PART I

PART I

ITEM 1. BUSINESSBUSINESS

General

The First of Long Island Corporation (“Registrant”), a one-bank holding company, was incorporated on February 7, 1984 for the purpose of providing financial services through its wholly-owned subsidiary, The First National Bank of Long Island. The consolidated entity is referred to as the "Corporation," and the Bank and its subsidiaries are collectively referred to as the "Bank."

The Bank was organized in 1927 as a national banking association under the laws of the United States of America. The Bank has two wholly owned subsidiaries:one wholly-owned subsidiary: FNY Service Corp., an investment company, and The First of Long Island Agency, Inc.company. The Bank and FNY Service Corp. jointly own another subsidiary, The First of Long Island REIT, Inc., a real estate investment trust.

All of the financial operations of the Corporation are aggregated in one reportable operating segment. All revenues are attributed to and all long-lived assets are located in the United States.

The Bank’s revenues are derived principally from interest on loans and investment securities, service charges and fees on deposit accounts income from investment management and trust services and bank-owned life insurance (“BOLI”).

The Bank did not commence, abandon or significantly change any of its lines of business during 2020.2023.

Markets Served and Products Offered

The Bank serves the financial needs of small and medium-sizedto middle market businesses, professionals, consumers,professional service firms, not-for-profits, municipalities and other organizationsconsumers primarily in Nassau and Suffolk Counties of Long Island, and the boroughs of New York City (“NYC”). The Bank’s head office is located in Glen Head, New York, and the Bank has 46 other40 branch locations including 1916 branches in Nassau, 1716 in Suffolk, sixfive in Queens, threetwo in Brooklyn and one in Manhattan. During 2020,2023, the Bank closed and consolidated six branches within its footprint and opened one branch in easternNassau and relocated two of its branches in Suffolk, County.offering an improved customer experience and modern design. The Bank continues to evaluate opportunities for efficienciesthe strategic placement of its branch network and potential new branch sites on Long Islandinvests in digital channels to best serve customer demand both within and in the boroughs of NYC.beyond its physical locations.

The Bank’s loan portfolio is primarily comprised of loans to borrowers on Long Island and in the boroughs of NYC, and its real estate loans are principally secured by properties located in those areas. The Bank’s investment securities portfolio is comprised of direct obligations of the U.S. government and its agencies, obligations of the Small Business Administration ("SBA"), corporate bonds of large U.S. financial institutions and highly rated obligations of states and political subdivisions.

The Bank provides investment management,offers trust, estate, and custody services and offers retail investment services through a partnership with Financial Resources Group, andan affiliate of LPL Financial.Financial ("LPL"). The Bank offers residential mortgage loans through a co-marketing referral agreement with Rocket Mortgage®.

In addition to its loan, investment and deposit products, the Bank offers othera wide array of banking services to its customers including the following:through its branch network, mobile applications and interactive website.

During 2020, the Bank successfully launched an updated branding initiative including multimedia advertising and an interactive custom designed website to better support our customers’ electronic banking services and digital banking needs.Competition

Competition

The Bank encounters substantial competition in its banking business from numerous other financial services organizations that have offices located in the communities served by the Bank. Principal competitors are large money center, regional and community banks located within the Bank’s market area, mortgage brokers, brokerage firms, credit unions and fintech or e-commerce companies. The Bank competes for loans based on the quality of service it provides, loan structure, competitive pricing and branch locations, and competes for deposits by offering a high level of customer service, payingflexible product structures, competitive ratespricing, convenient locations and through the geographic distribution of its branch system.maintaining a well-designed website. Cash management tools and digital channels support our loan and deposit offerings.

Investment Activities

The Bank’s investment policy, as approved by the Asset Liability Committee of the Board (“ALCO”) and supervised by both the ALCO and the Management InvestmentAsset Liability Committee, is intended to promote investment practices which are both safe and sound and in full compliance with applicable regulations. Investment authority is granted and amended as necessary by the Board of Directors or ALCO.

The Bank's investment decisions seek to optimize income while keeping both credit and interest rate risk at acceptable levels, provide for the Bank's liquidity needs and provide securities that can be pledged, as needed, to secure deposits and borrowings.

The Bank’s investment policy generally limits individual maturities on municipal bonds to 20 years and estimated average lives on collateralized mortgage obligations (“CMOs”) and other mortgage-backed securities to ten years. At the time of purchase, bonds of states and political subdivisions must generally be rated AA or better, notes of states and political subdivisions must generally be rated MIG-1 (or equivalent), commercial paper must be rated A-1 or P-1, and corporate bonds of large U.S. based financial institutions must have a rating of BBB+ or better. In addition, management periodically reviews the creditworthiness of all securities in the Bank’s portfolio other than those issued by the U.S. government or its agencies. Any significant deterioration in the creditworthiness of an issuer is analyzed and action is taken if deemed appropriate.

At year end 20202023 and 2019,2022, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

At December 31, 2020, $359.7 million of the Corporation’s municipal securities were rated AA or better, $2.4 million were rated A and $2.1 million were non-rated bonds issued by local municipalities. The Corporation’s pass-through mortgage securitiesBank’s investment portfolio at December 31, 2020 is2023 was comprised of $5.7available-for-sale (“AFS”) securities totaling $695.9 million and $126.0was made up of state and municipal securities of $143.6 million, pass-through mortgage securities of $138.6 million, CMOs of $182.3 million, SBA agency obligations of $125.5 million and corporate bonds of $105.9 million. Substantially all the municipal securities are rated AA or better. The pass-through mortgage securities and CMOs are issued by the Government National Mortgage Association (“GNMA”) and the, Federal National Mortgage Association (“FNMA”), respectively. Each issuer’s pass-through mortgage securities are backed by residential or multifamily mortgages conforming to the issuer’s underwriting guidelines and each issuer guarantees the timely payment of principal and interest on its securities. Obligations ofFederal Home Loan Mortgage Corporation (“FHLMC”). GNMA is a U.S. government agency represent full faith and credit obligations of the U.S. government, while obligations of FNMA which is aand FHLMC are U.S. government-sponsored agencies. SBA agency do not. The Corporation’s corporate bond portfolio is comprised of $113.1obligations are floating rate, government guaranteed securities backed by $92.2 million of senior unsecured fixed-to-floating ratecommercial mortgages and $33.3 million of equipment finance loans at December 31, 2023. The corporate bonds are investment grade securities issued by large U.S. based financial institutions are rated A- to BBB+ and will mature in 2028. At December 31, 2020, $82.4 million had a weighted average yield of 1.21% andwith variable rates that reset quarterly based on athe ten-year swap rate. The remaining $30.7 million have a current weighted average yield of 5.10% and will begin to reset quarterly based on a ten-year swap rate in the fourth quarter of 2021.

The Bank has not engaged in the purchase and sale of securities for the primary purpose of producing trading profits and its current investment policy does not allow for such activity.

Lending Activities

General.The Bank’s lending is subject to written underwriting standards and loan origination procedures, as approved by the Loan Committee of the Board (“Loan Committee”) and contained in the Bank’s loan policy. The loan policy allows for exceptions and sets forth specific exception approval requirements. Decisions on loan applications are based on among other things, the borrower’s credit history, the financial strength of the borrower, estimates of the borrower’s ability to repay the loan and the value of the collateral and guarantees, if any. All real estate appraisals must meet the requirements of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), banking agency guidance and, for those loans in excess of $250,000, be reviewed by the Bank’s independent appraisal review function.

The Bank conducts its lending activities throughout its branch network. The Bank’s loan portfolio is primarily comprised of loans to small and medium-sized privately ownedmiddle market businesses, professionalsprofessional service firms, real estate investors and consumers on Long Island and in the boroughs of NYC. The Bank offers a fullBank’s range of lending services includingincludes commercial and residential mortgage loans, home equity lines/loans, commercial and industrial loans, small business credit scored loans, Small Business Administration (“SBA”)SBA loans, construction and land development loans, consumer loans and commercial and standby letters of credit. During 2020, commercial2023, the Bank discontinued the origination of residential mortgages. Commercial lending wasis emphasized over residential mortgage lending and supported by increases in credit and lending staff.

The Bank makes both fixed and variable rate loans. Variable rate loans reprice primarily with changes in the prime interest rate as published in The Wall Street Journal, U.S. Treasury rates and Federal Home Loan Bank of New Yorkthe Secured Overnight Financing Rate (“FHLBNY”SOFR”) advance rates..

Commercial and Industrial Loans.Commercial and industrial loans include among other things, short-term business loans and lines of credit; revolving credit facilities, term and installment loans; common interest realty association (“CIRA”) loans, secured by marketable securities, the cash surrender value of life insurance policies, deposit accounts or general business assets;asset-based loans, leveraged loans and small business credit scored loans as described hereinafter;hereinafter. Commercial and industrial loans may be secured by general business assets, specific equipment, finance loans.cash and other liquid collateral, or real estate. The Bank makes commercial and industrial loans on a demand basis, short-term basis, installment or revolving basis. Short-term business loans are generally due and payable within one year and should be self-liquidating during the normal course of the borrower’s business cycle. Lines of credit are reaffirmed annually and generally require an annual cleanup period. TermRevolving credit facilities, term and installment loans are usually due and payable within five years. Generally, it isThe Bank’s loan policy delineates the policyminimum required guarantee based on specific loan categories.

SBA Paycheck Protection Program (“PPP”)Commercial Mortgage Loans. Beginning in 2020, the Bank provided SBA PPP loans primarily to its existing customers. PPP loans have a 1% rate of interest and a two-year or five-year term with fees paid to the Bank by the SBA up to 5% of each loan depending on the loan amount. Fees are amortized as a yield adjustment over the expected life of the loans. PPP loans are 100% guaranteed by the SBA. The Bank originated $170.7 million PPP loans in 2020 and over $70 million in 2021 through March 5.

Small Business Credit Scored Loans. The Bank makes small business credit scored loans to businesses that generally have annual sales at the time of application of less than $3.5 million and issues VISA^® credit cards. Most of these loans are in the form of revolving credit lines and, depending on the type of business, the maximum amount generally ranges from $50,000 to $150,000. The Bank also originates installment loans to finance business automobiles, trucks and equipment and can be secured by the asset financed and/or deposit accounts. Both installment loans and revolving credit commitments generally have maturities up to 60 months. Business profile reports are used in conjunction with credit reports and FICO (Fair Isaac Corporation) small business score cards for loan underwriting and decision making purposes. Credit and FICO small business risk scores enable the Bank to quickly and efficiently identify and approve loans to low-risk business applicants and decline loans to high-risk business applicants. The Bank had commitments on small business credit scored revolving lines of credit of $61.7 million, of which $20.5 million were drawn and funded at December 31, 2020.

Real Estate Mortgage Loans and Home Equity Lines. The Bank makes residential and commercial mortgage loans secured by owner-occupied and establishes home equity lines of credit.investment properties, including multifamily properties. Applicants for residential mortgage loans and home equity lines will be considered for approval provided they have satisfactory credit history and collateral and the Bank believes that there is sufficient monthly income to service both the loan or line applied for and existing debt. Applicants for commercial mortgage loans will be considered for approval provided they, as well as any guarantors, have satisfactory credit history and can demonstrate through financial statements and otherwise, the ability to repay. Commercialrepay through documentation such as financial statements, leases and residentialrent rolls. The Bank obtains independent appraisals in accordance with regulatory requirements and an appropriate environmental assessment. All properties are inspected by Bank personnel and/or approved third-party vendors before closing on the mortgage and annually thereafter for loans are made with terms not in excess of 30 years and are generally maintained inover $2.5 million. Properties may also be re-inspected if concerns arise during the Bank’s portfolio. The residential mortgage loans made by the Bank in recent years consist of both fixed rate loans with terms ranging from 10 to 30 years and variable rate loans that reprice in five, seven or ten years and then every year thereafter.annual review process described below. Commercial mortgage loans generally mature in 10 years with amortization schedules ranging between 20 and 30 years. We strive to reprice withincommercial mortgage loans every five to ten years and home equity lines generally mature within ten years. Depending on the type of property, thealthough pricing may be fixed for longer terms. The Bank will generally not lend more than 80%75% of appraised value on residential mortgage, home equity and commercial mortgage loans. The lending limitations with regard to appraised value are more stringent for loans on co-ops and condominiums.investment properties, including multifamily properties.

