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 six months of 2021 were$22.7 million and$.95 respectively, compared to$19.9 million and$.83 , respectively, for the same period last year. Dividends per share increased 5.6%, from$.36 for the first half of 2020 to$.38 for the current period. Returns on average assets ("ROA") and average equity ("ROE") for the first six months of 2021 were 1.10% and 11.09%, respectively, versus .96% and 10.34%, respectively, for the same period last year. Book value per share was$17.58 at the close of the current period, compared to$17.11 at year-end 2020. Analysis of Earnings - Six Month Periods. Net income for the first six months of 2021 was$22.7 million , an increase of$2.7 million , or 13.8%, versus the same period last year. The increase is due to growth in net interest income of$1.7 million , or 3.4%, and noninterest income of$770,000 , or 13.8%, and a decline in the provision for credit losses of$4.1 million . These items were partially offset by increases in noninterest expense of$1.8 million , or 5.8%, and income tax expense of$2.1 million . The increase in net interest income reflects a favorable shift in the mix of funding as an increase in average checking deposits of$271.9 million and a decline in average interest-bearing liabilities of$279.1 million resulted in average checking deposits comprising a larger portion of total funding. The increase is also attributable to higher income from SBA PPP loans of$3.0 million . Net interest income for the six months of 2021 also benefited by approximately$450,000 from the maturity of a$150 million interest rate swap inMay 2021 with a cost of funds of 2.85%. Partially offsetting the favorable impact on net interest income was a decline in the average balance of loans of$161.9 million . Also exerting downward pressure on net interest income were current market yields on securities and loans being lower than the runoff yields on both portfolios. The average yield on interest-earning assets declined 36 basis points ("bps") from 3.52% for the first six months of 2020 to 3.16% for the current six-month period. Management substantially offset the negative impact of declining asset yields on net interest income through reductions in non-maturity and time deposit rates. The average cost of interest-bearing liabilities declined 54 bps from 1.30% for the first six months of 2020 to .76% for the current six-month period. Net interest margin for the first six months of 2021 was 2.70% versus 2.63% for the 2020 period. Income from PPP loans improved net interest margin for the first six-months of 2021 by 9 bps. As ofJune 30, 2021 , the Bank had$97.6 million of outstanding PPP loans with unearned fees of$3.3 million . We expect substantially all outstanding PPP loans to payoff by the end of 2021. In the current interest rate environment, the Bank will be unable to replace the yield being earned on PPP loans putting downward pressure on the net interest margin in 2022. 20
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The mortgage loan pipeline was$74 million atJune 30, 2021 . Sluggish loan demand and competition for loans among banks and other lenders continues to put pressure on the pipeline and originations. ComparingJune 30, 2020 toJune 30, 2021 , the expansion of our lending teams helped grow commercial mortgages by$127.7 million . Commercial and industrial available lines of credit have increased. However, line utilization is near historic low levels, resulting in a decrease in commercial and industrial loans outstanding. We believe the economic impact of the pandemic and the stimulus packages passed byCongress contributed not only to the unusually high level of cash on our balance sheet, but also to decreased loan originations and lower levels of outstanding balances on existing credit lines. The increase in noninterest income, net of gains on sales of securities, of$164,000 is primarily attributable to increases in the non-service cost components of the Bank's defined benefit pension plan and fees from debit and credit cards. These items were partially offset by decreases in investment services income and service charges on deposit accounts. Revenue from assets under management fell as the shift to an outside service provider resulted in the loss of some relationships. 