flic-20210630x10q

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, 2021

[ ] 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, $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 x
Non-Accelerated Filer ¨	Emerging Growth Company ¨
Smaller Reporting Company ¨

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

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

Yes ¨ No x

As of July 31, 2021, the registrant had 23,705,750 shares of common stock, $0.10 par value per share, outstanding.

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets	1
	Consolidated Statements of Income	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Statements of Changes in Stockholders’ Equity	4
	Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	28
ITEM 4.	Controls and Procedures	29
PART II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings	30
ITEM 1A.	Risk Factors	30
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
ITEM 3.	Defaults Upon Senior Securities	30
ITEM 4.	Mine Safety Disclosures	30
ITEM 5.	Other Information	30
ITEM 6.	Exhibits	30
	Signatures	32

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (UNAUDITED)



	June 30,		December 31,
(dollars in thousands)	2021		2020
Assets:
Cash and cash equivalents	$	191,002	$	211,182
Investment securities available-for-sale, at fair value		806,198		662,722

Loans:
Commercial and industrial		84,813		100,015
SBA Paycheck Protection Program		94,309		139,487
Secured by real estate:
Commercial mortgages		1,479,244		1,421,071
Residential mortgages		1,244,439		1,316,727
Home equity lines		49,693		54,005
Consumer and other		907		2,149
		2,953,405		3,033,454
Allowance for credit losses		(30,968)		(33,037)
		2,922,437		3,000,417

Restricted stock, at cost		19,901		20,814
Bank premises and equipment, net		37,646		38,830
Right-of-use asset - operating leases		11,176		12,212
Bank-owned life insurance		86,602		85,432
Pension plan assets, net		20,273		20,109
Deferred income tax benefit		434		1,375
Other assets		15,112		16,048
	$	4,110,781	$	4,069,141
Liabilities:
Deposits:
Checking	$	1,318,941	$	1,208,073
Savings, NOW and money market		1,833,590		1,679,161
Time		231,042		434,354
		3,383,573		3,321,588

Short-term borrowings		55,000		60,095
Long-term debt		226,002		246,002
Operating lease liability		11,998		13,046
Accrued expenses and other liabilities		17,564		21,292
		3,694,137		3,662,023
Stockholders' Equity:
Common stock, par value $0.10 per share:
Authorized, 80,000,000 shares;
Issued and outstanding, 23,695,017 and 23,790,589 shares		2,370		2,379
Surplus		102,636		105,547
Retained earnings		309,256		295,622
		414,262		403,548
Accumulated other comprehensive income, net of tax		2,382		3,570
		416,644		407,118
	$	4,110,781	$	4,069,141

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)



	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands, except per share data)	2021		2020		2021		2020
Interest and dividend income:
Loans	$	53,456	$	56,888	$	26,750	$	27,957
Investment securities:
Taxable		4,078		6,749		2,245		3,323
Nontaxable		4,462		5,066		2,214		2,501
		61,996		68,703		31,209		33,781
Interest expense:
Savings, NOW and money market deposits		2,260		6,639		1,194		2,359
Time deposits		3,897		5,928		1,593		2,886
Short-term borrowings		700		885		350		266
Long-term debt		2,311		4,157		1,146		2,162
		9,168		17,609		4,283		7,673
Net interest income		52,828		51,094		26,926		26,108
Provision (credit) for credit losses		(1,609)		2,450		(623)		92
Net interest income after provision (credit) for credit losses		54,437		48,644		27,549		26,016

Noninterest income:
Investment services income		791		1,067		317		519
Service charges on deposit accounts		1,418		1,606		735		619
Net gains on sales of securities		606		—		—		—
Other		3,544		2,916		1,775		1,433
		6,359		5,589		2,827		2,571
Noninterest expense:
Salaries and employee benefits		19,915		18,913		9,845		9,639
Occupancy and equipment		6,344		6,133		3,067		3,061
Other		6,019		5,472		2,917		2,960
		32,278		30,518		15,829		15,660
Income before income taxes		28,518		23,715		14,547		12,927

Income tax expense		5,863		3,808		3,159		2,168
Net income	$	22,655	$	19,907	$	11,388	$	10,759

Weighted average:
Common shares		23,758,398		23,871,245		23,735,723		23,838,224
Dilutive stock options and restricted stock units		89,776		39,135		96,060		23,638
		23,848,174		23,910,380		23,831,783		23,861,862
Earnings per share:
Basic		$0.95		$0.83		$0.48		$0.45
Diluted		0.95		0.83		0.48		0.45

Cash dividends declared per share		0.38		0.36		0.19		0.18

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



	Six Months Ended June 30,				Three Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Net income	$	22,655	$	19,907	$	11,388	$	10,759
Other comprehensive income (loss):
Change in net unrealized holding gains on ‎ available-for-sale securities		(4,120)		(408)		3,747		8,442
Change in net unrealized loss on derivative instruments		2,500		(3,402)		886		362
Other comprehensive income (loss) before income taxes		(1,620)		(3,810)		4,633		8,804
Income tax benefit		(432)		(1,142)		1,426		2,636
Other comprehensive income (loss)		(1,188)		(2,668)		3,207		6,168
Comprehensive income	$	21,467	$	17,239	$	14,595	$	16,927

