UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

____________

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

~~September~~June 30, ~~2018~~2019

[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number 001-32964

THE FIRST OF LONG ISLAND CORPORATION

(Exact name of registrant as specified in its charter)


New York	11-2672906
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

10 Glen Head Road, Glen Head, NY	11545
(Address of principal executive offices)	(Zip Code)

(516) 671-4900

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common stock, $.10 par value per share	FLIC	Nasdaq

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒x No ☐¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒x No ☐¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐¨	Accelerated filer ☒x
~~Non‑~~Non-accelerated filer ☐¨	Emerging growth company ☐¨
Smaller reporting company ☐¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐¨ No ☒x

~~Indicate~~As of August 2, 2019, the ~~number of~~registrant had 24,671,014 shares ~~outstanding of each of the issuer's classes~~ of common stock, ~~as of the latest practicable date.~~$.10 par value per share, outstanding.

TABLE OF CONTENTS


~~Title of Each Class~~PART I.	FINANCIAL INFORMATION	~~Outstanding at October 31, 2018~~
~~Common stock, $.10 par value per share~~ITEM 1.	Financial Statements	~~25,487,113~~

~~TABLE OF CONTENTS~~


~~PART I.~~	~~FINANCIAL INFORMATION~~
~~ITEM 1.~~	~~Financial Statements~~
	Consolidated Balance Sheets (Unaudited) – ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018	1
	Consolidated Statements of Income (Unaudited) – ~~Nine~~Six and Three Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	2
	Consolidated Statements of Comprehensive Income (Unaudited) – ~~Nine~~Six and Three Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	3
	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – ~~Nine~~Six and Three Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	4
	Consolidated Statements of Cash Flows (Unaudited) – ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	5 6
	Notes to Unaudited Consolidated Financial Statements	6 7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	32
~~ITEM 4.~~	~~Controls and Procedures~~	33
~~PART II.~~	~~OTHER INFORMATION~~	31
ITEM 1.4.	~~Legal Proceedings~~Controls and Procedures	34 33
~~ITEM 1A.~~PART II.	~~Risk Factors~~OTHER INFORMATION	34
ITEM 2.1.	Legal Proceedings	33
ITEM 1A.	Risk Factors	34
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
ITEM 3.	Defaults Upon Senior Securities	34
ITEM 4.	Mine Safety Disclosures	34
ITEM 5.	Other Information	34
ITEM 6.	Exhibits	34
	Signatures	36

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (UNAUDITED)



	June 30,		December 31,
(dollars in thousands)	2019		2018

Assets:
Cash and cash equivalents	$	69,216	$	47,358

Investment securities:
Held-to-maturity, at amortized cost (fair value of $4,522 and $5,552)		4,478		5,504
Available-for-sale, at fair value		738,828		758,015
		743,306		763,519
Loans:
Commercial and industrial		108,154		98,785
Secured by real estate:
Commercial mortgages		1,311,637		1,281,295
Residential mortgages		1,732,301		1,809,651
Home equity lines		66,018		67,710
Consumer and other		3,477		5,958
		3,221,587		3,263,399
Allowance for loan losses		(29,768)		(30,838)
		3,191,819		3,232,561

Restricted stock, at cost		27,884		40,686
Bank premises and equipment, net		40,806		41,267
Right-of-use asset - operating leases		15,425		—
Bank-owned life insurance		82,012		80,925
Pension plan assets, net		15,128		15,154
Deferred income tax benefit		—		3,447
Other assets		16,545		16,143
	$	4,202,141	$	4,241,060
Liabilities:
Deposits:
Checking	$	932,443	$	935,574
Savings, NOW and money market		1,716,472		1,590,341
Time, $100,000 and over		241,794		309,165
Time, other		422,870		249,892
		3,313,579		3,084,972

Short-term borrowings		101,162		388,923
Long-term debt		360,472		362,027
Operating lease liability		16,266		—
Accrued expenses and other liabilities		19,144		16,951
Deferred income taxes payable		81		—
		3,810,704		3,852,873
Stockholders' Equity:
Common stock, par value $0.10 per share:
Authorized, 80,000,000 shares;
Issued and outstanding, 24,661,409 and 25,422,740 shares		2,466		2,542
Surplus		127,162		145,163
Retained earnings		263,067		249,922
		392,695		397,627
Accumulated other comprehensive loss, net of tax		(1,258)		(9,440)
		391,437		388,187
	$	4,202,141	$	4,241,060

September 30,

December 31,
(dollars in thousands)

2018

2017

Assets:

Cash and cash equivalents

$
50,462

$
69,672

Investment securities:

Held-to-maturity, at amortized cost (fair value of $6,902 and $7,749)

6,845

7,636
Available-for-sale, at fair value

802,839

720,128

809,684

727,764

Loans held-for-sale

671

—

Loans:

Commercial and industrial

93,901

109,623
Secured by real estate:

Commercial mortgages

1,259,286

1,193,007
Residential mortgages

1,788,145

1,558,564
Home equity lines

74,079

83,625
Consumer and other

5,884

5,533

3,221,295

2,950,352
Allowance for loan losses

(33,551)

(33,784)

3,187,744

2,916,568

Restricted stock, at cost

37,941

37,314
Bank premises and equipment, net

39,825

39,648
Bank-owned life insurance

80,380

59,665
Pension plan assets, net

19,391

19,152
Deferred income tax benefit

4,491

—
Other assets

19,406

24,925

$
4,249,995

$
3,894,708
Liabilities:

Deposits:

Checking

$
946,236

$
896,129
Savings, NOW and money market

1,679,617

1,602,460
Time, $100,000 and over

291,638

203,890
Time, other

243,018

119,518

3,160,509

2,821,997

Short-term borrowings

292,176

281,141
Long-term debt

403,027

423,797
Accrued expenses and other liabilities

14,013

10,942
Deferred income taxes payable

—

2,381

3,869,725

3,540,258
Stockholders' Equity:

Common stock, par value $.10 per share:

Authorized, 80,000,000 shares;

Issued and outstanding, 25,422,995 and 24,668,390 shares

2,542

2,467
Surplus

145,023

127,122
Retained earnings

244,173

224,315

391,738

353,904
Accumulated other comprehensive income (loss), net of tax

(11,468)

546

380,270

354,450

$
4,249,995

$
3,894,708

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)



	Nine Months Ended				Three Months Ended				Six Months Ended				Three Months Ended
	September 30,				September 30,				June 30,				June 30,
(in thousands, except per share data)	2018		2017		2018		2017
(in thousands, except per share data)									2019		2018		2019		2018

Interest and dividend income:
Loans	$	83,641	$	71,810	$	28,471	$	25,173	$	59,029	$	55,170	$	29,613	$	28,506
Investment securities:
Taxable		8,275		5,883		3,065		1,806		7,968		5,210		3,923		3,001
Nontaxable		10,193		10,112		3,323		3,358		6,046		6,870		2,954		3,439
		102,109		87,805		34,859		30,337		73,043		67,250		36,490		34,946
Interest expense:
Savings, NOW and money market deposits		8,823		4,974		3,125		1,909		8,841		5,698		4,841		3,158
Time deposits		7,529		3,986		2,952		1,437		7,331		4,577		3,933		2,869
Short-term borrowings		3,026		986		1,370		257		2,507		1,656		542		873
Long-term debt		6,399		5,703		2,121		2,031		3,675		4,278		1,895		2,161
		25,777		15,649		9,568		5,634		22,354		16,209		11,211		9,061
Net interest income		76,332		72,156		25,291		24,703		50,689		51,041		25,279		25,885
Provision (credit) for loan losses		547		3,203		(1,768)		1,122		(35)		2,315		422		803
Net interest income after provision (credit) for loan losses		75,785		68,953		27,059		23,581		50,724		48,726		24,857		25,082

Noninterest income:
Investment Management Division income		1,665		1,565		508		515		998		1,157		517		576
Service charges on deposit accounts		1,945		2,119		658		725		1,485		1,287		780		587
Net gains (losses) on sales of securities		(4,960)		74		(4,960)		16
Other		5,096		3,877		1,569		1,244		2,678		3,527		1,420		1,516
		3,746		7,635		(2,225)		2,500		5,161		5,971		2,717		2,679
Noninterest expense:
Salaries		20,895		18,855		6,596		6,386
Employee benefits and other personnel expense		6,452		5,516		2,037		1,866
Salaries and employee benefits										17,981		18,714		8,723		9,497
Occupancy and equipment		8,742		7,524		2,864		2,503		5,840		5,878		2,903		3,065
Other		8,728		8,314		2,745		2,639		6,090		5,983		3,150		3,145
		44,817		40,209		14,242		13,394		29,911		30,575		14,776		15,707
Income before income taxes		34,714		36,379		10,592		12,687		25,974		24,122		12,798		12,054

Income tax expense		3,231		8,823		535		3,345		4,389		2,696		2,054		1,739
Net income	$	31,483	$	27,556	$	10,057	$	9,342	$	21,585	$	21,426	$	10,744	$	10,315

Earnings per share:
Basic		$1.24		$1.14		$.39		$.38		$0.86		$0.85		$0.43		$0.41
Diluted		1.24		1.13		.39		.38		$0.86		$0.84		$0.43		$0.40

Cash dividends declared per share		.47		.43		.17		.15		$0.34		$0.30		$0.17		$0.15

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



	Nine Months Ended				Three Months Ended				Six Months Ended				Three Months Ended
	September 30,				September 30,				June 30,				June 30,
(in thousands)	2018		2017		2018		2017
(in thousands)									2019		2018		2019		2018
Net income	$	31,483	$	27,556	$	10,057	$	9,342	$	21,585	$	21,426	$	10,744	$	10,315
Other comprehensive income (loss):
Change in net unrealized holding gains (losses) on available-for-sale securities		(17,099)		4,774		(2,271)		(577)
Change in net unrealized holding gains (losses) on ‎ available-for-sale securities										15,631		(14,828)		7,214		(3,094)
Change in funded status of pension plan		—		13		—		4		176		—		88		—
Change in net unrealized gain on derivative instrument		281		—		687		—
Change in net unrealized loss on derivative instruments										(4,058)		(406)		(2,513)		(406)
Other comprehensive income (loss) before income taxes		(16,818)		4,787		(1,584)		(573)		11,749		(15,234)		4,789		(3,500)
Income tax expense (benefit)		(5,081)		2,010		(479)		(240)		3,567		(4,602)		1,469		(1,054)
Other comprehensive income (loss)		(11,737)		2,777		(1,105)		(333)		8,182		(10,632)		3,320		(2,446)
Comprehensive income	$	19,746	$	30,333	$	8,952	$	9,009	$	29,767	$	10,794	$	14,064	$	7,869

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)



	Nine Months Ended September 30, 2018											Six Months Ended June 30, 2019
								Accumulated											Accumulated
								Other											Other
	Common Stock					Retained		Comprehensive				Common Stock					Retained		Comprehensive
(dollars in thousands)	Shares	Amount		Surplus		Earnings		Income (Loss)		Total
Balance, January 1, 2018	24,668,390	$	2,467	$	127,122	$	224,315	$	546	$	354,450
(dollars in thousands)												Shares	Amount		Surplus		Earnings		Loss		Total
Balance, January 1, 2019												25,422,740	$	2,542	$	145,163	$	249,922	$	(9,440)	$	388,187
Net income							31,483				31,483							21,585				21,585
Other comprehensive loss									(11,737)		(11,737)
Reclassification of stranded
tax effects upon the adoption
of ASU 2018-02							277		(277)		—
Shares tendered upon the exercise
of stock options	(14,549)		(1)		(365)						(366)
Other comprehensive income																				8,182		8,182
Repurchase of common stock												(915,100)		(91)		(20,523)						(20,614)
Shares withheld upon the vesting
and conversion of RSUs	(27,194)		(3)		(764)						(767)	(39,947)		(4)		(826)						(830)
Common stock issued under
stock compensation plans	156,514		15		551						566	123,818		12		253						265
Common stock issued under
dividend reinvestment and
stock purchase plan	639,834		64		16,953						17,017	69,898		7		1,427						1,434
Stock-based compensation					1,526						1,526					1,668						1,668
Cash dividends declared							(11,902)				(11,902)							(8,440)				(8,440)
Balance, September 30, 2018	25,422,995	$	2,542	$	145,023	$	244,173	$	(11,468)	$	380,270
Balance, June 30, 2019												24,661,409	$	2,466	$	127,162	$	263,067	$	(1,258)	$	391,437



	Nine Months Ended September 30, 2017											Six Months Ended June 30, 2018
								Accumulated											Accumulated
								Other											Other
	Common Stock					Retained		Comprehensive				Common Stock					Retained		Comprehensive
(dollars in thousands)	Shares	Amount		Surplus		Earnings		Income (Loss)		Total
Balance, January 1, 2017	23,699,107	$	2,370	$	101,738	$	203,326	$	(1,604)	$	305,830
(dollars in thousands)												Shares	Amount		Surplus		Earnings		Income (Loss)		Total
Balance, January 1, 2018												24,668,390	$	2,467	$	127,122	$	224,315	$	546	$	354,450
Net income							27,556				27,556							21,426				21,426
Other comprehensive income									2,777		2,777
Other comprehensive loss																				(10,632)		(10,632)
Reclassification of stranded
tax effects upon the adoption
of ASU 2018-02																		277		(277)		—
Shares withheld upon the vesting
and conversion of RSUs	(19,339)		(2)		(525)						(527)	(25,735)		(3)		(730)						(733)
Common stock issued under
stock compensation plans	127,347		13		632						645	118,900		12		172						184
Common stock issued under
dividend reinvestment and
stock purchase plan	575,672		57		15,115						15,172	591,781		59		15,795						15,854
Stock-based compensation					1,925						1,925					1,261						1,261
Cash dividends declared							(10,421)				(10,421)							(7,571)				(7,571)
Balance, September 30, 2017	24,382,787	$	2,438	$	118,885	$	220,461	$	1,173	$	342,957
Balance, June 30, 2018												25,353,336	$	2,535	$	143,620	$	238,447	$	(10,363)	$	374,239

‎

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

(CONTINUED)



	Three Months Ended June 30, 2019
								Accumulated
								Other
	Common Stock					Retained		Comprehensive
(dollars in thousands)	Shares	Amount		Surplus		Earnings		Loss		Total
Balance, April 1, 2019	24,900,347	$	2,490	$	132,018	$	256,512	$	(4,578)	$	386,442
Net income							10,744				10,744
Other comprehensive income									3,320		3,320
Repurchase of common stock	(240,300)		(24)		(5,259)						(5,283)
Common stock issued under
stock compensation plans	1,362		—		30						30
Stock-based compensation					373						373
Cash dividends declared							(4,189)				(4,189)
Balance, June 30, 2019	24,661,409	$	2,466	$	127,162	$	263,067	$	(1,258)	$	391,437



	Three Months Ended June 30, 2018
								Accumulated
								Other
	Common Stock					Retained		Comprehensive
(dollars in thousands)	Shares	Amount		Surplus		Earnings		Loss		Total
Balance, April 1, 2018	25,024,667	$	2,502	$	134,924	$	231,937	$	(7,917)	$	361,446
Net income							10,315				10,315
Other comprehensive loss									(2,446)		(2,446)
Shares withheld upon the vesting
and conversion of RSUs	(414)		—		(11)						(11)
Common stock issued under
stock compensation plans	6,663		1		71						72
Common stock issued under
dividend reinvestment and
stock purchase plan	322,420		32		8,503						8,535
Stock-based compensation					133						133
Cash dividends declared							(3,805)				(3,805)
Balance, June 30, 2018	25,353,336	$	2,535	$	143,620	$	238,447	$	(10,363)	$	374,239

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Nine Months Ended				Six Months Ended
	September 30,				June 30,
(in thousands)	2018		2017
(in thousands)					2019		2018
Cash Flows From Operating Activities:
Net income	$	31,483	$	27,556	$	21,585	$	21,426
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		547		3,203
Provision (credit) for loan losses						(35)		2,315
Credit for deferred income taxes		(1,791)		(1,298)		(39)		(3,502)
Depreciation and amortization		3,031		2,577
Depreciation and amortization of premises and equipment						2,028		2,003
Amortization of right-of-use asset - operating leases						1,058		—
Premium amortization on investment securities, net		1,458		2,370		586		965
Net losses (gains) on sales of securities		4,960		(74)
Stock-based compensation expense		1,526		1,925		1,668		1,261
Common stock issued in lieu of cash for director fees		47		41		62		31
Accretion of cash surrender value on bank-owned life insurance		(1,589)		(1,157)		(1,087)		(1,025)
Net pension credit		(239)		(88)
Decrease in other assets		1,549		94
Increase in accrued expenses and other liabilities		2,431		330
Pension expense (credit)						202		(159)
Decrease (increase) in other assets						(402)		3,204
Increase (decrease) in accrued expenses and other liabilities						(1,820)		2,444
Net cash provided by operating activities		43,413		35,479		23,806		28,963
Cash Flows From Investing Activities:
Proceeds from sales of investment securities:
Held-to-maturity		—		355
Available-for-sale		169,631		49,077
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity		3,786		4,422		1,193		3,187
Available-for-sale		60,152		81,489		52,816		39,574
Purchases of investment securities:
Held-to-maturity		(2,955)		(2,398)		(155)		(1,098)
Available-for-sale		(336,051)		(35,829)		(18,596)		(137,126)
Net increase in loans		(272,394)		(291,997)
Net decrease (increase) in loans						40,777		(304,524)
Proceeds from sale of other real estate owned		5,125		—		—		5,125
Net (increase) decrease in restricted stock		(627)		3,082
Net decrease in restricted stock						12,802		655
Purchases of premises and equipment, net		(3,208)		(5,209)		(1,567)		(2,454)
Purchases of bank-owned life insurance		(20,000)		(25,000)		—		(20,000)
Net cash used in investing activities		(396,541)		(222,008)
Net cash provided by (used in) investing activities						87,270		(416,661)
Cash Flows From Financing Activities:
Net increase in deposits		338,512		251,621		228,607		411,901
Net increase (decrease) in short-term borrowings		11,035		(115,093)
Net decrease in short-term borrowings						(287,761)		(25,234)
Proceeds from long-term debt		39,680		66,650		48,945		39,680
Repayment of long-term debt		(60,450)		(18,900)		(50,500)		(48,950)
Proceeds from issuance of common stock, net		17,017		15,172		1,434		15,854
Proceeds from exercise of stock options		153		604		203		153
Shares withheld upon the vesting and conversion of RSUs		(767)		(527)		(830)		(733)
Repurchase of common stock						(20,614)		—
Cash dividends paid		(11,262)		(10,047)		(8,702)		(7,459)
Net cash provided by financing activities		333,918		189,480
Net cash provided by (used in) financing activities						(89,218)		385,212
Net increase (decrease) in cash and cash equivalents		(19,210)		2,951		21,858		(2,486)
Cash and cash equivalents, beginning of year		69,672		36,929		47,358		69,672
Cash and cash equivalents, end of period	$	50,462	$	39,880	$	69,216	$	67,186
Supplemental Cash Flow Disclosures:
Cash paid for:
Interest	$	25,261	$	15,570	$	22,140	$	15,720
Income taxes		2,490		9,378		4,327		365
Operating cash flows from operating leases						1,257		—
Noncash investing and financing activities:
Right-of-use assets obtained in exchange for operating lease liabilities						16,483		—
Cash dividends payable		4,438		3,742		4,198		3,910

See notes to unaudited consolidated financial statements

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1 - BASIS OF PRESENTATION

The accounting and reporting policies of The First of Long Island Corporation (“Corporation”) reflect banking industry practice and conform to generally accepted accounting principles (“GAAP”) in the United States. In preparing the consolidated financial statements, management is required to make estimates, such as the allowance for loan losses, and assumptions that affect the reported asset and liability balances, revenue and expense amounts, and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates.

The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, The First National Bank of Long Island (“Bank”). The Bank has two wholly owned subsidiaries: FNY Service Corp.~~, an investment company,~~ and The First of Long Island Agency, Inc. The Bank and FNY Service Corp. jointly own another subsidiary, The First of Long Island REIT, Inc., a real estate investment ~~trust (“REIT”).~~trust. The consolidated entity is referred to as the “Corporation” and the Bank and its subsidiaries are collectively referred to as the “Bank.” All intercompany balances and amounts have been eliminated. For further information refer to the consolidated financial statements and notes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

The consolidated financial information included herein as of and for the periods ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 is unaudited. However, such information reflects all adjustments which are, in the opinion of management, necessary for a fair statement of results for the interim periods. The December 31, ~~2017~~2018 consolidated balance sheet was derived from the Corporation's December 31, ~~2017~~2018 audited consolidated financial statements. When appropriate, items in the prior year financial statements are reclassified to conform to the current period presentation.

