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

~~June 30, 2019~~March 31, 2020

[ ] 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~~$0.10 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 ¨	Accelerated ~~filer~~Filer x
Non-~~accelerated filer~~Accelerated Filer ¨	Emerging ~~growth company~~Growth Company ¨
Smaller ~~reporting company~~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

As of ~~August 2, 2019,~~April 30, 2020, the registrant had ~~24,671,014~~23,845,582 shares of common stock, ~~$.10~~$0.10 par value per share, outstanding.

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets ~~(Unaudited) – June 30, 2019 and December 31, 2018~~	1
	Consolidated Statements of Income ~~(Unaudited) – Six and Three Months Ended June 30, 2019 and 2018~~	2
	Consolidated Statements of Comprehensive Income ~~(Unaudited) – Six and Three Months Ended June 30, 2019 and 2018~~	3
	Consolidated Statements of Changes in Stockholders’ Equity ~~(Unaudited) – Six and Three Months Ended June 30, 2019 and 2018~~	4
	Consolidated Statements of Cash Flows ~~(Unaudited) – Six Months Ended June 30, 2019 and 2018~~	65
	Notes to Unaudited Consolidated Financial Statements	76
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2320
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	3129
ITEM 4.	Controls and Procedures	3331
PART II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings	3331
ITEM 1A.	Risk Factors	3431
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3432
ITEM 3.	Defaults Upon Senior Securities	3433
ITEM 4.	Mine Safety Disclosures	3433
ITEM 5.	Other Information	3433
ITEM 6.	Exhibits	3433
	Signatures	3635

PART 1. FINANCIAL INFORMATION

ITEMITEM 1. FINANCIAL STATEMENTS

~~CONSOLIDATED~~CONSOLIDATED BALANCE SHEETS (UNAUDITED)



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

(dollars in thousands)					2020		2019
Assets:
Cash and cash equivalents	$	69,216	$	47,358	$	120,208	$	38,968

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
Investment securities available-for-sale, at fair value						679,463		697,544
		743,306		763,519
Loans:
Commercial and industrial		108,154		98,785		126,073		103,879
Secured by real estate:
Commercial mortgages		1,311,637		1,281,295		1,376,257		1,401,289
Residential mortgages		1,732,301		1,809,651		1,558,401		1,621,419
Home equity lines		66,018		67,710		60,296		59,231
Consumer and other		3,477		5,958		2,274		2,431
		3,221,587		3,263,399		3,123,301		3,188,249
Allowance for loan losses		(29,768)		(30,838)
Allowance for credit losses						(34,105)		(29,289)
		3,191,819		3,232,561		3,089,196		3,158,960

Restricted stock, at cost		27,884		40,686		30,224		30,899
Bank premises and equipment, net		40,806		41,267		39,646		40,017
Right-of-use asset - operating leases		15,425		—		13,992		14,343
Bank-owned life insurance		82,012		80,925		83,680		83,119
Pension plan assets, net		15,128		15,154		18,341		18,275
Deferred income tax benefit		—		3,447		3,767		317
Other assets		16,545		16,143		15,850		15,401
	$	4,202,141	$	4,241,060	$	4,094,367	$	4,097,843
Liabilities:
Deposits:
Checking	$	932,443	$	935,574	$	973,355	$	911,978
Savings, NOW and money market		1,716,472		1,590,341		1,682,389		1,720,599
Time, $100,000 and over		241,794		309,165		250,991		242,359
Time, other		422,870		249,892		267,102		269,080
		3,313,579		3,084,972		3,173,837		3,144,016

Short-term borrowings		101,162		388,923		60,599		190,710
Long-term debt		360,472		362,027		452,472		337,472
Operating lease liability		16,266		—		14,874		15,220
Accrued expenses and other liabilities		19,144		16,951		16,376		21,317
Deferred income taxes payable		81		—
		3,810,704		3,852,873		3,718,158		3,708,735
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
Issued and outstanding, 23,806,901 and 23,934,632 shares						2,381		2,393
Surplus		127,162		145,163		105,156		111,744
Retained earnings		263,067		249,922		276,913		274,376
		392,695		397,627		384,450		388,513
Accumulated other comprehensive loss, net of tax		(1,258)		(9,440)
Accumulated other comprehensive income (loss), net of tax						(8,241)		595
		391,437		388,187		376,209		389,108
	$	4,202,141	$	4,241,060	$	4,094,367	$	4,097,843

See notes to unaudited consolidated financial statements

~~CONSOLIDATED~~CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)



	Six Months Ended				Three Months Ended
	June 30,				June 30,				Three Months Ended March 31,
(in thousands, except per share data)	2019		2018		2019		2018

(in thousands, except per share data)									2020		2019
Interest and dividend income:
Loans	$	59,029	$	55,170	$	29,613	$	28,506	$	28,931	$	29,416
Investment securities:
Taxable		7,968		5,210		3,923		3,001		3,426		4,045
Nontaxable		6,046		6,870		2,954		3,439		2,565		3,092
		73,043		67,250		36,490		34,946		34,922		36,553
Interest expense:
Savings, NOW and money market deposits		8,841		5,698		4,841		3,158		4,280		4,000
Time deposits		7,331		4,577		3,933		2,869		3,042		3,398
Short-term borrowings		2,507		1,656		542		873		619		1,965
Long-term debt		3,675		4,278		1,895		2,161		1,995		1,780
		22,354		16,209		11,211		9,061		9,936		11,143
Net interest income		50,689		51,041		25,279		25,885		24,986		25,410
Provision (credit) for loan losses		(35)		2,315		422		803
Net interest income after provision (credit) for loan losses		50,724		48,726		24,857		25,082
Provision (credit) for credit losses										2,358		(457)
Net interest income after provision (credit) for credit losses										22,628		25,867

Noninterest income:
Investment Management Division income		998		1,157		517		576		548		481
Service charges on deposit accounts		1,485		1,287		780		587		987		705
Other		2,678		3,527		1,420		1,516		1,483		1,258
		5,161		5,971		2,717		2,679		3,018		2,444
Noninterest expense:
Salaries and employee benefits		17,981		18,714		8,723		9,497		9,274		9,258
Occupancy and equipment		5,840		5,878		2,903		3,065		3,072		2,937
Other		6,090		5,983		3,150		3,145		2,512		2,940
		29,911		30,575		14,776		15,707		14,858		15,135
Income before income taxes		25,974		24,122		12,798		12,054		10,788		13,176

Income tax expense		4,389		2,696		2,054		1,739		1,640		2,335
Net income	$	21,585	$	21,426	$	10,744	$	10,315	$	9,148	$	10,841

Weighted average:
Common shares										23,904,266		25,284,357
Dilutive stock options and restricted stock units										54,633		156,204
										23,958,899		25,440,561
Earnings per share:
Basic		$0.86		$0.85		$0.43		$0.41		$0.38		$0.43
Diluted		$0.86		$0.84		$0.43		$0.40		$0.38		$0.43

Cash dividends declared per share		$0.34		$0.30		$0.17		$0.15		$0.18		$0.17

See notes to unaudited consolidated financial statements

~~CONSOLIDATED~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



	Six Months Ended				Three Months Ended				Three Months Ended March 31,
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
(in thousands)									2020		2019
Net income	$	21,585	$	21,426	$	10,744	$	10,315	$	9,148	$	10,841
Other comprehensive income (loss):
Change in net unrealized holding gains (losses) on ‎ available-for-sale securities		15,631		(14,828)		7,214		(3,094)		(8,850)		8,417
Change in funded status of pension plan		176		—		88		—		—		88
Change in net unrealized loss on derivative instruments		(4,058)		(406)		(2,513)		(406)		(3,764)		(1,545)
Other comprehensive income (loss) before income taxes		11,749		(15,234)		4,789		(3,500)		(12,614)		6,960
Income tax expense (benefit)		3,567		(4,602)		1,469		(1,054)		(3,778)		2,098
Other comprehensive income (loss)		8,182		(10,632)		3,320		(2,446)		(8,836)		4,862
Comprehensive income	$	29,767	$	10,794	$	14,064	$	7,869	$	312	$	15,703

See notes to unaudited consolidated financial statements

CO~~NSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)~~

Six Months Ended June 30, 2019
Accumulated
Other
Common Stock
Retained
Comprehensive
(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
21,585
21,585
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
(39,947)
(4)
(826)
(830)
Common stock issued under
stock compensation plans
123,818
12
253
265
Common stock issued under
dividend reinvestment and
stock purchase plan
69,898
7
1,427
1,434
Stock-based compensation
1,668
1,668
Cash dividends declared
(8,440)
(8,440)
Balance, June 30, 2019
24,661,409
$
2,466
$
127,162
$
263,067
$
(1,258)
$
391,437

Six Months Ended June 30, 2018
Accumulated
Other
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
Net income
21,426
21,426
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
(25,735)
(3)
(730)
(733)
Common stock issued under
stock compensation plans
118,900
12
172
184
Common stock issued under
dividend reinvestment and
stock purchase plan
591,781
59
15,795
15,854
Stock-based compensation
1,261
1,261
Cash dividends declared
(7,571)
(7,571)
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 March 31, 2020
								Accumulated
								Other
	Common Stock					Retained		Comprehensive
(dollars in thousands)	Shares	Amount		Surplus		Earnings		Income (Loss)		Total
Balance, January 1, 2020	23,934,632	$	2,393	$	111,744	$	274,376	$	595	$	389,108
Effect of adopting ASU 2016-13							(2,325)				(2,325)
Balance at January 1, 2020 as adjusted
for change in accounting principle	23,934,632		2,393		111,744		272,051		595		386,783
Net income							9,148				9,148
Other comprehensive loss									(8,836)		(8,836)
Repurchase of common stock	(261,700)		(26)		(5,911)						(5,937)
Shares withheld upon the vesting
and conversion of RSUs	(66,142)		(6)		(1,521)						(1,527)
Common stock issued under
stock compensation plans	178,373		18		205						223
Common stock issued under
dividend reinvestment and
stock purchase plan	21,738		2		388						390
Stock-based compensation					251						251
Cash dividends declared							(4,286)				(4,286)
Balance, March 31, 2020	23,806,901	$	2,381	$	105,156	$	276,913	$	(8,241)	$	376,209

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											Three Months Ended March 31, 2019
								Accumulated											Accumulated
								Other											Other
	Common Stock					Retained		Comprehensive				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
(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							10,315				10,315							10,841				10,841
Other comprehensive loss									(2,446)		(2,446)
Other comprehensive income																				4,862		4,862
Repurchase of common stock												(674,800)		(67)		(15,264)						(15,331)
Shares withheld upon the vesting
and conversion of RSUs	(414)		—		(11)						(11)	(39,947)		(4)		(826)						(830)
Common stock issued under
stock compensation plans	6,663		1		71						72	122,456		12		223						235
Common stock issued under
dividend reinvestment and
stock purchase plan	322,420		32		8,503						8,535	69,898		7		1,427						1,434
Stock-based compensation					133						133					1,295						1,295
Cash dividends declared							(3,805)				(3,805)							(4,251)				(4,251)
Balance, June 30, 2018	25,353,336	$	2,535	$	143,620	$	238,447	$	(10,363)	$	374,239
Balance, March 31, 2019												24,900,347	$	2,490	$	132,018	$	256,512	$	(4,578)	$	386,442

See notes to unaudited consolidated financial statements

~~CONSOLIDATED~~CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Six Months Ended				Three Months Ended March 31,
	June 30,
(in thousands)	2019		2018
(in thousands)					2020		2019
Cash Flows From Operating Activities:
Net income	$	21,585	$	21,426	$	9,148	$	10,841
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for loan losses		(35)		2,315
Credit for deferred income taxes		(39)		(3,502)
Provision (credit) for credit losses						2,358		(457)
Provision for deferred income taxes						1,319		512
Depreciation and amortization of premises and equipment		2,028		2,003		1,014		987
Amortization of right-of-use asset - operating leases		1,058		—		547		522
Premium amortization on investment securities, net		586		965		307		284
Stock-based compensation expense		1,668		1,261		251		1,295
Common stock issued in lieu of cash for director fees		62		31
Accretion of cash surrender value on bank-owned life insurance		(1,087)		(1,025)		(561)		(535)
Pension expense (credit)		202		(159)		(65)		101
Decrease (increase) in other assets		(402)		3,204
Increase (decrease) in accrued expenses and other liabilities		(1,820)		2,444
Decrease in other liabilities						(5,367)		(2,381)
Other increases in assets						(424)		(199)
Net cash provided by operating activities		23,806		28,963		8,527		10,970
Cash Flows From Investing Activities:
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity		1,193		3,187
Available-for-sale		52,816		39,574
Purchases of investment securities:
Held-to-maturity		(155)		(1,098)
Available-for-sale		(18,596)		(137,126)
Net decrease (increase) in loans		40,777		(304,524)
Proceeds from sale of other real estate owned		—		5,125
Available-for-sale securities:
Proceeds from maturities and redemptions						18,840		18,747
Purchases						(9,916)		(2,526)
Held-to-maturity securities:
Proceeds from maturities and redemptions						—		386
Net decrease in loans						64,518		8,899
Net decrease in restricted stock		12,802		655		675		11,275
Purchases of premises and equipment, net		(1,567)		(2,454)		(643)		(801)
Purchases of bank-owned life insurance		—		(20,000)
Net cash provided by (used in) investing activities		87,270		(416,661)
Net cash provided by investing activities						73,474		35,980
Cash Flows From Financing Activities:
Net increase in deposits		228,607		411,901		29,821		222,237
Net decrease in short-term borrowings		(287,761)		(25,234)		(130,111)		(253,747)
Proceeds from long-term debt		48,945		39,680		120,000		14,445
Repayment of long-term debt		(50,500)		(48,950)		(5,000)		(10,000)
Proceeds from issuance of common stock, net		1,434		15,854
Proceeds from exercise of stock options		203		153
Shares withheld upon the vesting and conversion of RSUs		(830)		(733)
Proceeds from issuance of common stock, net of shares withheld						(940)		807
Repurchase of common stock		(20,614)		—		(5,937)		(15,331)
Cash dividends paid		(8,702)		(7,459)		(8,594)		(8,702)
Net cash provided by (used in) financing activities		(89,218)		385,212
Net cash used in financing activities						(761)		(50,291)
Net increase (decrease) in cash and cash equivalents		21,858		(2,486)		81,240		(3,341)
Cash and cash equivalents, beginning of year		47,358		69,672		38,968		47,358
Cash and cash equivalents, end of period	$	69,216	$	67,186	$	120,208	$	44,017
Supplemental Cash Flow Disclosures:
Cash paid for:
Interest	$	22,140	$	15,720	$	9,806	$	10,896
Income taxes		4,327		365
Operating cash flows from operating leases		1,257		—		657		712
Noncash investing and financing activities:
Right-of-use assets obtained in exchange for operating lease liabilities		16,483		—		196		15,713
Cash dividends payable		4,198		3,910		—		5

See notes to unaudited consolidated financial statements

NO~~TES~~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~~2 wholly owned subsidiaries: FNY Service Corp. 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. 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, ~~2018.~~2019.