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. The decrease in service charges on deposit accounts is mainly attributable to the pandemic which has negatively affected most categories of fee income. The provision for credit losses decreased$4.1 million when comparing the six-month periods from a provision of$2.5 million in the 2020 period to a credit of$1.6 million in the 2021 period. The credit provision for the current period 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$460,000 . The net chargeoffs were mainly the result of sales of three commercial mortgages in the first quarter. The increase in noninterest expense of$1.8 million was primarily due to an increase in salaries and employee benefits related to staffing our newRiverhead Branch, building our lending and credit teams and normal salary adjustments. Also contributing to the increase was higherFDIC insurance expense due to an assessment credit in 2020, increased marketing expense and the cost of facilities maintenance. Income tax expense increased$2.1 million due to an increase in pre-tax earnings in the current six-month period as compared to the 2020 period and an increase in the effective tax rate to 20.6% from 16.1% when comparing the first six months of 2021 and 2020. 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. Additionally, a change inNew York State ("NYS") tax law to implement a capital tax in the second quarter of 2021 increased the second quarter provision. Asset Quality. The Bank's allowance for credit losses to total loans (reserve coverage ratio) was 1.05% atJune 30, 2021 as compared to 1.09% atDecember 31, 2020 . Excluding PPP loans, the reserve coverage ratio was 1.08% 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 remain at low levels. Key Initiatives and Challenges We Face. As the economy recovers from the pandemic, we remain optimistic that the Bank's strategic initiatives will support the expansion and profitability of our relationship banking business. Such initiatives include updated branding, a custom designed website, expanded geographic footprint of the branch network eastward intoRiverhead andEast Hampton, N.Y. and recruitment of additional seasoned branch, lending and credit professionals. Renovations at our leased space at275 Broadhollow Road inMelville, N.Y. for a state-of-the-art branch and needed office space are expected to be completed in early 2022. We continually assess our branch network for efficiencies while remaining cognizant of our customers' branch banking needs. During the pandemic we experienced a notable increase in use of our mobile deposit functionality as well as our cash management offerings. Low interest rates continue to exert pressure on operating results and growth. Current lending and investing rates are below the rates earned on loan and securities repayments. The net spread on securities purchased is significantly below the Bank's current net interest margin, and the net spread on new lending is near or below current margin. Continued increases in the cost of cybersecurity, and regulatory expectations in areas such as environmental, social and governance present additional challenges. 21
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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.
Six Months Ended June 30,
2021 2020
Average Interest/ Average Average Interest/ Average
(dollars in thousands) Balance Dividends Rate Balance Dividends Rate
Assets:
Interest-earning bank
balances $ 184,641 $ 96 .10 % $ 91,821 $ 120 .26 %
Investment securities:
Taxable 445,712 3,982 1.79 344,932 6,629 3.84
Nontaxable (1) 357,924 5,648 3.16 375,326 6,412 3.42
Loans (1) 3,008,594 53,459 3.55 3,170,449 56,891 3.59
Total interest-earning
assets 3,996,871 63,185 3.16 3,982,528 70,052 3.52
Allowance for credit losses (32,256) (33,115)
Net interest-earning assets 3,964,615
3,949,413
Cash and due from banks 34,228
32,925
Premises and equipment, net 38,399 39,814
Other assets 133,715 134,421
$ 4,170,957 $ 4,156,573
Liabilities and
Stockholders' Equity:
Savings, NOW & money market
deposits $ 1,786,527 2,260 .26 $ 1,704,484 6,639 .78
Time deposits 371,919 3,897 2.11 503,364 5,928 2.37
Total interest-bearing
deposits 2,158,446 6,157 .58 2,207,848 12,567 1.14
Short-term borrowings 56,813 700 2.48 92,235 885 1.93
Long-term debt 229,593 2,311 2.03 423,846 4,157 1.97
Total interest-bearing
liabilities 2,444,852 9,168 .76 2,723,929 17,609 1.30
Checking deposits 1,285,761 1,013,832
Other liabilities 28,509 31,819
3,759,122 3,769,580
Stockholders' equity 411,835 386,993
$ 4,170,957 $ 4,156,573
Net interest income (1) $ 54,017 $ 52,443
Net interest spread (1) 2.40 % 2.22 %
Net interest margin (1) 2.70 % 2.63 %
(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.
