THE FIRST OF LONG ISLAND CORPORATION 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 diluted earnings per share for the first nine months of 2022 were$37.0 million and$1.61 , respectively, compared to$34.1 million and$1.43 , respectively, for the same period last year. Dividends per share increased 5.2%, from$.58 for the first nine months of 2021 to$.61 for the current period. Returns on average assets ("ROA") and average equity ("ROE") for the first nine months of 2022 were 1.17% and 12.57%, respectively, compared to 1.09% and 10.96%, respectively, for the same period last year. Book value per share was$15.87 at the close of the current period, compared to$17.81 at year-end 2021. Analysis of Earnings - Nine Month Periods. Net income for the first nine months of 2022 was$37.0 million , an increase of$3.0 million , or 8.7%, versus the same period last year. The increase is primarily due to growth in net interest income of$8.5 million , or 10.7%, and noninterest income of$887,000 , or 10.3%, excluding 2021 securities gains. These items were partially offset by increases in the provision for credit losses of$5.3 million , noninterest expense of$193,000 and income tax expense of$353,000 . The increase in net interest income reflects growth in interest income on loans due to an increase in average loans outstanding atSeptember 30, 2022 and a decline in interest expense related to the maturity and termination of the Bank's interest rate swap inApril 2022 . Also contributing to the increase was 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. While the average cost of interest-bearing liabilities declined when comparing the nine-month periods, current funding costs are increasing due to higher market interest rates and competition. During the third quarter of 2022, we originated$130 million of loans with a weighted average rate of approximately 4.51% which includes$79 million of commercial mortgages at a weighted average rate of 4.62%. The mortgage loan pipeline was$68 million with a weighted average rate of 5.51% atSeptember 30, 2022 . The amount of originations during the quarter and the pipeline at quarter-end reflect lower demand for loans in the marketplace due to higher interest rates. Net interest margin for the first nine months of 2022 was 2.95% versus 2.70% for the 2021 period which includes 9 basis points ("bps") and 14 bps, respectively, related to prepayment fees, late fees and PPP income. Significant increases in interest rates due to inflation are expected to adversely affect net interest income and margin which are largely dependent on changes in the yield curve and competitive and economic conditions. The provision for credit losses increased$5.3 million when comparing the nine-month periods from a credit of$3.1 million in the 2021 period to a charge of$2.2 million in the 2022 period. The provision for the current nine-month period was mainly due to an increase in outstanding mortgage loans and chargeoffs, partially offset by lower historical loss rates and changes in current and forecasted conditions. The increase in noninterest income of$887,000 , excluding$606,000 of gains on sales of securities in 2021, is primarily attributable to a final transition payment for the conversion of the Bank's retail broker and advisory accounts. The increase also includes higher fees from merchant card services 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. 19
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Noninterest expense increased$193,000 when comparing the nine-month periods. Noninterest expense in the 2021 period included charges related to the 2021 branch optimization strategy. Excluding the branch optimization charges, the increase in operating expenses totaled$1.4 million which was attributable to higher salaries and benefits expense, occupancy and equipment expense and other expense. The salary and benefits increase includes recruiting of seasoned banking professionals, mid-year salary increases in 2022 and higher incentive and stock-based compensation expenses. The occupancy and equipment increase includes the costs of new branch locations on the east-end of Long Island and new corporate office space inMelville, N.Y. The increase in other expense includes higher marketing expense, relocation costs and other cost of operating the business. Income tax expense increased$353,000 and the effective tax rate (income tax expense as a percentage of pre-tax book income) decreased from 20.2% to 19.5% when comparing the nine-month periods. The decrease in the effective tax rate is mainly due to the purchase of$20 million of BOLI inDecember 2021 and being in a capital tax position forNew York State ("NYS") and NYC purposes. The increase in income tax expense is due to higher pre-tax earnings in the current nine-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 .94% atSeptember 30, 2022 as compared to .93% atJune 30, 2022 and .96% atDecember 31, 2021 . The increase in the reserve coverage ratio during the third quarter was mainly due to current and forecasted economic conditions. Nonaccrual and modified loans and loans past due 30 through 89 days are at very low levels. Key Initiatives and Milestones. We continue focusing on strategic initiatives supporting the growth of our balance sheet with a profitable relationship banking business. Such initiatives include improving the quality of technology through continuing digital enhancements and IT system upgrades, 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 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.October 1, 2022 marked the Bank's 95th anniversary. Since 1927, we have been helping our clients succeed. After 95 years, we continue to be an important part of the communities we operate in and were recently recognized in the annual Piper Sandler Small-All Star Class of 2022 as one of the top 35 performing small-cap banks and thrifts in the country. 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.
