices and forecasted vacancy rates in the Bank's service area; and (9) direction and magnitude of changes in the economy. The Bank's ACL allocable to its loan pools results primarily from these Q-factor adjustments to historical loss experience with the largest sensitivity of the ACL and provision arising from loan growth and concentrations, credit quality and forecasts of unemployment, GDP, vacancies and economic conditions. Because of the nature of the Q-factors and the difficulty in assessing their impact, management's resulting estimate of losses may not accurately reflect lifetime losses in the portfolio. Loans that do not share similar risk characteristics are evaluated on an individual basis. Such disparate risk characteristics may include internal or external credit ratings, risk ratings, collateral type, size of loan, effective interest rate, term, geographic location, industry or historical or expected loss pattern. Estimated losses for loans individually evaluated are based on either the fair value of collateral or the discounted value of expected future cash flows. For all collateral dependent loans evaluated on an individual basis, credit losses are measured based on the fair value of the collateral. In estimating the fair value of real estate collateral, management utilizes appraisals or evaluations adjusted for costs to dispose and a distressed sale adjustment, if needed. Estimating the fair value of collateral other than real estate is also subjective in nature and sometimes requires difficult and complex judgements. Determining expected future cash flows can be more subjective than determining fair values. Expected future cash flows could differ significantly, both in timing and amount, from the cash flows received over the loan's remaining life. Individually evaluated loans are not included in the estimation of credit losses from the pooled portfolio.
Asset Quality
Information about the Corporation's risk elements is set forth below. Risk elements include nonaccrual loans, other real estate owned, loans that are contractually past due 30 days or more and modifications made to borrowers experiencing financial difficulty. These risk elements present more than the normal risk that the Corporation will be unable to eventually collect or realize their full carrying value. June 30, December 31, (in thousands) 2022 2021 Loans including modifications to borrowers experiencing financial difficulty: Modified and performing according to their modified terms$ 540 $
554
Past due 30 through 89 days 193
460
Past due 90 days or more and still accruing - - Nonaccrual 260 1,235 993 2,249 Other real estate owned - -$ 993 $ 2,249
The disclosure of other potential problem loans can be found in "Note 4 - Loans" to the Corporation's consolidated financial statements of this Form 10-Q.
Allowance and Provision for Credit Losses
The ACL is established through provisions for credit losses charged against income. When available information confirms that specific loans, or portions thereof, are uncollectible, these amounts are charged off against the ACL, and subsequent recoveries, if any, are credited to the ACL. The ACL increased$1.0 million during the first half of 2022, amounting to$30.9 million , or .93% of total loans, atJune 30, 2022 compared to$29.8 million , or .96% of total loans, atDecember 31, 2021 . During the first half of 2022, the Bank had loan chargeoffs of 24
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$168,000 , recoveries of$43,000 and recorded a provision of$1.2 million . During the first half of 2021, the Bank had loan chargeoffs of$723,000 , recoveries of$263,000 and recorded a credit provision of$1.6 million . The provision in the current period was mainly due to an increase in outstanding mortgage loans partially offset by qualitative adjustments for current conditions and historical loss rates. The credit provision in the 2021 period was mainly due to improvements in economic conditions, asset quality and other portfolio metrics and a decline in outstanding residential mortgage loans, partially offset by net chargeoffs. The ACL is an amount that management currently believes will be adequate to absorb expected lifetime losses in the Bank's loan portfolio. As more fully discussed in "Critical Accounting Policies and Estimates," the process for estimating credit losses and determining the ACL as of any balance sheet date is subjective in nature and requires material estimates and judgements. Actual results could differ significantly from those estimates. Other detailed information on the Bank's loan portfolio and ACL can be found in "Note 4 - Loans" to the Corporation's consolidated financial statements included in this Form 10-Q. The amount of future chargeoffs and provisions for credit losses will be affected by economic conditions on Long Island and in the boroughs of NYC. Such conditions could affect the financial strength of the Bank's borrowers and will affect the value of real estate collateral securing the Bank's mortgage loans. Loans secured by real estate represent approximately 97% of the Bank's total loans outstanding atJune 30, 2022 . The majority of these loans are collateralized by properties located on Long Island and in the boroughs of NYC. While business activity in theNew York metropolitan area has improved, inflation and increasing rates pose new economic challenges and may result in higher chargeoffs and provisions.
Future provisions and chargeoffs could also be affected by environmental impairment of properties securing the Bank's mortgage loans. At the present time, management is not aware of any environmental pollution originating on or near properties securing the Bank's loans that would materially affect the carrying value of such loans.