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)



	Six Months Ended June 30, 2021
								Accumulated
								Other
	Common Stock					Retained		Comprehensive
(dollars in thousands)	Shares	Amount		Surplus		Earnings		Income (Loss)		Total
Balance, January 1, 2021	23,790,589	$	2,379	$	105,547	$	295,622	$	3,570	$	407,118
Net income							11,267				11,267
Other comprehensive loss									(4,395)		(4,395)
Repurchase of common stock	(107,887)		(11)		(1,989)						(2,000)
Shares withheld upon the vesting
and conversion of RSUs	(16,918)		(2)		(318)						(320)
Common stock issued under
stock compensation plans	94,627		10		152						162
Common stock issued under
dividend reinvestment and
stock purchase plan	22,341		2		416						418
Stock-based compensation					390						390
Cash dividends declared							(4,518)				(4,518)
Balance, March 31, 2021	23,782,752		2,378		104,198		302,371		(825)		408,122
Net income							11,388				11,388
Other comprehensive income									3,207		3,207
Repurchase of common stock	(92,533)		(9)		(2,091)						(2,100)
Shares withheld upon the vesting
and conversion of RSUs	(1,431)				(31)						(31)
Common stock issued under
stock compensation plans	6,229		1		35						36
Stock-based compensation					525						525
Cash dividends declared							(4,503)				(4,503)
Balance, June 30, 2021	23,695,017	$	2,370	$	102,636	$	309,256	$	2,382	$	416,644

‎



	Six Months Ended June 30, 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 at March 31, 2020	23,806,901		2,381		105,156		276,913		(8,241)		376,209
Net income							10,759				10,759
Other comprehensive income									6,168		6,168
Common stock issued under
stock compensation plans	41,725		4		32						36
Stock-based compensation					859						859
Cash dividends declared							(4,293)				(4,293)
Balance, June 30, 2020	23,848,626	$	2,385	$	106,047	$	283,379	$	(2,073)	$	389,738

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Six Months Ended June 30,
(in thousands)	2021		2020
Cash Flows From Operating Activities:
Net income	$	22,655	$	19,907
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for credit losses		(1,609)		2,450
Provision (credit) for deferred income taxes		1,373		(1,407)
Depreciation and amortization of premises and equipment		2,062		2,081
Amortization of right-of-use asset - operating leases		1,036		1,091
Premium amortization on investment securities, net		1,178		690
Net gains on sales of securities		(606)		—
Stock-based compensation expense		915		1,110
Accretion of cash surrender value on bank-owned life insurance		(1,170)		(1,132)
Pension credit		(164)		(131)
Decrease in other liabilities		(2,260)		(5,098)
Other decreases (increases) in assets		1,032		(3,488)
Net cash provided by operating activities		24,442		16,073
Cash Flows From Investing Activities:
Available-for-sale securities:
Proceeds from sales		54,192		—
Proceeds from maturities and redemptions		65,648		54,761
Purchases		(268,008)		(106,347)
Net decrease in loans		79,589		35,212
Net decrease in restricted stock		913		1,356
Purchases of premises and equipment, net		(909)		(1,527)
Net cash used in investing activities		(68,575)		(16,545)
Cash Flows From Financing Activities:
Net increase in deposits		61,985		178,906
Net decrease in short-term borrowings		(5,095)		(130,691)
Proceeds from long-term debt		—		120,000
Repayment of long-term debt		(20,000)		(17,500)
Proceeds from issuance of common stock, net of shares withheld		200		(940)
Repurchase of common stock		(4,100)		(5,937)
Cash dividends paid		(9,037)		(8,594)
Net cash provided by financing activities		23,953		135,244
Net increase (decrease) in cash and cash equivalents		(20,180)		134,772
Cash and cash equivalents, beginning of year		211,182		38,968
Cash and cash equivalents, end of period	$	191,002	$	173,740
Supplemental Cash Flow Disclosures:
Cash paid for:
Interest	$	9,654	$	17,644
Income taxes		4,759		4,427
Operating cash flows from operating leases		1,233		1,311
Noncash investing and financing activities:
Right-of-use assets obtained in exchange for operating lease liabilities		—		423
Cash dividends payable		4,502		4,293

See notes to unaudited consolidated financial statements

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1 - BASIS OF PRESENTATION

The accounting and reporting policies of The First of Long Island Corporation (“Corporation”) reflect banking industry practice and conform to generally accepted accounting principles (“GAAP”) in the United States.

The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, The First National Bank of Long Island (“Bank”). The Bank has two wholly owned subsidiaries: FNY Service Corp. 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, 2020.

The consolidated financial information included herein as of and for the periods ended June 30, 2021 and 2020 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, 2020 consolidated balance sheet was derived from the Corporation's December 31, 2020 audited consolidated financial statements. When appropriate, items in the prior year financial statements are reclassified to conform to the current period presentation.

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 (“pandemic”) on both the allowance and provision for credit losses, and changes in the financial condition of borrowers.

2 - COMPREHENSIVE INCOME

Comprehensive income includes net income and other comprehensive income (loss) (“OCI”). OCI includes revenues, expenses, gains and losses that under GAAP are included in comprehensive income but excluded from net income. OCI 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 OCI is recognized as a separate component of stockholders’ equity.