In processing requests for commercial mortgage loans, the Bank generally requires an environmental assessment to identify the possibility of environmental contamination. The extent of the assessment procedures varies from property to property and is based on factors such as the use and location of the subject property and whether or not the property has a suspected environmental risk based on current or past use.

Construction Loans.From time to time, the Bank makes loans to finance the construction of both residential and commercial properties. The maturity of such loans is generally 24 months or less and advances are made as the construction progresses. The advances can require the submission of bills and lien waivers by the contractor, verification by a Bank-approved inspector that the work has been performed, and title insurance updates to ensure that no intervening liens have been placed. The Bank also will consider loans on unimproved land subject to a maximum loan-to-value of 50% and a maximum 10 year term and amortization. Variable rate construction and land development loans are included in Commercial Mortgagescommercial mortgages on the Consolidated Balance Sheet.consolidated balance sheets.

Consumer Loans and Lines. The Bank makes auto loans, home improvement loanssecured and otherunsecured consumer loans, establishes revolving overdraft lines of credit and issues VISA^®VISA® credit cards. Consumer loans are generally made on an installment basis over terms not in excess of five years. In reviewing loans and lines for approval, the Bank generally considers among other things, the borrower’s ability to repay, stability of employment and residence and past credit history.

Sources of Funds

The Corporation’sBank’s primary sources of cash have beenare deposits, maturities and amortization of loans and investment securities, operations borrowings and funds received under the Dividend Reinvestment and Stock Purchase Plan (“DRIP”).borrowings. The CorporationBank 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 operatingcorporate purposes.

The Bank offers checking and interest-bearing deposit products. In addition to business and small business checking, theThe Bank has a variety of business and personal checking products that differ in minimum balance requirements monthly maintenanceand fees, and per check charges, if any. Interest-bearing deposit products, which have a wide range of interest rates and terms, consist of negotiable order of withdrawal (“NOW”) accounts, interest on lawyer accounts, (IOLA), escrow service accounts, rent security accounts, personal and nonpersonal money market and savings accounts, time deposits holiday club accounts and individual retirement accounts.

The Bank relies primarily on its branch network, customer service, calling programs, lending relationships, referral sources, competitive pricing deposit rate promotions and advertising to attract and retain local deposits. The flow of deposits is influenced by general economic conditions, changes in interest rates and competition.

Human Capital Resources

In orderWe aspire to best serve our customers and the communities in which we operate and produce the best possible returns for our shareholders, we strive to foster a supportive and understanding work environment with open communication so thatprovide all employees can have an equal opportunity to realize their maximum potential with the Bank. We are a diverse workplace that encourages open and honest employee comment without retaliation. We seek to attract, recruit and retain a diverse workforce which is reflective of the communities in which we live and work. Encouraging a diverse and inclusive workforce withBy encouraging different viewpoints, styles, experiences, cultures, ethnicities, sexual orientations and gender identities, enables us to bewe build a more flexible, creative and competitive in meeting the needs of our employees, customers and shareholderscorporate culture while beingremaining socially accountable to our local communities. Using employee feedback, we implemented initiatives to improve communication and enhance employee development opportunities.

Employee Profile. At December 31, 2020,2023, we had approximately 350288 full time equivalent employees in locations across the New York ("NY") metropolitan area. This represents an increasea decrease of nine15 employees, or 2.6%5.0%, from December 31, 20192022 due primarily to increases in lendingfactors such as reducing branch hours, improving technology and credit staff.eliminating our residential mortgage sales department.

As of December 31, 2020, approximately 68% of our current workforce is female, 32% male, and our average tenure is seven years, as compared to an average tenure of eight years as of December 31, 2019.

Total Rewards. As part of our compensation philosophy, we believe that we must offer and maintain market competitive total rewards programs for our employees in order to attract and retain superior talent. In addition to base wages, additional programs include annual equity and/or cash incentive opportunities, a Company matched 401(k) plan, a defined benefit pension plan, healthcare and insurance benefits, health savings accounts, transit benefits, flexible spending accounts, paid time off, family leave and employee assistance programs.

Health and Safety. The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety and wellness of our employees. We provide our employees and their families with access to a variety of flexible and convenient health and welfare programs, including benefits that support their physical and mental health. We accomplish this by providingprovide tools and resources to help them improve or maintainand their health statusfamilies experience healthier living.

Training and that offer choice where possible so they can customize their benefits to meet their needs and the needs of their families. In responseDevelopment. We are committed to the COVID-19 pandemic (“pandemic”), we implemented significant operating environment changes that we determined were in the best interestongoing success and development of our employees as well as the communitiesat every level to promote and foster individual and organizational effectiveness. Employees take part in which we operate,recurring training that covers regulatory compliance, cybersecurity, sales and that comply with government regulations. This includes having employees work from home where possible, while implementing additional safety measuresretail strategies and other programs tailored to specific job functions. Additional professional development and leadership training is offered for employees continuing essential on-site work.growth opportunities.

Talent. A core tenet of maintaining our talent systemhighly skilled workforce is to both develop talent from within and supplement with external hires. This approach has createdfoster career opportunities for existing staff while actively recruiting seasoned bankers for certain roles. Hiring entry level staff is also important as we prepare for our future. These approaches create loyalty in our employee base which helpswhile also bringing in new perspectives and ideas to help us grow the business, expand our product lines and benefitsbenefit our customers. New employees provide different ideas and viewpoints that help create a diverse and inclusive workforce. We believe thata favorable reputation in the average tenure of seven years at the end of 2020 reflects the engagement ofmarketplace and our employees.

Our approachcorporate headquarters centrally located in Melville on Long Island allows us to talent acquisition includes theattract highly skilled workers. We use of internal and external resources to recruit highly skilled and talented workers, and we encourageidentify the best job candidates while encouraging employee referrals for open positions.

Our performance management framework includes annual reviews, a review of goals achieved and a discussion of future goals and employee development, including training opportunities, and annual merit-based salary adjustments.

Employee retention helps us operate efficiently and achieve one of our business objectives, which is being a high-quality, efficient provider of financial services. We believe our commitment to core values, prioritizing concern for our employees’ well-being, supporting our employees’ career goals, offering competitive wages and providing valuable benefits aids in the retention of our employees.

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Supervision and Regulation

General. The banking industry is highly regulated. Statutory and regulatory controls are designed primarily for the protection of depositors and the banking system, and not for the purpose of protecting shareholders. The following discussion is not intended to be a complete list of all the activities regulated by banking laws or of the impact of such laws and regulations on the Corporation and the Bank. Changes in applicable laws or regulations and their interpretation and application by regulatory agencies cannot be predicted and may have a material effect on our business and results of operations.

As a registered bank holding company, the Corporation is regulated under the Bank Holding Company Act of 1956, as amended (“BHC Act”), and subject to inspection, examination and supervision by the Federal Reserve Bank (“FRB”). In general, the BHC Act limits the business of bank holding companies to banking, managing or controlling banks, performing servicing activities for subsidiaries and engaging in activities that the FRB has determined, by order or regulation, are so closely related to banking as to be a proper incident thereto under the BHC Act. The Corporation is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the Securities and Exchange Commission (“SEC”). Our common stock is listed on the Capital Market tier of the NASDAQ Stock Market (“NASDAQ”) under the symbol “FLIC” and is subject to NASDAQ rules for listed companies.

As a national bank, the Bank is subject to regulation and examination by the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”). Insured banks, such as the Bank, are subject to extensive regulation of many aspects of their businesses. These regulations generally relate to, among other things:to: (1) the nature and amount of loans that may be made by the Bank and the rates of interest that may be charged; (2) types and amounts of other investments; (3) branching; (4) anti-money laundering;laundering and Office of Foreign Control ("OFAC"); (5) permissible activities; (6) reserve requirements; (7) information security and (7)technology; and (8) dealings with officers, directors and affiliates.

The Dodd-Frank Act made extensive changes in the regulation of depository institutions and their holding companies. For example, the Dodd-Frank Act created a new Consumer Financial Protection Bureau (“CFPB”) as an independent bureau of the FRB. The CFPB has assumed responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations, a function previously assigned to principal federal banking regulators, and has authority to impose new requirements. However, institutions of less than $10 billion in assets, such as the Bank, continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and subject to the enforcement authority of, their primary federal regulator, although the CFPB has limited back-up authority to examine such institutions.

Bank Holding Company Regulation. The BHC Act requires the prior approval of the FRB for the acquisition by a bank holding company of 5% or more of the voting stock or substantially all of the assets of any bank or bank holding company. Also, under the BHC Act, bank holding companies are prohibited, with certain exceptions, from engaging in, or from acquiring 5% or more of the voting stock of any company engaging in activities other than (1) banking or managing or controlling banks, (2) furnishing services to or performing services for their subsidiaries, or (3) activities that the FRB has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Bank holding companies that meet certain criteria specified by the FRB may elect to be regulated as a “financial holding company” and thereby engage in a broader array of financial activities including insurance and investment banking.

Payment of Dividends. The key source of the Corporation’s liquidity is dividends from the Bank. Prior approval of the OCC is required if the total of all dividends declared by a national bank in any calendar year would exceed the sum of the bank’s net profits for that year and its retained net profits for the preceding two calendar years, less any required transfers to surplus. Under the foregoing dividend restrictions, and while maintaining its “well capitalized” status and absent affirmative governmental approvals, during 20212024 the Bank could declare dividends to the Corporation of approximately $6.3$25.1 million plus any 20212024 net profits retained to the date of the dividend declaration.

In addition, the Corporation and the Bank are subject to other regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimum capital levels. The FRB is authorized to determine under certain circumstances relating to the financial condition of a bank holding company or a bank that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. FRB guidance sets forth the supervisory expectation that bank holding companies will inform and consult with FRB staff in advance of declaring a dividend that exceeds earnings for the quarter and should inform the FRB and should eliminate, defer or significantly reduce dividends if (1) net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, (2) the prospective rate of earnings retention is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition, or (3) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

Stock Repurchases. Current FRB regulations provide that a bank holding company that is not well capitalized or well managed, as such terms are defined in the regulations, or that is subject to any unresolved supervisory issues, is required to give the FRB prior written notice of any repurchase or redemption of its outstanding equity securities if the gross consideration for repurchase or redemption, when combined with the net consideration paid for all such repurchases or redemptions during the preceding 12 months, will be equal to 10% or more of the company’s consolidated net worth. The FRB may disapprove such a repurchase or redemption if it determines that the

proposal would constitute an unsafe and unsound practice or violate a law or regulation. FRB guidance generally provides for bank holding company consultation with FRB staff prior to engaging in a repurchase or redemption of a bank holding company’s stock, even if a formal written notice is not required. However, the FRB staff is interpreting the capital regulations as requiring a bank holding company to secure FRB approval prior to redeeming or repurchasing any capital stock that is included in regulatory capital.

Transactions with Affiliates. Federal laws strictly limit the ability of banks to engage in transactions with their affiliates, including their bank holding companies. Regulations promulgated by the FRB limit the types and amounts of these transactions (including loans due and extensions of credit from their U.S. bank subsidiaries) that may take place and generally require those transactions to be on an arm’s-length basis. In general, these regulations require that any “covered transactions” between a subsidiary bank and its parent company or the nonbank subsidiaries of the bank holding company be limited to 10% of the bank subsidiary’s capital and surplus and, with respect to such parent company and all such nonbank subsidiaries, to an aggregate of 20% of the bank subsidiary’s capital and surplus. Further, loans and extensions of credit to affiliates generally are required to be secured by eligible collateral in specified amounts.

Source of Strength Doctrine. FRB policy has historically required bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. The Dodd-Frank Act codified this policy as a statutory requirement. Under this requirement, the Corporation is expected to commit resources to support the Bank, including at times when the Corporation may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

Capital Requirements. As a bank holding company, the Corporation is subject to consolidated regulatory capital requirements administered by the FRB. The Bank is subject to similar capital requirements administered by the OCC.