2 - EARNINGS PER SHARE

The following table sets forth the calculation of basic and diluted earnings per share (“EPS”) for the periods indicated.



	Nine Months Ended				Three Months Ended				Six Months Ended				Three Months Ended
	September 30,				September 30,				June 30,				June 30,
(dollars in thousands, except per share data)	2018		2017		2018		2017		2019		2018		2019		2018
Net income	$	31,483	$	27,556	$	10,057	$	9,342	$	21,585	$	21,426	$	10,744	$	10,315
Income allocated to participating securities (1)		86		101		26		34		—		60		—		23
Income allocated to common stockholders	$	31,397	$	27,455	$	10,031	$	9,308	$	21,585	$	21,366	$	10,744	$	10,292

Weighted average:
Common shares		25,236,889		24,096,079		25,409,087		24,332,939		25,051,412		25,149,364		24,821,026		25,334,155
Dilutive stock options and restricted stock units (1)		174,095		253,715		144,933		247,127		169,048		188,918		181,751		173,661
		25,410,984		24,349,794		25,554,020		24,580,066		25,220,460		25,338,282		25,002,777		25,507,816
Earnings per share:
Basic		$1.24		$1.14		$.39		$.38		$0.86		$0.85		$0.43		$0.41
Diluted		1.24		1.13		.39		.38		0.86		0.84		0.43		0.40

(1) Restricted stock units (“RSUs”) awarded in 2016 ~~accrue~~accrued dividends at the same rate as the dividends declared by the Board of Directors on the Corporation’s common stock. For purposes of computing EPS, these RSUs ~~are~~were considered to participate with common stock in the earnings of the Corporation and, therefore, the Corporation ~~calculates~~calculated basic and diluted EPS using the two-class method. Under the two-class method, net income for the period is allocated between common stockholders and participating securities according to dividends declared and participation rights in undistributed earnings. As a result,Substantially all of the RSUs awarded in 2016 ~~are not included~~vested on December 31, 2018. As a result, beginning in 2019, the ~~weighted average “dilutive~~Corporation calculates basic and dilutive EPS using the treasury stock ~~options and restricted stock units” in the table above.~~method.

3 - COMPREHENSIVE INCOME

Comprehensive income includes net income and other comprehensive income (loss). Other comprehensive income (loss) includes revenues, expenses, gains and losses that under GAAP are included in comprehensive income but excluded from net income. Other comprehensive income (loss) for the Corporation consists of unrealized holding gains or losses on available-for-sale securities and derivative instruments and changes in the funded status of the Bank’s defined benefit pension plan, all net of related income taxes. Accumulated other comprehensive income (loss) is recognized as a separate component of stockholders’ equity.

The components of other comprehensive income (loss) and the related tax effects are as follows:



	Nine Months Ended				Three Months Ended				Six Months Ended				Three Months Ended
	September 30,				September 30,				June 30,				June 30,
(in thousands)	2018		2017		2018		2017		2019		2018		2019		2018
Change in net unrealized holding gains (losses) on
available-for-sale securities:
Change arising during the period	$	(22,059)	$	4,847	$	(7,231)	$	(561)	$	15,631	$	(14,828)	$	7,214	$	(3,094)
Reclassification adjustment for net (gains) losses
included in net income (1)		4,960		(73)		4,960		(16)
		(17,099)		4,774		(2,271)		(577)
Tax effect		(5,166)		2,004		(686)		(242)		4,687		(4,480)		2,151		(932)
		(11,933)		2,770		(1,585)		(335)		10,944		(10,348)		5,063		(2,162)
Change in funded status of pension plan:
Amortization of net actuarial loss included in net income (2)		—		13		—		4
Amortization of net actuarial loss included in net income (1)										176		—		88		—
Tax effect		—		6		—		2		92		—		65		—
		—		7		—		2		84		—		23		—
Change in unrealized gain on derivative instrument:
Amount of gain (loss) recognized during the period		(34)		—		462		—
Change in net unrealized loss on derivative instruments:
Change arising during the period										(4,241)		(496)		(2,627)		(496)
Reclassification adjustment for net interest expense
included in net income (3)		315		—		225		—
included in net income (2)										183		90		114		90
		281		—		687		—		(4,058)		(406)		(2,513)		(406)
Tax effect		85		—		207		—		(1,212)		(122)		(747)		(122)
		196		—		480		—		(2,846)		(284)		(1,766)		(284)

Other comprehensive income (loss)	$	(11,737)	$	2,777	$	(1,105)	$	(333)	$	8,182	$	(10,632)	$	3,320	$	(2,446)

(1) Represents net realized gains or losses arising from the sale of available-for-sale securities. The net realized gains or losses are included in the consolidated statements of income in the line item, “Net gains (losses) on sales of securities.” See “Note 4 – Investment Securities” for the income tax expense or benefit related to the net realized gains or losses, which is included in the consolidated statements of income in the line item, “Income tax expense.”

~~(2)~~ Represents the amortization of net actuarial loss relating to the Corporation’s defined benefit pension plan. This item is a component of net periodic pension cost (see “Note 7 – Defined Benefit Pension Plan”).

~~(3) Represents the net interest expense recorded on a derivative transaction~~ and included in the consolidated statements of income in the line item, “Other noninterest income.”

(2) Represents the net interest expense recorded on derivative transactions and included in the consolidated statements of income under “Interest ~~expense – short-term borrowings.~~expense.”

The following table sets forth the components of accumulated other comprehensive ~~income (loss),~~loss, net of tax:




			Current
	Balance		Period		Balance
(in thousands)	12/31/18		Change		6/30/19
Unrealized holding gains (losses) on available-for-sale securities	$	(2,955)	$	10,944	$	7,989
Unrealized actuarial losses on pension plan		(5,696)		84		(5,612)
Unrealized loss on derivative instruments		(789)		(2,846)		(3,635)
Accumulated other comprehensive loss, net of tax	$	(9,440)	$	8,182	$	(1,258)

Current Period Change due to

Other

Adoption

Balance

Comprehensive

of ASU

Balance
(in thousands)

12/31/17

Income (Loss)

2018-02 (1)

9/30/18
Unrealized holding gains (losses) on available-for-sale securities

$
2,600

$
(11,933)

$
361

$
(8,972)
Unrealized actuarial losses on pension plan

(2,054)

—

(638)

(2,692)
Unrealized gain on derivative instrument

—

196

—

196
Accumulated other comprehensive income (loss), net of tax

$
546

$
(11,737)

$
(277)

$
(11,468)

(1) The adoption of Accounting Standards Update (“ASU”) 2018-02 “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” in the first quarter of 2018 allowed the Corporation to reclassify certain stranded tax effects arising from the enactment of the Tax Cuts and Jobs Act (“Tax Act”) in December 2017 from accumulated other comprehensive income to retained earnings. See “Note 11 – Adoption of New Accounting Standards” for more information regarding the effects of adopting ASU 2018-02.

4 - INVESTMENT SECURITIES

The following tables set forth the amortized cost and estimated fair values of the Bank’s investment securities.



	September 30, 2018								June 30, 2019
			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(in thousands)	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
Held-to-Maturity Securities:
State and municipals	$	6,412	$	42	$	—	$	6,454	$	4,210	$	31	$	—	$	4,241
Pass-through mortgage securities		274		12		—		286		253		13		—		266
Collateralized mortgage obligations		159		3		—		162		15		—		—		15
	$	6,845	$	57	$	—	$	6,902	$	4,478	$	44	$	—	$	4,522
Available-for-Sale Securities:
State and municipals	$	428,977	$	2,966	$	(8,151)	$	423,792	$	397,988	$	9,021	$	(484)	$	406,525
Pass-through mortgage securities		74,576		4		(2,146)		72,434		64,719		867		(171)		65,415
Collateralized mortgage obligations		252,129		—		(5,516)		246,613		145,719		3,126		(7)		148,838
Corporate bonds		60,000		—		—		60,000		119,000		—		(950)		118,050
	$	815,682	$	2,970	$	(15,813)	$	802,839	$	727,426	$	13,014	$	(1,612)	$	738,828

	December 31, 2017								December 31, 2018
Held-to-Maturity Securities:
State and municipals	$	6,970	$	78	$	—	$	7,048	$	5,142	$	36	$	—	$	5,178
Pass-through mortgage securities		311		21		—		332		267		11		—		278
Collateralized mortgage obligations		355		14		—		369		95		1		—		96
	$	7,636	$	113	$	—	$	7,749	$	5,504	$	48	$	—	$	5,552
Available-for-Sale Securities:
State and municipals	$	453,158	$	10,051	$	(1,886)	$	461,323	$	422,235	$	3,220	$	(5,417)	$	420,038
Pass-through mortgage securities		72,539		84		(1,232)		71,391		66,631		24		(1,169)		65,486
Collateralized mortgage obligations		190,175		15		(2,776)		187,414		154,378		886		(363)		154,901
Corporate bonds										119,000		—		(1,410)		117,590
	$	715,872	$	10,150	$	(5,894)	$	720,128	$	762,244	$	4,130	$	(8,359)	$	758,015

At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, investment securities with a carrying value of ~~$463,501,000~~$420,902,000 and ~~$423,360,000,~~$342,712,000, respectively, were pledged as collateral to secure public deposits and borrowed funds.

There were no holdings of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Securities With Unrealized Losses.The following tables set forth securities with unrealized losses presented by the length of time the securities have been in a continuous unrealized loss position.



	September 30, 2018												June 30, 2019
	Less than				12 Months								Less than				12 Months
	12 Months				or More				Total				12 Months				or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(in thousands)	Value		Loss		Value		Loss		Value		Loss		Value		Loss		Value		Loss		Value		Loss
State and municipals	$	175,087	$	(4,533)	$	34,708	$	(3,618)	$	209,795	$	(8,151)	$	1,318	$	(2)	$	23,470	$	(482)	$	24,788	$	(484)
Pass-through mortgage securities		51,251		(886)		19,965		(1,260)		71,216		(2,146)		—		—		18,600		(171)		18,600		(171)
Collateralized mortgage obligations		187,737		(3,844)		28,351		(1,672)		216,088		(5,516)		—		—		6,949		(7)		6,949		(7)
Corporate bonds														86,050		(950)		—		—		86,050		(950)
Total temporarily impaired	$	414,075	$	(9,263)	$	83,024	$	(6,550)	$	497,099	$	(15,813)	$	87,368	$	(952)	$	49,019	$	(660)	$	136,387	$	(1,612)

	December 31, 2017												December 31, 2018
State and municipals	$	54,732	$	(574)	$	28,723	$	(1,312)	$	83,455	$	(1,886)	$	102,882	$	(1,639)	$	62,995	$	(3,778)	$	165,877	$	(5,417)
Pass-through mortgage securities		10,172		(81)		52,652		(1,151)		62,824		(1,232)		38,421		(142)		23,425		(1,027)		61,846		(1,169)
Collateralized mortgage obligations		130,267		(1,230)		54,751		(1,546)		185,018		(2,776)		32,577		(89)		7,342		(274)		39,919		(363)
Corporate bonds														97,590		(1,410)		—		—		97,590		(1,410)
Total temporarily impaired	$	195,171	$	(1,885)	$	136,126	$	(4,009)	$	331,297	$	(5,894)	$	271,470	$	(3,280)	$	93,762	$	(5,079)	$	365,232	$	(8,359)

Because the unrealized losses reflected in the preceding tables are deemed by management to be attributable to changes in interest rates and not credit losses, and because management does not have the intent to sell these securities and it is not more likely than not that it will be required to sell these securities before their anticipated recovery, the Bank does not consider these securities to be other-than-temporarily impaired at ~~September~~June 30, ~~2018. See “Note 13 – Subsequent Events” for information on a sale of available-for-sale securities in the fourth quarter of 2018.~~2019.

Sales of Available-for-Sale ~~Securities.Sales of available-for-sale securities were as follows:~~

Nine Months Ended

Three Months Ended
(in thousands)

September 30,

September 30,

2018

2017

2018

2017

Proceeds

$
169,631

$
49,077

$
169,631

$
9,066

Gross gains

$
300

$
382

$
300

$
16
Gross losses

(5,260)

(309)

(5,260)

—
Net gain (loss)

$
(4,960)

$
73

$
(4,960)

$
16

~~Income tax benefit related to the net realized losses for the nine~~ and three months ended September 30, 2018 was $1,495,000. Income tax expense related to the net realized gains for the nine and three months ended September 30, 2017 was $31,000 and $7,000, respectively.

~~Sales of~~ Held-to-Maturity Securities.There were no sales of available-for-sale or held-to-maturity securities during the ~~nine~~six months ended ~~September~~June 30, 2018. During the second quarter of 2017, the Bank sold one municipal security that was classified as held-to-maturity. The sale was in response to a significant deterioration in the creditworthiness of the issuer. The security sold had a carrying value of $354,000 at the time of sale2019 and ~~the Bank realized a gain upon sale of $1,000.~~ 2018.

Maturities. The following table sets forth by maturity the amortized cost and fair value of the Bank’s state and municipal securities and corporate bonds at ~~September~~June 30, ~~2018~~2019 based on the earlier of their stated maturity or, if applicable, their pre-refunded date. The remaining securities in the Bank’s investment securities portfolio are mortgage-backed securities, consisting of pass-through mortgage securities and collateralized mortgage obligations. Although these securities are expected to have substantial periodic repayments they are reflected in the table below in aggregate amounts.

(in thousands)

Amortized Cost

Fair Value

Held-to-Maturity Securities:

Within one year

$
4,335

$
4,339

After 1 through 5 years

2,077

2,115

After 5 through 10 years

—

—

After 10 years

—

—

Mortgage-backed securities

433

448

$
6,845

$
6,902

Available-for-Sale Securities:

Within one year

$
46,642

$
47,179

After 1 through 5 years

37,623

37,733

After 5 through 10 years

227,010

225,866

After 10 years

177,702

173,014

Mortgage-backed securities

326,705

319,047

$
815,682

$
802,839



(in thousands)	Amortized Cost		Fair Value
Held-to-Maturity Securities:
Within one year	$	2,636	$	2,638
After 1 through 5 years		1,574		1,603
After 5 through 10 years		—		—
After 10 years		—		—
Mortgage-backed securities		268		281
	$	4,478	$	4,522
Available-for-Sale Securities:
Within one year	$	24,321	$	24,452
After 1 through 5 years		52,422		53,228
After 5 through 10 years		279,400		282,289
After 10 years		160,845		164,606
Mortgage-backed securities		210,438		214,253
	$	727,426	$	738,828

910

5 - LOANS

The following tables set forth by class of loans the amount of loans individually and collectively evaluated for impairment and the portion of the allowance for loan losses allocable to such loans.



	September 30, 2018												June 30, 2019
	Loans						Allowance for Loan Losses						Loans						Allowance for Loan Losses
(in thousands)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Ending Balance		Individually ‎Evaluated for ‎Impairment		Collectively ‎Evaluated for ‎Impairment		Ending ‎Balance		Individually ‎Evaluated for ‎Impairment		Collectively ‎Evaluated for ‎Impairment		Ending ‎Balance
Commercial and industrial	$	53	$	93,848	$	93,901	$	—	$	1,152	$	1,152	$	133	$	108,021	$	108,154	$	62	$	1,139	$	1,201
Commercial mortgages:
Multifamily		—		733,132		733,132		—		6,497		6,497		—		780,563		780,563		—		6,730		6,730
Other		2,777		426,987		429,764		—		4,196		4,196		—		424,416		424,416		—		3,440		3,440
Owner-occupied		522		95,868		96,390		—		826		826		510		106,148		106,658		—		828		828
Residential mortgages:
Closed end		970		1,787,175		1,788,145		16		20,295		20,311		1,834		1,730,467		1,732,301		15		17,133		17,148
Revolving home equity		756		73,323		74,079		—		507		507		1,084		64,934		66,018		—		397		397
Consumer and other		333		5,551		5,884		—		62		62		287		3,190		3,477		—		24		24
	$	5,411	$	3,215,884	$	3,221,295	$	16	$	33,535	$	33,551	$	3,848	$	3,217,739	$	3,221,587	$	77	$	29,691	$	29,768

	December 31, 2017												December 31, 2018
Commercial and industrial	$	48	$	109,575	$	109,623	$	—	$	1,441	$	1,441	$	22	$	98,763	$	98,785	$	—	$	1,158	$	1,158
Commercial mortgages:
Multifamily		—		682,593		682,593		—		6,423		6,423		—		756,714		756,714		—		5,851		5,851
Other		—		414,783		414,783		—		4,734		4,734		—		433,330		433,330		—		3,783		3,783
Owner-occupied		531		95,100		95,631		—		1,076		1,076		520		90,731		91,251		—		743		743
Residential mortgages:
Closed end		1,368		1,557,196		1,558,564		18		19,329		19,347		1,814		1,807,837		1,809,651		16		18,828		18,844
Revolving home equity		—		83,625		83,625		—		689		689		743		66,967		67,710		—		410		410
Consumer and other		—		5,533		5,533		—		74		74		324		5,634		5,958		—		49		49
	$	1,947	$	2,948,405	$	2,950,352	$	18	$	33,766	$	33,784	$	3,423	$	3,259,976	$	3,263,399	$	16	$	30,822	$	30,838

The following tables present the activity in the allowance for loan losses for the periods indicated.



(in thousands)	Balance at 1/1/18		Chargeoffs		Recoveries		Provision for Loan Losses (Credit)		Balance at 9/30/18		Balance at ‎1/1/19		Chargeoffs		Recoveries		Provision for ‎Loan Losses ‎(Credit)		Balance at ‎6/30/19
Commercial and industrial	$	1,441	$	482	$	6	$	187	$	1,152	$	1,158	$	365	$	8	$	400	$	1,201
Commercial mortgages:
Multifamily		6,423		—		—		74		6,497		5,851		—		—		879		6,730
Other		4,734		—		—		(538)		4,196		3,783		—		—		(343)		3,440
Owner-occupied		1,076		—		—		(250)		826		743		—		—		85		828
Residential mortgages:
Closed end		19,347		413		101		1,276		20,311		18,844		433		1		(1,264)		17,148
Revolving home equity		689		138		150		(194)		507		410		249		—		236		397
Consumer and other		74		4		—		(8)		62		49		—		3		(28)		24
	$	33,784	$	1,037	$	257	$	547	$	33,551	$	30,838	$	1,047	$	12	$	(35)	$	29,768

	Balance at 7/1/18		Chargeoffs		Recoveries		Provision for Loan Losses (Credit)		Balance at 9/30/18		Balance at ‎4/1/19		Chargeoffs		Recoveries		Provision for ‎Loan Losses ‎(Credit)		Balance at ‎6/30/19
Commercial and industrial	$	1,298	$	178	$	—	$	32	$	1,152	$	1,047	$	311	$	4	$	461	$	1,201
Commercial mortgages:
Multifamily		7,048		—		—		(551)		6,497		6,435		—		—		295		6,730
Other		4,768		—		—		(572)		4,196		3,517		—		—		(77)		3,440
Owner-occupied		911		—		—		(85)		826		685		—		—		143		828
Residential mortgages:
Closed end		20,953		393		1		(250)		20,311		18,071		299		—		(624)		17,148
Revolving home equity		775		89		150		(329)		507		402		249		—		244		397
Consumer and other		79		4		—		(13)		62		42		—		2		(20)		24
	$	35,832	$	664	$	151	$	(1,768)	$	33,551	$	30,199	$	859	$	6	$	422	$	29,768

1011

(in thousands)	Balance at ‎1/1/18		Chargeoffs			Recoveries	Provision for Loan Losses (Credit)		Balance at ‎6/30/18
Commercial and industrial	$	1,441	$	304	$	6	$	155	$	1,298
Commercial mortgages:
Multifamily		6,423		—		—		625		7,048
Other		4,734		—		—		34		4,768
Owner-occupied		1,076		—		—		(165)		911
Residential mortgages:
Closed end		19,347		20		100		1,526		20,953
Revolving home equity		689		49		—		135		775
Consumer and other		74		—		—		5		79
	$	33,784	$	373	$	106	$	2,315	$	35,832

	Balance at ‎4/1/18		Chargeoffs			Recoveries	Provision for Loan Losses (Credit)		Balance at ‎6/30/18
Commercial and industrial	$	1,264	$	230	$	6	$	258	$	1,298
Commercial mortgages:
Multifamily		6,769		—		—		279		7,048
Other		4,780		—		—		(12)		4,768
Owner-occupied		918		—		—		(7)		911
Residential mortgages:
Closed end		20,666		—		99		188		20,953
Revolving home equity		682		—		—		93		775
Consumer and other		75		—		—		4		79
	$	35,154	$	230	$	105	$	803	$	35,832

(in thousands)

Balance at
1/1/17

Chargeoffs

Recoveries

Provision for Loan Losses (Credit)

Balance at
9/30/17
Commercial and industrial

$
1,408

$
102

$
10

$
341

$
1,657
Commercial mortgages:

Multifamily

6,119

—

—

(221)

5,898
Other

4,296

—

—

451

4,747
Owner-occupied

959

—

—

616

1,575
Residential mortgages:

Closed end

15,740

—

3

2,362

18,105
Revolving home equity

1,401

—

—

(311)

1,090
Consumer and other

134

27

2

(35)

74

$
30,057

$
129

$
15

$
3,203

$
33,146

Balance at
7/1/17

Chargeoffs

Recoveries

Provision for Loan Losses (Credit)

Balance at
9/30/17
Commercial and industrial

$
1,544

$
96

$
3

$
206

$
1,657
Commercial mortgages:

Multifamily

5,921

—

—

(23)

5,898
Other

4,674

—

—

73

4,747
Owner-occupied

1,685

—

—

(110)

1,575
Residential mortgages:

Closed end

17,035

—

1

1,069

18,105
Revolving home equity

1,203

—

—

(113)

1,090
Consumer and other

74

21

1

20

74

$
32,136

$
117

$
5

$
1,122

$
33,146

For individually impaired loans, the following tables set forth by class of loans at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 the recorded investment, unpaid principal balance and related allowance. The tables also set forth the average recorded investment of individually impaired loans and interest income recognized while the loans were impaired during the ~~nine~~six and three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018. The recorded investment is the unpaid principal balance of the loans less any interest payments applied to principal and any direct chargeoffs plus or minus net deferred loan costs and fees. Any principal and interest payments received on nonaccrual impaired loans are applied to the recorded investment in the loans. The Bank recognizes interest income on other impaired loans using the accrual method of accounting.