The components of OCI and the related tax effects are as follows:



	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020
Change in net unrealized holding gains (losses)
on available-for-sale securities:
Change arising during the period	$	(3,514)	$	(408)	$	3,747	$	8,442
Reclassification adjustment for gains included in net income (1)		(606)		—		—		—
		(4,120)		(408)		3,747		8,442
Tax effect		(1,158)		(121)		1,153		2,528
		(2,962)		(287)		2,594		5,914
Change in unrealized loss on derivative instrument:
Amount of gain (loss) during the period		267		(4,768)		(33)		(494)
Reclassification adjustment for net interest expense
included in net income (2)		2,233		1,366		919		856
		2,500		(3,402)		886		362
Tax effect		726		(1,021)		273		108
		1,774		(2,381)		613		254
Other comprehensive income (loss)	$	(1,188)	$	(2,668)	$	3,207	$	6,168

(1) Represents net realized gains arising from the sale of available-for-sale securities. These net gains are included in the consolidated statements of income in the line item “Net gains on sales of securities.”

(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 OCI, net of tax:



			Current
	Balance		Period		Balance
(in thousands)	12/31/20		Change		6/30/21
Unrealized holding gains on available-for-sale securities	$	9,425	$	(2,962)	$	6,463
Unrealized actuarial loss on pension plan		(2,153)		—		(2,153)
Unrealized loss on derivative instruments		(3,702)		1,774		(1,928)
Accumulated other comprehensive income, net of tax	$	3,570	$	(1,188)	$	2,382

3 - INVESTMENT SECURITIES

The following tables set forth the amortized cost and estimated fair values of the Bank’s investment securities, all of which were available-for-sale. There was no allowance for credit losses associated with the investment securities portfolio at June 30, 2021 or December 31, 2020.



	June 30, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(in thousands)	Cost		Gains		Losses		Value
State and municipals	$	331,392	$	13,359	$	(117)	$	344,634
Pass-through mortgage securities		225,734		1,136		(2,874)		223,996
Collateralized mortgage obligations		120,736		171		(1,688)		119,219
Corporate bonds		119,000		45		(696)		118,349
	$	796,862	$	14,711	$	(5,375)	$	806,198

	December 31, 2020
State and municipals	$	348,260	$	15,951	$	—	$	364,211
Pass-through mortgage securities		128,843		2,881		(4)		131,720
Collateralized mortgage obligations		53,163		599		(51)		53,711
Corporate bonds		119,000		—		(5,920)		113,080
	$	649,266	$	19,431	$	(5,975)	$	662,722

At June 30, 2021 and December 31, 2020, investment securities with a carrying value of $416.4 million and $380.7 million, respectively, were pledged as collateral to secure public deposits, borrowed funds and derivative liabilities.

There were no holdings of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity at June 30, 2021 and December 31, 2020.

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, 2021
	Less than				12 Months
	12 Months				or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(in thousands)	Value		Loss		Value		Loss		Value		Loss
State and municipals	$	13,826	$	(117)	$	—	$	—	$	13,826	$	(117)
Pass-through mortgage securities		166,209		(2,874)		—		—		166,209		(2,874)
Collateralized mortgage obligations		109,981		(1,688)		—		—		109,981		(1,688)
Corporate bonds		—		—		50,304		(696)		50,304		(696)
Total temporarily impaired	$	290,016	$	(4,679)	$	50,304	$	(696)	$	340,320	$	(5,375)

	December 31, 2020
Pass-through mortgage securities	$	1,871	$	(4)	$	—	$	—	$	1,871	$	(4)
Collateralized mortgage obligations		24,970		(51)		—		—		24,970		(51)
Corporate bonds		—		—		113,080		(5,920)		113,080		(5,920)
Total temporarily impaired	$	26,841	$	(55)	$	113,080	$	(5,920)	$	139,921	$	(5,975)

State and Municipals

At June 30, 2021, approximately $13.8 million of state and municipal bonds had an unrealized loss of $117,000. Each of the state and municipal bonds are considered high investment grade and rated Aa2/AA- or higher. The decline in value is attributable to changes in interest rates and illiquidity and not credit quality. The issuers continue to make timely principal and interest payments on the bonds. The Bank does not intend to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The fair value is expected to recover as the bonds approach maturity.

Pass-through Mortgage Securities

At June 30, 2021, approximately $166.2 million of pass-through mortgage security had an unrealized loss of $2.9 million. These securities were issued by U.S. government-sponsored agencies and are considered high investment grade. The decline in fair value is attributable to changes in interest rates and not credit quality. The issuers continue to make timely principal and interest payments on the bonds. The Bank does not intend to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The fair value is expected to recover as the bonds approach maturity.

Collateralized Mortgage Obligations

At June 30, 2021, approximately $110.0 million of collateralized mortgage obligations had an unrealized loss of $1.7 million. These securities were issued by U.S. government and government-sponsored agencies and are considered high investment grade. The decline in fair value is attributable to changes in interest rates and not credit quality. The issuers continue to make timely principal and interest payments on the bonds. The Bank does not intend to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The fair value is expected to recover as the bonds approach maturity.