Nine Months Ended September 30,
2022 2021
Average Interest/ Average Average Interest/ Average
(dollars in thousands) Balance Dividends Rate Balance Dividends Rate
Assets:
Interest-earning bank balances $ 35,373 $ 314 1.19 % $ 217,501 $ 204 .13 %
Investment securities:
Taxable (1) 438,475 6,242 1.90 456,244 6,065 1.77
Nontaxable (1) (2) 317,802 7,611 3.19 351,254 8,272 3.14
Loans (1) (2) 3,261,521 86,185 3.52 2,977,583 79,435 3.56
Total interest-earning assets 4,053,171 100,352 3.30 4,002,582 93,976 3.13
Allowance for credit losses (30,332) (31,905)
Net interest-earning assets 4,022,839 3,970,677
Cash and due from banks 34,041 34,026
Premises and equipment, net 37,967 38,362
Other assets 140,114 132,527
$ 4,234,961 $ 4,175,592
Liabilities and
Stockholders' Equity:
Savings, NOW & money market
deposits $ 1,726,886 3,263 .25 $ 1,808,349 3,451 .26
Time deposits 345,623 3,474 1.34 324,419 4,818 1.99
Total interest-bearing deposits 2,072,509 6,737 .43 2,132,768 8,269 .52
Short-term borrowings 62,837 775 1.65 55,238 1,062 2.57
Long-term debt 221,889 3,280 1.98 228,383 3,468 2.03
Total interest-bearing
liabilities 2,357,235 10,792 .61 2,416,389 12,799 .71
Checking deposits 1,451,964 1,315,768
Other liabilities 31,826 27,856
3,841,025 3,760,013
Stockholders' equity 393,936 415,579
$ 4,234,961 $ 4,175,592
Net interest income (2) $ 89,560 $ 81,177
Net interest spread (2) 2.69 % 2.42 %
Net interest margin (2) 2.95 % 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%.
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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.
Nine Months Ended September 30,
2022 Versus 2021
Increase (decrease) due to changes in:
Net
(in thousands) Volume Rate Change
Interest Income:
Interest-earning bank balances $ (299) $ 409 $ 110
Investment securities:
Taxable (250) 427 177
Nontaxable (792) 131 (661)
Loans 7,584 (834) 6,750
Total interest income 6,243 133 6,376
Interest Expense:
Savings, NOW & money market deposits (154) (34) (188)
Time deposits 307 (1,651) (1,344)
Short-term borrowings 131 (418) (287)
Long-term debt (98) (90) (188)
Total interest expense 186 (2,193) (2,007)
Increase in net interest income $ 6,057 $ 2,326 $ 8,383
Net Interest Income
Net interest income on a tax-equivalent basis for the nine months ended
September 30, 2022 was $89.6 million , an increase of $8.4 million , or 10.3%,
from the same period of 2021. The increase in net interest income reflects
growth in interest income on loans of $6.8 million due to an increase in average
loans outstanding of $283.9 million to $3.3 billion at September 30, 2022 and a
decline in interest expense of $2.0 million related to the maturity and
termination of the Bank's interest rate swap in April 2022 . Also contributing to
the increase was a favorable shift in the mix of funding as an increase in
average checking deposits of $136.2 million , or 10.4%, and a decline in average
interest-bearing liabilities of $59.2 million , or 2.4%, resulted in average
checking deposits comprising a larger portion of total funding. While the
average cost of interest-bearing liabilities declined 10 bps to .61% when
comparing the nine-month periods, current funding costs are increasing due to
higher market interest rates and competition.