							Six Months Ended				Three Months Ended
	June 30, 2019						June 30, 2019				June 30, 2019
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
(in thousands)	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and industrial	$	9	$	9	$	—	$	14	$	1	$	11	$	1
Commercial mortgages - owner-occupied		510		594		—		515		15		512		7
Residential mortgages:
Closed end		1,681		1,707		—		1,705		2		1,690		1
Revolving home equity		1,084		1,113		—		1,101		—		1,089		—
Consumer and other		287		287		—		301		—		290		—
With an allowance recorded:
Commercial and industrial		124		124		62		131		—		127		—
Residential mortgages - closed end		153		153		15		154		4		153		2
Total:
Commercial and industrial		133		133		62		145		1		138		1
Commercial mortgages - owner-occupied		510		594		—		515		15		512		7
Residential mortgages:
Closed end		1,834		1,860		15		1,859		6		1,843		3
Revolving home equity		1,084		1,113		—		1,101		—		1,089		—
Consumer and other		287		287		—		301		—		290		—
	$	3,848	$	3,987	$	77	$	3,921	$	22	$	3,872	$	11

1112

Nine Months Ended

Three Months Ended

September 30, 2018

September 30, 2018

September 30, 2018

Unpaid

Average

Interest

Average

Interest

Recorded

Principal

Related

Recorded

Income

Recorded

Income
(in thousands)

Investment

Balance

Allowance

Investment

Recognized

Investment

Recognized
With no related allowance recorded:

Commercial and industrial

$
53

$
53

$
—

$
82

$
2

$
55

$
—
Commercial mortgages:

Other

2,777

2,777

—

2,800

—

2,777

—
Owner-occupied

522

606

—

534

18

523

6
Residential mortgages:

Closed end

712

738

—

751

4

718

1
Revolving home equity

756

751

—

757

—

756

—
Consumer and other

333

333

—

266

12

336

6
With an allowance recorded:

Residential mortgages - closed end

258

257

16

270

9

259

3
Total:

Commercial and industrial

53

53

—

82

2

55

—
Commercial mortgages:

Other

2,777

2,777

—

2,800

—

2,777

—
Owner-occupied

522

606

—

534

18

523

6
Residential mortgages:

Closed end

970

995

16

1,021

13

977

4
Revolving home equity

756

751

—

757

—

756

—
Consumer and other

333

333

—

266

12

336

6

$
5,411

$
5,515

$
16

$
5,460

$
45

$
5,424

$
16



							Six Months Ended				Three Months Ended
	December 31, 2018						June 30, 2018				June 30, 2018
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
(in thousands)	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and industrial	$	22	$	22	$	—	$	68	$	2	$	37	$	1
Commercial mortgages - owner-occupied		520		604		—		539		12		526		6
Residential mortgages:
Closed end		1,561		1,573		—		1,929		3		1,894		2
Revolving home equity		743		747		—		—		—		—		—
Consumer and other		324		324		—		231		6		344		5
With an allowance recorded:
Residential mortgages - closed end		253		253		16		276		6		264		3
Total:
Commercial and industrial		22		22		—		68		2		37		1
Commercial mortgages - owner-occupied		520		604		—		539		12		526		6
Residential mortgages:
Closed end		1,814		1,826		16		2,205		9		2,158		5
Revolving home equity		743		747		—		—		—		—		—
Consumer and other		324		324		—		231		6		344		5
	$	3,423	$	3,523	$	16	$	3,043	$	29	$	3,065	$	17

Nine Months Ended

Three Months Ended

December 31, 2017

September 30, 2017

September 30, 2017

Unpaid

Average

Interest

Average

Interest

Recorded

Principal

Related

Recorded

Income

Recorded

Income
(in thousands)

Investment

Balance

Allowance

Investment

Recognized

Investment

Recognized
With no related allowance recorded:

Commercial and industrial

$
48

$
48

$
—

$
73

$
4

$
57

$
2
Commercial mortgages - owner-occupied

531

615

—

545

16

536

5
Residential mortgages:

Closed end

1,095

1,102

—

346

—

505

—
Revolving home equity

—

—

—

1,575

—

1,574

—
With an allowance recorded:

Commercial mortgages - owner-occupied

—

—

—

7,079

—

6,977

—
Residential mortgages - closed end

273

272

18

384

14

377

5
Total:

Commercial and industrial

48

48

—

73

4

57

2
Commercial mortgages - owner-occupied

531

615

—

7,624

16

7,513

5
Residential mortgages:

Closed end

1,368

1,374

18

730

14

882

5
Revolving home equity

—

—

—

1,575

—

1,574

—

$
1,947

$
2,037

$
18

$
10,002

$
34

$
10,026

$
12

Aging of Loans. The following tables present the aging of the recorded investment in loans by class of loans.



	September 30, 2018														June 30, 2019
					Past Due				Total Past										Past Due				Total Past
					90 Days or				Due Loans &										90 Days or				Due Loans &
	30-59 Days		60-89 Days		More and		Nonaccrual		Nonaccrual				Total		30-59 Days		60-89 Days		More and		Nonaccrual		Nonaccrual				Total
(in thousands)	Past Due		Past Due		Still Accruing		Loans		Loans		Current		Loans		Past Due		Past Due		Still Accruing		Loans		Loans		Current		Loans
Commercial and industrial	$	195	$	—	$	—	$	24	$	219	$	93,682	$	93,901	$	—	$	—	$	—	$	124	$	124	$	108,030	$	108,154
Commercial mortgages:
Multifamily		—		—		—		—		—		733,132		733,132		—		—		—		—		—		780,563		780,563
Other		—		—		—		2,777		2,777		426,987		429,764		—		—		—		—		—		424,416		424,416
Owner-occupied		—		—		—		—		—		96,390		96,390		—		—		—		—		—		106,658		106,658
Residential mortgages:
Closed end		37		624		—		625		1,286		1,786,859		1,788,145		—		—		—		1,521		1,521		1,730,780		1,732,301
Revolving home equity		251		22		—		756		1,029		73,050		74,079		122		—		—		1,084		1,206		64,812		66,018
Consumer and other		9				—		—		9		5,875		5,884		—		—		—		—		—		3,477		3,477
	$	492	$	646	$	—	$	4,182	$	5,320	$	3,215,975	$	3,221,295	$	122	$	—	$	—	$	2,729	$	2,851	$	3,218,736	$	3,221,587

	December 31, 2017														December 31, 2018
Commercial and industrial	$	20	$	—	$	—	$	—	$	20	$	109,603	$	109,623	$	—	$	43	$	—	$	—	$	43	$	98,742	$	98,785
Commercial mortgages:
Multifamily		—		—		—		—		—		682,593		682,593		—		—		—		—		—		756,714		756,714
Other		—		—		—		—		—		414,783		414,783		—		—		—		—		—		433,330		433,330
Owner-occupied		—		—		—		—		—		95,631		95,631		—		—		—		—		—		91,251		91,251
Residential mortgages:
Closed end		2,186		21		—		1,000		3,207		1,555,357		1,558,564		864		—		—		1,392		2,256		1,807,395		1,809,651
Revolving home equity		522		—		—		—		522		83,103		83,625		—		—		—		743		743		66,967		67,710
Consumer and other		7		—		—		—		7		5,526		5,533		2		—		—		—		2		5,956		5,958
	$	2,735	$	21	$	—	$	1,000	$	3,756	$	2,946,596	$	2,950,352	$	866	$	43	$	—	$	2,135	$	3,044	$	3,260,355	$	3,263,399

There were no loans in the process of foreclosure nor did the Bank hold any foreclosed residential real estate property at ~~September~~June 30, ~~2018~~2019 or December 31, 2017. In 2017, the Bank took a deed-in-lieu of foreclosure for one commercial real estate property. The property was recorded as other real estate owned at December 31, 2017 and had a carrying value of $5,125,000, which was net of a valuation allowance of $725,000. Other real estate owned at December 31, 2017 consisted solely of this property and was included in the consolidated balance sheet under “Other assets.” The Bank sold the property for its carrying value in the first quarter of 2018.

Troubled Debt Restructurings. A restructuring constitutes a troubled debt restructuring when it includes a concession by the Bank and the borrower is experiencing financial difficulty. In order to determine whether a borrower is experiencing financial difficulty, an

evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. The Bank performs the evaluation under its internal underwriting policy.

The Bank did not modify any loans in troubled debt restructurings during the first six months of 2019. During the ~~nine~~six months ended ~~September~~June 30, 2018, the Bank modified two consumer loans to a single borrower into one loan in a troubled debt restructuring amounting to $350,000. The term of the restructured loan was extended for ~~12-months~~12 months and the post-modification interest rate was lower than the current market rate for new debt with similar risk. ~~The Bank did not modify any loans in troubled debt restructurings during the first nine months of 2017.~~

At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Bank had an allowance for loan losses of ~~$16,000~~$15,000 and ~~$18,000,~~$16,000, respectively, allocated to specific troubled debt restructurings. The Bank had no commitments to lend additional amounts in connection with loans that were classified as troubled debt restructurings.

There were no troubled debt restructurings for which there was a payment default during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 that were modified during the ~~twelve-month~~12-month period prior to default. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

Risk Characteristics. 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 and environmental contamination of properties securing mortgage loans. The Bank’s commercial loans, including those secured by real estate 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 New York City (“NYC”), and a large percentage of these loans are mortgage loans secured by properties located in those areas. The primary sources of repayment for residential and commercial mortgage loans include employment and other income of the borrowers, the businesses of the borrowers and cash flows from the underlying properties. In the case of multifamily mortgage loans, a substantial portion of the underlying properties are rent stabilized or rent ~~controlled.~~controlled (See “Item 1A. Risk Factors” in Part II of this Form 10-Q for information regarding recent legislation in New York State (“NYS”)). These sources of repayment are dependent on, among other things, the strength of the local economy.

Credit Quality Indicators. The Corporation categorizes loans into risk categories based on relevant information about the borrower’s ability to service their debt including, but not limited to, current financial information for the borrower and any guarantors, payment experience, credit underwriting documentation, public records, due diligence checks and current economic trends.

Commercial and industrial loans and commercial mortgage loans are risk rated utilizing a ten point rating system. The ten point risk rating system is described hereinafter.


Internally Assigned Risk Rating
1 – 2	Cash flow is of high quality and stable. Borrower has very good liquidity and ready access to traditional sources of credit. This category also includes loans to borrowers secured by cash and/or marketable securities within approved margin requirements.
3 – 4	Cash flow quality is strong, but shows some variability. Borrower has good liquidity and asset quality. Borrower has access to traditional sources of credit with minimal restrictions.
5 – 6	Cash flow quality is acceptable but shows some variability. Liquidity varies with operating cycle and assets provide an adequate margin of protection. Borrower has access to traditional sources of credit, but generally on a secured basis.
7	Watch - Cash flow has a high degree of variability and subject to economic downturns. Liquidity is strained and the ability of the borrower to access traditional sources of credit is diminished.
8	Special Mention - The borrower has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Bank to risk sufficient to warrant adverse classification.
9	Substandard - Loans are inadequately protected by the current sound worth and paying capacity of the borrower or the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
10	Doubtful - Loans have all the inherent weaknesses of those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Risk ratings on commercial and industrial loans and commercial mortgages are initially assigned during the underwriting process and affirmed as part of the approval process. The ratings are periodically reviewed and evaluated based on borrower contact, credit department review or independent loan review.

The Bank's loan risk rating and review policy establishes requirements for the annual review of commercial real estate and commercial and industrial loans. The requirements include details of the scope of coverage and selection process based on loan-type and risk rating. Among other things, at least 80% of the recorded investment of commercial real estate loans as of December 31 of the prior year must be reviewed annually. Lines of credit are also reviewed annually at each proposed reaffirmation. The frequency of the review of other loans is determined by the Bank’s ongoing assessments of the borrower’s condition.

Residential mortgage loans, revolving home equity lines and other consumer loans are risk rated utilizing a three point rating system. In most cases, the borrower’s credit score dictates the risk rating. However, regardless of credit score, loans that are on management’s watch list or have been criticized or classified by management are assigned a risk rating of 3. A credit score is a tool used in the Bank’s loan approval process, and a minimum score of 680 is generally required for new loans. Credit scores for each borrower are updated at least annually. The risk ratings along with their definitions are as follows:


Internally Assigned Risk Rating
1	Credit score is equal to or greater than 680.
2	Credit score is 635 to 679.
3	Credit score is below 635 or, regardless of credit score, the loan has been classified, criticized or placed on watch by management.

The following tables present the recorded investment in commercial and industrial loans and commercial mortgage loans by class of loans and risk rating. Loans shown as Pass are all loans other than those risk rated Watch, Special Mention, Substandard or Doubtful.



	September 30, 2018												June 30, 2019
	Internally Assigned Risk Rating												Internally Assigned Risk Rating
					Special												Special
(in thousands)	Pass		Watch		Mention		Substandard		Doubtful		Total		Pass		Watch		Mention		Substandard		Doubtful		Total
Commercial and industrial	$	92,758	$	450	$	199	$	494	$	—	$	93,901	$	107,068	$	—	$	601	$	485	$	—	$	108,154
Commercial mortgages:
Multifamily		730,699		—		2,433		—		—		733,132		773,758		—		6,805		—		—		780,563
Other		411,407		—		15,580		2,777		—		429,764		424,416		—		—		—		—		424,416
Owner-occupied		91,802		—		4,043		545		—		96,390		101,439		1,066		3,643		510		—		106,658
	$	1,326,666	$	450	$	22,255	$	3,816	$	—	$	1,353,187	$	1,406,681	$	1,066	$	11,049	$	995	$	—	$	1,419,791

	December 31, 2017												December 31, 2018
Commercial and industrial	$	108,846	$	450	$	279	$	48	$	—	$	109,623	$	97,684	$	—	$	667	$	434	$	—	$	98,785
Commercial mortgages:
Multifamily		673,128		2,354		7,111		—		—		682,593		756,714		—		—		—		—		756,714
Other		404,379		7,567		2,837		—		—		414,783		417,838		14,194		1,298		—		—		433,330
Owner-occupied		93,618		—		1,482		531		—		95,631		85,710		1,090		3,911		540		—		91,251
	$	1,279,971	$	10,371	$	11,709	$	579	$	—	$	1,302,630	$	1,357,946	$	15,284	$	5,876	$	974	$	—	$	1,380,080

The following tables present the recorded investment in residential mortgage loans, home equity lines and other consumer loans by class of loans and risk rating. Loans shown as Pass are all loans other than those risk rated by management as Watch, Special Mention, Substandard or Doubtful.



	September 30, 2018												June 30, 2019
	Internally Assigned Risk Rating												Internally Assigned Risk Rating
					Special												Special
(in thousands)	Pass		Watch		Mention		Substandard			Doubtful	Total		Pass		Watch		Mention		Substandard			Doubtful	Total
Residential mortgages:
Closed end	$	1,786,334	$	841	$	—	$	970	$	—	$	1,788,145	$	1,730,158	$	309	$	—	$	1,834	$	—	$	1,732,301
Revolving home equity		73,070		—		253		756		—		74,079		64,691		—		243		1,084		—		66,018
Consumer and other		5,369		—		—		333		—		5,702		2,799		—		—		287		—		3,086
	$	1,864,773	$	841	$	253	$	2,059	$	—	$	1,867,926	$	1,797,648	$	309	$	243	$	3,205	$	—	$	1,801,405

	December 31, 2017												December 31, 2018
Residential mortgages:
Closed end	$	1,554,168	$	2,200	$	828	$	1,368	$	—	$	1,558,564	$	1,807,525	$	312	$	—	$	1,814	$	—	$	1,809,651
Revolving home equity		82,665		256		704		—		—		83,625		66,718		—		249		743		—		67,710
Consumer and other		5,236		—		—		—		—		5,236		4,958		—		—		324		—		5,282
	$	1,642,069	$	2,456	$	1,532	$	1,368	$	—	$	1,647,425	$	1,879,201	$	312	$	249	$	2,881	$	—	$	1,882,643

Deposit account overdrafts were ~~$182,000~~$391,000 and ~~$297,000~~$676,000 at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Overdrafts are not assigned a risk rating and are therefore excluded from consumer loans in the tables above.

6 - STOCK-BASED COMPENSATION

On April 22, 2014, the stockholders of the Corporation approved the 2014 Equity Incentive Plan (“2014 Plan”). Upon approval of the 2014 Plan, no further awards could be made under the 2006 Stock Compensation Plan (“2006 Plan”).

2014 Plan. Under the 2014 Plan, awards may be granted to employees and non-employee directors as non-qualified stock options (“NQSOs”), stock appreciation rights (“SARs”), restricted stock awards, RSUs, or any combination thereof, any of which may be subject to performance-based vesting conditions. Awards may also be granted to employees as incentive stock options (“ISOs”). The exercise price of stock options and SARs granted under the 2014 Plan may not be less than the fair market value of the Corporation’s common stock on the date the stock option or SAR is granted. The 2014 Plan is administered by the Compensation Committee of the Board of Directors. Almost all of the awards granted to date under the 2014 Plan are RSUs. All awards granted under the 2014 Plan will immediately vest upon an involuntary termination following a change in control, total and permanent disability, as defined, or death, and with certain exceptions, will immediately vest in the event of retirement, as defined.

The Corporation has 2,250,000 shares of common stock reserved for awards under the 2014 Plan. Awards granted under the 2006 Plan that expire or are forfeited after April 22, 2014 will be added to the number of shares of common stock reserved for issuance of awards under the 2014 Plan. All of the 2,250,000 shares may be issued upon the exercise of stock options or SARs. A maximum of 787,500 shares may be issued as restricted stock awards or upon the conversion of RSUs. At ~~September~~June 30, ~~2018, 1,861,297~~2019, 1,745,416 equity awards remain available to be granted under the 2014 Plan of which ~~405,653~~293,633 may be granted as restricted stock awards or RSUs.

Details of RSUs. The following table summarizes the vesting schedule of RSUs outstanding at ~~September~~June 30, ~~2018~~2019 by the year they were originally granted.

Granted During the Year Ended December 31,

Total

2018

2017

2016

2015
Number of RSUs :

Granted
385,159

70,688

94,329

107,274

112,868
Outstanding at September 30, 2018
216,408

65,514

76,033

73,661

1,200

RSUs scheduled to vest during:

2018
81,672

14,357

—

66,115

1,200
2019
91,582

21,179

62,857

7,546

—
2020
18,707

8,781

9,926

—

—
2021
24,447

21,197

3,250

—

—

216,408

65,514

76,033

73,661

1,200



		Granted During the Year Ended December 31,
	Total	2019	2018	2017	2016
Number of RSUs:
Granted during the year	384,435	112,144	70,688	94,329	107,274
Outstanding at June 30, 2019	225,890	112,144	44,338	66,408	3,000

Scheduled to vest during:
2019	94,126	23,535	14,359	53,232	3,000
2020	55,414	36,706	8,782	9,926	—
2021	37,632	13,185	21,197	3,250	—
2022	36,718	36,718	—	—	—
2023	1,000	1,000	—	—	—
2024	1,000	1,000	—	—	—
	225,890	112,144	44,338	66,408	3,000

The RSUs in the table above include performance-based RSUs with vesting based on the financial performance of the Corporation in ~~2018~~2019 and ~~2019~~2020 and service-based RSUs with various service-based vesting periods. The grant date fair value of RSUs awarded in 2016 is equal to the market price of the shares underlying the awards on the grant date. ~~RSUs awarded in 2016 accrue dividends at the same rate as dividends declared by the Board of Directors on the Corporation’s common stock.~~ The grant date fair value of RSUs awarded in ~~2015,~~ 2017, 2018 and ~~2018~~2019 is equal to the market price of the shares underlying the awards on the grant date, discounted for dividends that are not paid on these RSUs.