The Corporation and the Bank are subject to the Basel III regulatory capital standards (“Basel III”) issued by the FRB and the OCC. Under the Basel III capital requirements, the Corporation and the Bank are required to maintain minimum ratios of Tier 1 capital to average assets of 4.00%, Common equity tier 1 capital to risk weighted assets of 4.50%, Tier 1 capital to risk weighted assets of 6.00% and Total capital to risk weighted assets of 8.00%. Common equity tier 1 capital, Tier 1 capital, Total capital, risk weighted assets and average assets are defined in the Basel III rules. Failure to meet the minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on the financial statements of the Corporation and Bank. The Corporation and the Bank opted to exclude accumulated other comprehensive income components from Tier 1 and Total regulatory capital.

Basel III also requires the Corporation and the Bank to maintain a capital conservation buffer of 2.50% in order to avoid being subject to limitations on capital distributions, including dividend payments, and discretionary bonus payments to executive officers. The capital ratio requirements, including the capital conservation buffer, for banks with $250 billion or less in total assets are 7.00% for Common equity tier 1 capital to risk weighted assets, 8.50% for Tier 1 capital to risk weighted assets and 10.50% for Total capital to risk weighted assets.

In accordance with the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies adopted a final rule whereby financial institutions and financial institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9% (“qualifying community banking organizations”), are eligible to opt into a community bank leverage ratio (“CBLR”) framework. Qualifying community banking organizations that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% are considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules and will be considered to have met the well capitalized ratio requirements under the prompt corrective action (“PCA”) statutes. The agencies reserved the authority to disallow the use of the CBLR framework by a financial institution or holding company, based on the risk profile of the organization. On January 1, 2020, the CBLR framework became effective, and management elected to adopt the alternative framework. 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.

On April 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 8.00% through the end of 2020, 8.50% for calendar year 2021 and 9.00% in 2022. The CARES Act also provides that, during the same time 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’s capital management policy is designed to build and maintain capital levels that exceed regulatory standards and appropriately provide for growth. The leverage ratio of the Corporation and the Bank at December 31, 2020 were 9.97%2023 was 10.05% and 9.98%10.13%, respectively. 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 the current expected credit loss (“CECL”) methodology.

PCA Regulations. The Federal Deposit Insurance Act, as amended (“FDIA”), requires among other things, that the federal banking agencies take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. The FDIA sets forth the following five capital tiers for purposes of implementing the PCA regulations: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” As of December 31, 2023, the Bank was well capitalized.

Deposit Insurance. The FDIC imposes an assessment on financial institutions for deposit insurance. The assessment is based on the FDIC’s statistical model for estimating the institution’s probability of failure over a three-year period and the institution’s average total assets and average tangible equity. The FDIC periodically adjusts the deposit insurance assessment rates, which may raise or lower the cost to an institution of maintaining FDIC insurance coverage.

The FDIC may terminate the insurance of an institution’s depositsdeposit insurance upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. Management is not aware of any practice, condition or violation that might lead to termination of the Bank’s deposit insurance.

On September 30, 2018, the Deposit Insurance Fund Reserve Ratio exceeded 1.35%. As a result, during 2019 the Bank was notified of $961,000 in assessment credits from the FDIC for the portion of its assessment that contributed to the growth in the reserve ratio. $571,000 of the credit was applied to 2019 assessments and $390,000 was applied to 2020 assessments.

Safety and Soundness Standards. The FDIA requires the federal bank regulatory agencies to prescribe standards, through regulations or guidelines, relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial standards as the agencies deem appropriate. Guidelines adopted by the federal bank regulatory agencies establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits. In general, the guidelines require among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal stockholder. In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying one or more of the safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the PCA provisions of the FDIA. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties.

Community Reinvestment Act and Fair Lending Laws. The Community Reinvestment Act of 1977 (“CRA”) requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its market areas by among other things, providing credit to lowlow- and moderate incomemoderate-income individuals and communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings. Banking regulators take into account CRA ratings when considering approval of proposed acquisition transactions. The Bank received a “Satisfactory” CRA rating on its most recent FederalCRA examination. The Bank and the Corporation are firmly committed to the practice of fair lending and maintaining strict adherence to all federal and state fair lending laws which prohibit discriminatory lending practices. In

On May 2020,5, 2022, the OCC issuedfederal banking agencies released a notice of proposed rulemaking to “strengthen and modernize” the CRA regulations and the related regulatory framework. This final rule to updatewas codified on October 24, 2023 with an effective date of April 1, 2024. Under the agency’s CRA regulations. The final rule, clarifiesbanks with assets of at least $2 billion as of December 31 in both of the activitiesprior two calendar years will be a "large bank." The agencies will evaluate large banks under four performance tests: the Retails Lending test, the Retail Services and Products Test, the Community Development Financing Test and the Community Development Services Test. The applicability date for the majority of the provisions in the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027. The Bank is committed to comply with the changes, much of which are programmatic changes that count for CRA credit, updates where bank activity countswill address technology changes in the banking industry and evaluates CRA performance more objectively.providing greater clarity, consistency and transparency in the application of the CRA.

Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank System (“FHLB System”), which consists of 11 regional Federal Home Loan Banks (each a “FHLB”). The FHLB System provides a central credit facility primarily for member banks. As a member of the FHLBNY,FHLB of New York ("FHLBNY"), the Bank is required to acquire and hold shares of capital stock in the FHLB in an amount equal to 4.5% of its borrowings from the FHLB (transaction-based stock) plus .125%0.125% of the total principal amount at the beginning of the year of the Bank’s unpaid residential real estate loans, commercial real estate loans, home equity loans, CMOs and other similar obligations (membership stock). At December 31, 2020,2023, the Bank was in compliance with the FHLB’s capital stock ownership requirement.

Financial Privacy. Federal regulations require the Bank to disclose its privacy policy, including identifying with whom it shares “nonpublic personal information,” to its customers at the time the customer establishes a relationship with the Bank and annually thereafter. In addition, we are required to provide our customers with the ability to “opt-out” of having the Bank share their nonpublic personal information with nonaffiliated third parties before we can disclose that information, subject to certain exceptions.

The federal banking agencies adopted guidelines establishing standards for safeguarding our customer information. The guidelines describe the agencies’ expectation that regulated entities create, implement and maintain an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity and the nature and scope of our activities. The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records and

information, protect against any anticipated threats or hazards to the security or integrity of customer records, and protect against unauthorized access to records or information that could result in substantial harm or inconvenience to customers. Additionally, the guidance states that banks, such as the Bank, should develop and implement a response program to address security breaches involving customer information, including customer notification procedures. The Bank has developed such a program.

Anti-Money Laundering and the USA PATRIOT Act. A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA PATRIOT Act of 2001 (“Patriot Act”) substantially broadened the scope of U.S. anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The U.S. Treasury Department has issued a number of regulations that apply various requirements of the Patriot Act to financial institutions such as the Bank. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. Certain of those regulations impose specific due diligence requirements on financial institutions that maintain correspondent or private banking relationships with non-U.S. financial institutions or persons. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal, financial and reputational consequences for the institution. The Bank and the Corporation are firmly committed to maintaining strong policies, procedures and controls to ensure compliance with anti-money laundering laws and regulations and to combat money laundering and terrorist financing. In recent months, the Financial Crimes Enforcement Network ("FinCEN"), a division of the U.S. Treasury Department, has begun to promulgate regulations to establish a national beneficial owner registry for legal entities, as mandated under the Anti-Money Laundering Act of 2020 (“AMLA”) and the Corporate Transparency Act (“CTA”). The AMLA and CTA are included in the National Defense Authorization Act of 2020, passed in December of 2020. The AMLA and CTA establish a federal beneficial ownership registry, new-and-enhanced Bank Secrecy Act penalties, expands the ability to subpoena foreign banks and creates an expanded whistleblower reward program. On January 1, 2024, the U.S. Department of the Treasury's FinCEN began accepting beneficial ownership information reports as part of the promulgated registry.

Office of Foreign Assets Control. The OFAC of the U.S. Department of the Treasury administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. The Bank maintains a risk based OFAC program to screen applicable transactions against the required watchlists.  Additionally, the Bank remains aware of geo-political and high-risk jurisdiction guidance that is released by government agencies periodically.

Legislative Initiatives and Regulatory Reform. From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to change substantially the financial institution regulatory system. Such legislation could change banking statutes and the operating environment in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions and other financial institutions. The Corporation cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on our financial condition or results of operations. A change in statutes, regulations or regulatory policies applicable to the Corporation could have a material effect on our business.

Availability of Reports

The Bank maintains a website at www.fnbli.com.www.fnbli.com. The Corporation’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to these reports and proxy materials filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through the Bank’s website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. To access these reports go to the homepage of the Bank’s website, hover over FLIC and click on “Investor“FLIC Investor Relations,” place the cursor over “Financial Information” and click on “SEC Filings,” and then click on “Corporate SEC Filings.” This will bring you to a listing of the Corporation’s reports. Information on our website shall not be considered a part of this Annual Report on Form 10-K. Our SEC filings are also available on the SEC’s website at www.sec.gov.

ITEM 1A. RISKRISK FACTORS

The Corporation is exposed to a variety of risks, some of which are inherent in the banking business. The more significant of these are addressed by the Corporation’s written policies and procedures. While management is responsible for identifying, assessing and managing risk, the Board of Directors is responsible for risk oversight. The Board fulfills its risk oversight responsibilities largely through its committees. The following provides information regarding material risk factors faced by the Corporation. Additional risks and uncertainties not currently known to the Corporation, or that the Corporation currently deems to be immaterial, could also have a material impact on the Corporation’s business, financial condition or results of operations.

Economic and Market Area

The COVID-19 pandemic has and will continue to pose risks and could harm business, results of operations and prospects of the Corporation.

The pandemic has had an adverse impact on the Corporation, its customers, employees, third-party service providers (“TPSPs”) and the communities it serves and, given the ongoing and dynamic nature of the pandemic, it is expected that it will continue to have an adverse impact in the future.The extent of such future impact is difficult to predict and will depend on factors that are inherently uncertain such as when the coronavirus can be controlled and abated through widespread vaccination or otherwise, the extent and the danger posed by coronavirus variants and the success of fully reopening the economy. Additionally, the responses of various governmental authorities to curtail business and consumer activities in an effort to mitigate the pandemic could have a material long-term economic effect.

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The Corporation is subject to the following risks, any of which could have a material, adverse effect on its business, financial condition, liquidity, and results of operations:

effects on key employees, including operational management personnel and those charged withpreparing, monitoring and evaluating the Corporation’s financial reporting and internal controls;

declines in demand for loans and other banking products and services, and a decline in the credit quality of our loan portfolio, due to the economic effects of the pandemic in the markets we serve;

high and sustained levels of unemployment which could result in loan delinquencies, problem assets and foreclosures, and may result in increases to the allowance for credit losses, increased charges and reduced income;

collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

the creditworthiness of loan guarantors may decline, impairing their ability to honor commitments;

the yield on assets may decline to a greater extent than the decline in cost of interest-bearing liabilities, reducing net interest margin and spread and reducing net income;

cyber security risks have increased due to an increase in the number of employees working remotely; and

disruption in the capital markets may impact the performance of our investment securities portfolio and limit our access to capital markets and funding.

A worsening of national or local economic conditions could adversely affect our financial condition and results of operations.

Deteriorating economic or business conditions could significantly affect the markets in which we do business, the value of our loans and investments, the value of real estate collateral securing our mortgage loans, the financial strength of our borrowers and our on-going operations, costs and profitability. A recession or slowed economic conditions could lead to decreased consumer spending and lower profits, while rising interest rates could increase borrower costs and make it more difficult for companies to access capital. Declines in real estate values, sales volumes and employment levels together with increased vacancy rates, particularly in the New YorkNY metropolitan area, given our concentration in this region, may result in greater loan delinquencies, increases in our nonperforming, criticized and classified assets and a decline in demand for our products and services. These events may cause us to increase our credit loss reserves, incur credit losses and may adversely affect our financial condition and results of operations. The majority of our loan portfolio is secured by real estate in New York.the NY metropolitan area.