The consolidated financial information included herein as of and for the periods ended ~~June 30,~~March 31, 2020 and 2019 ~~and 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, ~~2018~~2019 consolidated balance sheet was derived from the Corporation's December 31, ~~2018~~2019 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~~Use of Estimates. In preparing the consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported asset and liability balances, revenue and expense amounts, and the disclosures provided, including disclosure of contingent assets and liabilities, based on available information. Actual results could differ significantly from those estimates. Information available which could affect these judgements include, but are not limited to, changes in interest rates, changes in the performance of the economy, including the economic impact of the COVID-19 pandemic on both the allowance and provision for credit losses, and changes in the financial condition of borrowers.

The Corporation considered the impact of the COVID-19 pandemic which did have a material adverse impact on the provision for credit losses, and subsequent to March 31, 2020 resulted in certain loan modifications. The Corporation could experience a further material adverse effect on its business as a result of the impact of the COVID-19 pandemic, and the resulting governmental actions to curtail its spread. It is at least reasonably possible that information which was available at the date of the financial statements will change in the near term due to the COVID-19 pandemic and that the effect of the change would be material to the financial statements. The extent to which the COVID-19 pandemic will impact our estimates and assumptions is highly uncertain and we are unable to make an estimate at this time.

Adoption of New Accounting Standards.In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13 “Measurement of Credit Losses on Financial Instruments (Topic 326)” (“CECL”). This standard changes the methodology used to determine the allowance for loan losses from an incurred loss model to a current expected credit loss model. The CECL model requires the Bank to maintain at each periodic reporting date an allowance for credit losses (“ACL” or “allowance”) in an amount that is equal to its estimate of expected lifetime credit losses on all financial assets measured at amortized cost, including loan receivables, held-to-maturity debt securities and certain off-balance sheet credit exposures. Management adopted ASU 2016-13, as amended, on January 1, 2020 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit commitments. Results for reporting periods beginning on or after January 1, 2020 are presented under Accounting Standards Codification (“ASC”) 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

On January 1, 2020, the Corporation recorded a net decrease to retained earnings of $2,325,000, net of tax effect of $993,000, for the implementation of ASC 326, with offsetting increases of $2,888,000 and $430,000 to the ACL on loans and off-balance sheet credit exposures, respectively. The following table ~~sets forth~~illustrates the ~~calculation~~impact of ~~basic and diluted earnings per share (“EPS”) for the periods indicated.~~ASC 326.

Six Months Ended
Three Months Ended
June 30,
June 30,
(dollars in thousands, except per share data)
2019
2018
2019
2018
Net income
$
21,585
$
21,426
$
10,744
$
10,315
Income allocated to participating securities (1)
—
60
—
23
Income allocated to common stockholders
$
21,585
$
21,366
$
10,744
$
10,292
Weighted average:
Common shares
25,051,412
25,149,364
24,821,026
25,334,155
Dilutive stock options and restricted stock units (1)
169,048
188,918
181,751
173,661
25,220,460
25,338,282
25,002,777
25,507,816
Earnings per share:
Basic
$0.86
$0.85
$0.43
$0.41
Diluted
0.86
0.84
0.43
0.40



		January 1, 2020
						Impact of
		As Reported		Pre-ASC 326		ASC 326
(in thousands)		Under ASC 326		Adoption		Adoption
Assets:
Allowance for credit losses on loans:
Commercial and industrial	$	1,249	$	1,493	$	(244)
Commercial mortgages:
Multifamily		8,210		7,151		1,059
Other		3,451		3,498		(47)
Owner-occupied		1,699		921		778
Residential mortgages:
Closed end		17,054		15,698		1,356
Revolving home equity		509		515		(6)
Consumer and other		5		13		(8)
	$	32,177	$	29,289	$	2,888
Liabilities:
Allowance for credit losses on off-balance sheet credit exposures	$	605	$	175	$	430

~~(1) Restricted stock units (“RSUs”) awarded~~The Corporation made an accounting policy election to present the accrued interest receivable balance of loans separate from the amortized cost basis and includes the receivable balance within “Other assets” on the consolidated balance sheets. Management applied the practical expedient to exclude accrued interest receivable balances from the tabular disclosures and has elected to not estimate an allowance for credit losses on accrued interest receivable. The Bank continues to reverse accrued interest receivable against current period interest income when a loan becomes nonaccrual.

For available-for-sale investment securities which are in ~~2016 accrued dividends at~~an unrealized loss position, we evaluate whether the ~~same rate~~decline in fair value has resulted from an actual or estimated credit loss event. We consider, among other factors, the extent to which fair value is less than amortized cost, changes to the rating of the security, and adverse conditions specifically related to the security. If this assessment indicates that a credit loss is likely, we assess whether we intend to sell, or it is more likely than not that we will be required to sell, the security before recovery of the amortized cost basis and determine the present value of cash flows expected to be collected from the security as compared to the ~~dividends declared~~amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, an ACL is recorded for the estimated credit loss, limited by the ~~Board~~amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income.

We estimate credit losses on off-balance sheet credit exposures by considering the likelihood of ~~Directors~~an outstanding commitment converting into an outstanding loan and applying historical loss factors used on similar portfolio segments, unless the obligation is unconditionally cancellable by us. The ACL on off-balance sheet credit exposures is recorded in the line item “other liabilities” in the consolidated balance sheet and is adjusted as a provision for credit loss expense which is included in the line item “other noninterest expense” in the consolidated statements of income.

See Note 4 “Loans” for the accounting policy of ACL on loans and additional disclosures required by ASU 2016-13.

In August 2018, the FASB issued ASU 2018-13 “Changes to the Disclosure Requirements for Fair Value Measurement” to modify certain disclosure requirements pertaining to fair value measurements as part of the FASB’s disclosure framework project. Management adopted ASU 2018-13 on January 1, 2020. See Note 7 “Fair Value of Financial Instruments” for disclosures required by ASU 2018-13.

Recent Accounting Pronouncements. 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 ~~common stock. For purposes~~financial position, results of ~~computing EPS, these RSUs were considered~~operations or disclosures.

In August 2018, the FASB issued ASU 2018-14 “Changes to ~~participate with common stock~~the Disclosure Requirements for Defined Benefit Plans.” ASU 2018-14 modifies certain disclosure requirements pertaining to defined benefit plans as part of the FASB’s disclosure framework project and is intended to improve the effectiveness of disclosures in the ~~earnings~~notes to financial statements. ASU 2018-14 is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The adoption of this ASU will modify the ~~Corporation and, therefore, the Corporation calculated basic and diluted EPS using the two-class method. Substantially all~~Corporation’s disclosures but will not impact its financial position or results of ~~the RSUs awarded in 2016 vested on December 31, 2018. As a result, beginning in 2019, the Corporation calculates basic and dilutive EPS using the treasury stock method.~~operations.

2 - 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:



	Six Months Ended				Three Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(in thousands)	2019		2018		2019		2018		2020		2019
Change in net unrealized holding gains (losses) on
available-for-sale securities:
Change in net unrealized holding gains (losses) on available-for-sale securities:
Change arising during the period	$	15,631	$	(14,828)	$	7,214	$	(3,094)	$	(8,850)	$	8,417
Tax effect		4,687		(4,480)		2,151		(932)		(2,649)		2,536
		10,944		(10,348)		5,063		(2,162)		(6,201)		5,881
Change in funded status of pension plan:
Amortization of net actuarial loss included in net income (1)		176		—		88		—		—		88
Tax effect		92		—		65		—		—		27
		84		—		23		—		—		61
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 (2)		183		90		114		90
Change in unrealized loss on derivative instrument:
Amount of loss recognized during the period										(4,274)		(1,614)
Reclassification adjustment for net interest expense included in net income (2)										510		69
		(4,058)		(406)		(2,513)		(406)		(3,764)		(1,545)
Tax effect		(1,212)		(122)		(747)		(122)		(1,129)		(465)
		(2,846)		(284)		(1,766)		(284)		(2,635)		(1,080)

Other comprehensive income (loss)	$	8,182	$	(10,632)	$	3,320	$	(2,446)	$	(8,836)	$	4,862

(1) 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 76 – Defined Benefit Pension Plan”) 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.”

The following table sets forth the components of accumulated other comprehensive ~~loss,~~income (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
	Balance		Period		Balance
(in thousands)	12/31/19		Change		3/31/20
Unrealized holding gains on available-for-sale securities	$	6,945	$	(6,201)	$	744
Unrealized actuarial loss on pension plan		(3,254)		—		(3,254)
Unrealized loss on derivative instruments		(3,096)		(2,635)		(5,731)
Accumulated other comprehensive income (loss), net of tax	$	595	$	(8,836)	$	(8,241)

‎

3 - INVESTMENT SECURITIES

The following tables set forth the amortized cost and estimated fair values of the Bank’s available-for-sale investment ~~securities.~~securities, and the corresponding amounts of unrealized gains and losses recognized on an after-tax basis in accumulated other comprehensive income (loss). There was 0 allowance for credit losses associated with the available-for-sale securities portfolio at March 31, 2020.



	June 30, 2019								March 31, 2020
			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	$	4,210	$	31	$	—	$	4,241
Pass-through mortgage securities		253		13		—		266
Collateralized mortgage obligations		15		—		—		15
	$	4,478	$	44	$	—	$	4,522
Available-for-Sale Securities:
State and municipals	$	397,988	$	9,021	$	(484)	$	406,525	$	365,652	$	10,318	$	(127)	$	375,843
Pass-through mortgage securities		64,719		867		(171)		65,415		56,555		2,088		—		58,643
Collateralized mortgage obligations		145,719		3,126		(7)		148,838		137,193		5,125		(23)		142,295
Corporate bonds		119,000		—		(950)		118,050		119,000		—		(16,318)		102,682
	$	727,426	$	13,014	$	(1,612)	$	738,828	$	678,400	$	17,531	$	(16,468)	$	679,463

	December 31, 2018								December 31, 2019
Held-to-Maturity Securities:
State and municipals	$	5,142	$	36	$	—	$	5,178
Pass-through mortgage securities		267		11		—		278
Collateralized mortgage obligations		95		1		—		96
	$	5,504	$	48	$	—	$	5,552
Available-for-Sale Securities:
State and municipals	$	422,235	$	3,220	$	(5,417)	$	420,038	$	372,113	$	10,269	$	(239)	$	382,143
Pass-through mortgage securities		66,631		24		(1,169)		65,486		60,307		1,104		(39)		61,372
Collateralized mortgage obligations		154,378		886		(363)		154,901		136,211		2,247		(259)		138,199
Corporate bonds		119,000		—		(1,410)		117,590		119,000		—		(3,170)		115,830
	$	762,244	$	4,130	$	(8,359)	$	758,015	$	687,631	$	13,620	$	(3,707)	$	697,544

At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, investment securities with a carrying value of ~~$420,902,000~~$415,868,000 and ~~$342,712,000,~~$382,963,000, respectively, were pledged as collateral to secure public deposits, borrowed funds and ~~borrowed funds.~~derivative liabilities.

There were no0 holdings of any one issuer, other than the U.S. ~~Government~~government and its agencies, in an amount greater than 10% of stockholders’ equity at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

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.



	June 30, 2019												March 31, 2020
	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	$	1,318	$	(2)	$	23,470	$	(482)	$	24,788	$	(484)	$	7,765	$	(127)	$	—	$	—	$	7,765	$	(127)
Pass-through mortgage securities		—		—		18,600		(171)		18,600		(171)
Collateralized mortgage obligations		—		—		6,949		(7)		6,949		(7)		9,691		(23)		—		—		9,691		(23)
Corporate bonds		86,050		(950)		—		—		86,050		(950)		28,120		(3,880)		74,562		(12,438)		102,682		(16,318)
Total temporarily impaired	$	87,368	$	(952)	$	49,019	$	(660)	$	136,387	$	(1,612)	$	45,576	$	(4,030)	$	74,562	$	(12,438)	$	120,138	$	(16,468)

	December 31, 2018												December 31, 2019
State and municipals	$	102,882	$	(1,639)	$	62,995	$	(3,778)	$	165,877	$	(5,417)	$	6,662	$	(83)	$	5,084	$	(156)	$	11,746	$	(239)
Pass-through mortgage securities		38,421		(142)		23,425		(1,027)		61,846		(1,169)		5,287		(14)		4,084		(25)		9,371		(39)
Collateralized mortgage obligations		32,577		(89)		7,342		(274)		39,919		(363)		30,886		(259)		—		—		30,886		(259)
Corporate bonds		97,590		(1,410)		—		—		97,590		(1,410)		51,020		(980)		64,810		(2,190)		115,830		(3,170)
Total temporarily impaired	$	271,470	$	(3,280)	$	93,762	$	(5,079)	$	365,232	$	(8,359)	$	93,855	$	(1,336)	$	73,978	$	(2,371)	$	167,833	$	(3,707)

~~Because~~State and Municipals

At March 31, 2020, approximately $7.8 million of state and municipal bonds had an unrealized loss of $127,000. Each of the ~~unrealized losses reflected~~state and municipal bonds are considered high investment grade and rated Aa2/AA- or higher. The decline in ~~the preceding tables are deemed by management to be~~value is attributable to changes in interest rates and illiquidity and not credit ~~losses,~~quality. The issuers continue to make timely principal and ~~because management~~interest payments on the bonds. The Bank does not have the intent to sell these securities and it is ~~not more~~ likely ~~than not~~ that it will not be required to sell ~~these~~the securities before their anticipated ~~recovery,~~recovery. The fair value is expected to recover as the bonds approach maturity.