Cash Flows and Liquidity
Cash Flows. The Corporation's primary sources of cash are deposits, maturities and amortization of loans and investment securities, operations and borrowings. The Corporation uses cash from these and other sources to fund loan growth, purchase investment securities, repay borrowings, expand and improve its physical facilities, pay cash dividends, repurchase its common stock and for general corporate purposes. The Corporation's cash and cash equivalent position atJune 30, 2022 was$64.1 million , up from$43.7 million atDecember 31, 2021 . The increase occurred primarily because cash provided by deposit growth, paydowns or repayments of securities and loans, proceeds from long-term debt and operations exceeded cash used to repay borrowings, purchase securities, originate loans, repurchase common stock and pay cash dividends. Securities decreased$45.0 million during the first six months of 2022, from$734.3 million at year-end 2021 to$689.3 million atJune 30, 2022 . The decrease is primarily attributable to maturities and redemptions of$27.5 million and unrealized losses of$65.2 million during the period, partially offset by purchases of$48.5 million . During the first six months of 2022, total deposits grew$290.1 million , or 8.8%, to$3.6 billion atJune 30, 2022 . The increase was attributable to growth in checking deposits of$69.0 million , savings, NOW and money market deposits of$65.0 million and time deposits of$156.2 million . The increase in time deposits was due to the purchase of brokered CDs totaling$165 million . Liquidity. The Bank has a board committee approved liquidity policy and liquidity contingency plan, which are intended to ensure that the Bank has sufficient liquidity at all times to meet the ongoing needs of its customers in terms of credit and deposit outflows, take advantage of earnings enhancement opportunities and respond to liquidity stress conditions should they arise. The Bank has both internal and external sources of liquidity that can be used to fund loan growth and accommodate deposit outflows. The Bank's primary internal sources of liquidity are overnight investments, maturities and monthly payments on its investment securities and loan portfolios, operations and investment securities designated as AFS. AtJune 30, 2022 , the Bank had approximately$192.2 million of unencumbered AFS securities. The Bank is a member of theFederal Reserve Bank ("FRB") ofNew York and the FHLB ofNew York and has a federal funds line with a commercial bank. In addition to customer deposits, the Bank's primary external sources of liquidity are secured borrowings from the FRB ofNew York and FHLB ofNew York . In addition, the Bank can draw funds under its existing line and the Corporation believes it can raise funds through its Dividend Reinvestment and Stock Purchase Plan. However, the Bank's FRB ofNew York membership, FHLB ofNew York membership and unsecured line do not represent legal commitments to extend credit to the Bank. The amount that the Bank can potentially borrow is currently dependent on the amount of unencumbered eligible securities and loans that the Bank can use as collateral and the collateral margins required by the lenders. Based on the Bank's unencumbered securities and loan collateral, a substantial portion of which is in place at the FRB ofNew York and FHLB ofNew York , the Bank had a borrowing capacity of approximately$1.8 billion atJune 30, 2022 . 25
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Capital
Stockholders' equity was$376.5 million atJune 30, 2022 versus$413.8 million atDecember 31, 2021 . The decrease was mainly due to net unrealized losses of$45.1 million on the Bank's AFS investment securities, cash dividends declared of$9.2 million and common stock repurchases of$9.8 million , partially offset by net income of$24.6 million . The net unrealized losses of$45.1 million on the AFS investment securities portfolio were due to an increase in interest rates during the first half of 2022. The fair value of the AFS investment securities portfolio could continue to decline with further increases in interest rates. ROE for the first half of 2022 was 12.43% compared to 11.09% for the same period last year. Book value per share was$16.48 at the close of the current period, compared to$17.81 at year-end 2021. The increase in ROE was due to higher net income as well as an increase in accumulated OCI due to a significant increase in the net unrealized loss in the AFS securities portfolio from higher interest rates. The losses in the AFS securities portfolio, which reduced the average balance of stockholders' equity, accounted for 77 bps of the improvement in the ROE ratio when compared to the prior year period. The unrealized loss also accounted for a$1.89 reduction in book value per share atJune 30, 2022 . The Corporation and the Bank have elected to adopt the community bank leverage ratio ("CBLR") framework, which requires a leverage ratio of greater than 9.00%. As a qualifying community banking organization, the Corporation and the Bank may opt out of the CBLR framework in any subsequent quarter by completing its regulatory agency reporting using the traditional capital rules. The Corporation's capital management policy is designed to build and maintain capital levels that exceed regulatory standards and appropriately provide for growth. The Leverage Ratios of the Corporation and the Bank atJune 30, 2022 were 9.85% and 9.84%, respectively, and satisfy the well capitalized ratio requirements under the Prompt Corrective Action statutes. The Corporation and the Bank elected the optional five-year transition period provided by the federal banking agencies for recognizing the regulatory capital impact of the implementation of CECL. The Corporation has a stock repurchase program under which it is authorized to purchase shares of its common stock from time to time through open market purchases, privately negotiated transactions, or in any other manner that is compliant with applicable securities laws. During the first half of 2022, the Corporation repurchased 488,897 shares of its common stock at a total cost of$9.8 million . The Corporation can repurchase another$23.1 million under Board approved repurchase programs. We expect to continue common stock repurchases during the remainder of 2022.
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