A concentration of loans in our primary market area may increase the risk of higher nonperforming assets.

Our success depends primarily on the general economic conditions in Nassau and Suffolk Counties of Long Island, and the boroughs of NYC as nearly all of our loans are to customers in these markets. Accordingly, the local economic conditions in these market areas have a significant impact on the ability of our borrowers to repay loans as well as our ability to originate new loans. A decline in real estate values in these market areas would also lower the value of the collateral securing loans on properties in these market areas.

Severe weather, actsInflationary pressures and rising prices may affect our results of terrorismoperations and other external events could impact our ability to conduct business.financial condition.

Weather-related events have adversely impacted our market areaInflation rose sharply in recent years, especially areas located near coastal waters and flood prone areas. Such events that may cause significant flooding and other storm-related damage may become more common events in the future. Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and communication systems2021, remained elevated through 2022, and the New York metropolitan area remains central targetsrate of inflation began to moderate in 2023. Inflation may present a significant risk as it can lead to increased costs and reduced purchasing power for potential actsconsumers. Small to medium-sized businesses may be impacted more during periods of terrorism. Such events could cause significant damage, impact the stabilityhigh inflation as they are not able to leverage economies of our facilities and result in additional expenses, impairscale to mitigate cost pressures compared to larger businesses. Consequently, the ability of our borrowersbusiness customers to repay their loans reduce the valuemay deteriorate, and in some cases this deterioration may occur quickly. Furthermore, a prolonged period of collateral securing repayment of our loans,inflation could cause wages and result in the loss of revenue. While we have established and regularly test disaster recovery procedures, the occurrence of any such eventother operating costs to increase. These factors could have a material adverse effect on our business, operations and financial condition.

Additionally, global markets may be adversely affected by natural disasters, the emergence of widespread health emergencies or pandemics, cyber attacks or campaigns, military conflict, terrorism or other geopolitical events. Global market fluctuations may affect our business liquidity. Also, any sudden or prolonged market downturn in the U.S. or abroad, resulting from the above factors or otherwise, could result in a decline in revenue and adversely affect our results of operations and financial condition, including capital and liquidity levels.condition.

Competition within our market area could limit our ability to increase interest-earning assets.assets and noninterest income.

Competition in the banking and financial services industry is intense. In our market area, we compete with numerous commercial banks, savings institutions, mortgage brokers, credit unions, finance companies, mutual funds, fintech or e-commerce companies, insurance companies and brokerage and investment banking firms operating locally and elsewhere. Some of our competitors have substantially greater resources and lending limits than we have and have greater name recognition and market presence that benefit them in attracting business. In addition, large competitors may be able to price loans and deposits more aggressively than we do.do, and some have recently eliminated certain noninterest income charges such as overdraft fees. Furthermore, fintech developments such as peer-to-peer platforms, blockchain and other distributed ledger technologies have the potential to disrupt the financial services industry and change the way banks do business. Competitive forces may limit our ability to increase our interest-earning assets.assets or maintain the current level of noninterest income. Our profitability depends upon our continued ability to successfully compete in our market area. For additional information see “Item 1 – Business – Competition.”

Severe weather, acts of terrorism and other external events could impact our ability to conduct business.

Weather-related events have adversely impacted our market area, especially areas located near coastal waters and flood prone areas. Such events that may cause significant flooding and other storm-related damage may become more common events in the future. Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and communication systems and the NY metropolitan area remains central targets for potential acts of terrorism. Such events could cause significant damage, impact the stability of our facilities and result in additional expenses, impair the ability of our borrowers to repay their loans, reduce the value of collateral securing repayment of our loans, and result in the loss of revenue. While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition.

Additionally, global markets may be adversely affected by natural disasters, the emergence of widespread health emergencies or pandemics, cyber attacks or campaigns, military conflict such as the Russia-Ukraine war and conflicts in the Middle East, supply chain disruptions, terrorism or other geopolitical events. Global market fluctuations may affect our business liquidity. Also, any sudden or prolonged market downturn in the U.S. or abroad, resulting from the above factors or otherwise, could result in a decline in revenue and adversely affect our results of operations and financial condition, including capital and liquidity levels.

Interest RateRates and Asset Quality

The inability to realizeDeclines in the full carrying value of the Bank’s investment securities, loans and BOLI could negatively impactmay result in impairment charges and may adversely affect our financial condition and results of operations.

For investment securities, loans and BOLI, thereThere is always the risk that the Bank will be unable to realize theirthe full carrying value. Credit riskvalue of our investment securities, loans and BOLI. Fluctuations in the Bank’s securities and BOLI portfolios has been addressed by adopting board committee approved investment and BOLI policies that, among other things, limit terms, types and amounts of holdings and specify minimum required credit ratings. Allowable investments include direct obligations of the U.S. government and its agencies, highly rated obligations of states and political subdivisions, highly rated corporate obligations and BOLI policies issued by highly rated insurance carriers. At the time of purchase, bonds of states and political subdivisions must generally be rated AA or better, notes of states and political subdivisions must generally be rated MIG-1 (or equivalent), commercial paper must be rated A-1 or P-1, and corporate bonds of large U.S. based financial institutions must be rated BBB+ or better. BOLI may only be purchased from insurance carriers rated A or better. For carriers rated AA or better, cash surrender value is limited to 15% of Tier 1 capital, and for those carriers rated below AA, the limitation is 10% of Tier 1 capital. The cash surrendermarket value of policies with all carriers, plus corporate bond holdings of such carriers, cannot exceed 25% of Tier 1 capital.investment securities may be caused by changes in market interest rates, lower market prices, rating downgrades and limited investor demand. Management periodically reviews the creditworthiness of all securities in the Bank’s portfolio, other than those issued by the U.S. government or its agencies, and all BOLI carriers. Any significant deterioration in the creditworthiness of an issuer or carrier will be analyzed and action taken if deemed appropriate. If an investment's value is deemed other-than-temporarily impaired, the Bank must write down the fair value of the debt security which may involve a charge to earnings. 

Credit risk in the Bank’s loan portfolio has been addressed by adopting a board committee approved loan policy and by maintaining independent loan and appraisal review functions and an independent credit department. The loan policy contains what the Corporation believes to be prudent underwriting guidelines, which include, among other things, specific loan approval requirements, maximum loan terms, loan to appraised value and debt service coverage limits for mortgage loans, credit score minimums, guarantor support and environmental study requirements.

The credit risk within the Bank’s loan portfolio primarily stems from factors such as changes in the borrower’s financial condition, credit concentrations, changes in collateral values, economic conditions, rent regulation and environmental contamination of properties securing mortgage loans. The Bank’s commercial loans, including those secured by mortgages, are primarily made to small and medium-sized businesses. Such loans sometimes involve a higher degree of risk than those to larger companies because such businesses may have shorter operating histories, higher debt-to-equity ratios and may lack sophistication in internal record keeping and financial and operational controls. In addition, most of the Bank’s loans are made to businesses and consumers on Long Island and in the boroughs of NYC, and a large percentage of these loans are mortgage loans secured by properties located in those areas. At December 31, 2020,2023, residential mortgage loans, including home equity lines of credit, amounted to approximately $1.4$1.2 billion and comprised approximately 49%37% of loans secured by real estate.total loans. The primary source of repayment for residential mortgage loans is cash flows from individual borrowers and co-borrowers. Also, atAt December 31, 2020,2023, multifamily loans amounted to approximately $777.0$857.2 million and comprised approximately 55%45% of the Bank’s total commercial mortgage portfolio and approximately 28%26% of the Bank’s total loans secured by real estate.loans. The primary source of repayment for multifamily loans is cash flows from the underlying properties, which generally involves a numbergreater risk than residential real estate loans because of legislation and government regulations involving rent control, rent stabilization and eviction, which are rent stabilizedoutside the control of the borrower or rent controlled. Such cashthe Bank and could impair the value of the collateral for the loans. Cash flows for both residential mortgage and multifamily loans are dependent on the strength of the local economy.

Environmental impairment of properties securing mortgage loans is always a risk. However, the Bank is not aware of any existing loans in the portfolio where there is environmental pollution originating on or near the mortgaged properties that would materially affect the value of the portfolio.

Changes in interest rates and the shape of the yield curve could negatively impact our earnings.

The Bank’s financial condition and results of operations are subject to risk resulting from interest rate fluctuations and having assets and liabilities that have different maturity, repricing and prepayment/withdrawal characteristics. The Bank defines interest rate risk as the risk that the Bank's net interest income and/or economic value of equity (“EVE”) will change when interest rates change. The Bank has addressed interest rate risk by adopting a board committee approved interest rate risk policy which sets forth quantitative risk limits and calls for monitoring and controlling interest rate risk through a variety of techniques including the use of interest rate sensitivity models and traditional repricing gap analysis. Management utilizes a consultant with expertise in bank asset liability management to aid in these efforts.

In a period of rising interest rates, the interest income earned on the Bank’s assets may not increase as rapidly as the interest paid on its liabilities.liabilities such as deposits and FHLB advances. The Bank’s cost of funds is expected to increase more rapidly than interest earned on its loan and investment portfolios as its primary source of funds is deposits and FHLB advances with generally shorter maturities or repricing characteristics than the maturities and repricing characteristics of its loans and investments. At December 31, 2023, 21.6% of the Bank’s loans and securities reprice or mature within one year. This makes the balance sheet more liability sensitive in the short-term. In addition, in a period of rising interest rates, noninterest-bearing deposits may convert to interest-bearing deposits further increasing the Bank’s funding costs. The current economic environment, characterized by a high rate of inflation, a pause after a period of rapidly rising interest rates and an inverted yield curve, presents significant financial challenges to the Corporation.

When interest rates decline, borrowers may refinance higher rate loans atto lower rates causing prepayments on mortgage loans and mortgage-backed securities to be elevated. Under those circumstances, the Bank may not be able to reinvest the resulting cash flows in new interest-earning assets with rates as favorable as those that prepaid. In addition, subject to the floors contained in many of the Bank’s

loan agreements, the Bank’s loans at variable interest rates may adjust to lower rates at their reset dates. While lower rates may reduce the Bank’s cost of funds on non-maturity deposits, certificates of deposit (“CDs”) and FHLB advances, the cost savings could be somewhat constrained because decreases in the Bank’s funding rates may occur more slowly than decreases in yields earned on the Bank’s assets and a significant portion of the Bank’s funding is currently derived from noninterest bearingnoninterest-bearing checking deposits and capital. In addition, in a prolonged low interest rate environment, the Bank’s deposit products could reach an effective floor rate close to zero which would not allow for any further reduction in its cost of funds.

Changes in interest rates also affect the value of our interest-earning assets and in particular our securities and loan portfolios. Generally, the value of securities fluctuates inversely with changes in interest rates. At December 31, 2023, our AFS securities portfolio totaled $695.9 million. Unrealized gains and losses on AFS securities are reported as a separate component of stockholders’ equity. Therefore, decreases in the fair value of AFS securities resulting from increases in interest rates could have an adverse effect on stockholders’ equity.

In addition to the risks arising from changes in interest rates, the current level of interest rates and shape of the yield curve could create downward pressure on net interest income and net interest margin. In a low interest rate environment with athe current flat or inverted yield curve environment, asset growth could negatively impact the Bank’s earnings andand/or profitability metrics could be negatively impacted by asset growth.metrics. As a result, the Bank may be unable to increase earnings, or maintain the current level of earnings, until the shapeyield curve steepens.

The performance of our multifamily real estate loans could be adversely impacted by regulation.

Multifamily real estate loans generally involve a greater risk of non-payment and loss than one-to-four family residential real estate loans. Repayment of the yield curve improves.

Regulatory Matters

Uncertainty, changes in accounting rulesloans often depends on the successful operation of the properties and regulatory principalsthe sale of such properties securing the loans. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one-to-four family residential loans. If loans that are collateralized by real estate become troubled and other factorsthe value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could result in a needcause us to increase our provision for credit losses and adversely affect our operating results and financial condition. 

