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 three months of 2023 were$6.5 million and$0.29 , respectively, compared to$12.1 million and$0.52 , respectively, for the same period last year. Dividends per share increased 5.0%, from$.20 for the first three months of 2022 to$.21 for the current period. Returns on average assets ("ROA") and average equity ("ROE") for the first three months of 2023 were 0.62% and 7.09%, respectively, compared to 1.19% and 11.94%, respectively, for the same period last year. Book value per share increased to$16.43 atMarch 31, 2023 versus$16.24 at year end 2022. Liquidity. Our customers have largely remained loyal during these challenging times. Total deposits atMarch 31, 2023 were only$66 million , or 1.9%, lower thanDecember 31, 2022 . The decline is mainly attributable to regular deposit flows with no noticeable impact from the disruptions that occurred in the banking industry in March of 2023. Noninterest-bearing checking deposits of$1.2 billion represent 35% of total deposits. Brokered time deposits remained at the same level asDecember 31, 2022 , totaling$176 million , or 5%, of total deposits. The Bank had$1.5 billion in collateralized borrowing lines with the FHLB ofNew York and theFederal Reserve Bank ("FRB") atMarch 31, 2023 . The Bank also has a$20 million unsecured line of credit with a correspondent bank. In addition, we had$143.4 million in cash and unencumbered securities available to be pledged. The$1.7 billion in liquidity substantially exceeds the uninsured and uncollateralized deposit balance of$1.3 billion , which represents 38% of total deposits. The FRB's Term Funding Program has not been utilized and such borrowings are not currently anticipated. Interest Rate Sensitivity. Management is proactively making decisions that they believe are in the best long-term interest of the Corporation. The Bank completed two balance sheet repositioning transactions during the first quarter of 2023. The purpose of the transactions was to help reduce the Bank's liability sensitive position. OnMarch 16, 2023 , the Bank entered into an interest rate swap to convert$300 million of fixed rate residential mortgage loans to floating rate for 3 years. The Bank will pay a fixed rate of 3.82% and receive a floating rate based on the SOFR overnight rate. This transaction is immediately accretive and should increase annual interest income by approximately$2.9 million based on the SOFR overnight rate as ofMarch 31, 2023 . In addition, the Bank sold$148.9 million of fixed rate municipal securities earning a tax equivalent yield of 3.32% and purchased$134.9 million of floating rate SBA securities projected to yield 5.38% at the current prime rate. The Bank recognized a loss on the sale of securities of$3.5 million ($2.4 million after-tax) which the Bank expects will be earned-back in 1.2 years. This transaction is also immediately accretive and as ofMarch 31, 2023 increases annual interest income by$2.8 million . The interest rate swap and securities repositioning transactions result in loans and securities repricing or maturing within one year nearly doubling during the quarter to$812.7 million , or 20.8% of total loans and securities, atMarch 31, 2023 . The first quarter results do not reflect a full quarter's benefit of these transactions since they were executed close to quarter-end. Analysis of Earnings - Three Month Periods. Net income for the first quarter of 2023 was$6.5 million , a decrease of$5.6 million from the same quarter last year. The primary drivers of the decrease were a loss on sale of securities of$3.5 million and a decline in net interest income of$4.4 million , partially offset by a decrease in income tax expense of$2.5 million . Excluding the after-tax impact of the net loss on sales of securities, net income and earnings per share would have been$8.9 million and$0.39 , respectively, for the 2023 first quarter. 17
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Net interest income declined as rising market interest rates resulted in the cost of deposits and long-term debt increasing at a faster pace than the yields on interest-earning assets. An increase in interest expense of$9.4 million was only partially offset by a$5.0 million increase in interest income. The cost of interest-bearing liabilities was 1.96% in the current quarter, an increase of 142 basis points ("bps") when compared to the first quarter of 2022. The yield on interest-earning assets increased 35 bps to 3.56% in the current quarter. Also contributing to the decline in net interest income was an unfavorable shift in the mix of funding as average noninterest-bearing deposits decreased$134.2 million while average interest-bearing liabilities increased$287.4 million . Net interest margin for the first quarter of 2023 was 2.34% compared to 2.74% and 2.90% for the fourth and first quarters of 