Collateralized Mortgage Obligations

At March 31, 2020, one collateralized mortgage obligation of approximately $9.7 million had an unrealized loss of $23,000. This security was issued by a U.S. government-sponsored agency and is considered high investment grade. The decline in fair value is attributable to changes in interest rates and not credit quality. The issuer continues to make timely principal and interest payments on the bond. The Bank does not ~~consider~~have the intent to sell this security and it is likely that it will not be required to sell the security before its anticipated recovery. The fair value is expected to recover as the bond approaches maturity.

Corporate Bonds

At March 31, 2020, approximately $102.7 million of corporate bonds had an unrealized loss of $16.3 million. The corporate bonds represent senior unsecured debt obligations of 6 of the largest U.S. based financial institutions, including JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, Morgan Stanley, and Wells Fargo. Each of the corporate bonds have a stated maturity of ten years and mature in 2028. The bonds provide a fixed interest rate for a period of two years or three years and have a weighted average fixed rate yield of 5.14% at March 31, 2020, and then reset quarterly based on the ten year constant maturity swap rate. During the fourth quarters of 2020 and 2021, corporate bonds with current fair values totaling $74.6 million and $28.1 million, respectively, will begin to reprice on a quarterly basis.

Each of the financial institutions are considered upper medium investment grade and rated A3 or higher. The decline in fair value is attributable to a significant increase in credit spreads caused by the economic disruption from the COVID-19 pandemic, a decline in interest rates and the illiquid nature of the securities. The Bank does not have the intent to sell these securities and it is likely that it will not be required to ~~be other-than-temporarily impaired~~sell the securities before their anticipated recovery. Each of these financial institutions have diversified revenue streams, are well capitalized and profitable and continue to make timely interest payments. Management evaluates the quarterly financial statements of each company to determine if full payment of principal and interest is in doubt and does not believe there is any impairment at ~~June 30, 2019.~~March 31, 2020.

Sales of Available-for-Sale and Held-to-Maturity Securities. There were no0 sales of available-for-sale or held-to-maturity securities during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.

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 ~~June 30, 2019~~March 31, 2020 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
$
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



(in thousands)	Amortized Cost		Fair Value
Within one year	$	8,598	$	8,629
After 1 through 5 years		72,675		73,963
After 5 through 10 years		263,976		251,385
After 10 years		139,403		144,548
Mortgage-backed securities		193,748		200,938
	$	678,400	$	679,463

54 - LOANS

The following ~~tables set~~table sets forth the loans outstanding by class of loans at the ~~amount of~~dates indicated.




	March 31,		December 31, 2019
	2020		Loans						Allowance for Loan Losses
(in thousands)	Loans ‎Outstanding		Individually ‎Evaluated		Collectively ‎Evaluated		Ending ‎Balance		Individually ‎Evaluated		Collectively ‎Evaluated		Ending ‎Balance
Commercial and industrial	$	126,073	$	—	$	103,879	$	103,879	$	—	$	1,493	$	1,493
Commercial mortgages:
Multifamily		813,859		—		835,013		835,013		—		7,151		7,151
Other		442,181		—		447,484		447,484		—		3,498		3,498
Owner-occupied		120,217		501		118,291		118,792		—		921		921
Residential mortgages:
Closed end		1,558,401		1,189		1,620,230		1,621,419		14		15,684		15,698
Revolving home equity		60,296		—		59,231		59,231		—		515		515
Consumer and other		2,274		268		2,163		2,431		—		13		13
	$	3,123,301	$	1,958	$	3,186,291	$	3,188,249	$	14	$	29,275	$	29,289

Management identifies loans in the Bank’s portfolio that must be individually evaluated for loss due to disparate risk characteristics or information suggesting that the Bank will be unable to collect all the principal and interest due. For loans individually evaluated, a specific reserve is estimated 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. Individually evaluated loans are excluded from the estimation of credit losses for the pooled portfolio.

For loans collectively evaluated for ~~impairment~~credit loss, management segregates its loan portfolio into ten distinct pools, certain of which are combined in reporting loans outstanding by class of loans: (1) commercial and industrial; (2) small business credit scored; (3) multifamily; (4) owner-occupied; (5) other commercial real estate; (6) construction and land development; (7) closed end residential mortgage; (8) revolving home equity; (9) consumer; and (10) municipal loans. Historical loss information from the Bank’s own loan portfolio from December 31, 2007 to present provides a basis for management’s assessment of expected credit losses. The choice of a historical look-back period that begins in 2007 covers an entire economic cycle and impacts the average historical loss rates used to calculate the final ACL. Due to the extensive historical loss data available, management has determined that the vintage approach is the most appropriate method of measuring the historical loss component of credit losses inherent in its portfolio for most of its loan pools. For the revolving home equity and small business credit scored pools, the migration approach was selected to measure historical losses since contractual lives are not readily discernable and balances can fluctuate throughout the life of the lines. Management believes that the methods selected fairly reflect the historical loss component of expected losses inherent in the Bank’s loan portfolio. However, since future losses could vary significantly from those experienced in the past, on a quarterly basis management adjusts its historical loss experience to reflect current and forecasted conditions. In doing so, management considers a variety of general qualitative and quantitative factors (“Q-factors”) and then subjectively determines the weight to assign to each in estimating losses. Qualitative characteristics include, among others, differences in underwriting standards, policies, lending staff and environmental risks. Management also considers whether further adjustments to historical loss information are needed to reflect the extent to which current conditions and reasonable and supportable forecasts over a one year to two year forecasting horizon differ from the conditions that existed during the historical loss period. These quantitative adjustments reflect changes to relevant data such as changes in unemployment rates, vacancies, average growth in pools of loans, delinquencies or other factors associated with the financial assets. The immediate reversion method is applied for periods beyond the forecasting horizon. The Bank’s ACL allocable to pools of loans that are collectively evaluated for credit loss results primarily from these qualitative and quantitative adjustments to historical loss experience. Because of the nature of the Q-factors and the ~~portion~~degree of judgement involved in assessing their impact, management’s resulting estimate of losses may not accurately reflect current and future losses in the ~~allowance for loan losses allocable to such loans.~~portfolio.

The COVID-19 pandemic has caused significant uncertainty in the current and forecasted economic environment and was the key influence, considered through the Q-factors discussed above, in estimating the ACL required at March 31, 2020.

June 30, 2019
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
Commercial and industrial
$
133
$
108,021
$
108,154
$
62
$
1,139
$
1,201
Commercial mortgages:
Multifamily
—
780,563
780,563
—
6,730
6,730
Other
—
424,416
424,416
—
3,440
3,440
Owner-occupied
510
106,148
106,658
—
828
828
Residential mortgages:
Closed end
1,834
1,730,467
1,732,301
15
17,133
17,148
Revolving home equity
1,084
64,934
66,018
—
397
397
Consumer and other
287
3,190
3,477
—
24
24
$
3,848
$
3,217,739
$
3,221,587
$
77
$
29,691
$
29,768
December 31, 2018
Commercial and industrial
$
22
$
98,763
$
98,785
$
—
$
1,158
$
1,158
Commercial mortgages:
Multifamily
—
756,714
756,714
—
5,851
5,851
Other
—
433,330
433,330
—
3,783
3,783
Owner-occupied
520
90,731
91,251
—
743
743
Residential mortgages:
Closed end
1,814
1,807,837
1,809,651
16
18,828
18,844
Revolving home equity
743
66,967
67,710
—
410
410
Consumer and other
324
5,634
5,958
—
49
49
$
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~~ACL for the periods indicated.

(in thousands)
Balance at
‎1/1/19
Chargeoffs
Recoveries
Provision for
‎Loan Losses
‎(Credit)
Balance at
‎6/30/19
Commercial and industrial
$
1,158
$
365
$
8
$
400
$
1,201
Commercial mortgages:
Multifamily
5,851
—
—
879
6,730
Other
3,783
—
—
(343)
3,440
Owner-occupied
743
—
—
85
828
Residential mortgages:
Closed end
18,844
433
1
(1,264)
17,148
Revolving home equity
410
249
—
236
397
Consumer and other
49
—
3
(28)
24
$
30,838
$
1,047
$
12
$
(35)
$
29,768
Balance at
‎4/1/19
Chargeoffs
Recoveries
Provision for
‎Loan Losses
‎(Credit)
Balance at
‎6/30/19
Commercial and industrial
$
1,047
$
311
$
4
$
461
$
1,201
Commercial mortgages:
Multifamily
6,435
—
—
295
6,730
Other
3,517
—
—
(77)
3,440
Owner-occupied
685
—
—
143
828
Residential mortgages:
Closed end
18,071
299
—
(624)
17,148
Revolving home equity
402
249
—
244
397
Consumer and other
42
—
2
(20)
24
$
30,199
$
859
$
6
$
422
$
29,768



(in thousands)	Balance at ‎1/1/18		Chargeoffs			Recoveries	Provision for Loan Losses (Credit)		Balance at ‎6/30/18		Balance at ‎ 1/1/20 After Implementation ‎of ASC 326		Chargeoffs		Recoveries		Provision (Credit) for Credit Losses		Balance at ‎3/31/20
Commercial and industrial	$	1,441	$	304	$	6	$	155	$	1,298	$	1,249	$	618	$	187	$	1,113	$	1,931
Commercial mortgages:
Multifamily		6,423		—		—		625		7,048		8,210		—		—		437		8,647
Other		4,734		—		—		34		4,768		3,451		—		—		341		3,792
Owner-occupied		1,076		—		—		(165)		911		1,699		—		—		83		1,782
Residential mortgages:
Closed end		19,347		20		100		1,526		20,953		17,054		—		—		405		17,459
Revolving home equity		689		49		—		135		775		509		—		—		(22)		487
Consumer and other		74		—		—		5		79		5		1		2		1		7
	$	33,784	$	373	$	106	$	2,315	$	35,832	$	32,177	$	619	$	189	$	2,358	$	34,105

	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

For individually impaired loans, the following tables set forth by class of loans at June 30, 2019 and December 31, 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 six and three months ended June 30, 2019 and 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		Balance at ‎1/1/19		Chargeoffs		Recoveries		Provision (Credit) for Loan Losses		Balance at ‎3/31/19
With no related allowance recorded:
Commercial and industrial	$	9	$	9	$	—	$	14	$	1	$	11	$	1	$	1,158	$	54	$	4	$	(61)	$	1,047
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
Commercial mortgages:
Multifamily																5,851		—		—		584		6,435
Other																3,783		—		—		(266)		3,517
Owner-occupied																743		—		—		(58)		685
Residential mortgages:
Closed end		1,834		1,860		15		1,859		6		1,843		3		18,844		134		1		(640)		18,071
Revolving home equity		1,084		1,113		—		1,101		—		1,089		—		410		—		—		(8)		402
Consumer and other		287		287		—		301		—		290		—		49		—		1		(8)		42
	$	3,848	$	3,987	$	77	$	3,921	$	22	$	3,872	$	11	$	30,838	$	188	$	6	$	(457)	$	30,199

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

Aging of Loans. The following tables present the aging of ~~the recorded investment in~~ loans past due and loans on nonaccrual status by class of loans.



															March 31, 2020
	June 30, 2019														Past Due						Nonaccrual
					Past Due				Total Past												With an		With No		Total Past
					90 Days or				Due Loans &										90 Days or		Allowance		Allowance		Due Loans &
	30-59 Days		60-89 Days		More and		Nonaccrual		Nonaccrual				Total						More and		for Credit		for Credit		Nonaccrual				Total
(in thousands)	Past Due		Past Due		Still Accruing		Loans		Loans		Current		Loans		30-59 Days		60-89 Days		Still Accruing		Loss		Loss		Loans		Current		Loans
Commercial and industrial	$	—	$	—	$	—	$	124	$	124	$	108,030	$	108,154	$	415	$	—	$	—	$	—	$	—	$	415	$	125,658	$	126,073
Commercial mortgages:
Multifamily		—		—		—		—		—		780,563		780,563		—		—		—		—		1,325		1,325		812,534		813,859
Other		—		—		—		—		—		424,416		424,416		683		—		—		—		872		1,555		440,626		442,181
Owner-occupied		—		—		—		—		—		106,658		106,658		—		—		—		—		—		—		120,217		120,217
Residential mortgages:
Closed end		—		—		—		1,521		1,521		1,730,780		1,732,301		362		—		—		—		2,254		2,616		1,555,785		1,558,401
Revolving home equity		122		—		—		1,084		1,206		64,812		66,018		265		—		—		—		390		655		59,641		60,296
Consumer and other		—		—		—		—		—		3,477		3,477		—		—		—		—		—		—		2,274		2,274
	$	122	$	—	$	—	$	2,729	$	2,851	$	3,218,736	$	3,221,587	$	1,725	$	—	$	—	$	—	$	4,841	$	6,566	$	3,116,735	$	3,123,301

	December 31, 2018														December 31, 2019
Commercial and industrial	$	—	$	43	$	—	$	—	$	43	$	98,742	$	98,785	$	196	$	—	$	—	$	—	$	—	$	196	$	103,683	$	103,879
Commercial mortgages:
Multifamily		—		—		—		—		—		756,714		756,714		—		—		—		—		—		—		835,013		835,013
Other		—		—		—		—		—		433,330		433,330		—		—		—		—		—		—		447,484		447,484
Owner-occupied		—		—		—		—		—		91,251		91,251		—		—		—		—		—		—		118,792		118,792
Residential mortgages:
Closed end		864		—		—		1,392		2,256		1,807,395		1,809,651		2,316		—		—		—		888		3,204		1,618,215		1,621,419
Revolving home equity		—		—		—		743		743		66,967		67,710		—		414		—		—		—		414		58,817		59,231
Consumer and other		2		—		—		—		2		5,956		5,958		2		—		—		—		—		2		2,429		2,431
	$	866	$	43	$	—	$	2,135	$	3,044	$	3,260,355	$	3,263,399	$	2,514	$	414	$	—	$	—	$	888	$	3,816	$	3,184,433	$	3,188,249

There were no0 loans in the process of foreclosure ~~nor~~0r did the Bank hold any foreclosed residential real estate property at ~~June 30, 2019~~March 31, 2020 or December 31, ~~2018.~~2019.

Accrued interest receivable from loans totaled $8,656,000 and $8,409,000 at March 31, 2020 and December 31, 2019, respectively, and is included in the line item “Other assets” on the consolidated balance sheets.

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~~0t modify any loans in troubled debt restructurings during the first ~~six months~~quarter of 2020 or 2019. During the six months ended 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 and the post-modification interest rate was lower than the current market rate for new debt with similar risk.