Six Months Ended June 30,
2021 Versus 2020
Increase (decrease) due to changes in:
Net
(in thousands) Volume Rate Change
Interest Income:
Interest-earning bank balances $ 75 $ (99) $ (24)
Investment securities:
Taxable 1,571 (4,218) (2,647)
Nontaxable (289) (475) (764)
Loans (2,880) (552) (3,432)
Total interest income (1,523) (5,344) (6,867)
Interest Expense:
Savings, NOW & money market deposits 288 (4,667) (4,379)
Time deposits (1,431) (600) (2,031)
Short-term borrowings (396) 211 (185)
Long-term debt (1,953) 107 (1,846)
Total interest expense (3,492) (4,949) (8,441)
Increase (decrease) in net interest income $ 1,969
$ 1,574 Net Interest Income Net interest income on a tax-equivalent basis for the six months endedJune 30, 2021 was$54.0 million , an increase of$1.6 million , or 3.0%, from$52.4 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$271.9 million , or 26.8%, and a decline in average interest-bearing liabilities of$279.1 million , or 10.2%, resulted in average checking deposits comprising a larger portion of total funding. The increase is also attributable to higher income from SBA PPP loans of$3.0 million . PPP income for the 2021 period was$3.9 million driven by an average balance of$155.2 million and a weighted average yield earned of 5.0%. Net interest income for the six months of 2021 also benefited by approximately$450,000 from the maturity of a$150 million interest rate swap inMay 2021 with a cost of funds of 2.85%. The Bank used excess cash to repay the interest rate swap. Partially offsetting the favorable impact on net interest income was a decline in the average balance of loans of$161.9 million , or 5.1%. Also exerting downward pressure on net interest income were current market yields on securities and loans being lower than the runoff yields on both portfolios. The average yield on interest-earning assets declined 36 bps from 3.52% for the first six months of 2020 to 3.16% for the current six-month period. Management substantially offset the negative impact of declining asset yields on net interest income through reductions in non-maturity and time deposit rates. The average cost of interest-bearing liabilities declined 54 bps from 1.30% for the first six months of 2020 to .76% for the current six-month period. Net interest margin for the first six months of 2021 was 2.70% versus 2.63% for the same period in 2020. Income on PPP loans improved net interest margin for the first six months of 2021 by 9 bps. As ofJune 30, 2021 , the Bank had$97.6 million of outstanding PPP loans with unearned fees of$3.3 million . We expect substantially all outstanding PPP loans to payoff by the end of 2021. In the current interest rate environment, the Bank will be unable to replace the yield being earned on PPP loans putting downward pressure on the net interest margin in 2022. The mortgage loan pipeline was$74 million atJune 30, 2021 . Sluggish loan demand and competition for loans among banks and other lenders continues to put pressure on the pipeline and originations. ComparingJune 30, 2020 toJune 30, 2021 , the expansion of our lending teams helped grow commercial mortgages by$127.7 million . Commercial and industrial available lines of credit have increased. However, line utilization is near historic low levels, resulting in a decrease in commercial and industrial loans outstanding. We believe the economic impact of the pandemic and the stimulus packages passed byCongress contributed not only to the unusually high level of cash on our balance sheet, but also to decreased loan originations and lower levels of outstanding balances on existing credit lines. 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.
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The increase in noninterest income, net of gains on sales of securities, of$164,000 is primarily attributable to increases in the non-service cost components of the Bank's defined benefit pension plan of$275,000 and fees from debit and credit cards of$242,000 . These items were partially offset by decreases in investment services income of$276,000 and service charges on deposit accounts of$188,000 . Revenue from assets under management fell as the shift to an outside service provider resulted in the loss of some relationships. 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. The decrease in service charges on deposit accounts is mainly attributable to the pandemic which has negatively affected most categories of fee income. 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$1.8 million was primarily due to an increase of$1.0 million in salaries and employee benefits related to staffing our newRiverhead Branch, building our lending and credit teams and normal salary adjustments. Also contributing to the increase was higherFDIC insurance expense due to an assessment credit of$390,000 in 2020, increased marketing expense of$142,000 and the cost of facilities maintenance.