Corporate Bonds

At June 30, 2021, approximately $50.3 million of the corporate bonds had an unrealized loss of $696,000. The Bank’s corporate bond portfolio represents senior unsecured debt obligations of six of the largest U.S. based financial institutions, including JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, Morgan Stanley and Wells Fargo and mature in 2028. Approximately $86.7 million are floating rate securities and reprice on a quarterly basis off the ten year swap rate. The remaining $31.7 million have a fixed rate with an average current yield of 5.10% and will convert to a floating rate in the fourth quarter of 2021. These bonds will also reprice on a quarterly basis off the ten-year swap rate.

Each of the financial institutions is considered upper medium investment grade and rated A3 or higher. The improvement in the unrealized loss during the quarter is attributable to a tightening in credit spreads and an increase in long-term interest rates. The Bank does not intend to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. Each of these financial institutions has diversified revenue streams, is well capitalized and continues 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, 2021.

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



	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020
Proceeds	$	54,192	$	—	$	—	$	—

Gains	$	622	$	—	$	—	$	—
Losses		(16)		—		—		—
Net gain	$	606	$	—	$	—	$	—

Income tax expense related to the net realized gains for the six months ended June 30, 2021 was $187,000.

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, 2021 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
Within one year	$	7,279	$	7,302
After 1 through 5 years		80,941		83,407
After 5 through 10 years		225,153		228,744
After 10 years		137,019		143,530
Mortgage-backed securities		346,470		343,215
	$	796,862	$	806,198

4 - LOANS

The following table sets forth the loans outstanding by class of loans at the dates indicated.




(in thousands)	June 30, 2021		December 31, 2020
Commercial and industrial	$	84,813	$	100,015
SBA PPP		94,309		139,487
Commercial mortgages:
Multifamily		775,303		776,976
Other		564,905		513,176
Owner-occupied		139,036		130,919
Residential mortgages:
Closed end		1,244,439		1,316,727
Revolving home equity		49,693		54,005
Consumer and other		907		2,149
	$	2,953,405	$	3,033,454

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 judgements. Determining expected future cash flows can be more subjective than determining fair values. Expected future cash flows could differ significantly, both in timing and amount, from the cash flows actually received over the loan’s remaining life. Individually evaluated loans are excluded from the estimation of credit losses for the pooled portfolio.

For loans collectively evaluated for credit loss, management segregates its loan portfolio into eleven 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; (10) municipal loans; and (11) Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) 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 allowance for credit losses (“ACL” or “allowance”). 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. Finally, no historical loss method was applied to the SBA PPP loan pool which is a new pool with no loss experience and is 100% guaranteed by the federal government.

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, GDP, vacancies, average growth in pools of loans, delinquencies or other factors associated with the financial assets. The allowance for SBA PPP loans represents an estimate of potential loss due to documentation and processing deficiencies. 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 degree of judgement involved in assessing their impact, management’s resulting estimate of losses may not accurately reflect current and future losses in the portfolio.

The following risks reflected in the Bank’s Q-factors showed improvement in the second quarter of 2021 and, together with a decline in historical loss rates, were the key drivers in estimating the ACL at June 30, 2021:

average growth rates in the residential mortgage and commercial and industrial loan pools,

improvements in the experience, ability and depth of lending staff,

past due and problem loans, and

current and forecasted economic conditions including those arising from the pandemic.

The following tables present the activity in the ACL for the periods indicated.



(in thousands)	Balance at ‎1/1/2021		Chargeoffs		Recoveries		Provision (Credit) for Credit Losses		Balance at ‎6/30/2021
Commercial and industrial	$	1,416	$	227	$	168	$	(349)	$	1,008
SBA PPP		209		—		—		(68)		141
Commercial mortgages:
Multifamily		9,474		252		—		(609)		8,613
Other		4,913		—		—		450		5,363
Owner-occupied		1,905		165		91		64		1,895
Residential mortgages:
Closed end		14,706		79		3		(1,314)		13,316
Revolving home equity		407		—		—		221		628
Consumer and other		7		—		1		(4)		4
	$	33,037	$	723	$	263	$	(1,609)	$	30,968



(in thousands)	Balance at ‎4/1/2021		Chargeoffs		Recoveries		Provision (Credit) for Credit Losses		Balance at ‎6/30/2021
Commercial and industrial	$	1,143	$	92	$	156	$	(199)	$	1,008
SBA PPP		269		—		—		(128)		141
Commercial mortgages:
Multifamily		9,074		2		—		(459)		8,613
Other		4,967		—		—		396		5,363
Owner-occupied		1,911		—		—		(16)		1,895
Residential mortgages:
Closed end		13,636		79		3		(244)		13,316
Revolving home equity		599		—		—		29		628
Consumer and other		5		—		1		(2)		4
	$	31,604	$	173	$	160	$	(623)	$	30,968

