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 earnings per share for the first three months of 2021 were$11.3 million and$.47 respectively, compared to$9.1 million and$.38 , respectively, for the same period last year. Dividends per share increased 5.6%, from$.18 for the first quarter of 2020 to$.19 for the current period. Returns on average assets ("ROA") and average equity ("ROE") for the first three months of 2021 were 1.11% and 11.17%, respectively, versus .90% and 9.41%, respectively, for the same period last year. Book value per share was$17.16 at the close of the current period, compared to$17.11 at year-end 2020. Analysis of First Quarter Earnings. Net income for the first quarter of 2021 was$11.3 million , an increase of$2.1 million , or 23.2%, versus the same quarter last year. The increase is due to growth in net interest income of$916,000 and noninterest income of$514,000 and a decline in the provision for credit losses of$3.3 million . These items were partially offset by increases in noninterest expense of$1.6 million and income tax expense of$1.1 million . The increase in net interest income reflects a favorable shift in the mix of funding as an increase in average checking deposits of$325.7 million and a decline in average interest-bearing liabilities of$322.7 million resulted in average checking deposits comprising a larger portion of total funding. The increase is also attributable to income from SBA PPP loans of$1.9 million during the current quarter driven by an average balance of$160.0 million and a weighted average yield of 4.9%. Average checking deposits include a portion of the proceeds of PPP loans. Partially offsetting the favorable impact of these items was a decline in the average balance of loans of$146.5 million due to a significant increase in prepayments on residential mortgages caused by a decline in interest rates from the pandemic, which contributed to a notable increase in cash on our balance sheet. Also exerting downward pressure on net interest income were current market yields on securities and loans being lower than the yields on runoff in both portfolios which management substantially offset through reductions in nonmaturity and time deposit rates.
Net interest margin for the first quarter of 2021 was 2.69%, increasing 7 basis points over the comparable period of 2020. Income on PPP loans improved net interest margin for the current quarter by 9 basis points.
The provision for credit losses decreased$3.3 million when comparing the first quarter's provision of$2.4 million in the 2020 quarter to a credit of$986,000 in the 2021 quarter. The credit provision for the current quarter was mainly due to improvements in economic conditions, asset quality and other portfolio metrics and a decline in outstanding mortgage loans, partially offset by net chargeoffs of$447,000 . The decrease in noninterest income, net of gains on sales of securities, of$92,000 is primarily attributable to decreases in service charges on deposit accounts and a decline in investment services income offset by an increase in the non-service cost components of the Bank's 18
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defined benefit pension plan. The decrease in service charges on deposit accounts is mainly attributable to the pandemic which has negatively affected most categories of noninterest income while the decrease in investment services income is due to a decline in assets under management. The increase in noninterest expense of$1.6 million was primarily due to an increase in salaries and employee benefits related to staffing our newRiverhead Branch, building our lending and credit teams, special bonuses and overtime for PPP loan processing and normal salary adjustments. Also contributing to the increase wasFDIC insurance expense for the current quarter, an increase in the provision for unfunded loan commitments and higher facilities maintenance costs due to snow removal. The increase in income tax expense reflects a higher effective tax rate (income tax expense as a percentage of pre-tax book income), from 15.2% in the first quarter of 2020 to 19.4% in the current quarter, and an increase in pre-tax earnings in the current quarter as compared to the 2020 quarter. Asset Quality. The Bank's allowance for credit losses to total loans (reserve coverage ratio) was 1.04% atMarch 31, 2021 as compared to 1.09% atDecember 31, 2020 . Excluding PPP loans, the reserve coverage ratio was 1.10% and 1.13%, respectively. The decrease in the reserve coverage ratio was mainly due to improvements in economic conditions, asset quality and other portfolio metrics. Nonaccrual loans, TDRs and loans past due 30 through 89 days are at very low levels. Key Initiatives and Challenges We Face. During 2020, the Bank successfully launched an updated branding initiative including multimedia advertising and an interactive custom designed website to better support our customers' digital and electronic banking needs. We see a substantial increase in mobile users and mobile deposits and are optimistic about our future growth in digital products and services. We continue to analyze our branch network for strategic expansion and operating efficiencies. We recently leased space at275 Broadhollow Road inMelville, N.Y. for a state-of-the-art branch and additional office space. The convenience of this central location is expected to benefit employee recruiting and retention with prominent signage reinforcing our new branding initiative. We continue to hire branch personnel, lending and back office credit professionals to support loan growth and our relationship banking business. Finally, the Bank recently partnered with LPL Financial, the nation's largest independent broker-dealer, to enhance our customers' access to a comprehensive set of investment products as well as wealth management, trust and advisory services. The interest rate and economic environment continues to exert pressure on operating results and growth. Profitability and growth are negatively impacted by low yields available on loans and securities and could be impacted by credit losses arising from economic conditions. The continued presence of the pandemic and ongoing economic challenges such as the level of short and long-term interest rates, unemployment, vacancies, delinquent rents and competition are particular risks to future financial performance. Among other things, low interest rates have caused an acceleration of residential mortgage loan repayments and repricings which are expected to continue in 2021. 19
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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 investment securities
include unrealized gains and losses on available-for-sale securities, and the
average balances of loans include nonaccrual loans.