Additionally, legislation and government regulations involving rent control and rent stabilization which are outside the Bank’scontrol of the borrower or the Bank, could impair the value of the collateral for the loan or the future cash flow of such properties. As an example, on June 14, 2019, the New York State legislature passed the New York Housing Stability and Tenant Protection Act of 2019. This legislation represents the most extensive reform of New York State’s rent laws in several decades and generally limits a landlord’s ability to increase rents on rent regulated apartments and makes it more difficult to convert rent regulated apartments to market rate apartments. As a result, the value of the collateral located in New York State securing the Company’s multifamily loans or the future net operating income of such properties could potentially become impaired which, in turn, could have a material adverse effect on our financial condition and results of operations. To date, the Company has not experienced any material negative impacts as a result of this legislation.

Management’s estimate of the Allowance for Credit Losses (“ACL”(“ACL” or “allowance”“allowance”) may not be sufficient and could result in increased provisions and adversely impact our financial condition and results of operations.

The Bank maintains an ACL in an amount believed to be adequate to absorb current expected lifetime credit losses in its loan portfolio. The maintenance of the ACL is governed by a board committee approved ACL policy. In arriving at the ACL, an individual evaluation is performed on each loan with disparate risk characteristics or information suggesting that the Bank will be unable to collect all the principal and interest due according to contractual terms. In addition, current expected lifetime credit losses for all other loans in the Bank’s portfolio are determined on a pooled basis using the CECL model and taking into account historical loss experience and numerous quantitative and qualitative factors (“Q-factors”), including among other things, current and forecasted economic conditions measured by such things as GDP,gross domestic product (“GDP”), unemployment levels, vacancies, and home prices, changes in the value of underlying collateral, average growth in loan pools, concentrations of credit, changes in lending policies and procedures, experience, ability and depth of lending staff, changes in quality of the loan review function, environmental risks and loan risk ratings. Because estimating the ACL is highly subjective in nature and involves a variety of estimates and assumptions that are inherently uncertain, there is the risk that management’s estimate may not accurately capture probable lifetime losses in the loan portfolio. The Bank’s allowance may need to be increased based on among other things, additional information that comes to light after the estimate is made, changes in circumstances or a recommendation by bank regulators based on their review of the Bank’s loan portfolio. The impact of one or more of these factors on the Bank’s allowance could result in the need for a significant increase in the Bank’s provision for credit losses and have a material adverse impact on the Bank’s financial condition and results of operations.

Regulatory Matters

If our regulators impose limitations on our commercial real estate lending activities, earnings could be adversely affected, and we may face greater risk in our loan portfolio.

In 2006, the federal bank regulatory agencies issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”). Although the CRE Guidance did not establish specific lending limits, it provides that a bank’s commercial mortgage lending exposure may receive increased supervisory scrutiny where total non-owner occupied commercial mortgages, including loans secured by apartment buildings, investor commercial mortgages and construction and land loans ("CRE loans"), represent 300% or more of an institution’s total risk-based capital and the outstanding balance of the CRE loan portfolio has increased by 50% or more during the preceding 36 months ("CRE growth rate"). The Company’s CRE loans, equaled 361% of total risk-based capital at December 31, 2023 and the Company's CRE growth rate during the 36-month period ended December 31, 2023 was 30.7%. The Company did not meet the combined thresholds for increased supervisory scrutiny. However, if our regulators were to impose restrictions on the amount of CRE loans we can hold in our portfolio or require higher capital ratios as a result of the level of CRE loans held, our earnings would be adversely affected.

If we are limited in our ability to originate loans secured by commercial real estate, we may incur greater risk in our loan portfolio. For example, we are and may continue to seek to further increase our growth rate in commercial and industrial loans, including both secured and unsecured commercial and industrial loans. Unsecured loans generally involve a higher degree of risk of loss than do secured loans because, without collateral, repayment is wholly dependent upon the success of the borrowers’ businesses and personal guarantees. Secured commercial and industrial loans are generally collateralized by accounts receivable, inventory, equipment or other assets owned by the borrower and typically include a personal guaranty of the business owner. Compared to real estate, that type of collateral is more difficult to monitor, its value is harder to ascertain, it may depreciate more rapidly, and it may not be as readily saleable if repossessed. Therefore, we may be exposed to greater risk of loss on these credits.

The Bank is subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties.

The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose non-discriminatory lending requirements on financial institutions. With respect to the Bank, the FRB, United StatesU.S. Department of Justice and other federal and state agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and restrictions on expansion. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on the Bank’s business, financial condition and results of operations.

The performance of the Bank’s multifamily real estate loans could be adversely impacted by recent regulation.

Multifamily real estate loans generally involve a greater risk than residential real estate loans because of legislation and government regulations involving rent control, rent stabilization and eviction, which are outside the control of the borrower or the Bank and could impair the value of the collateral for the loans or the future cash flow of such properties. In June 2019, New York State (“NYS”) passed The Housing Stability and Tenant Protection Act of 2019 (“TPA”), which represents a substantial change to the laws that have governed landlord-tenant relations in NYS for decades and significantly strengthens tenant protections. TPA increases the restrictions on rent increases in a rent-regulated apartment building, including, among other provisions, (1) repealing the vacancy bonus and longevity bonus, which allowed a property owner to raise rents as much as 20% each time a rental unit became vacant, (2) eliminating high rent vacancy deregulation and high-income deregulation, which allowed a rental unit to be removed from rent stabilization once it crossed a statutory high-rent threshold and became vacant, or the tenant’s income exceeded the statutory amount in the preceding two years, and (3) eliminating an exception that allowed a property owner who offered preferential rents to tenants to raise the rent to the full legal rent upon renewal. The new legislation still permits a property owner to charge up to the full legal rent once the tenant vacates. Because of this new legislation as well as previously existing laws and regulations, it is possible that rental income on multifamily properties might not rise sufficiently over time to satisfy increases in the loan rate at repricing or increases in overhead expenses (e.g., utilities, taxes, etc.). In addition, if the cash flow from a collateral property is reduced (e.g., if leases are not obtained or renewed), the borrower’s ability to repay the loan and the value of the collateral for the loan may be impaired. Therefore, impaired multifamily real estate loans may be more difficult to identify before they become problematic than residential real estate loans.

Changes in laws, government regulation and supervisory guidance could have a significant negative impact on our financial condition and results of operations.

The Corporation and the Bank are subject to regulation, supervision and examination by, among others, the FRB, OCC and FDIC. The FDIC also insures the Bank’s deposits. Regulation and supervision govern the activities in which a bank and its holding company may engage and are intended primarily for the protection of depositors. Regulatory requirements affect virtually all aspects of the Corporation’s and the Bank’s business, including among other things, investment practices,and lending practices, deposit offerings and capital levels. The regulators have extensive discretion in connection with their supervisory and enforcement activities, including imposing restrictions on Bank operations and expansion plans, imposing deposit insurance premiums and other assessments, setting required levels for the ACL, capital and liquidity, and imposing restrictions on the ability to pay cash dividends and other capital distributions to stockholders. Changes in laws, regulations and supervisory guidance, or the Corporation’s and the Bank’s compliance with these laws and regulations as judged by the regulators, could have a significant negative impact on the Corporation’s financial condition and results of operations. The Corporation manages the risk of noncompliance with laws

Increasing scrutiny and regulations by having board committee approved compliance policies, hiring and retaining employees with the experience and skills necessary to address compliance on an ongoing basis, and consulting, when necessary with legal counselevolving expectations from customers, regulators, investors and other outside expertsstakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.

Companies are facing increasing scrutiny from customers, regulators, investors and other stakeholders related to their environmental, social and governance ("ESG") practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights. Increased ESG related compliance matters.costs could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or stakeholder expectations could negatively impact our reputation, ability to do business with certain partners and our stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory or voluntary reporting, diligence and disclosure.

Business Issues

Our stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository institutions.Further, if we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, which have come under greater scrutiny in light of recent bank failures, it may have a material adverse effect on our financial condition and results of operations.

On March 9, 2023, Silvergate Bank, La Jolla, California, announced its decision to voluntarily liquidate its assets and wind down operations. On March 10, 2023, Silicon Valley Bank, Santa Clara, California, was closed by the California Department of Financial Protection and Innovation (“DFPI”), on March 12, 2023, Signature Bank, New York, New York, was closed by the New York State Department of Financial Services, and on May 1, 2023, First Republic Bank, San Francisco, California, was closed by the DFPI, and in each case the FDIC was appointed receiver for the failed institution. These banks had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and a less stable source of funding than insured deposits. These failures have led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions. 

These events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of its deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management. If we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, it may have a material adverse effect on our financial condition and results of operations.

There can be no assurance that we will continue to declare cash dividends.

The declaration and payment of any dividend is subject to the approval of our Board of Directors and our dividend may be discontinued or reduced at any time. Our ability to pay cash dividends is limited by restrictions or limitations on our ability to obtain sufficient funds through dividends from the Bank. There can be no assurance that the current payout ratio is sustainable or that we will be able to declare cash dividends in the future in any particular amounts, or at all. For additional information, see "Item 1 - Business - Payment of Dividends."

The Bank and Corporation may not have sufficient funds or funding sources to meet liquidity demands.

Liquidity risk is the risk that the Bank will not have sufficient funds to accommodate loan growth, meet deposit outflows or make contractual payments on borrowing arrangements. The Bank has addressed liquidity risk by adopting a board committee approved liquidity policy and liquidity contingency plan that set forth quantitative risk limits and a protocol for responding to liquidity stress conditions should they arise. The Bank encounters significant competition for deposits in its market area from larger banks, various community banks, credit unions and other financial services organizations. This competition for deposits, particularly in the recent rapidly rising interest rate environment, could result in significant outflows and canfurther exert upward pressure on the Bank’s funding costs. In addition, the Bank’s concentration of deposits with certain customers could limit our ability to favorably reprice deposits and grow net interest income, net interest margin and earnings.

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 and maturities and monthly payments on its investment securities and loan portfolios.

The Bank is a member of the FRB of New YorkNY (“FRBNY”) and the FHLBNY 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 FHLBNY and FRBNY. In addition, the Bank can purchase overnight federal funds under its existing line and the Corporation canmay raise funds through its DRIP.Dividend Reinvestment and Stock Purchase Plan (“DRIP”). However, the Bank’s FRBNY membership, FHLBNY 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 currently dependent on among other things, 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 FRBNY or the FHLBNY 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. Regulatory or strategic changes affecting the access to and availability of funding from the FHLBNY could adversely impact the Bank’s liquidity.

The Corporation relies on dividends from the Bank to fund its operating expenses, dividends to shareholders and repurchases of common stock. The OCC restricts the dividends the Bank may pay to the Corporation to its retained net profits for the preceding two calendar years plus current year retained net profits. These restrictions may limit the Corporation’s ability to pay dividends or repurchase shares. In addition, the Corporation may not be successful in raising funds from the issuance of its stock under the DRIP or otherwise.

Our funding sources may prove insufficient to replace deposits at maturity and support our future growth.A lack of liquidity could adversely affect our financial condition and results of operations and result in regulatory limits being placed on the Corporation.

The Bank must maintain sufficient funds to respond to the needs of depositors and borrowers. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also receive funds from loan repayments, investment maturities and income on other interest-earning assets. While we emphasize the generation of low-cost core deposits as a source of funding, there is strong competition for such deposits in our market area. Additionally, deposit balances can decrease if customers perceive alternative investments as providing a better risk/return tradeoff. Accordingly, as part of our liquidity management, we must use a number of funding sources in addition to deposits and repayments and maturities of loans and investments, including FHLB advances, federal funds purchased and brokered CDs. Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources.