At ~~June 30, 2019 and~~March 31, 2020, the Bank had 0 allowance allocated to troubled debt restructurings. At December 31, ~~2018,~~2019, the Bank had an allowance ~~for loan losses~~ of ~~$15,000 and $16,000, respectively,~~$14,000 allocated to specific troubled debt restructurings. The Bank had no0 commitments to lend additional amounts in connection with loans that were classified as troubled debt restructurings.

There were no0 troubled debt restructurings for which there was a payment default during the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ that were modified during the 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, rent regulation 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 (See “Item 1A. Risk Factors” in Part II of this Form 10-Q for information regarding recent legislation in New York State (“NYS”)).~~controlled. These sources of repayment are dependent on, among other things, the strength of the local economy.

The COVID-19 pandemic creates substantial challenges for the Bank and its customers. Normal business activity and commerce have been significantly disrupted across the country including in the NYC metropolitan area which is the main market that the Bank serves. During these challenging times, many of the Bank’s customers, which include small and medium-sized businesses, professionals, consumers, municipalities and other organizations, may experience a significant decline in, or complete discontinuance of, business activity, earnings and cash flow. For some this may be temporary, but for other customers it could be longer-lasting and may lead to permanent business closure or job loss. These challenges may result in higher drawdowns by customers on the Bank’s lending commitments and higher past due and nonaccrual loans, troubled debt restructurings and credit losses. In addition, the value of collateral supporting mortgage loans may be negatively impacted leading to a deterioration in the Bank’s loan-to-value ratios and increased risk of loss.

Credit Quality Indicators. The ~~Corporation~~Bank 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. Management analyzes loans individually and classifies them using the following definitions for risk rating.

~~Commercial~~Watch: The borrower’s cash flow has a high degree of variability and ~~industrial loans~~subject to economic downturns. Liquidity is strained and ~~commercial mortgage loans are risk rated utilizing a ten point rating system. The ten point risk rating system~~the ability of the borrower to access traditional sources of credit is ~~described hereinafter.~~diminished.

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. 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. Doubtful:
~~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 minimum principal balance thresholds and the Bank’s ongoing assessments of the borrower’s condition.

Residential mortgage loans, revolving home equity lines and other consumer loans are ~~risk rated~~initially evaluated 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.~~score. 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:~~However, regardless of credit score, loans may be classified, criticized or placed on management’s watch list if relevant information comes to light.

‎


~~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~~amortized cost basis of loans by class of loans and risk ~~rating.~~rating for the periods indicated. Loans shown as Pass are all loans other than those risk rated Watch, Special Mention, Substandard or Doubtful.

June 30, 2019
Internally Assigned Risk Rating
Special
(in thousands)
Pass
Watch
Mention
Substandard
Doubtful
Total
Commercial and industrial
$
107,068
$
—
$
601
$
485
$
—
$
108,154
Commercial mortgages:
Multifamily
773,758
—
6,805
—
—
780,563
Other
424,416
—
—
—
—
424,416
Owner-occupied
101,439
1,066
3,643
510
—
106,658
$
1,406,681
$
1,066
$
11,049
$
995
$
—
$
1,419,791
December 31, 2018
Commercial and industrial
$
97,684
$
—
$
667
$
434
$
—
$
98,785
Commercial mortgages:
Multifamily
756,714
—
—
—
—
756,714
Other
417,838
14,194
1,298
—
—
433,330
Owner-occupied
85,710
1,090
3,911
540
—
91,251
$
1,357,946
$
15,284
$
5,876
$
974
$
—
$
1,380,080



	March 31, 2020
	Term Loans by Origination Year
													Revolving
(in thousands)	2020		2019		2018		2017		2016		Prior		Loans		Total
Commercial and industrial:
Pass	$	15,540	$	16,774	$	12,124	$	14,783	$	8,182	$	27,208	$	27,274	$	121,885
Watch		—		—		—		—		—		2,408		—		2,408
Special Mention		—		—		—		—		—		750		—		750
Substandard		—		771		—		—		—		259		—		1,030
Doubtful		—		—		—		—		—		—		—		—
	$	15,540	$	17,545	$	12,124	$	14,783	$	8,182	$	30,625	$	27,274	$	126,073

Commercial mortgages – multifamily:
Pass	$	10,809	$	155,469	$	166,365	$	163,857	$	33,366	$	279,037	$	—	$	808,903
Watch		—		—		—		1,322		—		—		—		1,322
Special Mention		—		—		—		—		2,309		—		—		2,309
Substandard		—		—		—		—		1,325		—		—		1,325
Doubtful		—		—		—		—		—		—		—		—
	$	10,809	$	155,469	$	166,365	$	165,179	$	37,000	$	279,037	$	—	$	813,859

Commercial mortgages – other:
Pass	$	22,871	$	43,516	$	52,786	$	56,937	$	101,642	$	153,781	$	—	$	431,533
Watch		—		—		—		—		9,776		—		—		9,776
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		872		—		872
Doubtful		—		—		—		—		—		—		—		—
	$	22,871	$	43,516	$	52,786	$	56,937	$	111,418	$	154,653	$	—	$	442,181

Commercial mortgages – owner-occupied:
Pass	$	3,550	$	44,014	$	9,285	$	10,267	$	12,831	$	35,163	$	—	$	115,110
Watch		—		—		—		—		—		2,515		—		2,515
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		1,881		—		711		—		2,592
Doubtful		—		—		—		—		—		—		—		—
	$	3,550	$	44,014	$	9,285	$	12,148	$	12,831	$	38,389	$	—	$	120,217

Residential mortgages – closed end:
Pass	$	412	$	30,094	$	356,704	$	404,019	$	292,070	$	472,400	$	—	$	1,555,699
Watch		—		—		—		—		—		304		—		304
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		463		—		—		1,935		—		2,398
Doubtful		—		—		—		—		—		—		—		—
	$	412	$	30,094	$	357,167	$	404,019	$	292,070	$	474,639	$	—	$	1,558,401

Residential mortgages – revolving home equity:
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	59,491	$	59,491
Watch		—		—		—		—		—		—		415		415
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		390		390
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	—	$	60,296	$	60,296

Consumer and other (1):
Pass	$	253	$	226	$	85	$	40	$	801	$	408	$	—	$	1,813
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		259		—		—		—		—		—		259
Doubtful		—		—		—		—		—		—		—		—
	$	253	$	485	$	85	$	40	$	801	$	408	$	—	$	2,072

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.



	June 30, 2019												December 31, 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													$	100,095	$	—	$	3,493	$	291	$	—	$	103,879
Commercial mortgages:
Multifamily														831,360		—		3,653		—		—		835,013
Other														437,655		—		9,829		—		—		447,484
Owner-occupied														113,534		—		4,757		501		—		118,792
Residential mortgages:
Closed end	$	1,730,158	$	309	$	—	$	1,834	$	—	$	1,732,301		1,619,034		306		890		1,189		—		1,621,419
Revolving home equity		64,691		—		243		1,084		—		66,018		58,816		415		—		—		—		59,231
Consumer and other		2,799		—		—		287		—		3,086
Consumer and other (1)														1,644		—		—		268		—		1,912
	$	1,797,648	$	309	$	243	$	3,205	$	—	$	1,801,405	$	3,162,138	$	721	$	22,622	$	2,249	$	—	$	3,187,730

	December 31, 2018
Residential mortgages:
Closed end	$	1,807,525	$	312	$	—	$	1,814	$	—	$	1,809,651
Revolving home equity		66,718		—		249		743		—		67,710
Consumer and other		4,958		—		—		324		—		5,282
	$	1,879,201	$	312	$	249	$	2,881	$	—	$	1,882,643

(1)Deposit account overdrafts were ~~$391,000~~$202,000 and ~~$676,000~~$519,000 at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Overdrafts are not assigned a risk rating and are therefore excluded from consumer loans in the tables above.

65 - 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~~Equity Incentive 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.~~Plan”). All of the 2,250,000 shares may be issued ~~upon~~pursuant to the exercise of stock options or ~~SARs.~~stock appreciation rights. A maximum of 787,500 shares may be issued as restricted stock awards or ~~upon the conversion of RSUs.~~restricted stock units (“RSUs”). At ~~June 30, 2019, 1,745,416~~March 31, 2020, 1,632,858 equity awards remain available to be granted under the 2014 Plan of which ~~293,633~~191,629 may be granted as restricted stock awards or RSUs.

~~Details of RSUs.~~The following ~~table summarizes~~tables present a summary of RSUs and options outstanding at March 31, 2020 and changes during the ~~vesting schedule of~~three month period then ended. Of the 165,519 RSUs outstanding at ~~June 30, 2019 by the year they were originally granted.~~quarter end, 58,144 are scheduled to vest during 2020.

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



				Weighted-
		Weighted-		Average		Aggregate
		Average		Remaining		Intrinsic
	Number of	Grant-Date		Contractual		Value
	RSUs	Fair Value		Term (yrs.)		(in thousands)
Outstanding at January 1, 2020	254,591	$	22.87
Granted	68,383		21.30
Converted	(156,705)		23.94
Forfeited	(750)		26.00
Outstanding at March 31, 2020	165,519	$	21.19		1.44	$	2,872

The RSUs in the table above include performance-based RSUs with vesting based on the financial performance of the Corporation in 2019 and 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. The grant date fair value of RSUs awarded in 2017, 2018 and 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 June 30, 2019 and changes during the 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, 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
—
$
—
—
$
—



				Weighted-
		Weighted-		Average		Aggregate
		Average		Remaining		Intrinsic
	Number of	Exercise		Contractual		Value
	Options	Price		Term (yrs.)		(in thousands)
Outstanding at January 1, 2020	55,346	$	12.34
Exercised	(17,673)		11.14
Forfeited or expired	(1,125)		10.37
Outstanding at March 31, 2020	36,548	$	12.98		0.91	$	160
Exercisable at March 31, 2020	36,398	$	12.97		0.89	$	159

The performance-based RSUs granted in 2019 and 2018 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 1.25 shares for each RSU awarded. All other RSUs outstanding at June 30, 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 June 30, 2019 are currently expected to vest and become convertible in the future. The total intrinsic value of RSUs converted during the first six months of 2019 and 2018 was $2,107,000 and $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. 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 June 30, 2019, and changes during the 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, 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 June 30, 2019 are either fully vested or expected to vest. The total intrinsic value of options exercised during the first six months of 2019 and 2018 was $203,000 and $278,000, respectively. Cash received from option exercises in the first six months of 2019 and 2018 was $203,000 and $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 $1,668,000 and $1,261,000 and recorded related income tax benefits of $499,000 and $380,000 for the six months ended June 30, 2019 and 2018, respectively.

~~Unrecognized Compensation Cost.~~ As of ~~June 30, 2019,~~March 31, 2020, there was ~~$1,521,000~~$2,080,000 of total unrecognized compensation cost related to non-vested equity awards comprised substantially of ~~$1,000 for stock options and $1,520,000 for~~ RSUs. The total cost is expected to be recognized over a weighted-average period of ~~1.5 years, which is based on weighted-average periods of 0.9 years and 1.5 years for stock options and RSUs, respectively.~~1.7 years.

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

6 - DEFINED BENEFIT PENSION PLAN

The following table sets forth the components of net periodic pension ~~credit.~~cost (credit).



	Six Months Ended				Three Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(in thousands)	2019		2018		2019		2018		2020		2019
Service cost	$	634	$	685	$	317	$	343	$	412	$	317
Interest cost		893		794		447		397		412		446
Expected return on plan assets		(1,501)		(1,638)		(751)		(819)		(889)		(750)
Amortization of net actuarial loss		176		—		88		—		—		88
Net pension cost (credit)	$	202	$	(159)	$	101	$	(79)	$	(65)	$	101

Components of net pension cost (credit) other than the service cost component are included in the line item “Other noninterest income” in the consolidated statements of income. The service cost component is included in the line item “Salaries and employee benefits” in the consolidated statements of income.

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 no0 minimum required pension contribution for the Plan year ending September 30, ~~2019.~~2020. Its maximum tax-deductible contribution for the tax year beginning January 1, ~~2019~~2020 is ~~$7,700,000.~~$1,362,000. The contribution the Bank will make in ~~2019,~~2020, if any, has not yet been determined.

87 - 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 six months ended June 30, 2019 or 2018.

The fair values of the Corporation’s financial assets and liabilities measured at fair value on a recurring basis are set forth in the table that 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)
June 30, 2019:
March 31, 2020:
Financial Assets:
Available-for-Sale Securities:
State and municipals	$	406,525	$	—	$	406,255	$	270	$	375,843	$	—	$	374,066	$	1,777
Pass-through mortgage securities		65,415		—		65,415		—		58,643		—		58,643		—
Collateralized mortgage obligations		148,838		—		148,838		—		142,295		—		142,295		—
Corporate bonds		118,050		—		118,050		—		102,682		—		102,682		—
	$	738,828	$	—	$	738,558	$	270	$	679,463	$	—	$	677,686	$	1,777
Financial Liabilities:
Derivatives - interest rate swaps	$	5,188	$	—	$	5,188	$	—
Derivative - interest rate swaps									$	8,183	$	—	$	8,183	$	—

December 31, 2018:
December 31, 2019:
Financial Assets:
Available-for-Sale Securities:
State and municipals	$	420,038	$	—	$	420,038	$	—	$	382,143	$	—	$	380,299	$	1,844
Pass-through mortgage securities		65,486		—		65,486		—		61,372		—		61,372		—
Collateralized mortgage obligations		154,901		—		154,901		—		138,199		—		138,199		—
Corporate bonds		117,590		—		117,590		—		115,830		—		115,830		—
	$	758,015	$	—	$	758,015	$	—	$	697,544	$	—	$	695,700	$	1,844
Financial Liabilities:
Derivative - interest rate swap	$	1,130	$	—	$	1,130	$	—
Derivative - interest rate swaps									$	4,418	$	—	$	4,418	$	—

State and municipal available-for-sale securities measured using Level 3 inputs. The ~~Corporation had no~~Bank held 6 non-rated bond anticipation notes with a book value of $1.8 million at March 31, 2020. These bonds have a one year maturity and are issued by local municipalities that are customers of the Bank. Due to the short duration of the bonds, book value approximates fair value at March 31, 2020.

There were 0 assets measured at fair value on a nonrecurring basis at ~~June 30, 2019~~March 31, 2020 or December 31, ~~2018.~~2019.