Three Months Ended March 31,
2021 2020
Average Interest/ Average Average Interest/ Average
(dollars in thousands) Balance Dividends Rate Balance Dividends Rate
Assets:
Interest-earning bank
balances $ 155,272 $ 39 .10 % $ 30,077 $ 82 1.10 %
Investment securities:
Taxable 401,531 1,794 1.79 342,661 3,344 3.90
Nontaxable (1) 361,715 2,846 3.15 380,173 3,247 3.42
Loans (1) 3,013,009 26,707 3.55 3,159,533 28,933 3.66
Total interest-earning
assets 3,931,527 31,386 3.19 3,912,444 35,606 3.64
Allowance for credit losses (32,896) (32,110)
Net interest-earning assets 3,898,631 3,880,334
Cash and due from banks 32,951 34,362
Premises and equipment, net 38,700 39,932
Other assets 134,770 130,262
$ 4,105,052 $ 4,084,890
Liabilities and
Stockholders' Equity:
Savings, NOW & money market
deposits $ 1,707,546 1,066 .25 $ 1,710,761 4,280 1.01
Time deposits 421,394 2,304 2.22 510,037 3,042 2.40
Total interest-bearing
deposits 2,128,940 3,370 .64 2,220,798 7,322 1.33
Short-term borrowings 58,661 350 2.42 123,337 619 2.02
Long-term debt 233,224 1,165 2.03 399,340 1,995 2.01
Total interest-bearing
liabilities 2,420,825 4,885 .82 2,743,475 9,936 1.46
Checking deposits 1,243,728 918,044
Other liabilities 31,401 32,211
3,695,954 3,693,730
Stockholders' equity 409,098 391,160
$ 4,105,052 $ 4,084,890
Net interest income (1) $ 26,501 $ 25,670
Net interest spread (1) 2.37 % 2.18 %
Net interest margin (1) 2.69 % 2.62 %
(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,
2021 Versus 2020
Increase (decrease) due to changes in:
Net
(in thousands) Volume Rate Change
Interest Income:
Interest-earning bank balances $ 87 $ (130) $ (43)
Investment securities:
Taxable 497 (2,047) (1,550)
Nontaxable (152) (249) (401)
Loans (1,346) (880) (2,226)
Total interest income (914) (3,306) (4,220)
Interest Expense:
Savings, NOW & money market deposits (43) (3,171) (3,214)
Time deposits (505) (233) (738)
Short-term borrowings (370) 101 (269)
Long-term debt (830) - (830)
Total interest expense (1,748) (3,303) (5,051)
Increase (decrease) in net interest income $ 834 $ (3) $ 831
Net Interest Income
Net interest income on a tax-equivalent basis for the three months ended March
31, 2021 was $26.5 million , an increase of $831,000 , or 3.2%, from $25.7 million
for the same period of 2020. The increase in net interest income reflects a
favorable shift in the mix of funding as an increase in average checking
deposits of $325.7 million , or 35.5%, and a decline in average interest-bearing
liabilities of $322.7 million , or 11.8%, resulted in average checking deposits
comprising a larger portion of total funding. The increase is also attributable
to income from SBA PPP loans of $1.9 million during the current quarter driven
by an average balance of $160.0 million and a weighted average yield of 4.9%.
Average checking deposits include a portion of the proceeds of PPP loans.