Our financial flexibility will be severely constrained if we are unable to maintain access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Further, if we are required to rely more heavily on more expensive funding sources to support liquidity and future growth, our revenues may not increase proportionately to cover the increased costs. In this case, our operating margins and profitability would be adversely affected. Alternatively, we may need to sell a portion of our securities and/or loan portfolio to raise funds which, depending upon market conditions, could result in us realizing a loss on the sale of such assets. As of December 31, 2023, we had a net unrealized loss of $71.9 million on our AFS securities portfolio resulting from the change in the interest rate environment. Investment securities totaled $695.9 million, or 16% of total assets, at December 31, 2023.

Any decline in available funding could adversely impact our ability to originate loans, invest in securities, pay our expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.

A lack of liquidity could also attract increased regulatory scrutiny and potential restraints imposed on us by regulators. Depending on the capitalization status and regulatory treatment of depository institutions, including whether an institution is subject to a supervisory PCA directive, certain additional regulatory restrictions and prohibitions may apply, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends and restrictions on the acceptance of brokered deposits.

A decline in the Corporation’sCorporation’s market capitalization could negatively impact the price, trading volume and liquidity of our common stock.

The Corporation’s common stock is included in the Russell 3000 and Russell 2000 Indexes, which are reconstituted annually. Upon reconstitution in May 2020, the average market capitalization of companies in the Russell 2000 Index was $1.9 billion,2023, the median market capitalization of the Russell 2000 index was $580.0$896.6 million, the capitalization of the largest company in the index was $4.4$6.0 billion and the capitalization of the smallest company in the index was $94.8$159.5 million. The Corporation’s market capitalization was approximately $299 million on December 31, 2020 was approximately $425 million, below the $500 million market capitalization which may make the Corporation’s common stock more attractive to certain investors. The Corporation believes that inclusion in the Russell indexes has positively impacted the price, trading volume and liquidity of its common stock. Conversely, if2023. If the Corporation’s market capitalization falls below the minimum necessary to be included in the indexes at any future reconstitution date, the opposite could occur. The Corporation also believes that the activity under its stock repurchase program has positively impacted the price, and trading volume and liquidity of its common stock. Discontinuance of the stock repurchase program could have the opposite effect.may be negatively impacted.

The Bank’sBank’s internal controls and those of its third-party service providers (“TPSPs”) may be ineffective or circumvented, resulting in significant financial loss, adverse action by governmental bodies and damaged reputation.

The Corporation relies on its system of internal controls and the internal controls of its TPSPs to ensure that transactions are captured, recorded, processed and reported properly; confidential customer information is safeguarded; and fraud by employees and persons outside the Corporation is detected and prevented. The Corporation’s internal controls and/or those of its TPSPs may prove to be ineffective or employees of the Corporation and/or its TPSPs may fail to comply with or override the controls, either of which could result in significant financial loss to the Corporation, adverse action by bank regulatory authorities or the SEC and damage to the Corporation’s reputation.

The Bank’sBank’s inability to keep pace with technological advances could negatively impact our business, financial condition and results of operations.

The delivery of financial products and services has increasingly become technology-driven.technology driven. The Bank’s ability to competitively meet the needs of its customers in a cost-efficient manner is dependent on its ability to keep pace with technological advances and to invest in new technology as it becomes available. The ability to keep pace with technological change is important, and failure to do so could have a material adverse impact on the Corporation’s business, financial condition and results of operations.

The inability to attract, motivate or retain qualified key personnel could negatively impact our performance.

The Corporation’s future success depends in part on the continued service of its executive officers and other key members of management and its staff, as well as its ability to continue to attract, motivate and retain additional highly qualified employees. The loss of services of key personnel and our inability to timely recruit or promote qualified replacements could have an adverse effect on the Bank’s business, operating results and financial condition. Their skills, knowledge of the Bank’s market and years of industry experience may be difficult to replace.

SecurityThe inability to control the risks associated with social media and other internet postings could adversely impact the Corporation's business and reputation.

Customers, shareholders, employees and outsiders could potentially share sensitive or inaccurate information on social media platforms or engage in behavior that may reflect poorly on the company and lead to adverse impacts on the Corporation’s business. While social media activity may provide benefits like increased brand awareness, even positive social media posts have the potential to create controversy and increase the Corporation's risk profile.

Mergers and acquisitions involve numerous risks and uncertainties.

The Corporation may in the future pursue mergers and acquisitions opportunities. Mergers and acquisitions involve a number of risks and challenges, including the expenses involved; potential diversion of management’s attention from other strategic matters; integration of branches and operations acquired; outflow of customers from the acquired branches; retention of personnel from acquired companies or branches; competing effectively in geographic areas not previously served; managing growth resulting from the transaction; and dilution in the acquirer's book and tangible book value per share.

Security

System failures, interruptions and security breaches could negatively impact our customers, reputation and results of operations.

The Bank outsources most of its data processing to TPSPs. If TPSPs encounter difficulties, or if the Bank has difficulty communicating with them, the Bank’s ability to adequately process and account for customer transactions could be affected, and the Bank’s business operations could be adversely impacted. Threats to information security also exist in the processing of customer information through TPSPs. The Bank’s website and online banking products have been the target of cyber attackscyberattacks in the past. While the Bank and its TPSPs believe they have successfully blocked attempts to infiltrate the Bank’s systems, there is always the possibility that successful attacks have not yet been identified and future attacks may not be blocked. A significant cybersecurity incident may be determined to be material insider information and would prohibit corporate insiders from trading in Companythe Corporation’s stock until appropriate public disclosures are made.

Opportunistic cyberattacks and malicious financial crimes have been growing globally in number and complexity and increase the cost of technology, compliance and labor. The Risk Committee of the Board has oversight responsibility for cybersecurity risk, compliance and technology which it administers through periodic meetings with management and consultants with cybersecurity expertise and the approval of information technology and cybersecurity policies. In this regard, board committee approved policies address information security, IT vulnerability assessment, cybersecurity incident response and electronic communications. These policies are intended to prevent, detect and respond to cybersecurity incidents. In addition, these policies prevent or limit the impact of systems failures, interruptions and security breaches and rely on commonly used security and processing systems to provide the security and authentication necessary for the processing of data. The Bank makes use of logon and user access controls, multifactor and out of band authentication, transaction limits, firewalls, antivirus software, intrusion protection monitoring and vulnerability scans and conducts independent penetration testing and cybersecurity audits. Bank communications encourage employee and executive awareness of cybersecurity trends. System failures or interruptions are addressed in the board committee approved emergency and disaster recovery policy and business continuity policy. In addition, for TPSPs of data processing and other significant services, the board committee approved third party management policy and procedures require reviews of audit reports prepared by independent registered public accounting firms regarding their financial condition and the effectiveness of their internal controls.

These precautions may not protect our systems from all compromises or breaches of security and there can be no assurance that such events will not occur or that they will be adequately addressed if they do. The Bank carries a cyber liability insurance policy to mitigate the amountrisks of any financial loss. However, the occurrence of any systems failure, interruption or breach of security could damage the Bank’s reputation and result in a loss of customers and business, could subject the Bank to additional regulatory scrutiny or could expose the Bank to civil litigation and possible financial liability beyond any insurance coverage. Any of these occurrences could have a material adverse effect on the Corporation’s financial condition and results of operations.

Risks associated with cybersecurity could negatively affect our earnings.

The financial services industry has experienced an increase in both the number and severity of reported cyberattacks aimed at gaining unauthorized access to bank systems as a way to misappropriate assets and sensitive information, corrupt and destroy data, or cause operational disruptions.

We have established policies and procedures to prevent or limit the impact of security breaches, but such events may still occur or may not be adequately addressed if they do occur. Although we rely on security safeguards to secure our data, these safeguards may not fully protect our systems from compromises or breaches.

We also rely on the integrity and security of a variety of third-party processors, payment, clearing and settlement systems, as well as the various participants involved in these systems, many of which have no direct relationship with us. Failure by these participants or their systems to protect our customers’ transaction data may put us at risk for possible losses due to fraud or operational disruption.

Our customers are also the target of cyberattacks and identity theft. Large scale identity theft could result in customers’ accounts being compromised and fraudulent activities being performed in their name. We have implemented certain safeguards against these types of activities, but they may not fully protect us from fraudulent financial losses.

The occurrence of a breach of security involving our customers’ information, regardless of its origin, could damage our reputation and result in a loss of customers and business and subject us to additional regulatory scrutiny, and could expose us to litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.

While our Board of Directors takes an oversight role in cybersecurity risk tolerance, we rely to a large degree on management and outside consultants in overseeing cybersecurity risk management.

Our Board of Directors takes an oversight role in the cybersecurity risk tolerance of the Corporation and all members receive cybersecurity training annually. The Board approves information technology policies, including those relative to cybersecurity. Furthermore, our Audit Committee is responsible for reviewing all audit findings related to information technology general controls, internal and external vulnerability, and penetration testing. We also engage outside consultants to support our cybersecurity efforts. However, our directors do not have significant experience in cybersecurity risk management outside of the Corporation and therefore, its ability to fulfill its oversight function remains dependent on the input it receives from management and outside consultants.

ITEM 1B. UNRESOLVEDUNRESOLVED STAFF COMMENTS

None.

ITEM 1C. CYBERSECURITY

Our risk management program is designed to identify, assess, and mitigate risks across various aspects of our company, including but not limited to the following risks: operational, regulatory compliance, reputational, strategic, information technology, data security and privacy, and market risks such as interest rate, credit, liquidity and price risks. Cybersecurity is a critical component of this program, given the increasing reliance on technology and potential of cyber threats. Our Board of Directors is responsible for risk oversight over all significant risks facing the Corporation and fulfills this responsibility mainly through its committees. While our Board of Directors takes an oversight role in cybersecurity risk tolerance, we rely to a large degree on management and outside consultants in overseeing cybersecurity risk management. Our Director of Information Security, who reports directly to our Chief Information Officer, is primarily responsible for this cybersecurity component and is a member of management's Operational Risk and IT Steering Committees, and regularly attends and presents to the Risk Committee of our Board of Directors ("Risk Committee").

Our objective for managing cybersecurity risk is to avoid or minimize the impacts of external threat events or other efforts to penetrate, disrupt or misuse our systems or information. The structure of our information security program is designed around regulatory guidance, and other industry standards. In addition, we leverage certain industry and government associations, audits, and threat intelligence feeds to facilitate and promote program effectiveness.

We leverage people, processes, and technology as part of our efforts to manage and maintain cybersecurity controls. We also employ a variety of preventative and detective tools designed to monitor, block, and provide alerts regarding suspicious activity, as well as to report on suspected advanced persistent threats. We have established processes and systems designed to mitigate cyber risk, including regular and on-going education and training for employees, preparedness simulations and tabletop exercises, and recovery and resilience tests. We engage in regular assessments of our infrastructure, software systems, and network architecture, using internal and third-party specialists. We also maintain a third-party risk management program designed to identify, assess, and manage risks, including cybersecurity risks, associated with external service providers. We also actively monitor our email gateways for malicious phishing email campaigns and monitor remote connections as a significant portion of our workforce has the ability to work remotely. We leverage internal and external auditors and independent external partners to periodically review our processes, systems, and controls, including with respect to our information security program, to assess their design and operating effectiveness and make recommendations to strengthen our risk management program.

We maintain an Incident Response Plan that provides a documented framework for responding to actual or potential cybersecurity incidents, including notification of and escalation to the appropriate team members as well as executive management and the Board of Directors. The Incident Response Plan is coordinated through the Director of Information Security and key members of management. The Incident Response Plan facilitates coordination across multiple departments and is evaluated at least annually.

Notwithstanding our defensive measures and processes, the threat posed by cyberattacks is severe. Our internal systems, processes, and controls are designed to mitigate loss from cyberattacks. To date, the Corporation has not, to its knowledge, experienced an incident materially affecting or reasonably likely to materially affect the Corporation.

The Director of Information Security provides information security updates to the IT Steering Committee and the Risk Committee. Cybersecurity metrics are reported to the IT Steering Committee monthly and to the Risk Committee on a quarterly basis. Security training is provided to all staff through targeted training overseen by the Director of Information Security. All Board members receive cybersecurity training annually.