‎



(in thousands)	Balance at ‎1/1/2020		Impact of ‎ASC 326 ‎Adoption		Chargeoffs		Recoveries		Provision (Credit) for Credit Losses		Balance at ‎6/30/2020
Commercial and industrial	$	1,493	$	(244)	$	815	$	257	$	902	$	1,593
SBA PPP		—		—		—		—		249		249
Commercial mortgages:
Multifamily		7,151		1,059		—		—		646		8,856
Other		3,498		(47)		—		—		409		3,860
Owner-occupied		921		778		—		—		(77)		1,622
Residential mortgages:
Closed end		15,698		1,356		19		2		347		17,384
Revolving home equity		515		(6)		—		—		(27)		482
Consumer and other		13		(8)		3		2		1		5
	$	29,289	$	2,888	$	837	$	261	$	2,450	$	34,051



(in thousands)	Balance at ‎4/1/2020		Chargeoffs		Recoveries		Provision (Credit) for Credit Losses		Balance at ‎6/30/2020
Commercial and industrial	$	1,931	$	197	$	70	$	(211)	$	1,593
SBA PPP		—		—		—		249		249
Commercial mortgages:
Multifamily		8,647		—		—		209		8,856
Other		3,792		—		—		68		3,860
Owner-occupied		1,782		—		—		(160)		1,622
Residential mortgages:
Closed end		17,459		19		2		(58)		17,384
Revolving home equity		487		—		—		(5)		482
Consumer and other		7		2		—		—		5
	$	34,105	$	218	$	72	$	92	$	34,051

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



	June 30, 2021
	Past Due						Nonaccrual
							With an		With No		Total Past
					90 Days or		Allowance		Allowance		Due Loans &
					More and		for Credit		for Credit		Nonaccrual				Total
(in thousands)	30-59 Days		60-89 Days		Still Accruing		Loss		Loss		Loans		Current		Loans
Commercial and industrial	$	34	$	—	$	—	$	—	$	—	$	34	$	84,779	$	84,813
SBA PPP		—		—		—		—		—		—		94,309		94,309
Commercial mortgages:
Multifamily		—		—		—		—		—		—		775,303		775,303
Other		—		—		—		—		—		—		564,905		564,905
Owner-occupied		—		—		—		—		—		—		139,036		139,036
Residential mortgages:
Closed end		—		—		—		—		260		260		1,244,179		1,244,439
Revolving home equity		202		—		—		—		—		202		49,491		49,693
Consumer and other		2		—		—		—		—		2		905		907
	$	238	$	—	$	—	$	—	$	260	$	498	$	2,952,907	$	2,953,405

	December 31, 2020
Commercial and industrial	$	65	$	—	$	—	$	—	$	—	$	65	$	99,950	$	100,015
SBA PPP		—		—		—		—		—		—		139,487		139,487
Commercial mortgages:
Multifamily		—		—		—		—		—		—		776,976		776,976
Other		—		—		—		—		—		—		513,176		513,176
Owner-occupied		—		—		—		—		494		494		130,425		130,919
Residential mortgages:
Closed end		1,357		—		—		—		261		1,618		1,315,109		1,316,727
Revolving home equity		—		—		—		—		367		367		53,638		54,005
Consumer and other		—		—		—		—		—		—		2,149		2,149
	$	1,422	$	—	$	—	$	—	$	1,122	$	2,544	$	3,030,910	$	3,033,454

There were no loans in the process of foreclosure nor did the Bank hold any foreclosed residential real estate property at June 30, 2021 or December 31, 2020.

Accrued interest receivable from loans totaled $8.4 million and $9.7 million at June 30, 2021 and December 31, 2020, 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 (“TDR”) when it includes a concession by the Bank and the borrower is experiencing financial difficulty. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. The Bank performs the evaluation under its internal underwriting policy.

The Bank did not modify any loans in a TDR during the first six months of 2021 or 2020.

At June 30, 2021 and December 31, 2020, the Bank had no allowance allocated to TDRs and no commitments to lend additional amounts in connection with loans that were classified as TDRs.

There were no TDRs for which there was a payment default during the three months ended June 30, 2021 and 2020 that were modified during the 12-month period prior to default. A loan is 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 including those arising from the pandemic, 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. These sources of repayment are dependent on, among other things, the strength of the local economy.

Credit Quality Indicators. The 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 risk rating matrices consistent with regulatory guidance as follows.

Watch: The borrower’s 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.

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: Loans have all the inherent weaknesses of those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on 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. 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 initially evaluated utilizing the borrower’s credit 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. However, regardless of credit score, loans may be classified, criticized or placed on management’s watch list if relevant information comes to light.