Partially offsetting the favorable impact of these items was a decline in the
average balance of loans of $146.5 million , or 4.6%, due to the economic impact
of the pandemic, which contributed to a notable increase in cash on our balance
sheet. Also exerting downward pressure on net interest income were decreases in
yield on securities and loans due to an increase in prepayment speeds on
mortgage-backed securities, lower yields available on securities purchases and
loan originations, acceleration of loan prepayments and refinancing of
residential mortgages and downward repricing of corporate bonds. The average
yield on interest-earning assets declined 45 basis points from 3.64% for the
first quarter of 2020 to 3.19% for the current quarter. Although asset yields
declined, management substantially offset the negative impact on net interest
income through reductions in nonmaturity and time deposit rates. The average
cost of interest-bearing liabilities declined 64 basis points from 1.46% for the
first quarter of 2020 to .82% for the current quarter.
Net interest margin for the first quarter of 2021 was 2.69% as compared to 2.62%
for the 2020 first quarter. Income on PPP loans improved net interest margin for
the current quarter by 9 basis points. We expect net interest income and margin
to benefit when excess cash is utilized to repay a maturing $150 million
interest rate swap with a cost of 2.85% in May 2021 and from approximately $114
million of CDs maturing by March 2022 with an average cost of 1.11% which
exceeds current market deposit rates.
During the first quarter of 2021, we originated $83 million of PPP loans with
deferred fees of $3.3 million . On a cumulative basis through March 31, 2021 , $62
million of the Bank's PPP loans were forgiven by the SBA.
If economic activity continues to improve and businesses return to normal
operations in our marketplace, we expect mortgage originations to grow with more
emphasis on commercial lending rather than residential mortgage lending. The
mortgage loan pipeline grew to $107 million at March 31, 2021 , the highest level
in three years.
Noninterest Income
Noninterest income includes service charges on deposit accounts, investment services income, 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 decrease in noninterest income, net of gains on sales of securities, of$92,000 is primarily attributable to decreases in service charges on deposit accounts of$304,000 and a decline in investment services income of$74,000 offset by an increase in the non-service cost components of the Bank's defined benefit pension plan of$138,000 . The decrease in service charges on deposit accounts is mainly 21
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attributable to the pandemic which has negatively affected most categories of noninterest income while the decrease in investment services income is due to a decline in assets under management. Assets under management will likely decline further as the Bank transitions from its legacy trust and investment businesses to a single platform with LPL Financial.
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$1.6 million was primarily due to an increase in salaries and employee benefits related to staffing our newRiverhead Branch, building our lending and credit teams, special bonuses and overtime for PPP loan processing and normal salary adjustments. Also contributing to the increase wasFDIC insurance expense of$267,000 for the current quarter, an increase in the provision for unfunded loan commitments of$305,000 and higher facilities maintenance costs including snow removal. The increase inFDIC insurance expense is due to an assessment credit in the 2020 quarter which resulted in noFDIC insurance cost. The increase in the provision for unfunded commitments reflects an increase in commitments for the current quarter versus a decrease for the 2020 quarter.
Income Taxes
Income tax expense increased$1.1 million and the effective tax rate increased from 15.2% to 19.4% when comparing the first quarter of 2020 to the current quarter. The increase in the effective tax rate is mainly due to a decrease in the percentage of pre-tax income derived from tax-exempt municipal securities and bank-owned life insurance in 2021. The increase in income tax expense reflects the higher effective tax rate and an increase in pre-tax earnings in the current quarter as compared to the 2020 quarter.
Application of Critical Accounting Policies
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, among other
things, the results of credit reviews performed by the Bank's independent loan
review function 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,
home prices 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)
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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 migration method was selected 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 general qualitative and quantitative factors and then subjectively determines the weight to assign to each in estimating losses. The factors include, among others: (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 qualitative and quantitative adjustments to historical loss experience. Because of the nature of the qualitative 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.
TDRs are individually evaluated for loss and generally reported at the present value of estimated future cash flows using the loan's effective rate at inception. However, if a TDR is a collateral dependent loan, the loan is reported at the fair value of the collateral.
Asset Quality
The Corporation has identified certain assets as risk elements. These assets
include nonaccrual loans, other real estate owned, loans that are contractually
past due 90 days or more as to principal or interest payments and still accruing
and TDRs. These assets present more than the normal risk that the Corporation
will be unable to eventually collect or realize their full carrying value.
Information about the Corporation's risk elements is set forth below.
March 31, December 31,
(dollars in thousands) 2021 2020
Nonaccrual loans:
Troubled debt restructurings $ - $ 494
Other 260 628
Total nonaccrual loans 260 1,122
Loans past due 90 days or more and still accruing - -
Other real estate owned - -
Total nonperforming assets 260 1,122
Troubled debt restructurings - performing 578 815
Total risk elements$ 838
Nonaccrual loans as a percentage of total loans .01%
.04%
Nonperforming assets as a percentage of total loans and .01%
.04%
other real estate owned Risk elements as a percentage of total loans and other .03%
.06%
real estate owned
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.