2022, respectively. The Bank expects that net interest margin will remain under pressure throughout 2023 unless the FRB reduces short-term rates. During the first quarter of 2023 we originated$38 million in mortgage loans at a weighted average rate of approximately 6.05%. The Bank's loan pipeline was$96 million at the end of the current quarter, compared to$127 million at the end of 2022. The decline in origination volume and the current loan pipeline reflect lower demand for loans in the marketplace and higher interest rates. The provision for credit losses decreased$1.5 million when comparing the first quarter periods from a charge of$433,000 in the 2022 quarter to a credit of$1.1 million in the current quarter. The credit provision for the current quarter was mainly due to an improvement in historical loss rates and declines in outstanding loans, average growth rates and concentrations of credit, partially offset by deteriorating economic conditions. Noninterest income, excluding the loss on the sale of securities of$3.5 million , declined$922,000 when comparing the first quarter periods. The decline was comprised of the nonservice cost component of the Bank's defined benefit pension plan and a first quarter of 2022 payment received for the conversion of the Bank's retail broker and advisory accounts. Recurring components of noninterest income including bank-owned life insurance ("BOLI") and service charges on deposit accounts had increases of 5.1% and 8.4%, respectively. The increase in noninterest expense of$802,000 was primarily due to an increase in rent expense relating to the Bank's new corporate headquarters facility and higherFDIC insurance expense attributable to higher assessment rates. Salaries and benefits expense is largely flat when comparing the quarterly periods as competitive annual salary increases were largely offset by a decline in incentive and stock-based compensation expense reflecting the lower net income and related performance metrics. Income tax expense decreased$2.5 million and the effective tax rate (income tax expense as a percentage of pre-tax book income) declined from 20.6% to 9.1% when comparing the first quarter periods. The decline in the effective tax rate is mainly due to an increase in the percentage of pre-tax income derived from the Bank's REIT, municipal securities portfolio and BOLI. The decrease in income tax expense reflects the lower effective tax rate and a decline in pre-tax income. Asset Quality. The Bank's allowance for credit losses to total loans (reserve coverage ratio) was 0.93% atMarch 31, 2023 as compared to 0.95% atDecember 31, 2022 . The decrease in the reserve coverage ratio was mainly due to an improvement in historical loss rates and declines in average growth rates and concentrations of credit, partially offset by deteriorating economic conditions. Nonaccrual loans were zero atMarch 31, 2023 . Modified loans and loans past due 30 through 89 days remain at low levels. Capital. The Corporation's capital position remains strong with a leverage ratio of 9.94% atMarch 31, 2023 . Book value per share increased to$16.43 atMarch 31, 2023 versus$16.24 at year end 2022. The accumulated OCI component of stockholders' equity is mainly comprised of a net unrealized loss in the AFS securities portfolio due to higher market interest rates. We did not repurchase any shares under the Corporation's stock repurchase program during the quarter or change the quarterly dividend. The Board and management will continue to evaluate both capital management tools to provide the best opportunity to maximize shareholder value. Challenges We Face. The current economic environment is characterized by stubbornly high inflation, interest rate increases not seen in over 40 years, an inverted yield curve and lower confidence in the banking system. These factors are causing the Bank's cost of funds to increase at a substantially faster rate than the increase in asset yields resulting in declines in earnings and profitability metrics. While the interest rate swap and securities purchase/sale transaction are expected to benefit the Bank by slowing these trends, they will not stop or reverse the current trends. The Corporation's earnings and key financial metrics will continue to face significant challenges in the near term. In this difficult economic environment, our customer base has remained loyal, asset quality has remained strong and the Corporation is closely monitoring its capital and liquidity position. We continue to meet the needs of our customers and maintain our focus on our long-term strategic initiatives. 18
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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. The average balances of loans include nonaccrual
loans. The average balances of investment securities exclude unrealized gains
and losses on AFS securities.