Interest income on PPP loans declined $4.0 million to $1.1 million when
comparing the first nine months of 2022 to the same period last year. Excluding
PPP income, interest income on loans would have increased $10.8 million and the
loan portfolio yield would have increased by 1 bp.
During the third quarter of 2022, we originated $130 million of loans with a
weighted average rate of approximately 4.51% which includes $79 million of
commercial mortgages at a weighted average rate of 4.62%. The mortgage loan
pipeline was $68 million with a weighted average rate of 5.51% at September 30,
2022 . The amount of originations during the quarter and the pipeline at
quarter-end reflect lower demand for loans in the marketplace due to higher
interest rates.
Net interest margin for the first nine months of 2022 was 2.95% versus 2.70% for
the 2021 period which includes 9 bps and 14 bps, respectively, related to
prepayment fees, late fees and PPP income. Significant increases in interest
rates due to inflation are expected to adversely affect net interest income and
margin which are largely dependent on changes in the yield curve and competitive
and economic conditions.
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$887,000 , excluding$606,000 of gains on sales of securities in 2021, is primarily attributable to a final transition payment of$477,000 for the conversion of the Bank's retail broker and advisory accounts. The increase also includes higher fees from merchant card services of$387,000 and income from BOLI of$484,000 . These amounts were partially offset by a decrease in investment services income of$610,000 as the shift to an outside service provider resulted in a revenue sharing agreement and less assets under management. 22
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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 increased$193,000 when comparing the nine-month periods. Noninterest expense in the 2021 period included charges of$1.2 million related to the 2021 branch optimization strategy. Excluding the branch optimization charges, the increase in operating expenses totaled$1.4 million which was attributable to higher salaries and benefits expense of$724,000 , occupancy and equipment expense of$322,000 and other expense of$376,000 . The salary and benefits increase includes recruiting of seasoned banking professionals, mid-year salary increases in 2022 and higher incentive and stock-based compensation expenses. The occupancy and equipment increase includes the costs of new branch locations on the east-end of Long Island and new corporate office space inMelville, N.Y. The increase in other expense includes higher marketing expense, relocation costs and other costs of operating the business.
Income Taxes
Income tax expense increased$353,000 and the effective tax rate decreased from 20.2% to 19.5% when comparing the nine-month periods. The decrease in the effective tax rate is mainly due to the purchase of$20 million of BOLI inDecember 2021 and being in a capital tax position for NYS and NYC purposes. The increase in income tax expense is due to higher pre-tax earnings in the current nine-month period as compared to the 2021 period partially offset by the lower effective tax rate.
Results of Operations - Third Quarter 2022 Versus Third Quarter 2021
Net income for the third quarter of 2022 of$12.5 million increased$1.0 million , or 9.1%, from$11.4 million earned in the same quarter of last year. The increase is mainly due to growth in net interest income of$3.7 million , or 13.7%, partially offset by an increase in the provision for credit losses of$2.5 million . Also offsetting the increase in net interest income was an increase in salaries and benefits expense of$780,000 due to the same reasons discussed above with respect to the nine-month periods. The increase in net income also reflects the aforementioned branch optimization charges of$1.2 million in the 2021 quarter. The increase in net interest income was primarily due to growth in interest income on loans of$4.1 million driven by higher outstanding balances and yields, partially offset by higher interest expense due to increases in the average balance and cost of interest-bearing liabilities of$75.1 million and 14 bps, respectively, as depositors increasingly seek higher returns due to rising market interest rates and competition. The increase in the provision for credit losses was primarily due to charges for current and forecasted economic conditions and net chargeoffs of$607,000 on five loans sold during the 2022 quarter.