Income Taxes
Income tax expense increased$2.1 million due to an increase in pre-tax earnings in the current six-month period as compared to the 2020 period and an increase in the effective tax rate to 20.6% from 16.1% when comparing the first six months of 2021 and 2020. 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. Additionally, a change in NYS tax law to implement a capital tax in the second quarter of 2021 increased the second quarter provision by approximately$400,000 .
Results of Operations - Second Quarter 2021 Versus Second Quarter 2020
Net income for the second quarter of 2021 increased$629,000 , or 5.8%, from$10.8 million earned in the same quarter of last year. The increase is mainly attributable to an increase in net interest income of$818,000 and a decline in the provision for credit losses of$715,000 , partially offset by an increase in income tax expense of$991,000 . The variances in each of these items occurred for substantially the same reasons discussed above with respect to the six-month periods.
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, 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
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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) 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.
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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.
June 30, 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 570 815
Total risk elements$ 830
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. The ACL decreased$2.1 million during the first six months of 2021, amounting to$31.0 million , or 1.05% of total loans, atJune 30, 2021 compared to$33.0 million , or 1.09% of total loans, atDecember 31, 2020 . Excluding SBA PPP loans, the reserve coverage ratio was 1.08% and 1.13% atJune 30, 2021 andDecember 31, 2020 , respectively. During the first half of 2021, the Bank had loan chargeoffs of$723,000 , recoveries of$263,000 and recorded a credit provision for credit losses of$1.6 million . During the first half of 2020, the Bank had loan chargeoffs of$837,000 , recoveries of$261,000 and recorded a provision for credit losses of$2.5 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 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 94% of the Bank's total loans outstanding atJune 30, 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 since the pandemic lows of 2020, 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.
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Cash Flows and Liquidity
Cash Flows. The Corporation's primary sources of cash are deposits, maturities and amortization of loans and investment securities, operations and borrowings. The Corporation uses cash from these and other sources to fund loan growth, purchase investment securities, repay borrowings, expand and improve its physical facilities, pay cash dividends, repurchase its common stock and for general corporate purposes. The Corporation's cash and cash equivalent position atJune 30, 2021 was$191.0 million , down from$211.2 million atDecember 31, 2020 . The decrease occurred primarily because cash used to repay borrowings, purchase securities, repurchase common stock and pay cash dividends exceeded cash provided by deposit growth, paydowns or repayments of securities and loans and operations. Securities increased$143.5 million during the first six months of 2021, from$662.7 million at year-end 2020 to$806.2 million atJune 30, 2021 . The increase is primarily attributable to purchases of$268.0 million , partially offset by sales of$54.2 million and maturities and redemptions of$65.6 million . During the first half of 2021, total deposits grew$62.0 million , or 1.9%, to$3.4 billion atJune 30, 2021 . The increase was attributable to growth in checking deposits of$110.9 million and savings, NOW and money market deposits of$154.4 million , partially offset by decreases in time deposits of$203.3 million . The decrease in time deposits includes the maturity of$150.0 million in brokered CDs used to hedge an interest rate swap which expired inMay 2021 . OnNovember 28, 2021 , corporate bonds with a current fair value of$31.7 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 1.47% and would reduce net interest income in the fourth quarter by approximately$105,000 . On a full quarter basis, the impact to net interest income would be approximately$293,000 . 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. AtJune 30, 2021 , the Bank had approximately$271.4 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 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$1.8 billion atJune 30, 2021 .
Capital
Stockholders' equity was$416.6 million atJune 30, 2021 versus$407.1 million atDecember 31, 2020 . The increase was mainly due to net income of$22.7 million , partially offset by cash dividends declared of$9.0 million and common stock repurchases of$4.1 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 both the Corporation and the Bank atJune 30, 2021 were 9.82%, 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.
On
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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 half of 2021, the Corporation repurchased 200,420 shares of its common stock at a total cost of$4.1 million . Total repurchases completed since the commencement of the program in 2018 amount to 2,341,020 shares at a cost of$51.7 million . We expect to continue repurchases during 2021.
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