Three Months Ended March 31,
2023 2022
Average Interest/ Average Average Interest/ Average
(dollars in thousands) Balance Dividends Rate Balance Dividends Rate
Assets:
Interest-earning bank balances $ 49,156 $ 547 4.51 % $ 27,675 $ 14 0.21 %
Investment securities:
Taxable 467,444 3,122 2.67 432,871 1,654 1.53
Nontaxable (1) 303,273 2,462 3.25 314,663 2,491 3.17
Loans (1) 3,287,664 30,407 3.70 3,160,058 27,387 3.47
Total interest-earning assets 4,107,537 36,538 3.56 3,935,267 31,546 3.21
Allowance for credit losses (31,424) (29,850)
Net interest-earning assets 4,076,113 3,905,417
Cash and due from banks 31,015 32,482
Premises and equipment, net 31,782 37,882
Other assets 115,173 151,151
$ 4,254,083 $ 4,126,932
Liabilities and
Stockholders' Equity:
Savings, NOW & money market
deposits $ 1,677,634 5,775 1.40 $ 1,688,054 763 0.18
Time deposits 507,475 3,069 2.45 277,667 945 1.38
Total interest-bearing deposits 2,185,109 8,844 1.64 1,965,721 1,708 0.35
Short-term borrowings 8,811 108 4.97 124,333 441 1.44
Long-term debt 369,867 3,433 3.76 186,322 868 1.89
Total interest-bearing
liabilities 2,563,787 12,385 1.96 2,276,376 3,017 0.54
Checking deposits 1,281,991 1,416,223
Other liabilities 37,692 24,031
3,883,470 3,716,630
Stockholders' equity 370,613 410,302
$ 4,254,083 $ 4,126,932
Net interest income (1) $ 24,153 $ 28,529
Net interest spread (1) 1.60 % 2.67 %
Net interest margin (1) 2.34 % 2.90 %
(1) 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.
Three Months Ended March 31,
2023 Versus 2022
Increase (decrease) due to changes in:
Net
(in thousands) Volume Rate Change
Interest Income:
Interest-earning bank balances $ 20 $ 513 $ 533
Investment securities:
Taxable 144 1,324 1,468
Nontaxable (92) 63 (29)
Loans 1,150 1,870 3,020
Total interest income 1,222 3,770 4,992
Interest Expense:
Savings, NOW & money market deposits (5) 5,017 5,012
Time deposits 1,096 1,028 2,124
Short-term borrowings (686) 353 (333)
Long-term debt 1,278 1,287 2,565
Total interest expense 1,683 7,685 9,368
Decrease in net interest income
Net Interest Income Net interest income on a tax-equivalent basis for the three months endedMarch 31, 2023 was$24.2 million , a decrease of$4.4 million , or 15.3%, from the same period of 2022. Net interest income declined as rising market interest rates resulted in the cost of deposits and long-term debt increasing at a faster pace than the yields on interest-earning assets. An increase in interest expense of$9.4 million was only partially offset by a$5.0 million increase in interest income. The cost of interest-bearing liabilities was 1.96% in the current quarter, an increase of 142 bps when compared to the first quarter of 2022. The yield on interest-earning assets increased 35 bps to 3.56% in the current quarter. Also contributing to the decline in net interest income was an unfavorable shift in the mix of funding as average noninterest-bearing deposits declined$134.2 million while average interest-bearing liabilities increased$287.4 million . Net interest margin for the first quarter of 2023 was 2.34% compared to 2.90% for the first quarter of 2022. The Bank expects that net interest margin will remain under pressure throughout 2023 unless the FRB reduces short term rates. Management considers deposit betas to be the cumulative change in the rates paid on savings, NOW and money market deposits compared to the cumulative change in the fed funds rate. Historically in a rising rates environment these deposit betas have been approximately 35% over a complete rising rate cycle. For the twelve months endedMarch 31, 2023 these deposit betas in the current rising rate cycle are approximately 28%. This could be because we are nearing the end of repricing deposits higher. However, our historical tracking of deposit betas does not include a near 500 bp rate increase over twelve months with four consecutive 75 bp moves within the period. As a result, we cannot be confident that our historical betas will hold in this rate cycle. Based on the current pace of deposit rate increases, deposit betas could easily exceed 40%. During the first quarter of 2023, we originated$38 million in mortgage loans at a weighted average rate of approximately 6.05%. The Bank's loan pipeline was$96 million at the end of the quarter. The decline in origination volume and the current loan pipeline reflect lower demand for loans in the marketplace and higher interest rates.
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.
Noninterest income, excluding the loss on the sale of securities of$3.5 million , declined$922,000 when comparing the first quarter periods. The decline was comprised of the nonservice cost component of the Bank's defined benefit pension plan and a first quarter of 2022 payment received for the conversion of the Bank's retail broker and advisory accounts. Recurring components of noninterest income including BOLI and service charges on deposit accounts had increases of 5.1% and 8.4%, respectively. 20
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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. The increase in noninterest expense of$802,000 was primarily due to an increase in rent expense relating to the Bank's new corporate headquarters facility and higherFDIC insurance expense attributable to higher assessment rates. Salaries and benefits expense is largely flat when comparing the quarterly periods as competitive annual salary increases were largely offset by a decline in incentive and stock-based compensation expense reflecting the lower net income and related performance metrics.