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 the Office 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 since December 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
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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 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, loan concentrations and economic forecasts of unemployment, GDP and vacancies. 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.
September 30, December 31,
(in thousands) 2022 2021
Loans including modifications to borrowers
experiencing financial difficulty:
Modified and performing according to their modified
terms $ 485 $ 554
Past due 30 through 89 days 526 460
Past due 90 days or more and still accruing - -
Nonaccrual - 1,235
1,011 2,249
Other real estate owned - -
$ 1,011 $ 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.
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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$1.5 million during the first nine months of 2022, amounting to$31.3 million , or .94% of total loans, atSeptember 30, 2022 compared to$29.8 million , or .96% of total loans, atDecember 31, 2021 . During the first nine months of 2022, the Bank had loan chargeoffs of$796,000 , recoveries of$64,000 and recorded a provision of$2.2 million . During the first nine months of 2021, the Bank had loan chargeoffs of$1.0 million , recoveries of$553,000 and recorded a credit provision of$3.1 million . The provision in the current period was mainly due to an increase in outstanding mortgage loans and chargeoffs, partially offset by lower historical loss rates and changes in current and forecasted conditions. 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 atSeptember 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 atSeptember 30, 2022 was$62.2 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$70.1 million during the first nine months of 2022, from$734.3 million at year-end 2021 to$664.2 million atSeptember 30, 2022 . The decrease is primarily attributable to maturities and redemptions of$38.1 million and unrealized losses of$96.2 million during the period, partially offset by purchases of$65.5 million . During the first nine months of 2022, total deposits grew$271.5 million , or 8.2%, to$3.6 billion atSeptember 30, 2022 . The increase was attributable to growth in savings, NOW and money market deposits of$99.6 million and time deposits of$175.8 million , partially offset by a decrease of$3.8 million in checking deposits. 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 maturities and monthly payments from its investment securities and loan portfolios, operations and investment securities designated as AFS. AtSeptember 30, 2022 , the Bank had approximately$159.9 million of unencumbered AFS securities. 25
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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 may 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 atSeptember 30, 2022 . The Bank's borrowing capacity may be adjusted by the FRB ofNew York or the FHLB ofNew York and may take into account factors such as the Bank's tangible common equity ratio, collateral margins required by the lender or other factors.
Capital
Stockholders' equity was$359.4 million atSeptember 30, 2022 versus$413.8 million atDecember 31, 2021 . The decrease was mainly due to a decline in the after-tax value of the Bank's AFS investment securities of$66.6 million , cash dividends declared of$13.9 million and common stock repurchases of$13.9 million , partially offset by net income of$37.0 million . The aforementioned decline in value of the AFS investment securities portfolio was due to an increase in interest rates during the first nine months of 2022. The fair value of the AFS investment securities portfolio could continue to decline with further increases in interest rates. The Corporation's ROE for the first nine months of 2022 was 12.57%, an increase when compared to 10.96% for the same period last year. The increase in ROE was due to higher net income as well as an increase in accumulated other comprehensive loss 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 1.00% of the improvement in the ROE ratio when compared to the prior year period. The unrealized loss also accounted for a$2.86 reduction in book value per share of$15.87 atSeptember 30, 2022 . Book value per share was$17.81 at year-end 2021. Based on the Corporation's market value per share atSeptember 30, 2022 of$17.24 , the dividend yield is 4.9%. 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 both the Corporation and the Bank atSeptember 30, 2022 were 9.75%, 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 nine months of 2022, the Corporation repurchased 698,476 shares of its common stock at a total cost of$13.9 million . The Corporation can repurchase another$19.0 million under Board approved repurchase programs. We expect to continue common stock repurchases during the remainder of 2022.
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