The Board of Directors recognizes the importance of the Interagency Guidelines Establishing Standards for Safeguarding Customer Information and has incorporated those elements in its ongoing oversight of the Information Security Program. At least annually, the Director of Information Security and the Chief Risk Officer report to the Risk Committee the overall status of the Information Security Program. Any material findings related to the risk assessment, risk management and control decisions, service provider arrangements, results of testing, security breaches or violations are discussed as are management’s responses and any recommendations for program changes.

ITEM 2. PROPERTIESPROPERTIES

The Corporation neither owns nor leases any real estate. Office facilities of the Corporation are located at 275 Broadhollow Road, Melville, NY and the Bank’s main office arebranch is located at 10 Glen Head Road, Glen Head, New YorkNY in a building ownedoffice space leased by the Bank.

As of December 31, 2020,2023, the Bank owns 2319 buildings and leases 3830 other facilities, all of which are in Nassau and Suffolk Counties of Long Island and the NYC boroughs of Queens, Brooklyn and Manhattan. Included in the leased facilities is one branch location that was closed in 2023 and one closed in 2022 for which the Bank continues to be obligated to make lease payments. One owned building is classified as held-for-sale and currently in contract to be sold. The Corporation believes that the remaining physical facilities of the Bank are suitable and adequate at present and are being fully utilized.

ITEM 3. LEGALLEGAL PROCEEDINGS

From time to time, the Corporation is involved in various legal actions and claims arising in the normal course of its business. In the opinion of management, these legal actions and claims are not expected to have a material adverse impact on the Corporation’s financial condition and results of operations.

ITEM 4. MINE SAFETYSAFETY DISCLOSURES

Not applicable.

PART II

PART II

ITEM 5. MARKETMARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Corporation’s common stock trades on the NASDAQ Capital Market tier of the NASDAQ Stock Market under the symbol “FLIC.” At December 31, 2020,2023, there were 953765 stockholders of record of the Corporation’s common stock. The number of stockholders of record includes banks and brokers who act as nominees, each of whom may represent more than one stockholder. The Corporation declared cash dividends of $.74$0.84 per share for the year ended December 31, 2020,2023, compared to cash dividends declared in 20192022 of $.70$0.82 per share. The Corporation currently expects that comparable cashtiming and amount of future dividends are at the discretion of the Board of Directors and will continue to be paid in the future.depend upon a number of economic and company-specific factors.

Performance Graph

The following performance graph compares the Corporation's total stockholder return with the NASDAQ U.S. Benchmark, and NASDAQ U.S. Benchmark Banks and the ABA Community Bank NASDAQ Indexes over a five-year measurement period assuming $100 invested on January 1, 2016,2019, and dividends reinvested in the Corporation’s stock. In 2023, the ABA Community Bank NASDAQ Index was selected to replace the NASDAQ U.S. Benchmark Banks Index as we concluded it more closely reflects the size and characteristics of the Corporation.

Issuer Purchase of Equity Securities

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 detailsCorporation did not repurchase any shares of the Corporation’s purchases under theits own common stock repurchase program in the fourth quarter of 2020 are set forth in the table that follows.2023.

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ITEM 6. SELECTED FINANCIAL DATA

The following is selected consolidated financial data for the past five years, adjusted as appropriate to reflect the Corporation’s stock splits. This data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the accompanying consolidated financial statements and related notes.

RESERVED

‎

ITEM 7. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following selected financial data should be read in conjunction with the accompanying consolidated financial statements.

Overview – 2020 2023 Versus 20192022

Analysis of 20202023 Earnings. Net income and diluted earnings per share (“EPS”) for 20202023 were $41.2$26.2 million and $1.72,$1.16, respectively. Dividends per share increased 5.7%2.4% from $.70$0.82 for 20192022 to $.74$0.84 for 2020.2023. ROA and ROE for 20202023 were 1.00%0.62% and 10.47%7.14%, respectively, compared to .99%1.11% and 10.61%12.13%, respectively, for 2019.2022.

Net income and EPS for 2020 was $41.22023 were $26.2 million and $1.16, respectively, compared to $46.9 million and $2.04, respectively, in 2022. The principal drivers of the decreases were declines in net interest income of $28.8 million, or 24.9%, and a loss on sale of securities of $3.5 million. These items were partially offset by a decrease in income tax expense of $352,000, or .8%, as compared to 2019. The$8.1 million and a decrease is mainly due to an increase in the provision for credit losses of $3.0 million partially offset by increases$2.7 million. The decline in net interest income of $1.9 million, or 1.9%primarily resulted from the current rate environment’s impact on the Bank’s liability sensitive balance sheet. Reductions in net income negatively impacted key financial ratios for the year as compared to historical results. For the year ended December 31, 2023, the ROA was 0.62%, ROE was 7.14%, the net interest margin was 2.16%, and noninterest income, before securities gains,the efficiency ratio was 65.52%.

Over the second half of 2023, the pace of the decline in the net interest margin slowed considerably. After a 57 basis point reduction in the margin during the first two quarters of 2023, over the final two quarters of 2023 the margin decreased 17 basis points ("bps"). The slowing downward trend in the net interest margin largely resulted from a large portion of the wholesale funding and time deposits being repriced to higher market rates by mid-2023 and two balance sheet repositioning transactions in the first quarter of 2023 that helped reduce the Bank’s liability sensitive position. Additionally, as the federal funds rate held steady in the second half of the year, the demand for higher rates from depositors slowed.

The increase in

For the year ended December 31, 2023, net interest income is mainly attributabledeclined due to an increase in interest expense of $50.1 million that was only partially offset by a reduction$21.3 million increase in deposit rates in response to decreases in the federal funds target rate to near zero as well as significant declines in rates across the entire yield curve. Declines ininterest income. Year over year, the cost of savings, NOW and money market deposits and interest-bearing liabilities far outpacedincreased 186 bps while the decline in yield on securities and loans which are generally not subjectinterest-earning assets increased 48 bps. Also contributing to immediate repricing with changes in market interest rates. The increasethe decline in net interest income was also attributable to income from SBA PPP loans and a favorable shift in the mix of funding as an increase in average checkingnoninterest-bearing deposits and a decline indecreased $217.9 million while average interest-bearing liabilities resultedincreased $221.6 million as depositors took advantage of interest rates not seen in average checking deposits comprisingover a larger portiondecade.

Noninterest income declined $2.8 million year over year excluding the net gains and losses on sales of total funding. Average checking deposits include a portionsecurities and the disposition of the proceeds of PPP loans.

Net interest margin for 2020 was 2.64%, an increase of 7 basis points over 2019.premises and fixed assets. The increase was mainly attributable to our ability to reduce the rates paid on interest-bearing deposits faster than interest-earning assets repriced downward and a deleveraging transaction completed in the third quarter of 2020.

The provision for credit losses was $3.0 million for 2020 on a CECL basis as compared to $33,000 for 2019 on an incurred loss basis. The provisionprimary factor reducing noninterest income for the current year was primarily attributable to the pandemic and reflected higher historical loss rates, economic conditions and net chargeoffs, partially offset by a $2.3 million decline in the outstanding loan balance of residential and commercial mortgages.net pension credit, excluding service costs. The provision for 2019remaining difference was driven mainly by net chargeoffs, partially offset by declines in outstanding loans and lower growth rate trends.

The increase in noninterest income, before securities gains, of $933,000 is primarily attributable to an increase in the non-service components of the Bank’s defined benefit pension plan and income relatingrelated to a transition payment from an independent broker-dealerreceived in 2022 for the initial conversion of the Bank’s retail broker and advisory accounts. Partially offsetting these increases was a decrease in service charges on deposit accounts due to the pandemic. Management remains focused on revenue enhancement initiatives; however, the pandemic has negatively affected most categories of noninterest income.LPL.

Noninterest expense before debt extinguishment costs, increased $58,000 in 2020declined $3.0 million, or 4.4%, for the year ended December 31, 2023, as compared to 2019. Excluding executive severancethe prior year. Reductions in salaries and retirement chargesemployee benefits of $2.6$3.7 million primarily drove the decline as short-term incentive compensation and stock-based compensation costs were substantially lower than 2022 based on the Company falling short of established performance metrics for 2023. The primary offset to the lower salaries and employee benefits was a $782,000 increase in 2019, the increase over 2019 was primarilyFDIC insurance expense due to increaseshigher assessment rates.

The Bank recorded a credit loan loss provision of $326,000 during 2023. Changes in compensationthe loan loss reserve were driven largely by adjustments for economic conditions offset by net chargeoffs of $2.1 million, or 6 bps of average loans. The ACL to total loans ("reserve coverage ratio") at year end 2023 was 0.89% of total loans as compared to 0.95% of total loans at December 31, 2022. Past due loans and benefit costs mainly related to normal salary adjustmentsnonaccrual loans were modest at $3.1 million and hiring$1.1 million, respectively, at December 31, 2023. During the fourth quarter of lending2023, the Bank partially charged off a previously identified substandard commercial and industrial loan relationship in the amount of $1.4 million. The remaining outstanding balance of $632,000 is fully reserved and represents the majority of outstanding nonaccrual loans. Overall credit staff.quality in the loan and investment portfolios remains strong.

The increase in incomeIncome tax expense of $96,000 is attributable to an increase indecreased $8.1 million and the effective tax rate (income tax expense as a percentage of pre-tax book income) declined from 16.5%19.4% in 20192022 to 16.8%11.0% in 2020 as tax-exempt income from municipal securities and BOLI2023. The decline in the current year declined as aeffective tax rate is mainly due to an increase in the percentage of pre-tax earnings when compared to 2019.income derived from the Bank's REIT 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 ACL to total loans (“reserve coverage ratio”) on a CECL basisratio was 1.01% at January 1, 2020, 1.09% at March 31, 1.08% at June 30 and September 30 and 1.09%0.89% at December 31, 2020. Excluding PPP loans,2023, compared to 0.95% at December 31, 2022. The decrease in the reserve coverage ratio increased 12 basis points during 2020 to 1.13% at year end. The increase iswas mainly due to current and forecasted economic conditions and higherimprovements in historical loss rates.rates and other portfolio metrics, partially offset by specific reserves taken against two commercial and industrial loans. Gross loan chargeoffs and recoveries were $2.7$2.2 million and $584,000,$96,000, respectively, for the year ended December 31, 2020.2023.

Nonaccrual loans amounted towere $1.1 million, or .04%0.03% of total loans outstanding, at December 31, 2020, compared to $888,000, or .03%,2023. The Bank had no nonaccrual loans at December 31, 2019. The increase in nonaccrual loans is mainly due2022. Loans modified for borrowers experiencing financial difficulty prior to three new nonaccrual loans, partially offset by one loan returned to accrual status and paydowns. Troubled debt restructurings (“TDRs”)2023 amounted to $1.3 million,$431,000, or .04%0.01% of total loans outstanding, at December 31, 2020. Of the TDRs, $815,0002023, compared to $480,000, or 0.01%, at December 31, 2022. All such modifications are performing in accordance with their modified terms and $494,000 are nonaccrual and included in the aforementioned amount of nonaccrual loans.at December 31, 2023. Loans past due 30 through 89 days amounted to $1.4$3.1 million, or .05%0.10% of total loans outstanding, at December 31, 2020,2023, compared to $2.9 million,$750,000, or .09%0.02%, at December 31, 2019.2022.

During the second and third quarters of 2020, the Bank provided payment deferrals in the form of loan modifications to borrowers experiencing financial disruption and economic hardship as a result of the pandemic. At December 31, 2020, all such loans have resumed making payment and are current except for seven loans that were charged-off totaling $440,000 and one loan that was past due 30 to 89 days in the amount of $41,000. Additionally, three loans totaling $862,000 were in nonaccrual status at year end.

The Bank’s mortgage securities are backed by mortgages underwritten on conventional terms, with 16%26% of these securities being full faith and credit obligations of the U.S. government and the balance being obligations of U.S. government sponsored entities. The remainder of the Bank’s securities portfolio principally consists of high quality, general obligation municipal securities rated AA or better by major rating agencies and investment grade corporate bonds of large U.S. financial institutions. In selecting securities for purchase, the Bank uses credit agency ratings for screening purposes only and then performs its own credit analysis. On an ongoing basis, the Bank periodically assesses the credit strength of the securities in its portfolio and makes decisions to hold or sell based on such assessments.