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, 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	June 30, 2019				December 31, 2018				Level of	March 31, 2020				December 31, 2019
	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	$	69,216	$	69,216	$	47,358	$	47,358	Level 1	$	120,208	$	120,208	$	38,968	$	38,968
Held-to-maturity securities	Level 2		2,362		2,406		2,445		2,493
Held-to-maturity securities	Level 3		2,116		2,116		3,059		3,059
Loans	Level 3		3,191,819		3,131,749		3,232,561		3,079,946	Level 3		3,089,196		3,137,153		3,158,960		3,113,442
Restricted stock	Level 1		27,884		27,884		40,686		40,686	Level 1		30,224		30,224		30,899		30,899

Financial Liabilities:
Checking deposits	Level 1		932,443		932,443		935,574		935,574	Level 1		973,355		973,355		911,978		911,978
Savings, NOW and money market deposits	Level 1		1,716,472		1,716,472		1,590,341		1,590,341	Level 1		1,682,389		1,682,389		1,720,599		1,720,599
Time deposits	Level 2		664,664		667,294		559,057		553,900	Level 2		518,093		527,935		511,439		515,019
Short-term borrowings	Level 1		101,162		101,162		388,923		388,923	Level 1		60,599		60,599		190,710		190,710
Long-term debt	Level 2		360,472		360,467		362,027		354,651	Level 2		452,472		463,002		337,472		339,445

~~9 – LEASES~~

~~As described in “Note 12 – Adoption of New Accounting Standards,” the Bank adopted Accounting Standards Update (“ASU”) 2016-02 “Leases” and all subsequent amendments on January 1, 2019.~~

The 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 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 Bank’s leases do not provide an implicit interest rate, the Bank uses its incremental borrowing rate to determine the present value of 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 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 the Bank with a total lease liability of $138,000 at June 30, 2019. The leases expire on December 31, 2019 and October 31, 2022 with options to renew.

108 – REVENUE FROM CONTRACTS WITH CUSTOMERS

The noninterest income section of the consolidated statements of income includes the following types of 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, wire transfers, 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 ~~$1,099,000~~$442,000 and ~~$985,000~~$493,000 for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 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 ~~excluded from revenue from contracts with customers.~~outside of the scope of ASC 606.

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.~~earned and collected.

119 – DERIVATIVES

As part of its asset liability management activities, the Corporation 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.

2119

The Bank entered into an interest rate swap with a notional amount totaling $150 million on May 22, 2018 and a second interest rate swap with a notional amount of $50 million on January 17, 2019. The interest rate swaps were designated as cash flow hedges of certain Federal Home Loan Bank (“FHLB”) advances and brokered certificates of deposit (“CDs”). The swaps were determined to be fully effective during the ~~period~~periods presented and therefore no amount of ineffectiveness has been included in net income. The aggregate fair value of the swaps is recorded in other 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 hedges no longer be considered effective. The Corporation expects the hedges to remain fully effective during the remaining term of the swaps.

The following table summarizes information about the interest rate swaps designated as cash flow hedges.



	June 30, 2019	December 31, 2018	March 31, 2020	December 31, 2019
Notional amount	$200 million	$150 million	$200 million	$200 million
Weighted average fixed pay rate	2.83%	2.90%	2.83%	2.83%
Weighted average 3-month LIBOR receive rate	2.60%	2.38%	1.82%	2.04%
Weighted average maturity	2.56 Years	2.43 Years	1.81 Years	2.06 Years

Interest expense recorded on the swap transactions, which totaled ~~$183,000~~$510,000 and $69,000 for the ~~six months~~quarters ended ~~June 30,~~March 31, 2020 and 2019, respectively, is recorded as a component of interest expense in the consolidated statements of income. Amounts reported in accumulated other comprehensive income (loss) related to swaps will be reclassified to interest expense as interest payments are made on the Bank’s variable-rate liabilities. During the ~~six months~~quarter ended ~~June 30, 2019,~~March 31, 2020, the Corporation had ~~$183,000~~$510,000 of reclassifications to interest expense. During the next 12 months, the Corporation estimates that ~~$1,624,000~~$4,462,000 will be reclassified as an increase to interest expense.

The following table presents the net losses recorded in the consolidated statements of income and the consolidated statements of comprehensive income relating to interest rate swaps for the ~~six and~~ three months ended ~~June 30,~~March 31, 2020 and 2019.



					Amount of Loss
	Amount of Loss		Amount of Loss		Recognized in Other		Three Months Ended
	Recognized in OCI		Reclassified from OCI		Noninterest Income		March 31,
(in thousands)	(Effective Portion)		to Interest Expense		(Ineffective Portion)		2020		2019
Interest rate contracts:
Six months ended June 30, 2019	$	4,241	$	183	$	—
Three months ended June 30, 2019	$	2,627	$	114	$	—
Amount of loss recognized in OCI (effective portion)							$	4,274	$	1,614
Amount of loss reclassified from OCI to interest expense								510		69
Amount of loss recognized in other noninterest income (ineffective portion)								—		—

The following table reflects the amounts relating to the interest rate swap included in the consolidated balance ~~sheet~~sheets at ~~June 30,~~March 31, 2020 and December 31, 2019.



	June 30, 2019						December 31, 2018						March 31, 2020						December 31, 2019
	Notional		Fair Value					Notional	Fair Value				Notional		Fair Value					Notional	Fair Value
(in thousands)	Amount		Asset		Liability			Amount	Asset		Liability		Amount		Asset		Liability			Amount	Asset		Liability
Included in other liabilities			$	—	$	5,188			$	—	$	1,130			$	—	$	8,183			$	—	$	4,418
Interest rate swap hedging FHLB advances	$	—					$	150,000					$	50,000					$	50,000
Interest rate swaps hedging brokered CDs	$	200,000					$	—
Interest rate swap hedging brokered CDs													$	150,000					$	150,000

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 ~~June 30, 2019,~~March 31, 2020, the Bank is in compliance with the collateral posting provisions to its ~~counterparty under the agreement~~counterparty. The total amount of collateral posted was approximately ~~$5.3~~$9.1 million. If the Bank had breached any of these provisions at ~~June 30, 2019,~~March 31, 2020, it could have been required to settle its obligations under the agreement at the termination value.

~~12 – ADOPTION OF NEW ACCOUNTING STANDARDS~~

In February 2016, the Financial Accounting Standards Board (“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 represents the right to use the underlying asset for the lease term and the lease liability represents the discounted value of the required lease payments to the lessor. The ASU also requires entities to disclose key information about leasing arrangements. The Corporation implemented ASU 2016-02 on January 1, 2019 utilizing the transition method described in ASU 2018-11 “Leases – Targeted Improvements.” Upon adoption of the ASU, 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 could potentially have an impact on the Corporation’s financial position, results of operations or 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. 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 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 engaged a third-party software provider, developed an implementation timeline, and accumulated all necessary historical data. The committee is in the process of implementing the ASU which includes, among other things, developing accounting policy documentation and internal control processes. Parallel testing is expected to commence in the 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.

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. The Bank’s primary service area is Nassau and Suffolk Counties on Long Island, New York and the NYC boroughs of Queens, Brooklyn and Manhattan. ~~Continued expansion of the Bank’s branch distribution system, particularly in the NYC boroughs of Queens and Brooklyn, is an ongoing strategic initiative.~~

Overview

Net income and earnings per share for the first ~~six months~~quarter of ~~2019~~2020 were ~~$21.6~~$9.1 million and ~~$.86,~~$.38 respectively, compared to ~~$21.4~~$10.8 million and ~~$.84,~~$.43, respectively, for the same period last year. Dividends per share increased ~~13.3%~~5.9%, from ~~$.30~~$.17 for the first ~~six months~~quarter of ~~2018~~2019 to ~~$.34~~$.18 for the current ~~six-month period.~~quarter. Returns on average assets (“ROA”) and average equity (“ROE”) for the first ~~six months~~quarter of ~~2019~~2020 were ~~1.03%~~.90% and ~~11.15%~~9.41%, respectively, versus ~~1.05%~~1.03% and ~~11.77%~~11.30%, respectively, for the same period last year. Book value per share ~~increased from $15.27 at year-end 2018 to $15.87~~was $15.80 at the close of the current ~~quarter.~~quarter, compared to $16.26 at year-end 2019.

Analysis of First Quarter Earnings ~~– Six-Month Periods.~~. Net income for the first ~~six months~~quarter of ~~2019~~2020 was ~~$21.6~~$9.1 million, ~~an increase~~a decrease of ~~$159,000,~~$1.7 million, or ~~.7%~~15.6%, versus the same ~~period~~quarter last year. The ~~increase~~decrease is ~~attributable~~due to ~~decreases~~a decline in net interest income of $424,000, or 1.7%, and an increase in the provision for ~~loan~~credit losses ~~and non-interest expense~~ of ~~$2.4 million and $664,000, respectively. The impact of these decreases was~~$2.8 million. These items were partially offset by ~~declines~~an increase in ~~net interest income and~~ noninterest income of ~~$352,000~~$574,000, or 23.5%, and ~~$810,000, respectively,~~decreases in noninterest expense of $277,000, or 1.8%, and ~~an increase in~~ income tax expense of ~~$1.7 million.~~$695,000.

The decline in net interest income occurred ~~because of~~as yield curve flattening ~~followed by~~and inversion ~~and management’s resulting decision~~led management to slow loan and overall balance sheet growth. Also contributing to the decline in net interest income was a decrease in the average yield on the investment securities portfolio mainly due to prepayments and lower yields available on purchases. Partially offsetting these items was an increase in the yield on loans and decreases in the average balance and rate on short-term borrowings.

Net interest margin for the first ~~six months~~quarter of ~~2019~~2020 was ~~2.57%, down 9~~2.62% as compared to 2.56% for the first quarter of 2019. Excluding the impact of prepayment and late fees in each period, net interest margin for the current quarter was up 3 basis points ~~from 2.66% for~~versus the ~~same period last year. The decrease is largely attributable to the flattening and inversion of the yield curve and the resulting impact on funding costs and asset yields.~~

~~The modest mortgage loan pipeline at~~first 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 reason~~mortgage loan pipeline was $51 million at March 31, 2020. Due to the COVID-19 pandemic, loan origination volume has almost ceased, except for the reduction in the provision for loan losses of $2.4 million versus the same period last year was that loans declined by $42 million in the current period versus increased by $304 million in the comparable period of 2018.Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans.

The Corporation adopted CECL on January 1, 2020. The provision for credit losses of $2.4 million for the current quarter on a CECL basis increased $2.8 million when compared to the ($457,000) credit provision for the first quarter of 2019 on an incurred loss basis. The provision for the current quarter was mainly attributable to the COVID-19 pandemic. Also impacting the provision for the current quarter were net charge-offs offset by a decrease in outstanding loans. The credit provision for the 2019 quarter was driven by a decline in outstanding loans, a reduction in historical loss rates and a reduction in the level of watch list loans.

The increase in noninterest income of ~~$810,000, or 13.6%,~~$574,000 is primarily attributable to ~~a BOLI death benefit~~increases in ~~the first six months of 2018~~service charges on deposit accounts and ~~declines for the current six-month period in~~ the non-service cost components of the Bank’s defined benefit pension ~~plan and IMD income.~~plan. The growth in service charges on deposit accounts is mainly attributable to the positive impact of revenue enhancement initiatives which commenced in 2019.

Noninterest expense decreased ~~$664,000, or 2.2%,~~$277,000 versus the same period last year primarily because of ~~decreases~~declines in ~~salaries~~stock-based compensation expense and ~~employee benefits and marketing expenses,~~FDIC insurance expense, partially offset by increases in ~~technology~~salaries and ~~professional services fees. Management is committed~~certain employee benefits expense and an expense credit in the first quarter of 2019 related to ~~maintaining tight control over operating costs which should help to mitigate the downward pressure on earnings arising from the current interest rate environment.~~incentive compensation.

Income tax expense ~~increased $1.7 million~~decreased $695,000 and the effective tax rate ~~increased~~decreased from ~~11.2%~~17.7% to ~~16.9%~~15.2% when comparing the first ~~six months~~quarter of 2019 to the ~~same period last year. These increases~~current quarter.

Serving Customers. The Bank is focused on serving customers during the COVID-19 pandemic through loan modifications and lending under the SBA’s PPP. The Bank stands ready to make credit available to customers and the communities in which we operate and provide customers with access to their deposits through our branch network, ATMs and digital offerings.

Loan modifications are ~~primarily attributable~~evaluated on a case-by-case basis generally for borrowers that are current as to principal and interest. Loan modifications completed or in process through May 3, 2020 include the following, none of which were completed as of March 31, 2020:


Type of Modification	Number of Loans	Type of Loans	Balance at May 3, 2020
3 Month Deferral of Principal	281	Mainly Small Business Loans	$38 million
3 Month Deferral of Principal and Interest:	280	Residential Mortgages	$164 million
	123	Commercial Mortgages	$265 million
	22	Mainly C & I Loans	$9 million

Modified loans present an elevated level of credit risk to the ~~recognition~~Bank because they involve borrowers experiencing business or financial disruption as a result of ~~state and local net operating loss carryforwards and higher excess tax benefits from stock-based compensation~~the COVID-19 pandemic.

The Bank’s participation in the ~~2018 period and a decline~~SBA’s PPP for small business customers began in the ~~current period~~second quarter of ~~tax-exempt income from municipal securities~~2020 and ~~BOLI. The increase in income tax expense also reflects higher pretax earnings in the current six-month period~~includes approximately 700 loans totaling $175 million as ~~compared~~of May 3, 2020. PPP loans have a 1% rate of interest and 2-year term with fees paid to the ~~same period~~Bank by SBA ranging from 1% to 5% of ~~2018.~~each loan depending on the loan amount. Fees will be amortized as a yield adjustment. PPP loans will receive favorable regulatory capital treatment and are 100% guaranteed by the SBA.

We believe that our strong capital and liquidity positions, branch network, lending and deposit platforms and focus on internal controls and cybersecurity provide a solid foundation for serving customers during these challenging times. As an essential business, the Bank has continued to operate during the COVID-19 pandemic. The Bank has implemented alternative work arrangements as needed, such as work-from-home with remote access, and has instituted a series of operating and safety protocols through a pandemic committee to ensure business continuity and protect the health of customers and employees. The Bank is monitoring its liquidity position daily, which remains strong and stable, and maintains prudent loan underwriting standards. We maintain open communication with customers and continue to process daily transactions such as deposits and fund transfers. Our branches continue to serve customers, with varied service arrangements for health and safety reasons such as drive up-only, teller window-only, phone-only, ATM-only or a combination of these as circumstances warrant.