The following table presents a summary of RSUs outstanding at ~~September~~June 30, ~~2018~~2019 and changes during the ~~nine month~~six-month period then ended.

Weighted-

Weighted-

Average

Aggregate

Average

Remaining

Intrinsic

Number of

Grant-Date

Contractual

Value

RSUs

Fair Value

Term (yrs.)

(in thousands)
Outstanding at January 1, 2018

274,134

$
19.64

Granted

70,688

27.10

Converted

(106,522)

15.56

Forfeited

(21,892)

22.83

Outstanding at September 30, 2018

216,408

$
23.76

0.92

$
4,707
Vested and Convertible at September 30, 2018

—

$
—

—

$
—



				Weighted-
		Weighted-		Average		Aggregate
		Average		Remaining		Intrinsic
	Number of	Grant-Date		Contractual		Value
	RSUs	Fair Value		Term (yrs.)		(in thousands)
Outstanding at January 1, 2019	215,084	$	23.79
Granted	112,144		19.48
Converted	(101,338)		20.79
Outstanding at June 30, 2019	225,890	$	22.99		1.19	$	4,536
Vested and Convertible at June 30, 2019	—	$	—		—	$	—

The performance-based RSUs granted in 2019 and 2018 ~~and~~have a maximum payout potential of 1.50 shares of the Corporation’s common stock for each RSU awarded. Performance-based RSU’s granted in 2017 have a maximum payout potential of ~~1.50 and~~ 1.25 shares ~~of the Corporation’s common stock, respectively,~~ for each RSU awarded. All other RSUs outstanding at ~~September~~June 30, ~~2018~~2019 have a maximum payout potential of one share of the Corporation’s common stock for each RSU awarded. All of the RSUs outstanding at ~~September~~June 30, ~~2018~~2019 are currently expected to vest and become convertible in the future. The total intrinsic value of RSUs converted during the first ~~nine~~six months of 2019 and 2018 was $2,107,000 and ~~2017 was $3,011,000 and $1,779,000,~~$2,911,000, respectively.

2006 Plan. The 2006 Plan was approved by the stockholders of the Corporation on April 18, 2006. The 2006 Plan permitted the granting of stock options, SARs, restricted stock awards and RSUs to employees and non-employee directors. Under the terms of the 2006 Plan, stock options and SARs could not have an exercise price that was less than 100% of the fair market value of one share of the underlying common stock on the date of grant. Through December 31, 2011, equity grants to executive officers and directors under the 2006 Plan consisted of a combination of NQSOs and RSUs, while equity grants to other officers consisted solely of NQSOs. Beginning in 2012, equity grants under the 2006 Plan consisted solely of RSUs. Stock options granted under the 2006 Plan have a five year vesting period and a ten year term.

Fair Value of Stock Options. The grant date fair value of options was estimated on the date of grant using the Black-Scholes option pricing model. Substantially all outstanding stock options were expensed in prior years.

Stock Option Activity. The following table presents a summary of options outstanding at ~~September~~June 30, ~~2018,~~2019, and changes during the ~~nine~~six- month period then ended.

Weighted-

Weighted-

Average

Aggregate

Average

Remaining

Intrinsic

Number of

Exercise

Contractual

Value

Options

Price

Term (yrs.)

(in thousands)
Outstanding at January 1, 2018

159,807

$
11.35

Exercised

(48,158)

10.79

Forfeited or expired

—

—

Outstanding at September 30, 2018

111,649

$
11.59

1.50

$
1,134
Exercisable at September 30, 2018

111,349

$
11.57

1.49

$
1,133



				Weighted-
		Weighted-		Average		Aggregate
		Average		Remaining		Intrinsic
	Number of	Exercise		Contractual		Value
	Options	Price		Term (yrs.)		(in thousands)
Outstanding at January 1, 2019	96,112	$	11.80
Exercised	(19,656)		10.32
Forfeited or expired	—		—
Outstanding at June 30, 2019	76,456	$	12.18		1.18	$	604
Exercisable at June 30, 2019	76,306	$	12.17		1.18	$	603

All options outstanding at ~~September~~June 30, ~~2018~~2019 are either fully vested or expected to vest. The total intrinsic value of options exercised during the first ~~nine~~six months of 2019 and 2018 was $203,000 and ~~2017~~$278,000, respectively. Cash received from option exercises in the first six months of 2019 and 2018 was ~~$734,000~~$203,000 and ~~$1,062,000,~~$153,000, respectively. Tax benefits from stock option exercises for the six months ended June 30, 2019 and 2018 were $61,000 and $84,000, respectively.

Compensation Expense. The Corporation recorded compensation expense for share-based payments of ~~$1,526,000~~$1,668,000 and ~~$1,925,000~~$1,261,000 and recorded related income tax benefits of ~~$460,000~~$499,000 and ~~$808,000~~$380,000 for the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, ~~and 2017,~~ respectively.

Unrecognized Compensation Cost. As of ~~September~~June 30, ~~2018,~~2019, there was ~~$1,298,000~~$1,521,000 of total unrecognized compensation cost related to non-vested equity awards comprised of ~~$2,000~~$1,000 for stock options and ~~$1,296,000~~$1,520,000 for RSUs. The total cost is expected to be recognized over a weighted-average period of ~~1.0 year,~~1.5 years, which is based on weighted-average periods of ~~1.7~~0.9 years and ~~1.0 year~~1.5 years for stock options and RSUs, respectively.

~~Cash Received and Tax Benefits Realized.~~ Cash received from stock option exercises for the nine months ended September 30, 2018 and 2017 was $153,000 and $604,000, respectively. Tax benefits from stock option exercises for the nine months ended September 30, 2018 and 2017 were $167,000 and $445,000, respectively.

Other. No cash was used to settle stock options during the first ~~nine~~six months of ~~2018~~2019 or ~~2017.~~2018. The Corporation uses newly issued shares to settle stock option exercises and for the conversion of RSUs. During the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, 2,824 and ~~2017, 1,834 and 1,445~~1,141 shares, respectively, of the Corporation’s common stock were issued to ~~a member~~members of the Board of Directors in payment of director fees.

7 - DEFINED BENEFIT PENSION PLAN

The following table sets forth the components of net periodic pension credit.



	Nine Months Ended				Three Months Ended				Six Months Ended				Three Months Ended
	September 30,				September 30,				June 30,				June 30,
(in thousands)	2018		2017		2018		2017		2019		2018		2019		2018
Service cost	$	1,027	$	911	$	342	$	304	$	634	$	685	$	317	$	343
Interest cost		1,190		1,193		396		398		893		794		447		397
Expected return on plan assets		(2,456)		(2,205)		(818)		(735)		(1,501)		(1,638)		(751)		(819)
Amortization of net actuarial loss		—		13		—		4		176		—		88		—
Net pension credit	$	(239)	$	(88)	$	(80)	$	(29)
Net pension cost (credit)									$	202	$	(159)	$	101	$	(79)

~~As a result of the adoption of ASU 2017-07, for all periods presented, the components~~Components of net pension ~~credit~~cost (credit) other than the service cost component ~~were~~are included in the line item “Other noninterest income” in the consolidated statements of income. The service cost component ~~was~~is included in the line item ~~“Salaries”~~“Salaries and employee benefits” in the consolidated statements of income. ~~See “Note 11 – Adoption of New Accounting Standards” for more information regarding the provisions of ASU 2017-07.~~

The Bank makes cash contributions to the pension plan (“Plan”) which comply with the funding requirements of applicable federal laws and regulations. For funding purposes, the laws and regulations set forth both minimum required and maximum tax-deductible contributions. The Bank has no minimum required pension contribution for the Plan year ending September 30, ~~2018 and it cannot make a~~2019. Its maximum tax-deductible contribution for the tax year beginning January 1, ~~2018.~~ 2019 is $7,700,000. The contribution the Bank will make in 2019, if any, has not yet been determined.

1718

8 - FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial Instruments Recorded at Fair Value. When measuring fair value, the Corporation uses a fair value hierarchy, which is designed to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy involves three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect the Corporation’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Corporation deems transfers between levels of the fair value hierarchy to have occurred on the date of the event or change in circumstance that caused the transfer. There were no transfers between levels of the fair value hierarchy during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 or ~~2017.~~2018.

The fair values of the Corporation’s financial assets and liabilities measured at fair value on a recurring basis ~~at September 30, 2018 and December 31, 2017~~ are set forth in the ~~tables~~table that ~~follow. These~~follows. The fair values of available-for-sale securities are determined on a recurring basis using matrix pricing (Level 2 inputs). Matrix pricing, which is a mathematical technique widely used in the industry to value debt securities, does not rely exclusively on quoted prices for the specific securities but rather on the relationship of such securities to other benchmark quoted securities. Where no significant other observable inputs were available, Level 3 inputs were used. The fair values of interest rate swaps are based on valuation models using observable market data as of the measurement date resulting in a Level 2 classification.



	Fair Value Measurements Using:								Fair Value Measurements Using:
			Quoted Prices		Significant						Quoted Prices		Significant
			in Active		Other		Significant				in Active		Other		Significant
			Markets for		Observable		Unobservable				Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs				Identical Assets		Inputs		Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
September 30, 2018:
June 30, 2019:
Financial Assets:
Available-for-Sale Securities:
State and municipals	$	423,792	$	—	$	423,792	$	—	$	406,525	$	—	$	406,255	$	270
Pass-through mortgage securities		72,434		—		72,434		—		65,415		—		65,415		—
Collateralized mortgage obligations		246,613		—		246,613		—		148,838		—		148,838		—
Corporate Bonds		60,000		—		60,000		—
Corporate bonds										118,050		—		118,050		—
	$	802,839	$	—	$	802,839	$	—	$	738,828	$	—	$	738,558	$	270
Financial Liabilities:
Derivatives - interest rate swaps									$	5,188	$	—	$	5,188	$	—

Derivative - interest rate swap	$	281	$	—	$	281	$	—

December 31, 2017:
December 31, 2018:
Financial Assets:
Available-for-Sale Securities:
State and municipals	$	461,323	$	—	$	461,323	$	—	$	420,038	$	—	$	420,038	$	—
Pass-through mortgage securities		71,391		—		71,391		—		65,486		—		65,486		—
Collateralized mortgage obligations		187,414		—		187,414		—		154,901		—		154,901		—
Corporate bonds										117,590		—		117,590		—
	$	720,128	$	—	$	720,128	$	—	$	758,015	$	—	$	758,015	$	—
Financial Liabilities:
Derivative - interest rate swap									$	1,130	$	—	$	1,130	$	—

~~Assets~~The Corporation had no assets measured at fair value on a nonrecurring basis at ~~September~~June 30, 2018 and December 31, 2017, are set forth in the table that follows. Real estate appraisals utilized in measuring the fair value of impaired loans, if any, may employ a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. In arriving at fair value, the Corporation adjusts the value set forth in the appraisal by deducting costs to sell and a distressed sale adjustment when appropriate. The adjustments made by the appraisers and the Corporation are deemed to be significant unobservable inputs and therefore result in a Level 3 classification of the inputs used for determining the fair value of impaired loans.

Fair Value Measurements Using:

Quoted Prices

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs
(in thousands)

Total

(Level 1)

(Level 2)

(Level 3)
September 30, 2018:

Residential mortgages held-for-sale:

Closed-end

$
509

$
—

$
—

$
509
Revolving home equity

162

—

—

162

$
671

$
—

$
—

$
671
December 31, 2017:

Other real estate owned

$
5,125

$
—

$
—

$
5,125

~~The residential mortgage loans held-for-sale at September 30, 2018 in the preceding table were accounted for on a non-accrual basis and carried at the lower of cost or fair value.~~

The other real estate owned in the preceding table is one commercial real estate property acquired by deed-in-lieu of foreclosure. A valuation allowance of $725,000 was recorded and included in other noninterest expense in the consolidated statements of income for the year ended December 31, 2017. The Bank sold the property for its carrying value in the first quarter of 2018.

~~Other than the loans held-for-sale discussed above, the Corporation had no impaired loans recorded at fair value at September 30, 2018~~2019 or December 31, 2017. During the nine and three months ended September 30, 2017, the Corporation recorded provisions (credits) for loan losses of $338,000 and ($530,000), respectively, for impaired loans measured at fair value.2018.

Financial Instruments Not Recorded at Fair Value. Fair value estimates are made at a specific point in time. Such estimates are generally subjective in nature and dependent upon a number of significant assumptions associated with each financial instrument or group of similar financial instruments, including estimates of discount rates, liquidity, risks associated with specific financial

instruments, ~~such as liquidity, credit and nonperformance risk,~~ estimates of future cash flows, and relevant available market information. Changes in assumptions could significantly affect the estimates. In addition, fair value estimates do not reflect the value of anticipated future business, premiums or discounts that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument, or the income tax consequences of realizing gains or losses on the sale of financial instruments.

The following table sets forth the carrying amounts and estimated fair values of financial instruments that are not recorded at fair value in the Corporation’s financial statements.



	Level of	September 30, 2018				December 31, 2017				Level of	June 30, 2019				December 31, 2018
	Fair Value	Carrying				Carrying				Fair Value	Carrying				Carrying
(in thousands)	Hierarchy	Amount		Fair Value		Amount		Fair Value		Hierarchy	Amount		Fair Value		Amount		Fair Value
Financial Assets:
Cash and cash equivalents	Level 1	$	50,462	$	50,462	$	69,672	$	69,672	Level 1	$	69,216	$	69,216	$	47,358	$	47,358
Held-to-maturity securities	Level 2		3,682		3,739		5,030		5,143	Level 2		2,362		2,406		2,445		2,493
Held-to-maturity securities	Level 3		3,163		3,163		2,606		2,606	Level 3		2,116		2,116		3,059		3,059
Loans	Level 3		3,187,744		2,998,186		2,916,568		2,855,812	Level 3		3,191,819		3,131,749		3,232,561		3,079,946
Restricted stock	Level 1		37,941		37,941		37,314		37,314	Level 1		27,884		27,884		40,686		40,686

Financial Liabilities:
Checking deposits	Level 1		946,236		946,236		896,129		896,129	Level 1		932,443		932,443		935,574		935,574
Savings, NOW and money market deposits	Level 1		1,679,617		1,679,617		1,602,460		1,602,460	Level 1		1,716,472		1,716,472		1,590,341		1,590,341
Time deposits	Level 2		534,656		528,725		323,408		323,108	Level 2		664,664		667,294		559,057		553,900
Short-term borrowings	Level 1		292,176		292,176		281,141		281,141	Level 1		101,162		101,162		388,923		388,923
Long-term debt	Level 2		403,027		392,865		423,797		418,465	Level 2		360,472		360,467		362,027		354,651

9 – LEASES

As described in “Note 1112 – Adoption of New Accounting Standards,” the ~~Corporation~~Bank adopted ~~ASU 2016-01 on January 1, 2018 and applied the provisions of the standard prospectively to the fair value amounts in the table above.~~

~~9 – REVENUE FROM CONTRACTS WITH CUSTOMERS~~

~~As described in “Note 11 – Adoption of New~~ Accounting Standards~~” the Corporation adopted ASU 2014-09 “Revenue from Contracts with Customers”~~ Update (“ASU”) 2016-02 “Leases” and all subsequent amendments on January 1, ~~2018.~~ 2019.

The ~~majority~~Bank leases certain branch and back-office locations under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2032 and have a weighted average remaining term of 7.89 years at June 30, 2019. Many of the ~~Bank's income streams are outside~~Bank’s leases include renewal options of up to 10 years. The exercise of lease renewal options is at the Bank’s sole discretion.

Rental payments required by the Bank’s lease agreements may increase over time based on certain variable components such as real estate taxes and common area maintenance charges.

The Bank determines if an arrangement is a lease at inception. ASU 2016-02 requires the recognition of a right-of-use (“ROU”) asset and lease liability at the commencement date based on the present value of lease payments over the lease term. As most of the ~~scope~~Bank’s leases do not provide an implicit interest rate, the Bank uses its incremental borrowing rate to determine the present value of ~~ASU 2014-09,~~the lease payments. The weighted average discount rate for leases in place at June 30, 2019 was 3.09%. For leases entered into on a going forward basis, the Bank’s ROU asset and lease liability may include options to extend the lease when it is reasonably certain that the Bank will exercise that option. Lease expense will be recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Bank has one such lease at June 30, 2019 and recognizes lease expense for this lease on a straight-line basis over the lease term.

The components of lease expense for the six and three months ended June 30, 2019 are as ~~interest~~follows:



	Six Months Ended		Three Months Ended
(in thousands)	June 30, 2019		June 30, 2019
Operating lease cost	$	1,307	$	665
Variable lease cost		241		106
Short-term lease cost		3		1
	$	1,551	$	772

The following is a maturity analysis of the operating lease liability as of June 30, 2019.



(dollars in thousands)			June 30, 2019
12 months ended June 30,	2020	$	2,575
	2021		2,487
	2022		2,455
	2023		2,266
	2024		2,017
	Thereafter		6,566
Total lease payments			18,366
Less: interest			2,100
Present value of lease payments		$	16,266

Related Party Leases. Buildings occupied by two of the Bank’s branch offices are leased from a director of the Corporation and ~~dividend income~~the Bank with a total lease liability of $138,000 at June 30, 2019. The leases expire on ~~loans~~December 31, 2019 and ~~securities. Income streams that are within the scope of ASU 2014-09 are recorded in the~~October 31, 2022 with options to renew.

10 – REVENUE FROM CONTRACTS WITH CUSTOMERS

The noninterest income section of the consolidated statements of income ~~and include~~includes the following types of ~~fees~~revenues earned from the Bank's contracts with customers.

Investment Management Division (“IMD”) Revenues. The Bank holds customer assets in a fiduciary capacity and provides various services, including trust account services, estate settlement, custody and asset management. The services are performed for customers over time, requiring a time-based measure of progress. Fees are assessed based on market values of customer assets held or under management as of a certain point in time, and income cannot be estimated prior to the end of the measurement period. Volatility in equity and other market values will impact the amount of revenue that will be earned. Fees are generally earned and collected on a monthly or quarterly basis, accrued to income as earned and included in the consolidated statements of income in the line item "Investment Management Division income."

Deposit Account Revenues. Fees are earned and collected on a monthly basis for account maintenance and activity-based service charges on deposit accounts. The services are performed for customers over time, requiring a time-based measure of progress. Customers may be required to maintain minimum balances and average balances. Additional fees may also be earned for overdrafts, replacement of debit cards, bill payment, lockbox services and ACH services, among others, and are earned and collected as transactions take place. All deposit account fees are accrued to income as earned, either monthly or at the point of sale, and included in the consolidated statements of income in the line item "Service charges on deposit accounts."

Transaction and Branch Service Fees. The following revenue streams are components of “Other noninterest income” on the consolidated statements of income. These components totaled ~~$1,567,000~~$1,099,000 and ~~$1,426,000~~$985,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Other items included in “Other noninterest income,” such as bank-owned life insurance (“BOLI”) income, non-service components of net pension cost and real estate tax refunds are ~~outside of the scope of ASU 2014-09.~~excluded from revenue from contracts with customers.

Debit/Credit Card Revenues. The Bank earns a fee when its customers use their debit or credit cards in point-of-sale transactions. These fees are generally known as interchange fees. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recorded daily, concurrently with the transaction processing services provided to the cardholder.

Branch Services Revenues. The Bank charges fees for safe deposit box rentals, wire transfers, money orders, checkbook printing, official checks and ATM usage. Fees are earned, collected and generally recorded as revenue when the service is provided.

Investment Advisory Services. The Bank provides branch space to a third party who sells financial products to the Bank’s customers and pays commissions to the Bank based on the products sold. Commissions are variable and based on the market values of financial assets sold. Commissions are accrued to income as ~~earned and collected.~~earned.

1011 – DERIVATIVES

As part of its asset liability management activities, the Corporation ~~may utilize~~utilizes interest rate swaps to help manage its interest rate risk position. The notional amount of an interest rate swap does not represent the amount exchanged by the parties. The exchange of cash flows is determined by reference to the notional amount and the other terms of the interest rate swap agreements.