Income Taxes
Income tax expense decreased$2.5 million and the effective tax rate declined from 20.6% to 9.1% when comparing the first quarter periods. The decline in the effective tax rate is mainly due to an increase in the percentage of pre-tax income derived from the Bank's REIT, municipal securities portfolio and BOLI. The decrease in income tax expense reflects the lower effective tax rate and a decline in pre-tax income.
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 of the Board 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
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 ten
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; and (10) municipal loans. An additional pool was used for
SBA PPP loans while those loans were outstanding. 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 lifetime PD/LGD method is used to measure historical losses.
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
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policies and procedures; (2) experience, ability and depth of lending staff; (3) trends in average loan growth and concentrations; (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 risks in the portfolio. 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.
March 31, December 31,
(in thousands) 2023 2022
Loans including modifications to borrowers
experiencing financial difficulty:
Modified and performing according to their modified
terms $ 438 $ 480
Past due 30 through 89 days 1,080
750
Past due 90 days or more and still accruing - -
Nonaccrual - -
1,518 1,230
Other real estate owned - -
$ 1,518 $ 1,230 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 decreased$1.2 million during the first three months of 2023, amounting to$30.2 million , or .93% of total loans, atMarch 31, 2023 compared to$31.4 million , or .95% of total loans, atDecember 31, 2022 . During the first three months of 2023, the Bank had loan chargeoffs of$182,000 , recoveries of$15,000 and recorded a credit provision of$1.1 million . During the first three months of 2022, the Bank had loan chargeoffs of$4,000 , recoveries of$27,000 and recorded a provision of$433,000 . The credit provision in the current period was mainly due to improvements in historical loss rates and declines in outstanding loans, average growth rates and concentrations of credit, partially offset by deteriorating economic conditions. The provision in the 2022 period was mainly due to portfolio growth, partially offset by economic conditions, asset quality and other portfolio metrics. 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. 22
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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 atMarch 31, 2023 . 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 interest rates pose 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 Bank's primary sources of cash are deposits, maturities and amortization of loans and investment securities, operations and borrowings. The Bank uses cash from these and other sources to fund loan growth, purchase investment securities, repay deposits and borrowings, expand and improve its physical facilities and pay cash dividends to the Corporation. The Corporation uses dividends from the Bank to pay stockholder dividends, repurchase its common stock and for general corporate purposes. The Corporation's cash and cash equivalent position atMarch 31, 2023 was$51.8 million versus$74.2 million atDecember 31, 2022 . The decrease occurred primarily because cash used to repay deposits and borrowings, purchase securities, originate loans and pay cash dividends exceeded cash provided by sales, paydowns or repayments of securities and loans, deposit inflows, proceeds from long-term debt and operations. Securities decreased$18.8 million during the first three months of 2023, from$673.4 million at year-end 2022 to$654.6 million atMarch 31, 2023 . The decrease is primarily attributable to the sale of$148.9 million of municipal securities and maturities and redemptions of$9.8 million , partially offset by purchases of$134.9 million of SBA agency obligations and a decline in the unrealized loss of$5.4 million during the period. The purchase and sale transactions were completed to help reduce the Bank's liability sensitive position and is expected to increase annual interest income by$2.8 million . The Bank's securities portfolio comprised 16% of total assets atMarch 31, 2023 and had a duration of approximately 3.64 years. Approximately 36% of the portfolio was comprised of floating rate assets, including$134.7 million of SBA agency obligations with a current yield of 5.77% that reprice quarterly based on the prime rate and represent 21% of the investment portfolio and$104.2 million of floating rate corporate bonds with a current yield of approximately 3.84% that reprice quarterly based on the ten year constant maturity swap rate. Government agency fixed rate mortgage-backed securities, including collateralized mortgage obligations, were$260.0 million and comprised 40% of the investment portfolio atMarch 31, 2023 . This portfolio had a current yield of 1.83%. The Bank expects approximately$50 million of cash inflows from the investment securities portfolio in 