Asset Quality. The Bank’s allowance for loan losses to total loans (reserve coverage ratio) declined by 2 basis points from .94% at year-end 2018 to .92% at June 30, 2019. The provision (credit) for loan losses was ($35,000) and $2.3 million in the 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 period was driven mainly by loan growth offset by improved economic conditions, reductions in historical loss rates and growth rate trends.

The credit quality of the Bank’s loan and securities portfolios remains strong. Nonaccrual loans, troubled debt restructurings and loans past due 30 through 89 days all remain at ~~very~~ low levels.

The Bank’s allowance for credit losses to total loans (reserve coverage ratio) was 1.09% at March 31, 2020 as compared to .92% at December 31, 2019. The increase includes 9 basis points from the January 1, 2020 implementation of the CECL methodology and 8 basis points from the aforementioned first quarter 2020 provision for credit losses, net charge-offs and decrease in outstanding loans. The 9 basis point increase from the implementation of CECL reflects an increase in the ACL on January 1, 2020 of $2.9 million mainly due to higher historical losses on a CECL basis compared to the previous incurred loss methodology and the impact that reasonable and supportable forecasts have on the allowance under CECL.

Key ~~Strategic~~ Initiatives and Challenges We Face. The Bank’s strategy ~~remains~~is focused on increasing shareholder value through loan and deposit growth, ~~when conditions warrant and~~ the maintenance of strong credit quality, a strong efficiency ratio and an optimal amount of capital. ~~We continue to adjust overall balance sheet~~Key strategic initiatives in 2020 include enhancing our brand, highlighting our digital offerings, refining our branch strategy, building on our relationship banking business and ~~loan growth and capital levels in response to market conditions to optimize current results and best position~~growing fee income. All of these initiatives are currently being negatively impacted by 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, albeit at a slower 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.COVID-19 pandemic.

~~Notwithstanding the actions taken by management to mitigate the impact on earnings of the current interest rate environment,~~The Corporation’s profitability metrics, net interest income, ~~and~~ net interest margin and earnings all remain under pressure ~~and~~from the current low interest rate environment. These items could be negatively impacted even more by ~~further~~a 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 following: (1) rising funding costs that are not accompanied by similar increases in lending and investing rates, or (2) falling funding costs that are accompanied by equal or greater declines in availablelower reinvestment yields on securities and loans and securities. Management will continue to be measured and disciplined in its approach to deposit repricings and loan growth and will not meaningfully loosen its underwriting standards to improve net interest margin. Assuming no meaningful change inany additional deteriorating economic conditions caused by the ~~yield curve and upward pressure on deposit and borrowing costs continue, management believes that net interest margin for 2019 should approximate 2.55%.~~COVID-19 pandemic.

~~With respect to its lending activities,~~The COVID-19 pandemic creates substantial challenges for the Bank ~~will continue~~and its customers. Normal business activity and commerce have been significantly disrupted across the country including in the NYC metropolitan area which is the main market that the Bank serves. The disruptions include, among other things, widespread government mandated closure of nonessential businesses, school closures and stay-at-home orders to ~~prudently manage concentration and credit risk and maintain its broker and correspondent relationships. Commercial mortgage loans will be emphasized over residential mortgage loans because~~protect public health. During these challenging times, many of the ~~better yield~~Bank’s customers, which include small and ~~shorter duration that such mortgages generally provide. Small~~medium-sized businesses, professionals, consumers, municipalities and other organizations, may experience a significant decline in, or complete discontinuance of, business ~~credit scored loans, along with the Bank’s traditional commercial~~activity, earnings and ~~industrial loan products, will~~cash flow. For some this may be ~~originated~~temporary, but for other customers it could have a prolonged impact and may lead to diversify the Bank’s loan portfolio and help mitigate the impact on net interest margin of the 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.permanent business closure or job loss.

These challenges may result in higher drawdowns by customers on the Bank’s lending commitments and higher past due and nonaccrual loans, troubled debt restructurings and credit losses. The value of collateral supporting mortgage loans may be negatively impacted leading to a deterioration in the Bank’s loan-to-value ratios and increased risk of loss. In ~~June 2019, New York State (“NYS”) passed The Housing Stability~~addition, businesses, consumers and ~~Tenant Protection Act of 2019 (“TPA”). TPA represents~~municipalities facing cash flow problems may withdraw deposits at a ~~substantial change~~higher rate than in the past leading to greater deposit outflows from the ~~laws that have governed landlord-tenant relations~~Bank. Municipalities may experience financial stress from a decline in ~~NYC for decades~~tax revenue and ~~significantly strengthens tenant protections. Among other changes, TPA limits the ability of landlords to increase rents to recapture~~ the cost of ~~individual apartment~~responding to the pandemic, which may lead to a deterioration in the value of the Bank’s municipal securities portfolio. While the Federal government has responded to the COVID-19 pandemic in an aggressive manner to mitigate the negative impact on the economy, the 150 basis point decrease in the federal funds target rate during March increases the challenge of purchasing securities or originating loans at a reasonable margin.

All of the issues above, and others, exert downward pressure on the Bank’s earnings, profitability metrics, liquidity and capital and could negatively impact the Bank’s ability to grow its loan portfolio and deposits. The full impact of the pandemic on the Bank and our customers is beyond the Bank’s control and current knowledge and will ultimately be determined by the duration of the pandemic and the rate at which the local and national economies recover from the current business disruption and high level of unemployment.

2422

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 value of regulated buildings and may discourage developers from investing in new residential multifamily construction throughout NYS. This may lead to a weakening of the financial strength of some borrowers and deterioration in the value of certain collateral.

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



	Six Months Ended June 30,												Three Months Ended March 31,
	2019						2018						2020						2019
	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	$	25,253	$	300	2.40	%	$	30,322	$	255	1.70	%	$	30,077	$	82	1.10	%	$	24,800	$	146	2.39	%
Investment securities:
Taxable		368,572		7,668	4.16			340,633		4,955	2.91			342,661		3,344	3.90			374,124		3,899	4.17
Nontaxable (1)		416,006		7,653	3.68			466,366		8,696	3.73			380,173		3,247	3.42			418,898		3,915	3.74
Loans (1)		3,248,214		59,032	3.63			3,127,670		55,173	3.53			3,159,533		28,933	3.66			3,261,716		29,417	3.61
Total interest-earning assets		4,058,045		74,653	3.68			3,964,991		69,079	3.48			3,912,444		35,606	3.64			4,079,538		37,377	3.67
Allowance for loan losses		(30,501)						(35,138)
Allowance for credit losses														(32,110)						(30,892)
Net interest-earning assets		4,027,544						3,929,853						3,880,334						4,048,646
Cash and due from banks		36,252						36,685						34,362						36,673
Premises and equipment, net		41,217						40,145						39,932						41,310
Other assets		128,493						118,561						130,262						129,391
	$	4,233,506					$	4,125,244					$	4,084,890					$	4,256,020
Liabilities and Stockholders' Equity:
Savings, NOW & money market deposits	$	1,685,467		8,841	1.06		$	1,757,700		5,698	.65		$	1,710,761		4,280	1.01		$	1,642,349		4,000	.99
Time deposits		637,630		7,331	2.32			444,599		4,577	2.08			510,037		3,042	2.40			606,704		3,398	2.27
Total interest-bearing deposits		2,323,097		16,172	1.40			2,202,299		10,275	.94			2,220,798		7,322	1.33			2,249,053		7,398	1.33
Short-term borrowings		196,481		2,507	2.57			179,291		1,656	1.86			123,337		619	2.02			301,644		1,965	2.64
Long-term debt		362,461		3,675	2.04			431,985		4,278	2.00			399,340		1,995	2.01			355,706		1,780	2.03
Total interest-bearing liabilities		2,882,039		22,354	1.56			2,813,575		16,209	1.16			2,743,475		9,936	1.46			2,906,403		11,143	1.55
Checking deposits		931,942						935,753						918,044						931,625
Other liabilities		29,233						8,954						32,211						29,063
		3,843,214						3,758,282						3,693,730						3,867,091
Stockholders' equity		390,292						366,962						391,160						388,929
	$	4,233,506					$	4,125,244					$	4,084,890					$	4,256,020

Net interest income (1)			$	52,299					$	52,870					$	25,670					$	26,234
Net interest spread (1)					2.12	%					2.32	%					2.18	%					2.12	%
Net interest margin (1)					2.57	%					2.66	%					2.62	%					2.56	%

(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%.

2523

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



	Six Months Ended June 30,						Three Months Ended March 31,
	2019 Versus 2018						2020 Versus 2019
	Increase (decrease) due to changes in:						Increase (decrease) due to changes in:
					Net						Net
(in thousands)	Volume		Rate		Change
(in thousands)							Volume		Rate		Change
Interest Income:
Interest-earning bank balances	$	(47)	$	92	$	45	$	27	$	(91)	$	(64)
Investment securities:
Taxable		436		2,277		2,713		(314)		(241)		(555)
Nontaxable		(929)		(114)		(1,043)		(347)		(321)		(668)
Loans		2,219		1,640		3,859		(909)		425		(484)
Total interest income		1,679		3,895		5,574		(1,543)		(228)		(1,771)

Interest Expense:
Savings, NOW & money market deposits		(243)		3,386		3,143		182		98		280
Time deposits		2,170		584		2,754		(559)		203		(356)
Short-term borrowings		171		680		851		(968)		(378)		(1,346)
Long-term debt		(703)		100		(603)		218		(3)		215
Total interest expense		1,395		4,750		6,145		(1,127)		(80)		(1,207)
Increase (decrease) in net interest income	$	284	$	(855)	$	(571)
Decrease in net interest income							$	(416)	$	(148)	$	(564)

Net Interest Income

Net interest income on a tax-equivalent basis for the first ~~six months~~quarter of ~~2019~~2020 was ~~$52.3~~$25.7 million, a decrease of ~~$571,000,~~$564,000, or ~~1.1%~~2.1%, from ~~$52.9~~$26.2 million for the same period of ~~2018.~~2019. The decline in net interest income occurred ~~because of~~as yield curve flattening ~~followed by~~and inversion ~~and management’s resulting decision~~led management to slow loan and overall balance sheet growth. ~~Flattening~~The average balance of loans decreased $102.2 million, or 3.1%, and ~~inversion~~the average balance of investment securities declined $70.2 million, or 8.9%. Also contributing to the ~~yield curve occurred as increases~~decline in net interest income was a decrease in the ~~federal funds target rate were initially accompanied by lesser increases in intermediate~~average yield on the investment securities portfolio mainly due to prepayments 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 thelower 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, whilepurchases. Partially offsetting these items was an increase in the yield on loans, from 3.61% for the ~~loan portfolio only increased by 10~~first quarter of 2019 to 3.66% for the current quarter, and decreases in the average balance and rate on short-term borrowings of $178.3 million and 62 basis points, ~~and~~respectively. The five basis point increase in 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~~is primarily attributable to higher ~~yielding commercial mortgages.~~prepayment and late fees. The ~~improvement in yield on the securities portfolio largely resulted from restructuring~~average balance of ~~the taxable securities portfolio in 2018.~~short-term borrowings decreased as overnight and three-month FHLB advances were replaced with brokered deposits and long-term debt.

Net interest margin for the first ~~six months~~quarter of ~~2019~~2020 was ~~2.57%, down 9 basis points from 2.66%~~2.62% as compared to 2.56% for the ~~same~~first quarter of 2019. Excluding the impact of prepayment and late fees in each period, ~~last year. The decrease is 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~~for the ~~federal funds target rate, a pause by~~current quarter was up 3 basis points versus the ~~Federal Reserve or a decrease in~~first quarter of 2019. Due to 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.COVID-19 pandemic, loan origination volume has almost ceased, except for SBA PPP loans.

Management’s decision to slow loan growth resulted in modest growth of 3.9%, or $120.5 million, in the average balance of loans when comparing the current six-month period to the same period last year. Loan growth was funded by increases in the average balances of interest-bearing deposits of $120.8 million, or 5.5%, short-term borrowings of $17.2 million, or 9.6%, and stockholders’ equity of $23.3 million, or 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 the Bank’s ongoing municipal deposit initiative and the issuance of brokered CDs. The average balance of 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 Corporation’s Dividend Reinvestment and Stock Purchase Plan (“DRIP”) during the early part of 2018, partially offset by cash dividends declared and, beginning in December 2018, common stock repurchases.

Management ~~has been~~remains proactive in addressing the downward pressure on ~~net interest income, net interest margin and~~ earnings caused by the low interest rate environment, flat ~~and now inverted~~ yield curve and, more recently, the ~~low interest rate environment. Actions~~substantial economic impact arising from the COVID-19 pandemic. Steps taken ~~thus far include, among others:~~

by management include:

~~Reducing overall balance sheet growth by slowing loan growth~~Reduction in non-maturity and time deposit rates at the ~~related need for funding~~end of March 2020

~~Slowing~~Implementing revenue enhancement opportunities to increase the ~~pace~~level of ~~branch expansion~~

~~Changing the mix of loans being originated to higher yielding commercial mortgages from lower yielding residential mortgages~~

~~Restructuring the securities portfolio~~

~~Hedging a portion of short-term borrowings with interest rate swaps~~

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

Maintaining tight control over operating expenses

~~Focusing on improving~~Supporting customers during the ~~level of noninterest income~~

~~Using excess capital to repurchase common stock which improves EPS~~COVID-19 pandemic through loan modifications and ~~ROE~~SBA PPP lending

~~Thus far~~At March 31, 2020, approximately $102.7 million of corporate bonds had an unrealized loss of $16.3 million. The corporate bonds have a stated maturity of ten years and mature in 2019, total loans, assets and related funding, consisting of deposits and borrowings, have declined modestly and the 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 the year. Management continues to evaluate additional steps ~~that may be taken to mitigate the impact on earnings of the current~~2028. The bonds provide a fixed interest rate ~~environment including~~for a period of two years or three years and have a weighted average fixed rate yield of 5.14% at March 31, 2020, and then reset quarterly based on the ~~hiring~~ten year constant maturity swap rate. During the fourth quarters of ~~additional lenders~~2020 and 2021, corporate bonds with current fair values totaling $74.6 million and $28.1 million, respectively, will begin to ~~grow~~reprice on a quarterly basis. If the ~~commercial and industrial loan portfolio and related core funding.~~corporate bonds were to reprice at May 4, 2020, the weighted average floating rate yield would be approximately 0.82%.