‎

The following tables present the amortized cost basis of loans by class of loans, vintage and risk 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, 2021
	Term Loans by Origination Year
													Revolving
(in thousands)	2021		2020		2019		2018		2017		Prior		Loans (1)		Total
Commercial and industrial:
Pass	$	11,524	$	13,417	$	8,026	$	6,676	$	3,967	$	20,521	$	17,896	$	82,027
Watch		—		—		1,436		—		—		—		—		1,436
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		1,000		350		—		—		—		—		1,350
Doubtful		—		—		—		—		—		—		—		—
	$	11,524	$	14,417	$	9,812	$	6,676	$	3,967	$	20,521	$	17,896	$	84,813
SBA PPP:
Pass	$	78,950	$	15,359	$	—	$	—	$	—	$	—	$	—	$	94,309
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	78,950	$	15,359	$	—	$	—	$	—	$	—	$	—	$	94,309
Commercial mortgages – multifamily:
Pass	$	53,884	$	40,607	$	150,875	$	154,457	$	145,241	$	218,899	$	—	$	763,963
Watch		—		—		—		—		—		4,836		—		4,836
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		6,504		—		—		6,504
Doubtful		—		—		—		—		—		—		—		—
	$	53,884	$	40,607	$	150,875	$	154,457	$	151,745	$	223,735	$	—	$	775,303
Commercial mortgages – other:
Pass	$	69,717	$	118,890	$	43,994	$	49,482	$	45,716	$	225,812	$	—	$	553,611
Watch		—		—		—		—		—		5,414		—		5,414
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		5,880		—		5,880
Doubtful		—		—		—		—		—		—		—		—
	$	69,717	$	118,890	$	43,994	$	49,482	$	45,716	$	237,106	$	—	$	564,905
Commercial mortgages – owner-occupied:
Pass	$	16,600	$	20,790	$	37,069	$	7,309	$	8,938	$	40,490	$	—	$	131,196
Watch		—		—		6,027		—		—		—		—		6,027
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		1,813		—		—		1,813
Doubtful		—		—		—		—		—		—		—		—
	$	16,600	$	20,790	$	43,096	$	7,309	$	10,751	$	40,490	$	—	$	139,036
Residential mortgages:
Pass	$	91,110	$	43,149	$	19,974	$	235,998	$	301,055	$	551,921	$	49,693	$	1,292,900
Watch		—		—		—		—		—		294		—		294
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		453		—		485		—		938
Doubtful		—		—		—		—		—		—		—		—
	$	91,110	$	43,149	$	19,974	$	236,451	$	301,055	$	552,700	$	49,693	$	1,294,132
Consumer and other:
Pass	$	4	$	61	$	135	$	5	$	19	$	556	$	—	$	780
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Not Rated		—		—		—		—		—		—		127		127
	$	4	$	61	$	135	$	5	$	19	$	556	$	127	$	907

Total Loans	$	321,789	$	253,273	$	267,886	$	454,380	$	513,253	$	1,075,108	$	67,716	$	2,953,405

(1) Includes commercial and industrial and residential mortgage lines converted to term of $5.3 million and $10.5 million, respectively.



	December 31, 2020
	Term Loans by Origination Year
													Revolving
(in thousands)	2020		2019		2018		2017		2016		Prior		Loans (1)		Total
Commercial and industrial:
Pass	$	22,848	$	8,789	$	7,542	$	6,033	$	5,505	$	19,086	$	20,473	$	90,276
Watch		—		1,508		—		4,000		—		1,842		—		7,350
Special Mention		48		—		65		115		—		301		—		529
Substandard		1,298		400		—		—		—		162		—		1,860
Doubtful		—		—		—		—		—		—		—		—
	$	24,194	$	10,697	$	7,607	$	10,148	$	5,505	$	21,391	$	20,473	$	100,015
SBA PPP:
Pass	$	139,487	$	—	$	—	$	—	$	—	$	—	$	—	$	139,487
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	139,487	$	—	$	—	$	—	$	—	$	—	$	—	$	139,487
Commercial mortgages – multifamily:
Pass	$	25,719	$	152,142	$	160,998	$	152,648	$	30,342	$	242,527	$	—	$	764,376
Watch		—		—		—		3,772		2,267		—		—		6,039
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		6,561		—		—		—		6,561
Doubtful		—		—		—		—		—		—		—		—
	$	25,719	$	152,142	$	160,998	$	162,981	$	32,609	$	242,527	$	—	$	776,976
Commercial mortgages – other:
Pass	$	117,602	$	44,398	$	49,873	$	50,547	$	105,512	$	137,960	$	—	$	505,892
Watch		—		—		—		—		—		1,403		—		1,403
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		5,881		—		5,881
Doubtful		—		—		—		—		—		—		—		—
	$	117,602	$	44,398	$	49,873	$	50,547	$	105,512	$	145,244	$	—	$	513,176
Commercial mortgages – owner-occupied:
Pass	$	11,444	$	37,406	$	8,751	$	9,493	$	12,388	$	43,009	$	—	$	122,491
Watch		—		6,094		—		—		—		—		—		6,094
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		1,840		—		494		—		2,334
Doubtful		—		—		—		—		—		—		—		—
	$	11,444	$	43,500	$	8,751	$	11,333	$	12,388	$	43,503	$	—	$	130,919
Residential mortgages:
Pass	$	38,759	$	21,964	$	279,329	$	339,700	$	253,873	$	381,842	$	53,223	$	1,368,690
Watch		—		—		—		—		—		298		414		712
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		457		—		—		505		368		1,330
Doubtful		—		—		—		—		—		—		—		—
	$	38,759	$	21,964	$	279,786	$	339,700	$	253,873	$	382,645	$	54,005	$	1,370,732
Consumer and other:
Pass	$	106	$	198	$	3	$	25	$	236	$	296	$	—	$	864
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		229		—		—		—		—		—		229
Doubtful		—		—		—		—		—		—		—		—
Not Rated		—		—		—		—		—		—		1,056		1,056
	$	106	$	427	$	3	$	25	$	236	$	296	$	1,056	$	2,149

Total Loans	$	357,311	$	273,128	$	507,018	$	574,734	$	410,123	$	835,606	$	75,534	$	3,033,454

(1)Includes commercial and industrial and residential mortgage lines converted to term of $2.9 million and $10.5 million, respectively.