The Bank entered into an interest rate swap with a notional amount totaling $150 million on May 22, 2018 ~~which was~~and a second interest rate swap with a notional amount of $50 million on January 17, 2019. The interest rate swaps were designated as a cash flow ~~hedge~~hedges of certain Federal Home Loan Bank (“FHLB”) advances ~~included in short-term borrowings on the consolidated balance sheet.~~and brokered certificates of deposit (“CDs”). The ~~swap was~~swaps were determined to be fully effective during the ~~periods~~period presented and therefore no amount of ineffectiveness has been included in net income. The aggregate fair value of the ~~swap~~swaps is recorded in other ~~assets,~~liabilities, with changes in fair value net of related income taxes recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the ~~hedge~~hedges no longer be considered effective. The Corporation expects the ~~hedge~~hedges to remain fully effective during the remaining term of the ~~swap.~~swaps.

The following table summarizes information about the interest rate ~~swap~~swaps designated as a cash flow ~~hedge at September 30, 2018.~~hedges.




~~Notional amount~~		~~$150 million~~
~~Weighted average fixed pay rate~~		~~2.90%~~
~~Weighted average 3-month LIBOR receive rate~~		~~Currently 2.32%~~
~~Weighted average maturity~~		~~2.68 Years~~



	June 30, 2019	December 31, 2018
Notional amount	$200 million	$150 million
Weighted average fixed pay rate	2.83%	2.90%
Weighted average 3-month LIBOR receive rate	2.60%	2.38%
Weighted average maturity	2.56 Years	2.43 Years

Interest expense recorded on the swap ~~transaction,~~transactions, which totaled ~~$315,000 and $225,000, respectively,~~$183,000 for the ~~nine and three~~six months ended ~~September~~June 30, ~~2018,~~2019, is ~~included in the line item “Interest~~recorded as a component of interest expense ~~– short-term borrowings”~~ in the consolidated statements of income. Amounts reported in accumulated other comprehensive income (loss) related to ~~the swap~~swaps will be reclassified to interest expense as interest payments are ~~received/~~made on the Bank’s variable-rate ~~assets/~~liabilities. During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Corporation had ~~$315,000~~$183,000 of reclassifications to interest expense. During the next ~~twelve~~12 months, the Corporation estimates that ~~$243,000~~$1,624,000 will be reclassified as an increase to interest expense.

The following table presents the net ~~gains (losses)~~losses recorded in the consolidated statements of income and the consolidated statements of comprehensive income relating to ~~the~~ interest rate ~~swap~~swaps for the ~~nine~~six and three months ended ~~September~~June 30, ~~2018.~~2019.



					Amount of Loss
	Amount of Loss		Amount of Loss		Recognized in Other
	Recognized in OCI		Reclassified from OCI		Noninterest Income
(in thousands)	(Effective Portion)		to Interest Expense		(Ineffective Portion)
Interest rate contracts:
Six months ended June 30, 2019	$	4,241	$	183	$	—
Three months ended June 30, 2019	$	2,627	$	114	$	—

Amount of

Amount of Loss

Gain/(Loss)

Amount of Loss

Recognized in Other

Recognized in OCI

Reclassified from OCI

Noninterest Income

(in thousands)

(Effective Portion)

to Interest Expense

(Ineffective Portion)

Interest rate contract:

Nine months ended September 30, 2018

$
(34)

$
315

$
—

Three months ended September 30, 2018

$
462

$
225

$
—

The following table reflects the amounts relating to the interest rate swap included in the consolidated balance sheet at ~~September~~June 30, ~~2018.~~2019.



	~~Notional~~		~~Fair Value~~
~~(in thousands)~~	~~Amount~~		~~Asset~~		~~Liability~~
~~Included in other assets or other liabilities~~			$	~~281~~	$	—
~~Interest rate swap related to FHLB advances~~	$	~~150,000~~



	June 30, 2019						December 31, 2018
	Notional		Fair Value					Notional	Fair Value
(in thousands)	Amount		Asset		Liability			Amount	Asset		Liability
Included in other liabilities			$	—	$	5,188			$	—	$	1,130
Interest rate swap hedging FHLB advances	$	—					$	150,000
Interest rate swaps hedging brokered CDs	$	200,000					$	—

Credit Risk Related Contingent Features. The Bank’s agreement with its interest rate swap counterparty sets forth minimum collateral posting thresholds. If the termination value of the swap is a net asset position, the counterparty may be required to post collateral against its obligations to the Bank under the agreement. However, if the termination value of the swap is a net liability position, the Bank may be required to post collateral to the counterparty. At ~~September~~June 30, ~~2018,~~2019, the ~~termination value of the Bank’s swap~~Bank is in ~~an asset position~~compliance with the collateral posting provisions to its counterparty under the agreement of ~~$281,000.~~approximately $5.3 million. If the Bank had breached any of these provisions at ~~September~~June 30, ~~2018,~~2019, it could have been required to settle its obligations under the agreement at the termination value.

1112 – ADOPTION OF NEW ACCOUNTING STANDARDS

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09 “Revenue from Contracts with Customers.” The amendments in ASU 2014-09 provide a comprehensive framework for addressing revenue recognition issues that can be applied to all contracts with customers. While the guidance in ASU 2014-09 supersedes most existing industry-specific revenue recognition accounting guidance, much of a bank’s revenue comes from financial instruments such as debt securities and loans that are scoped-out of the guidance. The amendments in ASU 2014-09 also include improved disclosures to enable users of financial statements to better understand the nature, amount, timing and uncertainty of revenue that is recognized. For public entities such as the Corporation, ASU 2014-09, as amended, is effective for interim and annual reporting periods beginning after December 15, 2017. The adoption of ASU 2014-09 and all subsequent amendments on January 1, 2018, using the modified retrospective transition method, did not impact the Corporation’s financial position or results of operations and, as such, no cumulative effect adjustment was recorded. See “Note 9 – Revenue from Contracts with Customers” for disclosures pertaining to the revenue streams within the scope of ASU 2014-09.

In January 2016, the FASB issued ASU 2016-01 “Financial Instruments – Overall.” The amendments in ASU 2016-01 are intended to improve the recognition, measurement, presentation and disclosure of financial assets and liabilities to provide users of financial statements with information that is more useful for decision-making purposes. For public entities such as the Corporation, the amendments in ASU 2016-01 are effective for interim and annual reporting periods beginning after December 15, 2017. The adoption of ASU 2016-01 on January 1, 2018 did not have an impact on the Corporation’s financial position or results of operations, but resulted in the prospective application of an exit price notion in the determination of the fair value of certain financial instruments as disclosed in “Note 8 – Fair Value of Financial Instruments.” Adoption of the ASU also resulted in the elimination of disclosures regarding the methods and assumptions used to estimate fair value. The Bank’s FHLB and Federal Reserve Bank (“FRB”) stock, included under the line item “Restricted stock, at cost” in the consolidated balance sheets, are specifically excluded from the scope of the ASU.

In August 2016, the FASB issued ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 affects all entities that are required to present a statement of cash flows under Accounting Standards Codification (“ASC”) Topic 230, Statement of Cash Flows, and other ASC Topics, addressing eight specific cash flow issues with the objective of reducing diversity in practice.

ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017. The adoption of ASU 2016-15 on January 1, 2018 did not have a material impact on the Corporation’s cash flows or disclosures.

In March 2017, the FASB issued ASU 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU 2017-07 applies to all employers that offer to their employees defined benefit pension plans, other postretirement benefit plans or other types of benefits accounted for under ASC Topic 715. The ASU requires, among other things, that an employer disaggregate the service cost component from other components of net benefit cost and provides explicit guidance on how to present the service cost component and other components of net benefit cost in the income statement. ASU 2017-07 is effective for interim and annual reporting periods beginning after December 15, 2017. The adoption of ASU 2017-07 on January 1, 2018 resulted in revised income statement classifications of the components of net periodic pension cost for all periods presented. The Corporation used the amounts disclosed in “Note 7 – Defined Benefit Pension Plan” as the basis for applying the retrospective presentation requirements of the ASU. See Note 7 for details of the reclassified amounts. The other amendments in the ASU did not impact the Corporation’s financial position or results of operations.

In February 2018, the FASB issued ASU 2018-02 “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU 2018-02 affects any entity that has items of other comprehensive income for which the related tax effects are presented in other comprehensive income. The ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act which was signed into law on December 22, 2017. ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period. Management early-adopted the ASU in the first quarter of 2018 and reclassified $277,000 of stranded tax effect credits from accumulated other comprehensive income to retained earnings on January 1, 2018. The reclassification had no net impact on the Corporation’s financial position or results of operations.

~~12 – IMPACT OF ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS~~

The pronouncements discussed in this section are not intended to be an all-inclusive list, but rather only those pronouncements that could potentially have an impact on the Corporation’s financial position, results of operations or disclosures.

~~In February 2016, the FASB~~ issued ASU 2016-02 “Leases.” ASU 2016-02 affects any entity that enters into a lease and is intended to increase the transparency and comparability of financial statements among organizations. The ASU requires, among other changes, a lessee to recognize on its balance sheet a lease asset and a lease liability for those leases previously classified as operating leases. The lease asset ~~would represent~~represents the right to use the underlying asset for the lease term and the lease liability ~~would represent~~represents the discounted value of the required lease payments to the lessor. The ASU ~~would~~ also ~~require~~requires entities to disclose key information about leasing arrangements. The Corporation implemented ASU 2016-02 ~~as amended, is effective for interim and annual reporting periods beginning after December 15, 2018. Based~~ on January 1, 2019 utilizing the ~~lease arrangements~~transition method described in ~~effect at September 30, 2018 and the work completed to date in implementing~~ASU 2018-11 “Leases – Targeted Improvements.” Upon adoption of the ASU, ~~management believes~~the Corporation recorded a right-of-use asset and lease liability of $15.7 million and $16.5 million, respectively, for its outstanding operating leases. Implementation did not significantly

impact the Corporation’s results of operations, cash flows or regulatory capital ratios. See “Note 9 – Leases” for disclosures required by ASU 2016-02.

The Corporation elected the package of practical expedients permitted in ASU 2016-02. Accordingly, the Bank accounted for its existing operating leases as operating leases under the new guidance, without reassessing (a) whether the contracts contain a lease under ASU 2016-02, (b) whether classification of the operating leases would be different in accordance with ASU 2016-02, or (c) whether the unamortized initial direct costs before transition adjustments (as of December 31, 2018) would have met the definition of initial direct costs in ASU 2016-02 at lease commencement.

13 – IMPACT OF ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS

The pronouncements discussed in this section are not intended to be an all-inclusive list, but rather only those pronouncements that ~~the ASU will not~~could potentially have ~~a material~~an impact on the Corporation’s financial position, results of operations or regulatory capital ratios. The Corporation expects to utilize the transition method described in ASU 2018-11 “Leases – Targeted Improvements” with an application date of January 1, 2019 to implement the ASU.disclosures.

In June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 affects entities holding financial assets that are not accounted for at fair value, including loans, debt securities and other financial assets. The ASU requires financial assets measured at amortized cost to be presented at the net amount expected to be collected by recording an allowance for credit losses. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. ~~Early adoption is permitted beginning after December 15, 2018, including interim periods within those fiscal years.~~ Management has established an internal committee to manage the implementation of the ASU. The committee is led by the Bank’s Chief Accounting Officer and includes the EVP/CEO Successor, Chief Financial Officer, Chief Risk Officer, Chief Credit Officer, Controller, Manager of Accounting Controls and Chief ~~Risk Officer.~~Auditor. A broader group of Bank staff has been identified to assist in implementing the ASU, including representatives of the Bank’s loan operations, credit administration, lending, investments and technology functions. The committee has ~~selected and~~ engaged a third-party software provider, developed an implementation timeline, and accumulated ~~the~~all necessary historical ~~data needed to implement the ASU and~~data. The committee is in the process of ~~evaluating the accuracy and completeness of this data. In addition, the committee continues to analyze~~implementing the ASU which includes, among other things, developing accounting policy documentation and internal control processes. Parallel testing is expected to ~~understand~~commence in the ~~impact that it will have on the Corporation’s financial position, results of operations and disclosures.~~next two months.

In August 2018, the FASB issued ASU 2018-13 “Changes to the Disclosure Requirements for Fair Value Measurement” and ASU 2018-14 “Changes to the Disclosure Requirements for Defined Benefit Plans.” These ASUs modify certain disclosure requirements pertaining to fair value measurements and defined benefit plans, respectively, as part of the FASB’s disclosure framework project, and are intended to improve the effectiveness of disclosures in the notes to financial statements. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. ASU 2018-14 is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The adoption of these ASUs will modify the Corporation’s disclosures but will not impact its financial position or results of operations.

~~13 – SUBSEQUENT EVENTS~~

During October 2018, the Bank made a decision to restructure the securities portfolio by selling $61.6 million of mortgage-backed securities that were classified as available-for-sale. The securities sold had a yield of 2.51% and resulted in a pre-tax loss of approximately $3.2 million. The proceeds from the sale were used to pay down overnight borrowings with a cost of 2.47%.

Also during October 2018, the Bank completed a sale of the land and building related to one of its branches which was previously included in “other assets” in the consolidated balance sheets and carried at the lower of cost or fair value at September 30, 2018. The sale resulted in a pre-tax gain of $1.2 million in the fourth quarter of 2018.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management's discussion and analysis of The First of Long Island Corporation’s financial condition and operating results during the periods included in the accompanying consolidated financial statements, and should be read in conjunction with such financial statements. The Corporation’s financial condition and operating results principally reflect those of its wholly-owned subsidiary, The First National Bank of Long Island, and subsidiaries wholly-owned by the Bank, either directly or indirectly, FNY Service Corp., The First of Long Island REIT, Inc. and The First of Long Island Agency, Inc. The consolidated entity is referred to as the Corporation and the Bank and its subsidiaries are collectively referred to as the Bank. ~~Although the~~The Bank’s primary service area is ~~currently~~ Nassau and Suffolk Counties, Long Island and the ~~New York City~~NYC boroughs of Queens, Brooklyn and ~~Brooklyn, it does have two commercial banking branches in~~ Manhattan. ~~Expansion~~Continued expansion of the Bank’s branch distribution system, particularly in the ~~New York City~~NYC boroughs of Queens and Brooklyn, is an ongoing strategic initiative.

Overview

Net income and earnings per share for the first ~~nine~~six months of ~~2018~~2019 were ~~$31.5~~$21.6 million and ~~$1.24,~~$.86, respectively, ~~representing increases over~~compared to $21.4 million and $.84, respectively, for the same period last ~~year of 14.3% and 9.7%, respectively.~~year. Dividends per share increased ~~9.3%~~13.3%, from ~~$.43~~$.30 for the first ~~nine~~six months of ~~2017~~2018 to ~~$.47~~$.34 for the current ~~nine-month~~six-month period. Returns on average assets (“ROA”) and average equity (“ROE”) for the first ~~nine~~six months of ~~2018~~2019 were ~~1.01%~~1.03% and ~~11.34%~~11.15%, respectively, versus ~~1.01%~~1.05% and ~~11.23%~~11.77%, respectively, for the same period last year. Book value per share increased from ~~$14.37~~$15.27 at year-end ~~2017~~2018 to ~~$14.96~~$15.87 at the close of the current quarter. ~~The credit quality of the Bank’s loan and securities portfolios remains excellent.~~

Analysis of Earnings – ~~Nine Month Periods~~. Six-Month Periods.Net income for the first ~~nine~~six months of ~~2018~~2019 was ~~$31.5~~$21.6 million, an increase of ~~$3.9 million,~~$159,000, or ~~14.3%~~.7%, ~~over~~versus the same period last year. The increase is attributable to ~~increases in net interest income of $4.2 million, or 5.8%, and noninterest income, before securities gains and losses, of $1.1 million, or 15.1%, and~~ decreases in the provision for loan losses and non-interest expense of $2.4 million and $664,000, respectively. The impact of these decreases was partially offset by declines in net interest income and noninterest income of $352,000 and $810,000, respectively, and an increase in income tax expense of $2.7 million and $5.6 million, respectively. These items were partially offset by an increase in noninterest expense of $4.6 million, or 11.5%, and securities losses of $5.0 million in the current nine month period versus gains of $74,000 in the same period last year.$1.7 million.

The ~~increase~~decline in net interest income ~~is primarily attributable to growth in the average balance of loans of $439.6 million, or 16.2%. Loans grew primarily~~occurred because of ~~increases in commercial~~yield curve flattening followed by inversion and ~~residential mortgage loans. Growth in the average~~management’s resulting decision to slow loan and overall balance of loans was funded by increases in the average balances of noninterest-bearing checking deposits, interest-bearing deposits, borrowings and stockholders’ equity. Substantial contributors to the growth in deposits were new branch openings, the Bank’s ongoing municipal deposit initiative, deposit promotions with emphasis on time deposits and the issuance of brokered certificates of deposit toward the end of the first quarter. Substantial contributors to the growth in stockholders’ equity were net income and the issuance of shares under the Corporation’s Dividend Reinvestment and Stock Purchase Plan (“DRIP”), partially offset by cash dividends declared and a decline in the after-tax value of available-for-sale securities. During the nine and three months ended September 30, 2018, the sale of shares under the DRIP contributed $17.0 million and $1.2 million to capital, respectively.sheet growth.

Net interest margin for the first ~~nine~~six months of ~~2018~~2019 was ~~2.63%~~2.57%, down 299 basis points from ~~2.92%~~2.66% for the same period last year. The decrease ~~in net interest margin~~ is largely attributable ~~to: (1)~~to the flattening and inversion of the yield curve ~~flattening~~and the resulting ~~from a~~impact on funding costs and asset yields.

The modest mortgage loan pipeline at quarter end of $49 million is reflective of management’s current plans to not meaningfully change the size of the loan portfolio during the remainder of 2019.

The most significant increase in the federal funds target rate with lesser increases in intermediate and longer-term interest rates; (2) timing differences between the repricing of interest-earning assets and interest-bearing liabilities in a rising rate environment; (3) competitive pressure to raise deposit rates to fund growth and protect against deposit outflows; (4) a reduction in prepayment penalties and late charges; and (5) a reduction in the statutory federal income tax rate from 35%reason for the ~~first nine months of 2017 to 21% for the current nine-month period.~~

~~The $2.7 million~~ reduction in the provision for loan losses ~~for the first nine months~~ of ~~2018~~$2.4 million versus the same period last year ~~is mainly due to improved economic conditions and historical loss rates, less loan growth~~was that loans declined by $42 million in the current ~~year and a larger increase in specific reserves~~period versus increased by $304 million in the ~~2017 period.~~ comparable period of 2018.

The impact of these items was partially offset by higher net chargeoffs in the current nine-month period. Net chargeoffs in first nine months of 2018 of $780,000 include chargeoffs of $382,000 on loans transferred to held-for-sale and carried at the lower of cost or fair value at September 30, 2018.

~~The $1.1 million increase~~decrease in noninterest income ~~before securities gains and losses,~~of $810,000, or 13.6%, is primarily attributable to ~~an increase~~a BOLI death benefit in ~~income from BOLI,~~the first six months of 2018 and ~~a larger net credit relating to~~declines for the current six-month period in the non-service cost components of the Bank’s defined benefit pension ~~plan. These increases were~~plan and IMD income.

Noninterest expense decreased $664,000, or 2.2%, versus the same period last year primarily because of decreases in salaries and employee benefits and marketing expenses, partially offset by ~~refunds related~~increases in technology and professional services fees. Management is committed to ~~sales~~maintaining tight control over operating costs which should help to mitigate the downward pressure on earnings arising from the current interest rate environment.

Income tax ~~and telecommunications charges~~expense increased $1.7 million and the ~~elimination~~effective tax rate increased from 11.2% to 16.9% when comparing the first six months of ~~accrued circuit termination charges in~~2019 to the ~~2017 period.~~

~~The $4.6 million increase in noninterest expense is~~same period last year. These increases are primarily attributable to ~~increases in salaries, employee~~the recognition of state and local net operating loss carryforwards and higher excess tax benefits ~~and other personnel expense, occupancy and equipment expense, other real estate owned expense and growth-related increases~~from stock-based compensation in the ~~Bank’s FDIC~~2018 period and ~~OCC assessments.~~

a decline in the current period of tax-exempt income from municipal securities and BOLI. The ~~$5.6 million decrease~~increase in income tax expense ~~is due to (1) a reduction in the statutory federal income tax rate from 35% last year to 21% effective January 1, 2018; (2) recognition~~also reflects higher pretax earnings in the current ~~nine-month~~six-month period as compared to the same period of net operating loss carryforwards that originated in 2017; (3) recognition of tax benefits related to accelerating tax depreciation into 2017; (4) higher tax benefits in the 2018 period from BOLI; and (5) tax benefits related to a securities loss resulting from restructuring the securities portfolio in the third quarter of 2018.