2023 and will look to reinvest them in higher yielding agency mortgage securities that provide some lock out protection when rates eventually decline. The remaining 24% of the portfolio is invested in tax exempt municipal bonds that currently yield 3.84%. The$3.3 billion loan portfolio was comprised of$1.9 billion of commercial mortgages,$1.2 billion of residential mortgages and$96.9 million of commercial and industrial loans. Approximately$560 million , or 17%, will reprice byMarch 31, 2024 , of which$300 million is related to the interest rate swap transaction previously discussed and$115 million in loans that reprice on a monthly basis such as revolving home equity and small business lines of credit. We expect approximately$75 million of cash flows from the loan portfolio per quarter. The Bank expects an additional$178 million , or 6%, of the loan portfolio to reprice from approximately 3.97% to 6.62% fromMarch 31, 2024 toMarch 31, 2025 based on current rates. During the first three months of 2023, total deposits decreased$65.9 million , or 1.9%, to$3.4 billion atMarch 31, 2023 . The decrease was comprised of a decline in checking deposits of$132.0 million , partially offset by growth in savings, NOW and money market deposits of$23.4 million and time deposits of$42.8 million . The decline in total deposits is mainly attributable to regular deposit flows with no noticeable impact from the disruption that occurred in the banking industry in March of 2023. Noninterest-bearing checking deposits of$1.2 billion represent 35.1% of total deposits. Brokered time deposits remained at the same level asDecember 31, 2022 , totaling$176.2 million , or 5.2%, of total deposits. Brokered time deposits have a weighted average cost of 3.12% and an average maturity of approximately six months, of which$85.0 million , or 48%, will mature in the second quarter of 2023 with an average cost of 2.61%. Reciprocal deposits under the Insured Cash Sweep ("ICS") program were$4.5 million atMarch 31, 2023 . The Bank was able to reduce its long-term FHLB advances by$28.5 million , or 6.9%, during the first quarter of 2023, to$382.5 million atMarch 31, 2023 . Maturities of$103.5 million with a weighted average rate of 1.96% were partially offset by new FHLB advances of$75.0 million with a weighted average rate of 4.51%. FHLB advances atMarch 31, 2023 had a weighted average cost of 4.13% and an average maturity of 1.3 years. 23
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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. The Bank is a member of the FRB ofNew York and the FHLB ofNew York and has an unsecured line of credit with a correspondent 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. The Bank has$1.5 billion in collateralized borrowing lines with the FHLB ofNew York and the FRB ofNew York atMarch 31, 2023 . The Bank also has a$20 million unsecured line of credit with a correspondent bank. In addition, we had$143.4 million in cash and unencumbered securities available to be pledged. The$1.7 billion in liquidity substantially exceeds the uninsured and uncollateralized deposit balance of$1.3 billion , which represents 38% of total deposits. The FRB's Term Funding Program has not been utilized and such borrowings are not currently anticipated. 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. 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. A possible future downgrade of securities and loans pledged as collateral could also impact the amount of available funding. Capital Stockholders' equity was$370.3 million atMarch 31, 2023 versus$364.5 million atDecember 31, 2022 . The increase was mainly due to net income of$6.5 million and a decrease in the after-tax loss on the Bank's AFS investment securities of$3.7 million , partially offset by cash dividends declared of$4.7 million . The Corporation's ROA and ROE for the first quarter of 2023 were 0.62% and 7.09%, respectively, compared to 1.19% and 11.94%, respectively, for the 2022 period. Excluding the after-tax impact of net losses on sales of securities during the current quarter, ROA and ROE would have been 0.85% and 9.73%, respectively. Book value per share was$16.43 , compared to$16.24 at year-end 2022. Based on the Corporation's market value per share atMarch 31, 2023 of$13.50 , the dividend yield is 6.2%. 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. In addition, the Corporation and the Bank exclude accumulated OCI components from Tier 1 and Total regulatory capital, in accordance with the federal banking agencies' regulatory capital guidelines. 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 atMarch 31, 2023 were 9.94% and 9.81%, 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. The stock repurchase program does not obligate the Corporation to purchase shares and there is no guarantee as to the exact number of shares that may be repurchased pursuant to this program, which is subject to market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity and other factors deemed appropriate. Under this program, the Corporation has approval to repurchase another$15 million . No shares were repurchased in the first three months of 2023.
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