5 - STOCK-BASED COMPENSATION

The following tables present a summary of restricted stock units (“RSUs”) and options outstanding at June 30, 2021 and changes during the six month period then ended. Of the 226,750 RSUs outstanding at quarter end, 71,603 are scheduled to vest during 2021.



				Weighted-
		Weighted-		Average		Aggregate
		Average		Remaining		Intrinsic
	Number of	Grant-Date		Contractual		Value
	RSUs	Fair Value		Term (yrs.)		(in thousands)
Outstanding at January 1, 2021	164,996	$	20.95
Granted	142,313		16.06
Converted	(80,559)		21.48
Outstanding at June 30, 2021	226,750	$	17.68		1.26	$	4,814



				Weighted-
		Weighted-		Average		Aggregate
		Average		Remaining		Intrinsic
	Number of	Exercise		Contractual		Value
	Options	Price		Term (yrs.)		(in thousands)
Outstanding at January 1, 2021	11,031	$	13.18
Exercised	(10,281)		12.90
Outstanding and exercisable at June 30, 2021	750	$	17.06		3.93	$	3

As of June 30, 2021, there was $2.6 million of total unrecognized compensation cost related to non-vested RSUs. The total cost is expected to be recognized over a weighted-average period of 1.4 years.

2021 Equity Incentive Plan. On April 20, 2021, the stockholders of the Corporation approved the 2021 Equity Incentive Plan (“2021 Plan”). Under the 2021 Plan, awards may be granted to employees and non-employee directors as stock options, restricted stock awards or RSUs, with a one year minimum vesting period for at least 95% of the awards granted. The Corporation has 750,000 shares of common stock reserved for awards under the 2021 Plan, plus 23,167 shares that remained available for grant as full value restricted stock units or restricted stock awards under the 2014 Equity Incentive Plan (“2014 Plan”). RSUs granted under the 2014 Plan that expire or are forfeited after April 20, 2021 will be added to the number of shares of common stock reserved for issuance of awards under the 2021 Plan. No further awards will be made under the 2014 Plan.

6 - 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 can 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 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:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
June 30, 2021:
Financial Assets:
Available-for-Sale Securities:
State and municipals	$	344,634	$	—	$	343,306	$	1,328
Pass-through mortgage securities		223,996		—		223,996		—
Collateralized mortgage obligations		119,219		—		119,219		—
Corporate bonds		118,349		—		118,349		—
	$	806,198	$	—	$	804,870	$	1,328
Financial Liabilities:
Derivative - interest rate swaps	$	2,785	$	—	$	2,785	$	—

December 31, 2020:
Financial Assets:
Available-for-Sale Securities:
State and municipals	$	364,211	$	—	$	362,776	$	1,435
Pass-through mortgage securities		131,720		—		131,720		—
Collateralized mortgage obligations		53,711		—		53,711		—
Corporate bonds		113,080		—		113,080		—
	$	662,722	$	—	$	661,287	$	1,435
Financial Liabilities:
Derivative - interest rate swaps	$	5,285	$	—	$	5,285	$	—

State and municipal available-for-sale securities measured using Level 3 inputs. The Bank held six non-rated bond anticipation notes with a book value of $1.3 million at June 30, 2021. 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 June 30, 2021.

There were no assets measured at fair value on a nonrecurring basis at June 30, 2021 or December 31, 2020.

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, 2021				December 31, 2020
	Fair Value	Carrying				Carrying
(in thousands)	Hierarchy	Amount		Fair Value		Amount		Fair Value
Financial Assets:
Cash and cash equivalents	Level 1	$	191,002	$	191,002	$	211,182	$	211,182
Loans	Level 3		2,922,437		2,904,931		3,000,417		2,998,325
Restricted stock	Level 1		19,901		19,901		20,814		20,814

Financial Liabilities:
Checking deposits	Level 1		1,318,941		1,318,941		1,208,073		1,208,073
Savings, NOW and money market deposits	Level 1		1,833,590		1,833,590		1,679,161		1,679,161
Time deposits	Level 2		231,042		237,781		434,354		444,155
Short-term borrowings	Level 1		55,000		55,000		60,095		60,095
Long-term debt	Level 2		226,002		231,176		246,002		253,617

7 – 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.

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

On May 22, 2021 a second interest rate swap with a notional amount totaling $150 million expired and the Bank paid off $150 million of brokered certificates of deposit (“CDs”) used in the cash flow hedge.

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



	June 30, 2021	December 31, 2020
Notional amount	$50 million	$200 million
Weighted average fixed pay rate	2.62%	2.83%
Weighted average 3-month LIBOR receive rate	0.19%	0.22%
Weighted average maturity	2.55 Years	1.06 Years

Interest expense recorded on the swap transactions, which totaled $2.2 million and $1.4 million for the six months ended June 30, 2021 and 2020, respectively, is recorded as a component of interest expense in the consolidated statements of income. Amounts reported in accumulated OCI 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 ended June 30, 2021, the Corporation had $2.2 million of reclassifications to interest expense. During the next 12 months, the Corporation estimates that $856,000 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.