Late in the third quarter of 2018, the Bank restructured the available-for-sale securities portfolio by selling mortgage-backed securities and short-term municipal bonds with yields of 2.51% and 2.90%, respectively, and reinvested the proceeds in mortgage-backed securities and corporate bonds with an overall yield of 4.02%. The Bank recorded a loss of $5.0 million ($3.5 million after-tax) on the sale and the payback period for the loss is approximately 2.4 years.

Asset Quality.The Bank’s allowance for loan losses to total loans (reserve coverage ratio) ~~decreased~~declined by 2 basis points from ~~1.15%~~.94% at year-end ~~2017~~2018 to ~~1.12% at March 31, 2018, 1.10%~~.92% at June 30, ~~2018~~2019. The provision (credit) for loan losses was ($35,000) and ~~1.04% at September 30, 2018. The decrease~~$2.3 million in the ~~reserve coverage ratio~~first six months of 2019 and 2018, respectively. The credit provision in the current six-month period was driven mainly by declines in outstanding loans and historical loss rates partially offset by net chargeoffs. The provision in the 2018 ~~is primarily due to adjustments to certain qualitative factors to reflect~~period was driven mainly by loan growth offset by improved economic conditions, ~~and~~ reductions in historical loss rates and growth rates on certain pools of loans. The provision for loan losses was $547,000 and $3.2 million in the first nine months of 2018 and 2017, respectively. The provision in each period was driven mainly by loan growth and net chargeoffs and, in the 2017 period, an increase in specific reserves, partially offset by improved economic conditions and reductions in historical losses.rate trends.

The credit quality of the Bank’s loan ~~portfolio~~and securities portfolios remains ~~excellent.~~strong. Nonaccrual loans, amounted to $4.9 million, or .15% of total loans outstanding at September 30, 2018, compared to $1.8 million, or .06%, at June 30, 2018 and $1.0 million, or .03%, at December 31, 2017. The increase in nonaccrual loans during the first nine months of 2018 is primarily due to the designation as nonaccrual of $2.8 million of loans to one borrower, partially offset by paydowns, loan sales and chargeoffs. Total nonaccrual loans at the end of the third quarter include loans held-for-sale of $671,000 that are carried at the lower of cost or fair value. Troubled debt restructurings amounted to $1.3 million, or .04% of total loans outstanding, at September 30, 2018. Of the troubled debt restructurings ~~$1.2 million are performing in accordance with their modified terms~~ and ~~$88,000 are nonaccrual and included in the aforementioned amount of nonaccrual loans. Loans~~loans past due 30 through 89 days ~~amounted to $1.1 million, or .04% of total loans outstanding,~~all remain at ~~September 30, 2018, compared to $2.8 million, or .09%, at December 31, 2017.~~very low levels.

The credit quality of the Bank’s securities portfolio also remains excellent. The Bank’s mortgage securities are backed by mortgages underwritten on conventional terms, with 81% 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 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 municipal securities and corporate bonds in its portfolio and makes decisions to hold or sell based on such assessments.

Key Strategic Initiatives and Challenges We Face. The Bank’s strategy remains focused on increasing shareholder value through loan and deposit growth when conditions warrant and the maintenance of ~~stellar~~strong credit quality, a strong efficiency ratio and an optimal amount of capital. We continue to adjust overall balance sheet and loan growth and capital levels in response to market conditions to optimize current results and best position the Bank for future increases in profitability. We currently have 52 branches in Nassau and Suffolk Counties, Long Island and the NYC boroughs of Queens, Brooklyn and Manhattan and will continue to open new branches, ~~but~~albeit at a slower ~~pace.~~pace than in recent years. Management is also focused on growing noninterest income from existing and potential new sources, which may include the development or acquisition of fee-based businesses.

~~In response~~Notwithstanding the actions taken by management to mitigate the ~~flattening yield curve, management has implemented a variety~~impact on earnings of ~~measures in an attempt to stabilize~~the current interest rate environment, net interest income and ~~improve~~ net interest margin remain under pressure and ~~reduce operating expenses and thereby enable continued earnings growth. Additional steps are likely. Quarterly net interest margin is expected to increase in the fourth quarter of 2018 then~~could be negatively impacted by ~~additional~~further yield curve inversion, upward deposit repricings and increases in borrowing costs. The Corporation’s profitability metrics could be negatively impacted and may experience declines from current levels due to one or both of the ~~federal funds rate~~following: (1) rising funding costs that ~~the market expects~~are not accompanied by similar increases in ~~late 2018~~lending and ~~2019.~~investing rates, or (2) falling funding costs that are accompanied by equal or greater declines in available yields on loans and securities. Management will continue to be measured and disciplined in its approach to ~~the extension of credit~~deposit repricings and loan growth and will not meaningfully loosen its underwriting standards ~~in an attempt~~ to improve net interest margin. Assuming no meaningful change in the yield curve and upward pressure on deposit and borrowing costs continue, management believes that net interest margin for 2019 should approximate 2.55%.

With respect to its lending activities, the Bank will continue to prudently manage concentration and credit risk and maintain its broker and correspondent relationships. Commercial mortgage loans will be emphasized over residential mortgage ~~loans.~~loans because of the better yield and shorter duration that such mortgages generally provide. Small business credit scored ~~loans, equipment finance loans and Small Business Administration (SBA)~~ loans, along with the Bank’s traditional commercial and industrial loan products, will be originated to diversify the Bank’s loan portfolio and help mitigate the impact on net interest margin of the ~~flattening yield curve.~~current interest rate environment. Management is currently exploring initiatives to grow its commercial and industrial portfolio which, if undertaken, will happen in a measured and disciplined fashion over an extended period of time.

In June 2019, New York State (“NYS”) passed The ~~Bank’s branch distribution system currently consists~~Housing Stability and Tenant Protection Act of ~~fifty-two branches~~2019 (“TPA”). TPA represents a substantial change to the laws that have governed landlord-tenant relations in ~~Nassau~~NYC for decades and ~~Suffolk Counties, Long Island~~significantly strengthens tenant protections. Among other changes, TPA limits the ability of landlords to increase rents to recapture the cost of individual apartment and

building-wide capital improvements and restricts the ability of landlords to deregulate rental units based on vacancy, the earnings of occupants or reaching a defined rent threshold. TPA could negatively impact landlords and the ~~New York City boroughs~~value of ~~Queens, Brooklyn~~regulated buildings and ~~Manhattan. The Bank expects~~may discourage developers from investing in new residential multifamily construction throughout NYS. This may lead to ~~open more branches~~a weakening of the financial strength of some borrowers and deterioration in the ~~foreseeable future. In~~value of certain collateral.

~~addition, management is also focused on growing noninterest income from existing and potential new sources, which may include the development or acquisition of fee-based businesses.~~

In the current environment, banking regulators are concerned about, among other things, growth, commercial real estate concentrations, underwriting of commercial real estate and commercial and industrial loans, capital levels, liquidity, cyber security and predatory sales practices. Regulatory requirements, the cost of compliance and vigilant supervisory oversight are exerting downward pressure on revenues and upward pressure on required capital levels and operating expenses.

Net Interest Income

Average Balance Sheet; Interest Rates and Interest ~~Differential.~~Differential. The following table sets forth the average daily balances for each major category of assets, liabilities and stockholders’ equity as well as the amounts and average rates earned or paid on each major category of interest-earning assets and interest-bearing liabilities. The average balances of investment securities include unrealized gains and losses on available-for-sale securities, and the average balances of loans include nonaccrual loans.



	Nine Months Ended September 30,												Six Months Ended June 30,
	2018						2017						2019						2018
	Average		Interest/		Average		Average		Interest/		Average		Average		Interest/		Average		Average		Interest/		Average
(dollars in thousands)	Balance		Dividends		Rate		Balance		Dividends		Rate
(dollars in thousands)													Balance		Dividends		Rate		Balance		Dividends		Rate
Assets:
Interest-earning bank balances	$	30,096	$	400	1.78	%	$	24,457	$	191	1.04	%	$	25,253	$	300	2.40	%	$	30,322	$	255	1.70	%
Investment securities:
Taxable		354,530		7,875	2.96			337,941		5,692	2.25			368,572		7,668	4.16			340,633		4,955	2.91
Nontaxable (1)		460,231		12,902	3.74			460,156		15,556	4.51			416,006		7,653	3.68			466,366		8,696	3.73
Loans (1)		3,160,835		83,646	3.53			2,721,229		71,820	3.52			3,248,214		59,032	3.63			3,127,670		55,173	3.53
Total interest-earning assets		4,005,692		104,823	3.49			3,543,783		93,259	3.51			4,058,045		74,653	3.68			3,964,991		69,079	3.48
Allowance for loan losses		(35,382)						(31,604)						(30,501)						(35,138)
Net interest-earning assets		3,970,310						3,512,179						4,027,544						3,929,853
Cash and due from banks		36,931						31,791						36,252						36,685
Premises and equipment, net		40,122						35,405						41,217						40,145
Other assets		118,885						85,944						128,493						118,561
	$	4,166,248					$	3,665,319					$	4,233,506					$	4,125,244
Liabilities and Stockholders' Equity:
Savings, NOW & money market deposits	$	1,749,025		8,823	.67		$	1,627,152		4,974	.41		$	1,685,467		8,841	1.06		$	1,757,700		5,698	.65
Time deposits		477,535		7,529	2.11			301,499		3,986	1.77			637,630		7,331	2.32			444,599		4,577	2.08
Total interest-bearing deposits		2,226,560		16,352	.98			1,928,651		8,960	.62			2,323,097		16,172	1.40			2,202,299		10,275	.94
Short-term borrowings		189,141		3,026	2.14			138,523		986	.95			196,481		2,507	2.57			179,291		1,656	1.86
Long-term debt		425,712		6,399	2.01			401,889		5,703	1.90			362,461		3,675	2.04			431,985		4,278	2.00
Total interest-bearing liabilities		2,841,413		25,777	1.21			2,469,063		15,649	.85			2,882,039		22,354	1.56			2,813,575		16,209	1.16
Checking deposits		943,689						859,805						931,942						935,753
Other liabilities		9,803						8,522						29,233						8,954
		3,794,905						3,337,390						3,843,214						3,758,282
Stockholders' equity		371,343						327,929						390,292						366,962
	$	4,166,248					$	3,665,319					$	4,233,506					$	4,125,244

Net interest income (1)			$	79,046					$	77,610					$	52,299					$	52,870
Net interest spread (1)					2.28	%					2.66	%					2.12	%					2.32	%
Net interest margin (1)					2.63	%					2.92	%					2.57	%					2.66	%

~~(1)~~

Tax-equivalent basis. Interest income on a tax-equivalent basis includes the additional amount of interest income that would have been earned if the Corporation's investment in tax-exempt loans and investment securities had been made in loans and investment securities subject to federal income taxes yielding the same after-tax income. The tax-equivalent amount of $1.00 of nontaxable income was $1.27 and $1.54 for the nine months ended September 30, 2018 and 2017, respectively, using statutory federal income tax rates of 21% and 35%, respectively.

(1)Tax-equivalent basis. Interest income on a tax-equivalent basis includes the additional amount of interest income that would have been earned if the Corporation's investment in tax-exempt loans and investment securities had been made in loans and investment securities subject to federal income taxes yielding the same after-tax income. The tax-equivalent amount of $1.00 of nontaxable income was $1.27 in each period presented, using the statutory federal income tax rate of 21%.

Rate/Volume ~~Analysis.~~Analysis. The following table sets forth the effect of changes in volumes and rates on tax-equivalent interest income, interest expense and net interest income. The changes attributable to athe combined impact of volume and rate have been allocated to the changes due to volume and the changes due to rate.



	Nine Months Ended September 30,						Six Months Ended June 30,
	2018 Versus 2017						2019 Versus 2018
	Increase (decrease) due to changes in:						Increase (decrease) due to changes in:
											Net
(in thousands)	Volume		Rate		Net
(in thousands)							Volume		Rate		Change
Interest Income:
Interest-earning bank balances	$	52	$	157	$	209	$	(47)	$	92	$	45
Investment securities:
Taxable		292		1,891		2,183		436		2,277		2,713
Nontaxable		2		(2,656)		(2,654)		(929)		(114)		(1,043)
Loans		11,601		225		11,826		2,219		1,640		3,859
Total interest income		11,947		(383)		11,564		1,679		3,895		5,574

Interest Expense:
Savings, NOW & money market deposits		398		3,451		3,849		(243)		3,386		3,143
Time deposits		2,664		879		3,543		2,170		584		2,754
Short-term borrowings		462		1,578		2,040		171		680		851
Long-term debt		348		348		696		(703)		100		(603)
Total interest expense		3,872		6,256		10,128		1,395		4,750		6,145
Increase (decrease) in net interest income	$	8,075	$	(6,639)	$	1,436	$	284	$	(855)	$	(571)

Net Interest Income

Net interest income on a tax-equivalent basis for the first ~~nine~~six months of ~~2018~~2019 was ~~$79.0~~$52.3 million, ~~an increase~~a decrease of ~~$1.4 million,~~$571,000, or ~~1.9%~~1.1%, ~~over $77.6~~from $52.9 million for the same period of 2018. The decline in net interest income occurred because of yield curve flattening followed by inversion and management’s resulting decision to slow loan and overall balance sheet growth. Flattening and inversion of the yield curve occurred as increases in the federal funds target rate were initially accompanied by lesser increases in intermediate and long-term U.S. treasury rates and then by declines in such rates. The federal funds target rate drives the Bank’s cost of deposits and short-term borrowings while intermediate and long-term treasury rates drive the yields available to the Bank on loan originations and repricings, securities purchases and the reinvestment of cash flows. When comparing the current six-month period to the same period last year, the cost of interest bearing deposits and short-term borrowings increased by 46 basis points and 71 basis points, respectively, while the yield on the loan portfolio only increased by 10 basis points and the yield on the securities portfolio increased by 53 basis points. Loan portfolio yield improved largely because of a positive spread between the rates on loans being originated and those paying down, loans repricing at higher yields and a shift in originations from lower yielding residential mortgages to higher yielding commercial mortgages. The improvement in yield on the securities portfolio largely resulted from restructuring of the taxable securities portfolio in 2018.

Net interest margin for the first ~~nine~~six months of ~~2017.~~2019 was 2.57%, down 9 basis points from 2.66% for the same period last year. The ~~increase~~decrease is ~~primarily~~largely attributable to the flattening and inversion of the yield curve and the resulting impact on funding costs and asset yields. While net interest margin and earnings could be negatively impacted by additional increases in the federal funds target rate, a pause by the Federal Reserve or a decrease in the federal funds target rate could relieve some of the upward pressure on funding costs and may result in a decrease in funding costs and improvement in net interest income and net interest margin over time.

Management’s decision to slow loan growth resulted in modest growth of 3.9%, or $120.5 million, in the average balance of loans ~~of $439.6 million, or 16.2%. Loans grew primarily because of increases in commercial and residential mortgage loans. Growth in~~when comparing the ~~average balance of loans~~current six-month period to the same period last year. Loan growth was funded by increases in the average balances of ~~noninterest-bearing checking deposits of $83.9 million, or 9.8%,~~ interest-bearing deposits of ~~$297.9~~$120.8 million, or ~~15.4%~~5.5%, short-term borrowings of ~~$74.4~~$17.2 million, or ~~13.8%~~9.6%, and stockholders’ equity of ~~$43.4~~$23.3 million, or ~~13.2%~~6.4%. These increases were partially offset by a decrease in long-term borrowings of $69.5 million, or 16.1%. Substantial contributors to the growth in deposits were ~~new branch openings,~~ the Bank’s ongoing municipal deposit initiative ~~deposit promotions with emphasis on time deposits~~ and the issuance of brokered ~~certificates~~CDs. The average balance of ~~deposit toward the end of the first quarter.~~brokered CDs increased $170.5 million as brokered CDs were used as a lower cost alternative to FHLB advances. Substantial contributors to the growth in stockholders’ equity were net income and the issuance of shares under the ~~DRIP,~~Corporation’s Dividend Reinvestment and Stock Purchase Plan (“DRIP”) during the early part of 2018, partially offset by cash dividends declared and, ~~a decline~~beginning in December 2018, common stock repurchases.

Management has been proactive in addressing the after-tax value of available-for-sale securities. During the nine and three months ended September 30, 2018, the sale of shares under the DRIP contributed $17.0 million and $1.2 million to capital, respectively.

~~Net interest margin for the first nine months of 2018 was 2.63%, down 29 basis points from 2.92% for the same period last year. The decrease in~~downward pressure on net interest margin is largely attributable to: (1) yield curve flattening resulting from a significant increase in the federal funds target rate with lesser increases in intermediate and longer-term interest rates; (2) timing differences between the repricing of interest-earning assets and interest-bearing liabilities in a rising rate environment; (3) competitive pressure to raise deposit rates to fund growth and protect against deposit outflows; (4) a reduction in prepayment penalties and late charges from $1.8 million for the first nine months of 2017 to $793,000 for the current nine-month period, thus reducing net interest margin by 4 basis points; and (5) a reduction in the statutory federal income, tax rate from 35% for the first nine months of 2017 to 21% for the current nine-month period, thus reducing the tax-equivalent amount of each dollar of tax-exempt income and causing a 9 basis point decline in net interest margin. When comparing the first nine months of this year to the same period last year, these factors largely account for the significant increases experienced by the Bank in the cost of its non-maturity deposits and short-term borrowings of 26 basis points and 119 basis points, respectively, with a much more modest increase occurring in its loan portfolio yield of 1 basis point and a decrease in the securities portfolio yield of 15 basis points. Unlike non-maturity deposits and short-term borrowings, the Bank’s securities and almost all of its loans are not subject to immediate repricing with changes in market interest rates.

~~Beginning in the second quarter of this year, management began implementing a variety of measures designed to stabilize and improve~~ net interest margin and ~~reduce expenses. Additional steps are likely. These measures~~earnings caused by the flat and now inverted yield curve and the low interest rate environment. Actions taken thus far include, among ~~others, reducing~~others:

Reducing overall balance sheet growth by slowing loan growth and the related need for funding ~~changing~~

Slowing the pace of branch expansion

Changing the mix of loans being originated restructuring the securities portfolio and hedging a portion of overnight borrowings with an interest rate swap. Slowing loan growth has resulted in reducing the provision for loan losses. Diminished funding needs have enabled management to ~~mitigate growth in noninterest expense and the cost of deposits by slowing the pace of new branch openings, offering fewer deposit rate promotions and being more selective in offering~~ higher ~~rates to new and existing customers.~~ yielding commercial mortgages from lower yielding residential mortgages

Restructuring the securities portfolio ~~as discussed hereinafter, is immediately accretive to net interest margin and hedging overnight~~

Hedging a portion of short-term borrowings with an interest rate ~~swap provides some net interest margin protection~~swaps

Shifting a portion of borrowings from FHLB advances to brokered CDs to reduce funding costs

Maintaining tight control over operating expenses

Focusing on improving the level of noninterest income

Using excess capital to repurchase common stock which improves EPS and ROE

Thus far in 2019, total loans, assets and related funding, consisting of deposits and borrowings, have declined modestly and the ~~event~~emphasis on commercial mortgages has continued. Only one new branch was opened in 2019 and no further branch openings are expected for the remainder of ~~an increase in overnight borrowing rates.~~the year. Management ~~also~~ continues to ~~explore a variety~~evaluate additional steps that may be taken to mitigate the impact on earnings of ~~cost saving measures aimed at further improving an already very strong efficiency ratio.~~

~~The mortgage loan pipeline at September 30, 2018 was a modest $54 million, reflecting management’s decision~~the current interest rate environment including the hiring of additional lenders to ~~slow loan growth. In an attempt to improve overall loan portfolio yield,~~grow the ~~mix of loan originations is being more heavily weighted towards commercial mortgages and~~ commercial and industrial ~~loans with less emphasis on residential mortgage loans. Loans grew 9.2% during the first nine months of the current year~~loan portfolio and ~~amounted to $3.2 billion at September 30, 2018. Management expects a somewhat reduced level of growth in 2019.~~related core funding.

We believe that the measures discussed above contributed to a slower decline in net interest margin for the third quarter than that which occurred in the first and second quarters. Excluding the impact of prepayment penalties and late charges and the aforementioned reduction in the statutory federal income tax rate, the quarterly decline in net interest margin was 6 basis points in the first quarter of 2018, 13 basis points in the second quarter and 1 basis point in the third quarter. The second quarter decline reflects the full quarter impact of robust first quarter growth. Management believes that fourth quarter net interest margin will be higher than that reported for the third quarter.