Noninterest Income

Noninterest income includes service charges on deposit accounts, 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.

The ~~decrease~~increase in noninterest income of ~~$810,000,~~$574,000, or ~~13.6%~~23.5%, is primarily attributable to ~~a BOLI death benefit~~increases in ~~the first six months~~service charges on deposit accounts of ~~2018 of $565,000~~$282,000 and ~~declines in~~ the non-service cost components of the Bank’s defined benefit pension plan of $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$261,000. The growth in service charges on deposit accounts is mainly attributable to the positive impact of ~~$198,000 primarily related to higher overdraft and maintenance and activity charges. Based on information currently known, we believe~~revenue enhancement initiatives which commenced in 2019. It is anticipated that the ~~level of noninterest income in~~COVID-19 pandemic may negatively affect service charges on deposit accounts for the ~~first half of 2019 is representative~~remainder of the ~~amount that will~~pandemic. IMD income could also be ~~recognized~~negatively impacted by recent and potential future declines in ~~the second half of the year.~~equity markets.

Noninterest Expense

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

~~Noninterest expense decreased $664,000, or 2.2%, versus the same period last year primarily because of decreases~~The decrease in ~~salaries and employee benefits~~noninterest expense of ~~$733,000,~~$277,000, or ~~3.9%~~1.8%, ~~and marketing~~was mainly attributable to declines in stock-based compensation expense of ~~$510,000,~~$1.0 million and FDIC insurance expense of $306,000. These items were partially offset by an increase in ~~technology~~salaries and ~~professional services fees~~certain employee benefits expense of ~~$604,000.~~$448,000 and an expense credit of $309,000 in the first quarter of 2019 related to incentive compensation. The ~~decrease~~decline in stock-based compensation expense was mainly attributable to fewer awards granted in the current quarter due to executive retirements in 2019. The decline in FDIC insurance expense was due to an assessment credit received by the Bank during the current quarter. The increase in salaries and certain employee benefits ~~is largely~~expense was primarily attributable to ~~special salary-related accruals in~~market-related salary adjustments due to higher minimum wage laws, annual merit raises and 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~~hiring of ~~$300,000 for consulting fees.~~

middle market lenders, partially offset by executive retirements at the end of 2019. 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.~~economic environment.

Income Taxes

Income tax expense ~~increased $1.7 million~~decreased $695,000 and the effective tax rate ~~increased~~declined from ~~11.2%~~17.7% to ~~16.9%~~15.2% when comparing the first ~~six months~~quarter of 2019 to the same period last year. These increases are primarily attributable to the recognition of state and local net operating loss carryforwards and higher excess tax benefits from stock-based compensation in the 2018 period and a decline in the current ~~period of tax-exempt income from municipal securities and BOLI.~~quarter. The increase in income tax expense also reflects higher pretax earnings in the current six-month period as compared to the same period of 2018. Management expects the Corporation’s effective tax rate in the remaining quarters of this year to be approximately 17.0%.

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

~~Net income for the second quarter of 2019 was $10.7 million, representing an increase of $429,000, or 4.2%, over $10.3 million earned in the same quarter of last year. The increase~~decrease is primarily attributable to 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 $315,000. Included in other noninterest expense for the 2019 period is a decline in marketing expense of $385,000 which was substantially offset by the aforementioned expense for consulting fees of $300,000 in the second quarter of 2019. The variances in net interest income, provision for loan losses, service charges on deposit accounts and salaries and employee benefits occurred for substantially the same reasons discussed above with respect to the six-month periods. The 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 due to 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~~pre-tax income derived from tax-exempt municipal securities and ~~BOLI.~~

~~Net interest margin for~~BOLI in 2020. The decrease in income tax expense also reflects lower pre-tax earnings in the ~~second~~current quarter ~~of 2019 was 2.58%~~ as compared to ~~2.61% for~~ the same quarter 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 increases driven by competitive pressure and the Bank’s desire to retain deposits.2019 quarter.

Application of Critical Accounting Policies

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported asset and liability balances and revenue and expense amounts. Our determination of the ~~allowance for loan losses~~ACL is a critical accounting estimate because it is based on our subjective evaluation of a variety of factors at a specific point in time and involves difficult and complex judgments about current and future 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~~ACL and thereby materially impact, either positively or negatively, the Bank’s results of operations.

The Bank’s Allowance for ~~Loan and Lease~~Credit Losses Committee (“~~ALLL~~ACL 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~~ACL after considering, among other things, the results of credit reviews performed by the Bank’s independent loan review ~~consultants~~function and the Bank’s credit department. In addition, and in consultation with the Bank’s Chief Financial Officer and Chief Risk Officer, the ~~ALLL~~ACL 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~~ACL 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 (“OCC”), whose safety and soundness examination includes a determination as to the adequacy of the allowance to absorb ~~probable incurred~~current expected credit losses.

The ~~first step~~ACL is a valuation amount that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the Bank’s loan portfolio. The allowance is established through provisions for credit losses charged against income. When available information confirms that specific loans, or portions thereof, are uncollectible, these amounts are charged against the ACL, and subsequent recoveries, if any, are credited to the allowance.

Management estimates the ACL balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical loss information from the Bank’s own loan portfolio has been compiled since December 31, 2007 and generally provides a starting point for management’s assessment of expected credit losses. A historical look-back period that begins in ~~determining~~2007 covers an entire economic cycle and impacts the ~~allowance~~average historical loss rates used to calculate the final ACL. Adjustments to historical loss information are made for ~~loan~~differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term as well as for current and potential future changes over a one year to two year forecasting horizon in economic conditions, such as unemployment rates, vacancy rates, property values or other relevant factors. The immediate reversion method is applied for periods beyond the forecasting horizon. The ACL is an amount

that management currently believes will be adequate to absorb expected lifetime losses ~~is to identify loans~~ in the Bank’s loan portfolio. The process for estimating credit losses and determining the ACL as of any balance sheet date is subjective in nature and requires material estimates and judgements. Actual results could differ significantly from those estimates.

The ACL is measured on a collective (pool) basis when similar risk characteristics exist. Management segregates its loan portfolio into ten distinct pools: (1) commercial and industrial; (2) small business credit scored; (3) multifamily; (4) owner-occupied; (5) other commercial real estate; (6) construction and land development; (7) residential mortgage; (8) revolving home equity; (9) consumer; and (10) municipal loans. The vintage method is applied to measure the historical loss component of lifetime credit losses inherent in most of its loan pools. For the revolving home equity and small business credit scored pools, the migration method was selected to measure historical losses. Management believes that ~~are individually deemed~~the methods selected fairly reflect the historical loss component of expected losses inherent in the Bank’s loan portfolio. However, since future losses could vary significantly from those experienced in the past, on a quarterly basis management adjusts its historical loss experience to ~~be impaired~~reflect current conditions and reasonable and supportable forecasts. In doing so, management considers a variety of general qualitative and quantitative factors and then ~~measure impairment~~subjectively determines the weight to assign to each in estimating losses. The factors include, among others: (1) changes in lending policies and procedures; (2) experience, ability and depth of lending staff; (3) trends in the nature and volume of loans; (4) changes in the quality of the loan review function; (5) delinquencies; (6) environmental risks; (7) current and forecasted economic conditions as judged by things such as national and local unemployment levels and GDP; (8) changes in the value of underlying collateral as judged by things such as median home prices and forecasted vacancy rates in the Bank’s service area; and (9) direction and magnitude of changes in the economy. The Bank’s ACL allocable to its loan pools results primarily from these qualitative and quantitative adjustments to historical loss experience. Because of the nature of the qualitative factors and the difficulty in assessing their impact, management’s resulting estimate of losses may not accurately reflect lifetime losses in the portfolio.

Loans that do not share similar risk characteristics are evaluated on an individual basis. Such disparate risk characteristics may include internal or external credit ratings, risk ratings, collateral type, size of loan, effective interest rate, term, geographic location, industry or historical or expected loss pattern. Estimated losses for loans individually evaluated are based on either the fair value of collateral or the discounted value of expected future cash flows. For all collateral dependent loans evaluated on an individual basis, credit losses are measured based on the fair value of the collateral. In estimating the fair value of real estate collateral, management utilizes appraisals or evaluations adjusted for costs to dispose and a distressed sale adjustment, if needed. Estimating the fair value of collateral other than real estate is also subjective in nature and sometimes requires difficult and complex 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. Individually evaluated loans are not included in the estimation of credit losses from the pooled portfolio.

~~In addition to estimating losses~~Troubled debt restructurings are individually evaluated for ~~loans individually deemed~~loss and generally reported at the present value of estimated future cash flows using the loan’s effective rate at inception. However, if a troubled debt restructuring is considered 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 monthsa collateral dependent loan, the loan is ~~generally~~reported at 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 infair 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.collateral.

2826

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.



	June 30,		December 31,		March 31,		December 31,
(dollars in thousands)	2019		2018		2020		2019
Nonaccrual loans:
Troubled debt restructurings	$	469	$	472	$	463	$	465
Other		2,260		1,663		4,378		423
Total nonaccrual loans		2,729		2,135		4,841		888
Loans past due 90 days or more and still accruing		—		—		—		—
Other real estate owned		—		—		—		—
Total nonperforming assets		2,729		2,135		4,841		888
Troubled debt restructurings - performing		1,119		1,289		902		1,070
Total risk elements	$	3,848	$	3,424	$	5,743	$	1,958

Nonaccrual loans as a percentage of total loans		.08%		.07%		.15%		.03%
Nonperforming assets as a percentage of total loans and other real estate owned		.08%		.07%		.15%		.03%
Risk elements as a percentage of total loans and other real estate owned		.12%		.10%		.18%		.06%

In addition to the Bank’s past due, nonaccrual and restructured loans, the disclosure of other potential problem loans can be found in “Note 54 – Loans” to the Corporation’s consolidated financial statements of this Form 10-Q.

During the second quarter of 2020, the Bank modified approximately $476 million of loans through May 3, 2020 as a result of the COVID-19 pandemic. Under the guidance issued by FASB and federal banking agencies, these are not considered troubled debt restructurings, however, modified loans present an elevated level of credit risk to the Bank because they involve borrowers experiencing business or financial disruption as a result of the pandemic. See “Serving Customers” in the MD&A section of this Form 10-Q for further details.

Allowance and Provision for ~~Loan~~Credit Losses

The ~~allowance for loan losses~~ACL is established through provisions for ~~loan~~credit 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,~~ACL, and subsequent recoveries, if any, are credited to the ~~allowance for loan losses.~~ACL.

~~The~~On January 1, 2020, the Bank recorded a $2.9 million credit to the allowance for ~~loan~~credit losses ~~decreased $1.1~~to establish the ACL beginning balance of $32.2 million, ~~during~~or 1.01% of total loans, using the ~~first half of 2019,~~CECL methodology. The ACL increased $1.9 million from January 1, 2020 to March 31, 2020, amounting to ~~$29.8~~$34.1 million, or 1.09% of total loans, at March 31, 2020 compared to $29.3 million, or .92% of total loans, ~~at June 30, 2019 compared to $30.8 million, or .94% of total loans~~on an incurred loss basis at December 31, ~~2018.~~2019. During the first ~~six months~~quarter of 2020, the Bank had loan chargeoffs of $619,000, recoveries of $189,000 and recorded a provision for credit losses of $2.4 million. During the first quarter of 2019, the Bank had loan chargeoffs of ~~$1.0 million,~~$188,000, recoveries of ~~$12,000~~$6,000 and recorded a credit provision for loan losses of ~~$35,000. During~~$457,000. The provision in the ~~first half of 2018,~~current quarter was mainly attributable to the ~~Bank had loan chargeoffs of $373,000, recoveries of $106,000 and recorded a provision for loan losses of $2.3 million.~~COVID-19 pandemic. The credit provision in the ~~current~~2019 period was driven mainly by ~~declines~~a decline in outstanding loans, ~~and historical loss rates partially offset by net chargeoffs. The provision in the 2018 period was driven mainly by loan growth offset by improved economic conditions, reductions~~a reduction in historical loss rates and ~~growth rate trends.~~a reduction in the level of watch list loans.

The ~~allowance for loan losses~~ACL is an amount that management currently believes will be adequate to absorb ~~probable incurred~~expected lifetime losses in the Bank’s loan portfolio. As more fully discussed in “Application of Critical Accounting Policies,” the process for estimating credit losses and determining the ~~allowance for loan losses~~ACL as of any balance sheet date is subjective in nature and requires material ~~estimates.~~estimates and judgements. Actual results could differ significantly from those estimates. Other detailed information on the Bank’s ~~allowance for~~ loan ~~losses, impaired loans~~portfolio and ~~the aging of loans~~ACL can be found in “Note 54 – Loans” to the Corporation’s consolidated financial statements included in this Form 10-Q.

The amount of future chargeoffs and provisions for ~~loan~~credit losses will be affected by, among other things, economic conditions on Long Island and in NYC. Such conditions could affect the financial strength of the Bank’s borrowers and will affect the value of real estate collateral securing the Bank’s mortgage loans. Loans secured by real estate represent approximately ~~97%~~96% of the Bank’s total loans outstanding at ~~June 30, 2019.~~March 31, 2020. The majority of these loans were collateralized by properties located on Long Island and in the boroughs of NYC.

Economic conditions have deteriorated substantially as a result of the COVID-19 pandemic. The full impact of the pandemic on the Bank and our customers is beyond the Bank’s control and current knowledge and will ultimately be determined by the duration

2927

of the pandemic and the rate at which the local and national economies recover from the current business disruption and high level of unemployment. See “Risk Factors” in Item 1A of this Form 10-Q.

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

Cash Flows and Liquidity

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

The Corporation’s cash and cash equivalent position at ~~June 30, 2019~~March 31, 2020 was ~~$69.2~~$120.2 million, up from ~~$47.4~~$39.0 million at December 31, ~~2018.~~2019. The increase occurred primarily because cash provided by deposit growth, paydowns or repayments of securities and loans and operations exceeded the cash used to repay borrowings, repurchase common stock and pay cash dividends.