Key Strategic Initiatives and Challenges We Face.Looking Forward to 2024. Management is encouraged by recent declines in inflation figures that may lead to reductions in short-term rates in 2024. Our strategy is focusedliability-sensitive balance sheet should perform well in a falling rate environment. Current expectations are for our net interest margin to remain under pressure during the first half of 2024 before improving in the second half of the year based on increasing shareholder value through loan and deposit growth, the maintenance of strong credit quality, a strong efficiency ratiofalling rate assumptions and an optimal amountimproving yield curve.

During the fourth quarter we opened a new branch in Riverhead, Long Island, successfully launched an updated branding initiative including multimedia advertising and an interactive custom designed website to better support our customers’ electronic banking services and digital banking needs. In addition, the Bank recently partnered with an independent broker-dealer to enhance our customers’ access to a comprehensive set of investment products as well as investment management, trust and advisory services.

The interest rate and economic environmentManagement continues to exert substantial pressure onpursue ways to reduce noninterest expense as a tactic to offset the impact of the decline in net interest income net interest margin, earnings, profitability metrics, loans outstanding andyet remains cognizant of preventing short term expense reductions that could have longer term negative impacts on shareholder value. We invested in upgrades to the Bank’s ability to grow. These items could be negatively impacted by yield curve inversion, low yields available on loanscore system, business online banking, branch systems and securitiesother ancillary systems that were completed in the first quarter of 2024. Both customer facing technology and potential credit losses arising from current economic conditions. The recent resurgenceback-office operations will see benefits. We anticipate a lower run rate of noninterest expenses in 2024 including the coronavirus and persistent economic challenges such as the level of short and long-term interest rates, elevated unemployment and underemployment, suboptimal gross domestic product measures, higher vacancies and delinquent rents are particular risks to future financial performance. Among other things, very low interest rates have caused an acceleration of residential mortgage loan repayments and repricing which are expected to continue into 2021.cost associated with making these technology upgrades.

Overview – 20192022 Versus 20182021

Analysis of 20192022 Earnings. Net income and diluted EPS for 20192022 were $41.6$46.9 million and $1.67,$2.04, respectively. Dividends per share increased 9.4%5.1% from $.64$0.78 for 20182021 to $.70$0.82 for 2019.2022. ROA and ROE for 20192022 were .99%1.11% and 10.61%12.13%, respectively, compared to 1.00%1.04% and 11.09%10.34%, respectively, for 2018.2021.

Net income for 20192022 was $41.6$46.9 million, remaining relatively unchanged from 2018. Earnings for 2019 included decreases in net interest income and noninterest income, before securities losses in 2018,an increase of $2.3$3.8 million, and $2.1 million, respectively, and increases in the provision for loan losses of $1.8 million, noninterest expense of $1.1 million, including executive severance and retirement charges, and income tax expense of $3.2 million.

or 8.9%, as compared to 2021. The declineincrease was primarily due to growth in net interest income of $2.3$8.9 million occurred as yield curve flattening and inversion led management to slow loan and overall balance sheet growth. A decline in the federal funds target rate during 2019 to the year-end level of 1.50% to 1.75% started to provide some relief on the cost of total interest-bearing liabilities. However, the increase in the cost of total interest-bearing liabilities in 2019 outpaced the increase in the yield on total interest-earning assets. When comparing 2019 to the prior year, the cost of total interest-bearing liabilities increased by 28 basis points while the yield on total interest-earning assets only increased by 12 basis points. Overall, net interest margin declined 7 basis points to 2.57% in 2019.

Management’s decision to slow loan growth in 2019 resulted in a small increase in the average balance of loans when comparing the current year and prior year and a reduction in loans outstanding during 2019. Growth in the average balance of loans was funded by increases in the average balances of interest-bearing deposits and stockholders’ equity, and a decrease in securities. These sourcesnoninterest expense of funds were also used to reduce the average balance of total borrowings. The growth in deposits and reduction in borrowings were mainly the result of using brokered CDs as a lower cost alternative to FHLB advances.

The increase in the provision for loan losses of $1.8 million versus the prior year was primarily due to an improvement in economic conditions in 2018 and higher net chargeoffs in 2019, partially offset by a decrease in outstanding loans in 2019 versus an increase in 2018.

The decrease in noninterest income, before securities losses in 2018, of $2.1 million was primarily attributable to a BOLI death benefit in 2018, a decline in the non-service cost components of the Bank’s defined benefit pension plan and a gain on the sale of bank premises in 2018. Partially offsetting these items was an increase in service charges on deposit accounts primarily related to higher overdraft and maintenance and activity charges. Management implemented initiatives to increase fee income on deposit accounts and was focused on growing noninterest income from existing and potential new sources.

Noninterest expense increased $1.1 million versus 2018. The increase was primarily attributable to increases in salaries and employee benefits, occupancy and equipment expense and technology and professional services fees, partially offset by decreases in FDIC insurance expense and marketing expense. The increase in salaries and employee benefits included executive severance and retirement charges in the fourth quarter of 2019 and the forfeiture of certain stock-based compensation awards in 2018.million. These items were partially offset by a decreaseincreases in special salary-related items recorded in 2019the provision for credit losses of $4.9 million and 2018 and a decline in retirement plan expense. income tax expense of $1.1 million.

The increase in occupancynet interest income reflected growth in interest income on loans of $10.1 million due to higher average loans outstanding of $300.5 million in 2022 offset by $2.3 million of growth in interest expense on total interest-bearing liabilities resulting from increases in short-term rates. Also contributing to the increase was a favorable shift in the mix of funding as an increase in average checking deposits of $96.1 million outpaced the growth in average interest-bearing liabilities of $23.0 million resulting in average checking deposits comprising a larger portion of total funding. Net interest margin for 2022 was 2.89% versus 2.74% for 2021.

In 2022, we originated $656 million in mortgage loans at a weighted average rate of approximately 3.69% which included $452 million and equipment expense$204 million of commercial and residential mortgages at weighted average rates of 3.66% and 3.74%, respectively. The Bank’s commercial and industrial loan portfolio grew $18.1 million to $108 million in 2022 and had a weighted average rate of 6.34%. 

The provision for credit losses increased $4.9 million when comparing the full year periods from a credit of $2.6 million in 2021 to a charge of $2.3 million in 2022. The provision for 2022 was mainly due to an increase in outstanding loans, deteriorating economic conditions and low net chargeoffs, partially offset by lower historical loss rates.

Total noninterest income remained flat from the prior year although several line items had ups and downs. BOLI and merchant card services revenues increased by $618,000 and $410,000, respectively. The Bank received a final transition payment of $477,000 for the conversion of the Bank’s retail broker and advisory accounts. Service charges on deposit accounts increased $232,000. These increases were offset by a decrease in investment services income of $693,000 as the shift to an outside service provider resulted in a revenue sharing agreement and less assets under management. Also, there were no net gains on sales of securities in 2022 down from $1.1 million in 2021. 

The decrease in noninterest expense of $1.1 million reflected the reduction in debt extinguishment costs from 2021. The Bank did have increases in noninterest expense during 2022. Salaries and benefits expense increased $1.3 million due to the hiring of seasoned banking professionals, competitive mid-year salary increases in 2022 and higher rent and other operating costsstock-based compensation expense. The Bank had a net loss of $553,000 on the disposition of premises and fixed assets relating to the Bank’s facilitiesformer buildings in Glen Head and equipment andcosts relating to the branding initiative in the Bank’s branches of $531,000. Other items contributing to increases in noninterest expense included the cost of an environmental remediation. The increasenew branch locations on the east end of Long Island, two branch relocations, new corporate office space in technology and professional services fees included an increase in consulting fees related to a revenue enhancement project. The decrease in FDIC insurance expense was due to FDIC assessment credits received by the Bank during the third and fourth quarters of 2019. The decrease inMelville, NY, higher marketing expense was due to fewerand increases in other costs of operating the business. All increases in expenses were offset by branch openings.optimization and back-office consolidation initiatives.

Income tax expense increased $3.2$1.1 million and the effective tax rate increased from 19.2% to 16.5% from 10.9%19.4% when comparing 2019 and 2018. These increases were primarily attributablethe full year periods. The increase in the effective tax rate was mainly due to a declinedecrease in 2019 inthe percentage of pre-tax income derived from tax-exempt income from municipal securities and BOLI and the recognition in 2018 of state and local net operating loss carryforwards, higher excess tax benefits from stock-based compensation and tax savings resulting from a cost segregation study.sources. The increase in income tax expense also reflectedwas due to higher pre-tax earnings in 20192022 as compared to 2018.the prior year and the higher effective tax rate. 

Asset Quality.The Bank’s ACL to total loansreserve coverage ratio was .94% at year end 2018 versus .92%0.95% at December 31, 2019.2022, compared to 0.96% at December 31, 2021. The decrease in the reserve coverage ratio was primarilymainly due to reductionsimprovements in historical loss rates, partially offset by current and growth rates on certain poolsforecasted economic conditions. Gross loan chargeoffs and recoveries were $884,000 and $154,000, respectively, for the year ended December 31, 2022.

The Bank had no nonaccrual loans as well as decreases in both the three-year compound annual growth rate (CAGR) and office vacancy rates on several pools of loans.

The credit quality of the Bank’s loan portfolio remained excellent. Nonaccrual loans amountedat December 31, 2022, compared to $888,000,$1.2 million, or .03%0.04% of total loans outstanding, at December 31, 2019, compared2021. Modifications negotiated prior to $2.1 million, or .07%, at December 31, 2018. The decrease in nonaccrual loans was mainly due to loans returned to accrual status and paydowns. TDRs2022 amounted to $1.5 million,$480,000, or .05%0.01% of total loans outstanding, at December 31, 2019. Of the TDRs, $1.1 million2022, compared to $554,000, or 0.02%, at December 31, 2021. All such modifications were performing in accordance with their modified terms and $465,000 were nonaccrual and included in the aforementioned amount of nonaccrual loans.at December 31, 2022. Loans past due 30 through 89 days amounted to $2.9 million,$750,000, or .09%0.02% of total loans outstanding, at December 31, 2019,2022, compared to $909,000,$460,000, or .03%0.01%, at December 31, 2018.2021.

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 judgments about matters that are inherently uncertain. In the event that management’s estimate needs to be adjusted based on among other things, 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 consultants and the Bank’s credit department. In addition, and in consultation with the Bank’s Chief Financial Officer, the ACL Committee is responsible for implementing and maintaining accounting policies and procedures surrounding the calculation of the required allowance. The Loan Committee reviews and approves the Bank’s Loan Policyloan 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 OCC whose safety and soundness examination includes a determination as to the adequacy of the allowance to absorb current expected credit losses within its portfolio.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 eleventen 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; 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 migrationlifetime PD/LGD (probability of default/loss given default) method was selectedis used to measure historical losses; no historical loss method was applied to the SBA PPP loan pool. 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 general qualitative and quantitative factorsQ-factors and then subjectively determines the weight to assign to each in estimating losses. The factors include, among others:include: (1) changes in lending policies and procedures; (2) experience, ability and depth of lending staff; (3) trends in the natureaverage loan growth and volume of loans;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 changesrisks in the economy.portfolio. The Bank’s ACL allocable to its loan pools results primarily from these qualitative and quantitativeQ-factor adjustments to historical loss experience.experience with the largest sensitivity of the ACL arising from loan growth, loan concentrations and economic forecasts of unemployment, GDP and vacancies. At December 31, 2023, the ACL was composed approximately 77% of Q-factors, 21% of historical losses and 2% reserves on individually evaluated loans. Because of the nature of the qualitative factorsQ-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 actually 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 considered to be a collateral dependent loan, the loan is reported at the fair value of the collateral.

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 includeexclude unrealized gains and losses on available-for-saleAFS securities in the 2023 and 2022 periods and include such amounts in the average balances of loans include nonaccrual loans.2021 period. Unrealized gains and losses were immaterial in 2021.