Employing the measures discussed above and assuming a continued flattening of the yield curve, net interest margin could range from approximately 2.50% to 2.55% in 2019 and then begin to increase in 2020. If the yield curve flattens less than anticipated or steepens, net interest margin could be better than that currently anticipated for 2019.

Noninterest Income

Noninterest income includes service charges on deposit accounts, ~~Investment Management Division~~IMD income, gains or losses on sales of securities, and all other items of income, other than interest, resulting from the business activities of the Corporation.

~~Noninterest~~The decrease in noninterest income ~~before securities gains and losses, increased $1.1 million,~~of $810,000, or ~~15.1%~~13.6%, ~~when comparing the first nine months of 2018 to the same period last year. The increase~~ is primarily attributable to ~~an increase of $432,000 in cash value accretion on BOLI,~~ a ~~$565,000~~ BOLI death benefit ~~and an increase of $267,000~~ in the ~~net credit relating to~~first six months of 2018 of $565,000 and declines in the non-service cost components of the Bank’s defined benefit pension ~~plan. These increases were partially offset by refunds~~plan of ~~$155,000~~$412,000 and IMD income of $159,000. IMD income declined mainly because of certain trust-related fees earned in the 2018 period and lower assets under management and held in a custodial capacity in the current period. Partially offsetting these items was an increase in service charges on deposit accounts of $198,000 primarily related to ~~sales tax~~higher overdraft and ~~telecommunications charges~~maintenance and activity charges. Based on information currently known, we believe that the ~~elimination~~level of ~~$77,000 in accrued circuit termination charges~~noninterest income in the ~~2017 period. Cash value accretion increased because~~first half of purchases of BOLI during the first quarters of 2017 and 2018 of $25 million and $20 million, respectively. These purchases contributed $22.1 million to the growth in average other assets for the first nine months of 2018 compared to the same period last year. The non-service cost components2019 is representative of the Bank’s pension plan included in noninterest income are comprised of expected return on pension plan assets and interest cost on the benefit obligation. These items are included in noninterest income under ASU 2017-07 which was adopted by the Corporation on January 1, 2018. Income statement items for the first nine months of 2017 were reclassified to conform to the current period presentation.

~~Late~~amount that will be recognized in the third quarter of 2018, the Bank restructured the available-for-sale securities portfolio by selling $135 million of mortgage-backed securities and $39.6 million of short-term municipal bonds with yields of 2.51% and 2.90%, respectively, and reinvested the proceeds in mortgage-backed securities and corporate bonds with an overall yield of 4.02%. The Bank recorded a loss of $5.0 million ($3.5 million after-tax) on the sale and the payback period for the loss is approximately 2.4 years. Becausesecond half of the timing of this restructuring, it had little impact on net interest margin for the current quarter or nine-month period. On a going forward basis, it will improve the Bank’s net interest margin by approximately 5 basis points. The securities loss negatively impacted ROA and ROE by 11 and 124 basis points, respectively, for the first nine months of 2018, and 32 and 362 basis points, respectively, for the third quarter of 2018.year.

In early October 2018, the Bank further restructured the securities portfolio by selling $61.6 million of mortgage-backed securities with a yield of 2.51% at a loss of approximately $3.2 million ($2.3 million after-tax) and used the proceeds to pay down overnight borrowings with a cost of 2.47%. This transaction eliminated inefficient leverage and, on a full quarter basis, will add 4 basis points to net interest margin.

Also during October 2018, the Bank completed a sale of the land and building related to one of its branches. The deposits will be consolidated into another nearby branch of the Bank. The sale resulted in a pre-tax gain of $1.2 million in the fourth quarter of 2018.

Noninterest Expense

Noninterest expense is comprised of salaries and employee benefits, ~~and other personnel expense,~~ occupancy and equipment expense and other operating expenses incurred in supporting the various business activities of the Corporation.

Noninterest expense decreased $664,000, or 2.2%, versus the same period last year primarily because of decreases in salaries and employee benefits expense of $733,000, or 3.9%, and marketing expense of $510,000, partially offset by an increase in technology and professional services fees of $604,000. The decrease in salaries and employee benefits is largely attributable to special salary-related accruals in the 2018 period and decreases in placement and agency fees and group health insurance expense. The increase in technology and professional services fees includes an expense of $300,000 for consulting fees.

Management is committed to maintaining tight control over operating costs to mitigate the downward pressure on earnings arising from the current interest rate environment. We believe that the level of noninterest expense in the second quarter is representative of the amount of noninterest expense that will be incurred in each of the remaining quarters of 2019. Management’s expectation for noninterest expense does not take into account a future credit of $960,000 that would be applied against the Bank’s FDIC assessments over four or more quarters once the FDIC’s reserve ratio reaches 1.38% and is maintained at or above that level.

Income Taxes

Income tax expense increased ~~$4.6~~$1.7 million ~~or 11.5%,~~and the effective tax rate increased from 11.2% to 16.9% when comparing the first ~~nine~~six months of ~~2018~~2019 to the same period last year. ~~The increase is~~These increases are primarily attributable to ~~increases in salaries~~the recognition of ~~$2.0 million, or 10.8%, employee~~state and local net operating loss carryforwards and higher excess tax benefits ~~and other personnel expense of $936,000, or 17.0%, occupancy and equipment expense of $1.2 million, or 16.2%, other real estate owned expense of $124,000 and~~

growth-related increases in the Bank’s FDIC and OCC assessments amounting to $98,000. The increase in salaries is primarily due to new branch openings, additions to staff in the back office, normal annual salary adjustments and special salary-related accruals in the second quarter of 2018. The increase in employee benefits and other personnel expense is largely due to increases in group health insurance expense of $281,000 resulting from increases in staff count and the rates being charged by insurance carriers, placement and agency fees of $101,000 relating to branch and back office staffing, payroll tax expense of $152,000 and incentivestock-based compensation expense of $230,000. The increase in occupancy and equipment expense is primarily due to the operating costs of new branches, increases in maintenance and repairs expense and a growth-related increase in depreciation on the Bank’s facilities and equipment. Other real estate owned expense of $124,000 in the 2018 period ~~relates to one commercial property acquired by deed-in-lieu of foreclosure during the fourth quarter of 2017~~ and ~~sold during the first quarter of 2018.~~

~~Income Taxes~~

~~Income tax expense decreased $5.6 million when comparing the first nine months of 2018 to the same period last year, primarily due to: (1)~~ a ~~reduction in the statutory federal income tax rate from 35% last year to 21% effective January 1, 2018; (2) recognition~~decline in the current ~~nine-month~~ period of tax-exempt income from municipal securities and BOLI. The increase in income tax benefits of New York State and New York City net operating loss carryforwards that originated in 2017 of $542,000; (3) recognition of $717,000 in tax benefits related to accelerating tax depreciation into 2017; (4)expense also reflects higher ~~tax benefits~~pretax earnings in the ~~2018~~current six-month period from BOLI; and (5) tax benefits of a $5.0 million securities loss resulting from restructuring the securities portfolio in the third quarter of 2018. These items resulted in lower effective tax rates in the nine and three months ended September 30, 2018 as compared to the same ~~periods in 2017. The Corporation’s effective tax rate (income tax expense as a percentage~~period of book income) was 7.9% in the first quarter of this year, 14.4% in the second quarter, 5.1% in the third quarter and 9.3% for the nine-month period. This compares to 24.2% for the first quarter of last year, 22.0% for the second quarter, 26.4% for the third quarter and 24.3% for the nine-month period.2018. Management expects the Corporation’s effective tax rate ~~to normalize~~ in the ~~range~~remaining quarters of ~~14%~~this year to ~~16%~~be approximately 17.0%.

Results of Operations – ~~Third~~Second Quarter ~~2018~~2019 Versus ~~Third~~Second Quarter ~~2017~~2018

Net income for the ~~third~~second quarter of ~~2018~~2019 was ~~$10.1~~$10.7 million, representing an increase of ~~$715,000,~~$429,000, or ~~7.7%~~4.2%, over ~~$9.3~~$10.3 million earned in the same quarter of last year. The increase is primarily attributable to ~~increases in net interest income of $588,000 and noninterest income, before securities gains and losses, of $251,000, and decreases~~declines in the provision for loan losses of $381,000, salaries and employee benefits of $774,000 and occupancy and equipment expense of $162,000. Also contributing to the increase is higher service charges on deposit accounts of $193,000. Partially offsetting these items were a decrease in net interest income of $606,000 and an increase in income tax expense of ~~$2.9 million and $2.8 million, respectively. The positive impact on earnings~~$315,000. Included in other noninterest expense for the 2019 period is a decline in marketing expense of ~~these items~~$385,000 which was ~~largely~~substantially offset by ~~an increase in noninterest expense of $848,000, or 6.3%, and~~ the aforementioned ~~loss on~~expense for consulting fees of $300,000 in the ~~sale~~second quarter of ~~securities of $5.0 million.~~2019. The ~~increase~~variances in net interest income, ~~was due to growth in the average balance of loans partially offset by higher funding costs and a decline in prepayment penalties and late charges of $825,000. The credit~~ provision for loan losses, ~~of $1.8 million in the current quarter versus a provision of $1.1 million in the third quarter of 2017 was primarily attributable to improved economic conditions~~service charges on deposit accounts and ~~a decline in loans in the current quarter versus an increase in the 2017 quarter, partially offset by higher net chargeoffs in the 2018 quarter~~salaries and a decrease in specific reserves on loans individually deemed to be impaired in the 2017 period. The increase in noninterest income, before securities gains and losses, is mainly due to higher cash value accretion on BOLI and an increase in the net credit relating to the non-service cost components of the Bank’s defined benefit pension plan in the 2018 quarter. The increase in noninterest expense is mainly due to increases in salaries, employee benefits ~~and other personnel expense and occupancy and equipment expense~~occurred for substantially the same reasons discussed above with respect to the ~~nine-month~~six-month periods. The ~~decrease~~decline in occupancy and equipment expense is due to lower maintenance and repairs expense on the Bank’s facilities and equipment. The increase in income tax expense is ~~mainly~~ due to ~~lower pre-tax income~~higher pretax earnings in the current quarter and an increase in the effective tax rate from 14.4% for the second quarter of 2018 to 16.0% for the current quarter largely due to a decline in the percentage of pretax income derived from tax-exempt municipal securities and BOLI.

Net interest margin for the second quarter of 2019 was 2.58% as compared to 2.61% for the ~~2017~~same quarter ~~a lower statutory federal income tax~~last year. The 3 basis point decline was caused by the same factors that led to the decrease in net interest margin for the six-month periods including, among others, yield curve flattening and inversion and deposit rate ~~tax benefits resulting from~~increases driven by competitive pressure and the ~~aforementioned acceleration of tax depreciation and securities losses and higher tax benefits in the 2018 quarter from the vesting and exercise of stock awards.~~Bank’s desire to retain deposits.

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 allowance for loan losses 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 allowance for loan losses and thereby materially impact, either positively or negatively, the Bank’s results of operations.

The Bank’s Allowance for Loan and Lease Losses Committee (“ALLL Committee”), which is a management committee chaired by the Chief Credit Officer, meets on a quarterly basis and is responsible for determining the allowance for loan losses 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 and Chief Risk Officer, the ALLL Committee is responsible for implementing and maintaining accounting policies and procedures surrounding the calculation of the required allowance. The Board Loan Committee reviews and approves the Bank’s Loan Policy at least once each calendar year. The Bank’s allowance for loan losses is reviewed and ratified by the Board Loan Committee on a quarterly basis and is subject to periodic examination by the Office of the Comptroller of the Currency whose safety and soundness examination includes a determination as to the adequacy of the allowance to absorb probable incurred losses.

The first step in determining the allowance for loan losses is to identify loans in the Bank’s portfolio that are individually deemed to be impaired and then measure impairment losses based on either the fair value of collateral or the discounted value of expected future cash flows. 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 judgments. 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.

In addition to estimating losses for loans individually deemed to be impaired, management also estimates collective impairment losses for pools of loans that are not specifically reviewed. The Bank’s highest average annualized loss experience over periods of 24, 36, 48 or 60 months is generally the starting point in determining its allowance for loan losses for each pool of loans. Management believes that this approach appropriately reflects losses from the current economic cycle and those incurred losses 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. In doing so, management considers a variety of general qualitative factors and then subjectively determines the weight to assign to each in estimating losses. The factors include, among others: (1) delinquencies, (2) economic conditions as judged by things such as national and local unemployment levels, (3) changes in value of underlying collateral as judged by things such as median home prices, commercial vacancy rates and forecasted vacancy and rental rates in the Bank’s service area, (4) trends in the nature and volume of loans, (5) concentrations of credit, (6) changes in lending policies and procedures, (7) experience, ability and depth of lending staff, (8) changes in the quality of the loan review function, (9) environmental risks, and (10) loan risk ratings. Substantially all of the Bank’s allowance for loan losses allocable to pools of loans that are collectively evaluated for impairment results from these qualitative adjustments to historical loss experience. Because of the nature of the qualitative factors and the difficulty in assessing their impact, management’s resulting estimate of losses may not accurately reflect actual losses in the portfolio.

Although the allowance for loan losses has two separate components, one for impairment losses on individual loans and one for collective impairment losses on pools of loans, the entire allowance for loan losses is available to absorb realized losses as they occur whether they relate to individual loans or pools of loans.

Asset Quality

The Corporation has identified certain assets as risk elements. These assets include nonaccrual loans, other real estate owned, loans that are contractually past due 90 days or more as to principal or interest payments and still accruing and troubled debt restructurings. These assets present more than the normal risk that the Corporation will be unable to eventually collect or realize their full carrying value. Information about the Corporation’s risk elements is set forth below.



	September 30,		December 31,		June 30,		December 31,
(dollars in thousands)	2018		2017		2019		2018
Nonaccrual loans (includes loans held-for-sale):
Nonaccrual loans:
Troubled debt restructurings	$	88	$	100	$	469	$	472
Other		4,765		900		2,260		1,663
Total nonaccrual loans		4,853		1,000		2,729		2,135
Loans past due 90 days or more and still accruing		—		—		—		—
Other real estate owned		—		5,125		—		—
Total nonperforming assets		4,853		6,125		2,729		2,135
Troubled debt restructurings - performing		1,229		947		1,119		1,289
Total risk elements	$	6,082	$	7,072	$	3,848	$	3,424

Nonaccrual loans as a percentage of total loans		.15%		.03%		.08%		.07%
Nonperforming assets as a percentage of total loans and other real estate owned		.15%		.21%		.08%		.07%
Risk elements as a percentage of total loans and other real estate owned		.19%		.24%		.12%		.10%

Nonaccrual loans in the preceding table includes $671,000 of residential mortgage loans transferred to held-for-sale in the current quarter and carried at the lower of cost or fair value at September 30, 2018.

In 2017, the Bank took a deed-in-lieu of foreclosure for one commercial real estate property. The property was recorded as other real estate owned and had a carrying value of $5.1 million at December 31, 2017, which was net of a valuation allowance of $725,000. The Bank sold the property for its carrying value in the first quarter of 2018.

In addition to the Bank’s past due, nonaccrual and restructured loans, the disclosure of other potential problem loans can be found in “Note 5 – Loans” to the Corporation’s consolidated financial statements of this Form 10-Q.

Allowance and Provision for Loan Losses

The allowance for loan losses is established through provisions for loan losses charged against income. When available information confirms that specific loans, or portions thereof, are uncollectible, these amounts are charged off against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance for loan losses.

The allowance for loan losses decreased ~~$233,000~~$1.1 million during the first ~~nine months~~half of ~~2018,~~2019, amounting to ~~$33.6~~$29.8 million, or ~~1.04%~~.92% of total loans at ~~September~~June 30, ~~2018~~2019 compared to ~~$33.8~~$30.8 million, or ~~1.15%~~.94% of total loans at December 31, ~~2017.~~2018. During the first ~~nine~~six months of ~~2018,~~2019, the Bank had loan chargeoffs of $1.0 million, recoveries of ~~$257,000~~$12,000 and recorded a credit provision for loan losses of $35,000. During the first half of 2018, the Bank had loan chargeoffs of $373,000, recoveries of $106,000 and recorded a provision for loan losses of ~~$547,000. During the first nine months of 2017, the Bank had loan chargeoffs of $129,000, recoveries of $15,000 and recorded a provision for loan losses of $3.2~~$2.3 million. The ~~reduction~~credit provision in the current period was driven mainly by declines in outstanding loans and historical loss rates partially offset by net chargeoffs. The provision in the 2018 period iswas driven mainly ~~due to~~by loan growth offset by improved economic conditions, ~~and~~reductions in historical loss rates ~~less loan~~and growth ~~in the current year and a larger increase in specific reserves in the 2017 period.~~rate trends.

The allowance for loan losses is an amount that management currently believes will be adequate to absorb probable incurred losses in the Bank’s loan portfolio. As more fully discussed in “Application of Critical Accounting ~~Policies”,~~Policies,” the process for estimating credit losses and determining the allowance for loan losses as of any balance sheet date is subjective in nature and requires material estimates. Actual results could differ significantly from those estimates. Other detailed information on the Bank’s allowance for loan losses, impaired loans and the aging of loans can be found in “Note 5 – Loans” to the Corporation’s consolidated financial statements included in this Form 10-Q.

The amount of future chargeoffs and provisions for loan losses will be affected by, among other things, economic conditions on Long Island and in ~~New York City.~~NYC. Such conditions could affect the financial strength of the Bank’s borrowers and will affect the value of real estate collateral securing the Bank’s mortgage loans. Loans secured by real estate represent approximately 97% of the Bank’s total loans outstanding at ~~September~~June 30, ~~2018.~~2019. The majority of these loans were collateralized by properties located on Long Island and in the boroughs of ~~New York City.~~NYC.

Future provisions and chargeoffs could also be affected by environmental impairment of properties securing the Bank’s mortgage loans. At the present time, management is not aware of any environmental pollution originating on or near properties securing the Bank’s loans that would materially affect the carrying value of such loans.

Cash Flows and Liquidity

Cash Flows. The Corporation’s primary sources of cash ~~have been~~are deposits, maturities and amortization of loans and investment securities, operations ~~borrowings~~ and ~~funds received under the DRIP.~~borrowings. The Corporation uses cash from these and other sources to fund loan growth, purchase investment securities, repay borrowings, expand and improve its physical facilities, pay cash dividends, repurchase its common stock and for general corporate purposes.

The Corporation’s cash and cash equivalent position at ~~September~~June 30, ~~2018~~2019 was ~~$50.5~~$69.2 million, ~~down~~up from ~~$69.7~~$47.4 million at December 31, ~~2017.~~2018. The ~~decrease~~increase occurred primarily because cash ~~used to purchase BOLI and securities, originate loans, repay borrowings and pay cash dividends exceeded cash~~ provided by ~~borrowings and~~ deposit growth, paydowns or repayments of securities and loans ~~sales of securities,~~and operations exceeded the cash used repay borrowings, repurchase common stock ~~issued under the DRIP~~ and ~~operations.~~pay cash dividends.

Securities ~~increased $81.9~~decreased $20.2 million during the first ~~nine months~~half of ~~2018,~~2019, from ~~$727.8~~$763.5 million at year-end ~~2017~~2018 to ~~$809.7~~$743.3 million at ~~September~~June 30, ~~2018.~~2019. The ~~increase~~decrease is primarily attributable to ~~purchases of approximately $339.0 million of securities, partially offset by sales of $169.6 million,~~ maturities and redemptions of ~~$63.9~~$54.0 million, partially offset by purchases of $18.8 million and ~~a decline~~an increase in the market value of ~~the~~ available-for-sale ~~portfolio~~securities of ~~$17.1 million during the period resulting from an increase in interest rates.~~ $15.6 million.

During the first ~~nine months~~half of ~~2018,~~2019, total deposits grew ~~$338.5~~$228.6 million, or ~~12.0%~~7.4%, to ~~$3.2~~$3.3 billion at ~~September~~June 30, ~~2018.~~2019. The increase was attributable to growth in savings, NOW and money market deposits of ~~$77.2~~$126.1 million, or ~~4.8%, noninterest-bearing checking balances of $50.1 million, or 5.6%~~7.9%, and time deposits of ~~$211.2~~$105.6 million. The growth in deposits is largely attributable to ~~new branch openings, deposit account promotions and an increase in municipal deposit balances relating to~~ the Bank’s ongoing municipal deposit ~~initiative. The increase in deposits also includes $100~~initiative, deposit promotions and the issuance of $200 million of brokered ~~certificates of deposit issued~~CDs during the first ~~quarter~~six months of ~~2018. The resulting proceeds were used to enhance on-balance-sheet liquidity through the purchase of GNMA mortgage securities.~~2019.