Securities decreased ~~$20.2~~$18.1 million during the first ~~half~~quarter of ~~2019,~~2020, from ~~$763.5~~$697.5 million at year-end ~~2018~~2019 to ~~$743.3~~$679.5 million at ~~June 30, 2019.~~March 31, 2020. The decrease is primarily attributable to maturities and redemptions of ~~$54.0 million, partially offset by purchases of~~ $18.8 million and ~~an increase~~a decrease in the market value of available-for-sale securities of ~~$15.6~~$8.9 million, partially offset by purchases of $9.9 million.

During the first ~~half~~quarter of ~~2019,~~2020, total deposits grew ~~$228.6~~$29.8 million, or ~~7.4%~~.9%, to ~~$3.3~~$3.2 billion at ~~June 30, 2019.~~March 31, 2020. The increase was attributable to growth in checking deposits of $61.4 million and time deposits of $6.7 million, partially offset by a decrease in savings, NOW and money market deposits of ~~$126.1 million, or 7.9%, and time deposits of $105.6~~$38.2 million. The growth in deposits is largely attributable to the Bank’s ongoing municipal deposit ~~initiative, deposit promotions and the issuance of $200 million of brokered CDs during the first six months of 2019.~~initiative.

Substantially all of the Bank’s borrowings are from the FHLB. Total borrowings decreased ~~$289.3~~$15.1 million during the first ~~six months~~quarter of ~~2019. The decrease is primarily due~~2020. Short-term borrowings were mostly replaced with long-term debt as interest rates continued to ~~a reduction~~decline in ~~short-term borrowings~~the first quarter of ~~$287.8 million as the Bank shifted from FHLB advances to brokered CDs to lower funding costs.~~2020. Long-term debt ~~totaled $360.5 million~~ at ~~June 30, 2019, representing 78%~~March 31, 2020 represented 88.2% of total borrowings. The Bank’s long-term fixed-rate borrowing position, time deposits and pay-fixed interest rate 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 overnight investments, maturities and monthly payments on its investment securities and loan portfolios, operations and investment securities designated as available-for-sale. At ~~June 30, 2019,~~March 31, 2020, the Bank had approximately ~~$199.9~~$160.9 million of unencumbered available-for-sale securities.

The Bank is a member of the 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, the Bank’s primary external sources of liquidity are secured borrowings from the FRB of New York and FHLB of New York. ~~The~~In addition, the Bank can ~~also~~ purchase overnight federal funds under its existing ~~line.~~line and the Corporation can raise funds through its Dividend Reinvestment and Stock Purchase Plan. 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 ~~$1.5~~$1.4 billion at ~~June 30, 2019.~~March 31, 2020.

Capital

Stockholders’ equity ~~totaled $391.4~~was $376.2 million at ~~June 30, 2019, an increase of $3.3 million from $388.2~~March 31, 2020 versus $389.1 million at December 31, ~~2018.~~2019. The ~~increase resulted primarily~~decrease was mainly due to cash dividends declared of $4.3 million, common stock repurchases of $5.9 million, a charge to retained earnings from ~~net income~~the adoption of ~~$21.6~~ASU 2016-13 of $2.3 million, and ~~an increase~~decreases in the after-tax value of available-for-sale securities of ~~$10.9~~$6.2 million and derivative instruments of $2.6 million. These items were partially offset by net income of $9.1 million. The $6.2 million decrease in the ~~repurchase~~after-tax value of ~~915,100~~available-for-sale securities was mainly due to a widening of credit spreads at quarter-end in the Bank’s corporate bond portfolio. The decline in book value per share, from $16.26 at December 31, 2019 to $15.80 at March 31, 2020, was due to the decrease in stockholders’ equity noted above, partially offset by a decrease in shares ofoutstanding during the ~~Corporation’s~~quarter mainly as a result of common stock ~~at a total cost of $20.6 million and cash dividends declared of $8.4 million.~~

repurchases.

3028

In September 2019, the federal banking agencies, including the OCC and FRB, adopted a new rule to provide an optional, simplified measure of capital adequacy, the Community Bank Leverage Ratio (“CBLR”) framework, for qualifying community banking organizations. Under the rule, insured depository institutions and holding companies with less than $10 billion of total consolidated assets that meet certain qualifying criteria, such as a CBLR greater than 9.00% percent, may elect to use the new framework. On January 1, 2020, the CBLR final rule became effective, and management elected to adopt the alternative framework. As a qualifying community banking organization, the Corporation and the Bank may opt out of the CBLR framework in any subsequent quarter by completing its regulatory agency reporting using the traditional capital rules. By satisfying the CBLR, the Corporation and the Bank are deemed in compliance with all regulatory capital requirements, including the risk-based capital requirements, and are considered well-capitalized under the Prompt Corrective Action framework.

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~~Leverage Ratios of the Corporation and the Bank at ~~June 30, 2019 are as follows:~~

Corporation
Bank
Tier 1 leverage
9.31%
9.17%
Common equity tier 1 risk-based
14.92%
14.69%
Tier 1 risk-based
14.92%
14.69%
Total risk-based
16.05%
15.83%

March 31, 2020 were 9.48% and 9.36%, respectively. The Corporation and the Bank ~~exceeded~~elected the ~~Basel III minimum~~optional five-year transition period provided by the federal banking agencies for recognizing the regulatory capital ~~adequacy requirements, including~~impact of the ~~fully phased-in capital conservation buffer~~implementation of ~~2.50%,~~CECL. The strength of the Corporation’s balance sheet positions the Corporation for lending and ~~the Bank was well capitalized under the FDIC’s prompt corrective action provisions at June 30, 2019.~~growth.

~~The deliberate slowing~~On April 6, 2020, the federal banking agencies issued interim final rules pursuant to section 4012 of ~~balance sheet growth has eliminated~~ the ~~need~~Coronavirus Aid, Relief, and Economic Security Act (“Cares Act”), temporarily lowering the CBLR requirement to ~~raise capital through the Corporation’s DRIP or otherwise. As a result,~~8.00% effective with the ~~cash dividend paid~~second quarter of 2020 through the end of 2020 and to 8.50% for calendar year 2021. The CBLR requirement will return to 9.00% in March 2019, the Corporation notified shareholders that the optional quarterly cash purchase feature of its DRIP is currently unavailable. This change eliminates the 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 the DRIP remains available to shareholders.2022.

~~In October 2018,~~During the ~~Corporation’s Board~~first quarter of ~~Directors approved a stock repurchase program for~~2020, the Corporation repurchased 261,700 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~~$5.9 million. Total repurchases completed since the commencement of the program amount to 2,025,100 shares at a cost of $45.6 million. Management does not expect to repurchase any additional shares in 2020 due to the economic uncertainty surrounding the COVID-19 pandemic and banking regulations regarding the amount of dividends a Bank can declare relative to its retained net income for the current year combined with the previous two calendar years.

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~~utilizing various interest rate change scenarios, including both ramped and ~~shock~~shocked changes ~~and~~as well as changes in the shape of the yield ~~curve; and (2) a most likely balance sheet growth scenario and these same interest rate change scenarios.~~curve. 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, ~~inclusive of~~including 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~~nonmaturity 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 ~~June 30, 2019~~March 31, 2020 arrived at by discounting estimated future cash flows at rates that management believes are reflective of current market ~~conditions~~conditions; and (2) an estimate of net interest income for the year ending ~~June 30, 2020~~March 31, 2021 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~~is intended to substantially reflect the Bank’s strategic plan. In addition, in calculating EVE, cash flows for ~~non-maturity~~nonmaturity deposits are assumed to have an overall life of ~~6.4~~6.6 years based on the current mix of such deposits and the most recently updated ~~non-maturity~~nonmaturity deposit study.

The rate change information in the following table shows estimates of net interest income for the year ending ~~June 30, 2020~~March 31, 2021 and calculations of EVE at ~~June 30, 2019~~March 31, 2020 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: (1) are assumed to be shock or immediate changes for both EVE and net interest ~~income,~~income; (2) occur uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and ~~liabilities,~~liabilities; and (3) impact the repricing and reinvestment of all assets and liabilities, except ~~non-maturity~~nonmaturity 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~~is intended to substantially reflect 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 June 30, 2019			Year Ending June 30, 2020			at March 31, 2020			Year Ending March 31, 2021
			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	$	538,454	-13.8%	$	87,224	-14.1%	$	572,430	-6.0%	$	94,745	-5.4%
+ 200 basis point rate shock		574,339	-8.1%		92,405	-9.0%		597,060	-1.9%		97,044	-3.1%
+ 100 basis point rate shock		606,881	-2.9%		97,497	-4.0%		613,585	0.8%		98,943	-1.2%
Base case (no rate change)		624,791	—		101,553	—		608,762	—		100,152	—
- 100 basis point rate shock		608,058	-2.7%		104,827	3.2%		516,364	-15.2%		103,759	3.6%
- 200 basis point rate shock		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 ~~June 30, 2020~~March 31, 2021 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 may be able to further 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~~credit 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~~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. In addition, the COVID-19 pandemic is having an adverse impact on the Corporation, its customers and the communities it serves. The adverse effect of the COVID-19 pandemic on the Corporation, its customers and the communities where it operates may adversely affect the Corporation’s business, results of operations and financial condition for an indefinite period of time. 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, ~~2018,~~2019, in Part I under “Item 1A. Risk 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,~~Christopher Becker, and Principal Financial Officer, ~~Mark D. Curtis,~~Jay P. McConie, 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~~While the adoption of CECL resulted in new policies and procedures and introduced new controls over items such as the review of economic forecasting projections, the internal controls for CECL are substantially similar to the internal controls used under GAAP for the allowance for loan losses. As a result, there were no changes in internal control over financial reporting that occurred during the ~~second~~first quarter of ~~2019~~2020 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

The ~~following Risk Factor is being provided hereby as an addition to those Risk Factors listed in Item 1A. of Part 1~~Economic Impact of the ~~Company’s Annual Report on Form 10-K for the year ended December 31, 2018.~~COVID-19 Outbreak Has Adversely Affected, and is Likely to Continue to Adversely Affect, Our Business and Results of Operations

~~The performance~~In December 2019, a novel coronavirus was reported in China, and, in March 2020, the World Health Organization declared COVID-19 a pandemic. On March 12, 2020 the President of the ~~Bank’s multi-family real estate loans could be adversely impacted~~United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments, including New York, have ordered non-essential businesses to close and residents to shelter in place. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 outbreak, more than 33 million people nationwide have filed claims for unemployment, and stock markets have declined in value and in particular bank stocks have significantly declined in value. In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently-passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. In particular, the spread of the coronavirus has caused the Corporation to modify business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. The Corporation has

many employees working remotely and may take further actions required by ~~recent regulation.~~government authorities or that the Corporation determines are in the best interest of its employees, customers and business partners.

~~Multi-family~~Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including the extent to which the coronavirus can be controlled and abated and when and how the economy may be reopened. As a result of the COVID-19 pandemic and the related adverse local and national economic consequences, we may be subject to the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

demand for our products and services may decline, making it difficult to grow assets and income;

if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

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

our ACL may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect net income;

the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments;

as the result of the decline in the Federal Reserve Board’s federal funds target rate to near 0%, the yield on our assets may decline to a greater ~~risk~~extent than ~~residential real estate loans because~~the decline in the cost of ~~legislation~~interest-bearing liabilities, reducing net interest margin, spread and ~~government regulations involving rent control~~net income;

a material decrease in net income or a net loss over several quarters could negatively impact our quarterly cash dividend;

cyber security risks are increased as the result of an increase in the number of employees working remotely; and ~~rent stabilization, which are outside~~

we rely on third party vendors for certain services and the ~~control~~unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on our operations.

Moreover, the Corporation’s future success and profitability substantially depends on its executive officers and directors, many of whom have held positions with the Corporation for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm the Corporation’s ability to execute its business strategy. The Corporation may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability. Any one or a combination of the ~~borrower or~~factors identified above could negatively impact the ~~Bank~~Corporation’s business, financial condition and ~~could impair the value~~results 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 decadesoperations 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.prospects.

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

(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~~first quarter of ~~2019~~2020 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



				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)
January 2020	—		—	—		$25,288,940
February 2020	202,300		$23.09	202,300		$20,618,746
March 2020	59,400		$21.32	59,400		$19,352,167

(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~~2019. On January 30, 2020, the Board of Directors approved an additional $15 million in stock repurchases, which was announced on January 31, 2020, for a total program size of ~~$50~~$65 million. The Corporation’s stock repurchase program does not have a fixed expiration date.

During the first quarter of 2020, the Corporation repurchased 261,700 shares of its common stock at a total cost of $5.9 million. Total repurchases completed since the commencement of the program amount to 2,025,100 shares at a cost of $45.6 million. Management does not expect to repurchase any additional shares in 2020 due to the economic uncertainty surrounding the COVID-19 pandemic and banking regulations regarding the amount of dividends a Bank can declare relative to its retained net income for the current year combined with the previous two calendar years.

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.

‎

3433

INDEX OF EXHIBITS


Exhibit No.	Description of Exhibit
~~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 ~~June 30, 2019,~~March 31, 2020, formatted in ~~XBRL (Extensible~~iXBRL (Inline 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.
104	Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)

3534

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.


	THE FIRST OF LONG ISLAND CORPORATION
	(Registrant)

Dated: ~~August 9, 2019~~May 11, 2020	By /s/ ~~MICHAEL N. VITTORIO~~CHRISTOPHER BECKER
	~~MICHAEL N. VITTORIO,~~Christopher Becker, President & Chief Executive Officer
	(principal executive officer)

	By /s/ ~~MARK D. CURTIS~~JAY P. MCCONIE
	~~MARK D. CURTIS, Senior~~Jay P. McConie, Executive Vice President, Chief
	Financial Officer & Treasurer
	(principal financial officer)

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

3635



	Six Months Ended June 30, 2018
								Accumulated
								Other
	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
Net income							21,426				21,426
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	(25,735)		(3)		(730)						(733)
Common stock issued under
stock compensation plans	118,900		12		172						184
Common stock issued under
dividend reinvestment and
stock purchase plan	591,781		59		15,795						15,854
Stock-based compensation					1,261						1,261
Cash dividends declared							(7,571)				(7,571)
Balance, June 30, 2018	25,353,336	$	2,535	$	143,620	$	238,447	$	(10,363)	$	374,239



(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



	Corporation	Bank
Tier 1 leverage	9.31%	9.17%
Common equity tier 1 risk-based	14.92%	14.69%
Tier 1 risk-based	14.92%	14.69%
Total risk-based	16.05%	15.83%