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The ACL decreased$1.4 million during the first three months of 2021, amounting to$31.6 million , or 1.04% of total loans, atMarch 31, 2021 compared to$33.0 million , or 1.09% of total loans, atDecember 31, 2020 . Excluding SBA PPP loans, the reserve coverage ratio was 1.10% and 1.13% atMarch 31, 2021 andDecember 31, 2020 , respectively. During the first quarter of 2021, the Bank had loan chargeoffs of$550,000 , recoveries of$103,000 and recorded a credit provision for credit losses of$986,000 . During the first quarter of 2020, the Bank had loan chargeoffs of$619,000 , recoveries of$189,000 and recorded a provision for credit losses of$2.4 million . The credit provision in the current 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 provision in the 2020 period was mainly attributable to the pandemic. 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 "Application of Critical Accounting Policies," 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 pandemic continues to present challenges for the Bank and its customers. The amount of future chargeoffs and provisions for credit losses will be affected by, among other things, economic conditions on Long Island and in 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 91% of the Bank's total loans outstanding atMarch 31, 2021 . The majority of these loans are collateralized by properties located on Long Island and in the boroughs of NYC. While business activity in the NYC metropolitan area has improved, the pace of the recovery remains uncertain. These challenges may result in higher past due and nonaccrual loans, TDRs and credit losses.
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 atMarch 31, 2021 was$234.6 million , up from$211.2 million atDecember 31, 2020 . The increase occurred primarily because cash provided by deposit growth, paydowns or repayments of securities and loans and operations exceeded the cash used to repay borrowings, purchase securities, repurchase common stock and pay cash dividends. Securities increased$168.4 million during the first three months of 2021, from$662.7 million at year-end 2020 to$831.2 million atMarch 31, 2021 . The increase is primarily attributable to purchases of$263.4 million , partially offset by sales of$54.2 million and maturities and redemptions of$32.9 million . During the first quarter of 2021, total deposits grew$215.1 million , or 6.5%, to$3.5 billion atMarch 31, 2021 . The increase was attributable to growth in checking deposits of$162.9 million and savings, NOW and money market deposits of$91.1 million , partially offset by decreases in time deposits of$38.8 million . Checking deposits include a portion of the proceeds of PPP loans. OnNovember 28, 2021 , corporate bonds with a current fair value of$31.5 million and a weighted average fixed rate of 5.10% will convert to a floating rate. At current rates, the weighted average floating rate would be 1.97% and would reduce net interest income in the fourth quarter by approximately$83,000 . On a full quarter basis, the impact to net interest income would be approximately$250,000 . 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 available-for-sale. AtMarch 31, 2021 , the Bank had approximately$315.1 million of unencumbered available-for-sale 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 24
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FRB ofNew York and FHLB ofNew York . In addition, the Bank can purchase overnight federal funds under its existing line and the Corporation can raise funds through its Dividend Reinvestment and Stock Purchase Plan. However, the Bank's FRB ofNew York membership, FHLB ofNew York membership and federal funds line do not represent legal commitments to extend credit to the Bank. The amount that the Bank can potentially borrow is 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$1.9 billion atMarch 31, 2021 .
Capital
Stockholders' equity was$408.1 million atMarch 31, 2021 versus$407.1 million atDecember 31, 2020 . The increase was mainly due to net income of$11.3 million , partially offset by cash dividends declared of$4.5 million , common stock repurchases of$2.0 million and a decrease in the after-tax value of available-for-sale securities of$5.6 million . 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 atMarch 31, 2021 were 10.01% and 9.93%, respectively, and considered to have met 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. OnApril 6, 2020 , the federal banking agencies issued interim final rules pursuant to section 4012 of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), temporarily lowering the CBLR requirement to 8.50% for calendar year 2021 and returning to 9.00% in 2022. The CARES Act also provides that, during the same period, if a qualifying community banking organization falls no more than 1% below the CBLR, it will have a two-quarter grace period to satisfy the CBLR. The Corporation has a stock repurchase program under which it is authorized to purchase up to$65 million in 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 quarter of 2021, the Corporation repurchased 107,887 shares of its common stock at a total cost of$2.0 million . Total repurchases completed since the commencement of the program in 2018 amount to 2,248,487 shares at a cost of$49.6 million . We expect to continue repurchases during 2021.
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