Substantially all of the Bank’s borrowings are from the FHLB. Total borrowings decreased ~~$9.7~~$289.3 million during the first ~~nine~~six months of ~~2018.~~2019. The decrease is ~~attributable~~primarily due to ~~reductions in long-term debt of $20.8 million, partially offset by increases~~a reduction in short-term borrowings of ~~$11.0 million.~~$287.8 million as the Bank shifted from FHLB advances to brokered CDs to lower funding costs. Long-term debt totaled ~~$403.0~~$360.5 million at ~~September~~June 30, ~~2018,~~2019, representing ~~58%~~78% of total ~~borrowings at quarter-end.~~borrowings. The Bank’s long-term fixed-rate borrowing position, time deposits and pay-fixed interest rate ~~swap~~swaps mitigate the impact that increases in interest rates could have on the Bank’s earnings.

Liquidity. The Bank has a board committee approved liquidity policy and liquidity contingency plan, which are intended to ensure that the Bank has sufficient liquidity at all times to meet the ongoing needs of its customers in terms of credit and deposit outflows, take advantage of earnings enhancement opportunities and respond to liquidity stress conditions should they arise.

The Bank has both internal and external sources of liquidity that can be used to fund loan growth and accommodate deposit outflows. The Bank’s primary internal sources of liquidity are ~~its~~ overnight investments, ~~investment securities designated as available-for-sale,~~ maturities and monthly payments on its investment securities and loan portfolios, operations and ~~operations.~~investment securities designated as available-for-sale. At ~~September~~June 30, ~~2018,~~2019, the Bank had approximately ~~$280~~$199.9 million of unencumbered available-for-sale securities.

The Bank is a member of the ~~FRB~~Federal Reserve Bank (“FRB”) of New York and the FHLB of New York and has a federal funds line with a commercial bank. In addition to customer deposits, ~~and funds invested in the Bank by the Corporation that were raised under the DRIP,~~ the Bank’s primary external sources of liquidity are secured borrowings from the FRB of New York and FHLB of New York. ~~In addition, the~~The Bank can also purchase overnight federal funds under its existing line. However, the Bank’s FRB of New York membership, FHLB of New York membership and federal funds line do not represent legal commitments to extend credit to the Bank. The amount that the Bank can potentially borrow is 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. Based on the Bank’s unencumbered securities and loan collateral, a substantial portion of which is in place at the FRB of New York and FHLB of New York, the Bank had borrowing capacity of approximately ~~$1.6~~$1.5 billion at ~~September~~June 30, ~~2018.~~2019.

Capital

Stockholders’ equity totaled ~~$380.3~~$391.4 million at ~~September~~June 30, ~~2018,~~2019, an increase of ~~$25.8~~$3.3 million from ~~$354.5~~$388.2 million at December 31, ~~2017.~~2018. The increase resulted primarily from net income of ~~$31.5~~$21.6 million and ~~$17.0 million in proceeds from the issuance of 639,834 shares under the Corporation’s DRIP, partially offset by a decrease~~an increase in the after-tax ~~market~~ value of available-for-sale securities of ~~$11.9~~$10.9 million, partially offset by the repurchase of 915,100 shares of the Corporation’s common stock at a total cost of $20.6 million and cash dividends declared of ~~$11.9~~$8.4 million.

The Corporation’s capital management policy is designed to build and maintain capital levels that exceed regulatory standards and appropriately provide for growth. The regulatory capital ratios of the Corporation and the Bank at ~~September~~June 30, ~~2018~~2019 are as follows:



	Corporation	Bank	Corporation	Bank
Tier 1 leverage	9.18%	9.16%	9.31%	9.17%
Common equity tier 1 risk-based	15.58%	15.56%	14.92%	14.69%
Tier 1 risk-based	15.58%	15.56%	14.92%	14.69%
Total risk-based	16.83%	16.81%	16.05%	15.83%

The Corporation and the Bank exceeded the Basel III minimum capital adequacy requirements, including the fully phased-in capital conservation buffer of ~~1.875% applicable to the Bank for 2018,~~2.50%, and the Bank was well capitalized under the FDIC’s prompt corrective action provisions at ~~September~~June 30, ~~2018.~~2019.

In accordance with the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies are required to develop a “Community bank leverage ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered well capitalized under the prompt corrective actions provisions. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community bank leverage ratio at not less than 8% and not more than 10%, and a financial institution will be able to elect to be subject to this new definition.

On April 17, 2018, the Corporation’s shareholders voted to increase the number of authorized shares of the Corporation’s common stock from 40 million to 80 million with a par value of $.10 per share.

The deliberate slowing of balance sheet growth has eliminated the need to raise capital through the Corporation’s ~~DRIP.~~DRIP or otherwise. As a result, effective with the ~~second quarter~~ cash dividend paid in ~~July 2018,~~March 2019, the Corporation ~~reduced~~notified shareholders that the optional quarterly cash purchase ~~limit per shareholder from $75,000 to $5,000.~~feature of its DRIP is currently unavailable. This change ~~reduced~~eliminates the ~~number~~dilution to EPS and ROE that would otherwise result from issuing shares at a time when attracting capital is not needed to support growth. The traditional dividend reinvestment feature of ~~shares issued under~~ the DRIP ~~from 269,361 and 322,420 in the first and second quarters, respectively,~~remains available to ~~48,053 and 59,792 in the third and fourth quarters, respectively, resulting in less dilution to earnings per share.~~shareholders.

In October 2018, the Corporation’s Board of Directors approved a stock repurchase program for shares of its common stock in an amount up to $20 million. In April 2019, an additional $30 million was approved, for a total program size of $50 million. The Corporation may repurchase shares from time to time through open market purchases, privately negotiated transactions or in any other manner that is compliant with applicable securities laws. In the first half of 2019, the Corporation repurchased 915,100 shares through open market purchases at a total cost of $20.6 million.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Bank invests in interest-earning assets, which are funded by interest-bearing deposits and borrowings, noninterest-bearing deposits and capital. The Bank’s results of operations are subject to risk resulting from interest rate fluctuations generally 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 principal objective of the Bank’s asset liability management activities is to optimize current and future net interest income while at the same time maintain acceptable levels of interest rate and liquidity risk and facilitate the funding needs of the Bank.

The Bank monitors and manages interest rate risk through a variety of techniques including traditional gap analysis and the use of interest rate sensitivity models. Both gap analysis and interest rate sensitivity modeling involve a variety of significant estimates and assumptions and are done at a specific point in time. Changes in the estimates and assumptions made in gap analysis and interest rate sensitivity modeling could have a significant impact on projected results and conclusions. Therefore, these techniques may not accurately reflect the actual impact of changes in the interest rate environment on the Bank’s net interest income or EVE.

Traditional gap analysis involves arranging the Bank’s interest-earning assets and interest-bearing liabilities by repricing periods and then computing the difference, or interest-rate sensitivity gap, between the assets and liabilities which are estimated to reprice during each time period and cumulatively through the end of each time period. Gap analysis requires estimates as to when individual categories of interest-sensitive assets and liabilities will reprice and assumes that assets and liabilities assigned to the same repricing period will reprice at the same time and in the same amount. Among other things, gap analysis does not fully take into account the fact that the repricing of some assets and liabilities is discretionary and subject to competitive and other pressures.

Through the use of interest rate sensitivity modeling, the Bank first projects net interest income over a five-year time period assuming a static balance sheet and no changes in interest rates from current levels. Utilization of a static balance sheet ensures that interest rate risk embedded in the Bank’s current balance sheet is not masked by assumed balance sheet growth or contraction. Net interest income is then projected over a five-year time period utilizing: (1) a static balance sheet and various interest rate change scenarios, including both ramped and shock changes and changes in the shape of the yield curve; and (2) a most likely balance sheet growth scenario and these same interest rate change scenarios. The interest rate scenarios modeled are based on, among other things, the shape of the current yield curve and the relative level of rates and management’s expectations as to potential future yield curve shapes and rate levels.

The Bank also uses interest rate sensitivity modeling to calculate EVE in the current rate environment assuming shock increases and decreases in interest rates. EVE is the difference between the present value of expected future cash flows from the Bank’s assets and the present value of the expected future cash flows from the Bank’s liabilities. Present values are determined using discount rates that management believes are reflective of current market conditions. EVE can capture long-term interest rate risk that would not be captured in a five-year projection of net interest income.

In utilizing interest rate sensitivity modeling to project net interest income and calculate EVE, management makes a variety of estimates and assumptions which include, among others, the following: (1) how much and when yields and costs on individual categories of

interest-earning assets and interest-bearing liabilities will change in response to projected changes in market interest rates; (2) future cash flows, ~~including~~inclusive of prepayments of mortgage assets and calls of municipal securities; (3) cash flow reinvestment assumptions; (4) appropriate discount rates to be applied to loan, deposit and borrowing cash flows; and (5) decay or runoff rates for nonmaturity deposits such as checking, savings, NOW and money market accounts. The repricing of loans and borrowings and the reinvestment of loan and security cash flows are generally assumed to be impacted by the full amount of each assumed rate change, while the repricing of nonmaturity deposits is not. For nonmaturity deposits, management makes estimates of how much and when it will need to change the rates paid on the Bank’s various non-maturity deposit products in response to changes in general market interest rates. These estimates are based on, among other things, product type, management’s experience with needed deposit rate adjustments in prior interest rate change cycles, the results of a nonmaturity deposit study conducted by an independent consultant and updated on a periodic basis and management’s assessment of competitive conditions in its marketplace.

The information provided in the following table is based on a variety of estimates and assumptions that management believes to be reasonable, the more significant of which are set forth hereinafter. The base case information in the table shows (1) a calculation of the Corporation’s EVE at ~~September~~June 30, ~~2018~~2019 arrived at by discounting estimated future cash flows at rates that management believes are reflective of current market conditions and (2) an estimate of net interest income for the year ending ~~September~~June 30, ~~2019~~2020 assuming a static balance sheet, the adjustment of repricing balances to current rate levels, and the reinvestment at current rate levels of cash flows from maturing assets and liabilities in a mix of assets and liabilities that mirrors the Bank’s strategic plan. In addition, in calculating EVE, cash flows for ~~nonmaturity~~non-maturity deposits are ~~derived using a base case average~~assumed to have an overall life ~~by product as determined by a nonmaturity deposit study and~~of 6.4 years based on the current mix of ~~deposits.~~such deposits and the most recently updated non-maturity deposit study.

The rate change information in the following table shows estimates of net interest income for the year ending ~~September~~June 30, ~~2019~~2020 and calculations of EVE at ~~September~~June 30, ~~2018~~2019 assuming rate changes of plus 100, 200 and 300 basis points and minus 100 and 200 basis points. The rate change scenarios were selected based on, among other things, the relative level of current interest rates ~~and are:~~and: (1) are assumed to be shock or immediate changes for both EVE and net interest income, (2) occur uniformly across the yield curve regardless

of the duration to maturity or repricing of specific assets and liabilities, and (3) impact the repricing and reinvestment of all assets and liabilities, except ~~nonmaturity~~non-maturity deposits, by the full amount of the rate change. In projecting future net interest income under the indicated rate change scenarios, activity is simulated by assuming that cash flows from maturing assets and liabilities are reinvested in a mix of assets and liabilities that mirrors the Bank’s strategic plan. The changes in EVE from the base case have not been tax affected.



	Economic Value of Equity			Net Interest Income for			Economic Value of Equity			Net Interest Income for
	at September 30, 2018			Year Ending September 30, 2019			at June 30, 2019			Year Ending June 30, 2020
			Percent Change			Percent Change			Percent Change			Percent Change
			From			From			From			From
Rate Change Scenario (dollars in thousands)	Amount		Base Case	Amount		Base Case
Rate Change Scenario (dollars in thousands)							Amount		Base Case	Amount		Base Case
+ 300 basis point rate shock	$	304,602	-31.0%	$	94,307	-12.4%	$	538,454	-13.8%	$	87,224	-14.1%
+ 200 basis point rate shock		387,610	-12.2%		100,113	-7.0%		574,339	-8.1%		92,405	-9.0%
+ 100 basis point rate shock		419,469	-5.0%		104,047	-3.3%		606,881	-2.9%		97,497	-4.0%
Base case (no rate change)		441,489	—		107,621	—		624,791	—		101,553	—
- 100 basis point rate shock		441,228	-0.1%		109,245	1.5%		608,058	-2.7%		104,827	3.2%
- 200 basis point rate shock		393,715	-10.8%		108,251	0.6%		518,147	-17.1%		107,619	6.0%

As shown in the preceding table, assuming a static balance sheet, an immediate increase in interest rates of 100, 200 or 300 basis points could negatively impact the Bank’s net interest income for the year ending ~~September~~June 30, ~~2019~~2020 because, among other things, the Bank would need to pay more for overnight borrowings and it is assumed the Bank would need to increase the rates paid on its non-maturity deposits in order to remain competitive. Unlike non-maturity deposits and short-term borrowings, the Bank’s securities and almost all of its loans are not subject to immediate repricing with changes in market rates. Conversely, an immediate decrease in interest rates of 100 or 200 basis points could positively impact the Bank’s net interest income for the same time period because, among other things, the Bank would immediately pay less for overnight borrowings and be able to reduce deposit rates while the downward repricing of its interest-earning assets would lag. The decline in EVE in the minus 100 and 200 basis points scenario is predominantly due to the inability to reduce interest rates on deposit accounts below zero. Changes in management’s estimates as to the rates that will need to be paid on non-maturity deposits could have a significant impact on the net interest income amounts shown for each scenario in the table.

Forward-Looking Statements

This Report on Form 10-Q and the documents incorporated into it by reference contain or may contain various forward-looking statements. These forward-looking statements include statements of goals; intentions and expectations; estimates of risks and of future costs and benefits; assessments of probable loan losses; assessments of market risk; and statements of the ability to achieve financial and other goals. Forward-looking statements are typically identified by words such as “would,” “should,” “could,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project” and other similar words and expressions. Forward-looking statements

are subject to numerous assumptions, risks and uncertainties which may change over time. Forward-looking statements speak only as of the date they are made. We do not assume any duty and do not undertake to update our forward-looking statements. Because forward-looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those that we anticipated in our forward-looking statements and future results could differ materially from historical performance.

Our forward-looking statements are subject to the following principal risks and uncertainties: general economic conditions and trends, either nationally or locally; conditions in the securities markets; fluctuations in the trading price of our common stock; changes in interest rates; changes in the shape of the yield curve; changes in deposit flows, and in the demand for deposit and loan products and other financial services; changes in real estate values; changes in the quality or composition of our loan or investment portfolios; changes in competitive pressures among financial institutions or from non-financial institutions; our ability to retain key members of management; changes in legislation, regulation, and policies; and a variety of other matters which, by their nature, are subject to significant uncertainties. We provide greater detail regarding some of these factors in the Corporation’s Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, in Part I under “Item 1A. Risk ~~Factors.~~Factors,” and in Part II under Item 1A. of this Form 10-Q. Our forward-looking statements may also be subject to other risks and uncertainties, including those that we may discuss elsewhere in other documents we file with the SEC from time to time.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Corporation’s Principal Executive Officer, Michael N. Vittorio, and Principal Financial Officer, Mark D. Curtis, have evaluated the Corporation’s disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as of the end

of the period covered by this report. Based upon that evaluation, they have concluded that the Corporation’s disclosure controls and procedures are effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting that occurred during the ~~third~~second quarter of ~~2018~~2019 that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the ordinary course of business, the Corporation is party to various legal actions which are incidental to the operation of its business. Although the ultimate outcome and amount of liability, if any, with respect to these legal actions cannot presently be ascertained with certainty, in the opinion of management, based upon information currently available to us, any resulting liability is believed to be immaterial to the Corporation's consolidated financial position, results of operations and cash flows.

ITEM 1A. RISK FACTORS

~~Not applicable~~The following Risk Factor is being provided hereby as an addition to those Risk Factors listed in Item 1A. of Part 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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

Multi-family real estate loans generally involve a greater risk than residential real estate loans because of legislation and government regulations involving rent control and rent stabilization, 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. On June 14, 2019, NYS passed 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, (i) 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, (ii) 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 (iii) 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 multi-family 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 multi-family real estate loans may be more difficult to identify before they become problematic than residential real estate loans.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Not~~(c) Stock Repurchases. 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 details of the Corporation’s purchases under the stock repurchase program in the second quarter of 2019 are set forth in the table that follows.

ISSUER PURCHASES OF EQUITY SECURITIES



				Total Number of Shares	Maximum Dollar Value of
	Total Number	Average		Purchased as Part of	Shares that May Yet
	of Shares	Price Paid		Publicly Announced	be Purchased Under
Period	Purchased	Per Share		Plans or Programs	the Plans or Programs (1)
April 1 - April 30, 2019	—		—	—		$33,127,226
May 1 - May 31, 2019	115,200		$22.44	115,200		$30,542,564
June 1 - June 30, 2019	125,100		$21.56	125,100		$27,844,495
Total	240,300		$21.98	240,300

(1) On October 26, 2018, the Corporation’s Board of Directors approved a $20 million stock repurchase program which was announced on October 30, 2018. An additional $30 million was approved on April 16, 2019 and announced on April 18, 2019 for a total program size of $50 million. The Corporation’s stock repurchase program does not have a fixed expiration date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

Not applicable

ITEM 6. EXHIBITS

See Index of Exhibits that follows.

INDEX OF EXHIBITS


Exhibit No.	Description of Exhibit
~~31.1~~10.1	First Amendment to Employment Agreement between Registrant and Christopher Becker, Executive Vice President
10.2	Employment Agreement between Registrant and Janet T. Verneuille, Executive Vice President
10.3	Employment Agreement between Registrant and Anne Marie Stefanucci, Executive Vice President
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a)
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a)
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) and U.S.C. Section 1350
101	The following materials from the Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2018,~~2019, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

~~August 9, 2018~~
	THE FIRST OF LONG ISLAND CORPORATION
	(Registrant)

Dated: ~~November~~August 9, ~~2018~~2019	By /s/ MICHAEL N. VITTORIO
	MICHAEL N. VITTORIO, President & Chief Executive Officer
	(principal executive officer)

	By /s/ MARK D. CURTIS
	MARK D. CURTIS, Senior Executive Vice President, Chief
	Financial Officer & Treasurer
	(principal financial officer)

	By /s/ WILLIAM APRIGLIANO
	WILLIAM APRIGLIANO, Senior Vice President & Chief
	Accounting Officer
	(principal accounting officer)



			Current Period Change due to
				Other			Adoption
	Balance			Comprehensive			of ASU	Balance
(in thousands)	12/31/17			Income (Loss)			2018-02 (1)	9/30/18
Unrealized holding gains (losses) on available-for-sale securities	$	2,600		$	(11,933)	$	361	$	(8,972)
Unrealized actuarial losses on pension plan		(2,054)			—		(638)		(2,692)
Unrealized gain on derivative instrument		—			196		—		196
Accumulated other comprehensive income (loss), net of tax	$	546		$	(11,737)	$	(277)	$	(11,468)



(in thousands)	Balance at 1/1/17		Chargeoffs			Recoveries	Provision for Loan Losses (Credit)		Balance at 9/30/17
Commercial and industrial	$	1,408	$	102	$	10	$	341	$	1,657
Commercial mortgages:
Multifamily		6,119		—		—		(221)		5,898
Other		4,296		—		—		451		4,747
Owner-occupied		959		—		—		616		1,575
Residential mortgages:
Closed end		15,740		—		3		2,362		18,105
Revolving home equity		1,401		—		—		(311)		1,090
Consumer and other		134		27		2		(35)		74
	$	30,057	$	129	$	15	$	3,203	$	33,146

	Balance at 7/1/17		Chargeoffs			Recoveries	Provision for Loan Losses (Credit)		Balance at 9/30/17
Commercial and industrial	$	1,544	$	96	$	3	$	206	$	1,657
Commercial mortgages:
Multifamily		5,921		—		—		(23)		5,898
Other		4,674		—		—		73		4,747
Owner-occupied		1,685		—		—		(110)		1,575
Residential mortgages:
Closed end		17,035		—		1		1,069		18,105
Revolving home equity		1,203		—		—		(113)		1,090
Consumer and other		74		21		1		20		74
	$	32,136	$	117	$	5	$	1,122	$	33,146



	Amount of				Amount of Loss
	Gain/(Loss)		Amount of Loss		Recognized in Other
	Recognized in OCI		Reclassified from OCI		Noninterest Income
(in thousands)	(Effective Portion)		to Interest Expense		(Ineffective Portion)
Interest rate contract:
Nine months ended September 30, 2018	$	(34)	$	315	$	—
Three months ended September 30, 2018	$	462	$	225	$	—