	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020
Interest rate contracts:
Amount of gain (loss) recognized in OCI (effective portion)	$	267	$	(4,768)	$	(33)	$	(494)
Amount of loss reclassified from OCI to interest expense		2,233		1,366		919		856
Amount of loss recognized in other noninterest income (ineffective portion)		—		—		—		—

The following table reflects the amounts relating to the interest rate swaps included in the consolidated balance sheets at the periods indicated.



	June 30, 2021						December 31, 2020
	Notional		Fair Value					Notional	Fair Value
(in thousands)	Amount		Asset		Liability			Amount	Asset		Liability
Included in other liabilities			$	—	$	2,785			$	—	$	5,285
Interest rate swap hedging brokered CDs	$	—					$	150,000
Interest rate swap hedging FHLB advances	$	50,000					$	50,000

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, 2021, the Bank was in compliance with the collateral posting provisions of its counterparty. The total amount of collateral posted was approximately $3.0 million. If the Bank had breached any of these provisions at June 30, 2021, it could have been required to settle its obligations under the agreement at the termination value.

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 and the NYC boroughs of Queens, Brooklyn and Manhattan.

Overview

Net income and earnings per share for the first six months of 2021 were $22.7 million and $.95 respectively, compared to $19.9 million and $.83, respectively, for the same period last year. Dividends per share increased 5.6%, from $.36 for the first half of 2020 to $.38 for the current period. Returns on average assets (“ROA”) and average equity (“ROE”) for the first six months of 2021 were 1.10% and 11.09%, respectively, versus .96% and 10.34%, respectively, for the same period last year. Book value per share was $17.58 at the close of the current period, compared to $17.11 at year-end 2020.

Analysis of Earnings – Six Month Periods. Net income for the first six months of 2021 was $22.7 million, an increase of $2.7 million, or 13.8%, versus the same period last year. The increase is due to growth in net interest income of $1.7 million, or 3.4%, and noninterest income of $770,000, or 13.8%, and a decline in the provision for credit losses of $4.1 million. These items were partially offset by increases in noninterest expense of $1.8 million, or 5.8%, and income tax expense of $2.1 million.

The increase in net interest income reflects a favorable shift in the mix of funding as an increase in average checking deposits of $271.9 million and a decline in average interest-bearing liabilities of $279.1 million resulted in average checking deposits comprising a larger portion of total funding. The increase is also attributable to higher income from SBA PPP loans of $3.0 million. Net interest income for the six months of 2021 also benefited by approximately $450,000 from the maturity of a $150 million interest rate swap in May 2021 with a cost of funds of 2.85%.

Partially offsetting the favorable impact on net interest income was a decline in the average balance of loans of $161.9 million. Also exerting downward pressure on net interest income were current market yields on securities and loans being lower than the runoff yields on both portfolios. The average yield on interest-earning assets declined 36 basis points (“bps”) from 3.52% for the first six months of 2020 to 3.16% for the current six-month period. Management substantially offset the negative impact of declining asset yields on net interest income through reductions in non-maturity and time deposit rates. The average cost of interest-bearing liabilities declined 54 bps from 1.30% for the first six months of 2020 to .76% for the current six-month period.

Net interest margin for the first six months of 2021 was 2.70% versus 2.63% for the 2020 period. Income from PPP loans improved net interest margin for the first six-months of 2021 by 9 bps. As of June 30, 2021, the Bank had $97.6 million of outstanding PPP loans with unearned fees of $3.3 million. We expect substantially all outstanding PPP loans to payoff by the end of 2021. In the current interest rate environment, the Bank will be unable to replace the yield being earned on PPP loans putting downward pressure on the net interest margin in 2022.

The mortgage loan pipeline was $74 million at June 30, 2021. Sluggish loan demand and competition for loans among banks and other lenders continues to put pressure on the pipeline and originations. Comparing June 30, 2020 to June 30, 2021, the expansion of our lending teams helped grow commercial mortgages by $127.7 million. Commercial and industrial available lines of credit have increased. However, line utilization is near historic low levels, resulting in a decrease in commercial and industrial loans outstanding. We believe the economic impact of the pandemic and the stimulus packages passed by Congress contributed not only to the unusually high level of cash on our balance sheet, but also to decreased loan originations and lower levels of outstanding balances on existing credit lines.

The increase in noninterest income, net of gains on sales of securities, of $164,000 is primarily attributable to increases in the non-service cost components of the Bank’s defined benefit pension plan and fees from debit and credit cards. These items were partially offset by decreases in investment services income and service charges on deposit accounts. Revenue from assets under management fell as the shift to an outside service provider resulted in the loss of some relationships. Assets under management will likely decline further as the Bank transitions from its legacy trust and investment businesses to a single platform with LPL Financial. The decrease in service charges on deposit accounts is mainly attributable to the pandemic which has negatively affected most categories of fee income.

The provision for credit losses decreased $4.1 million when comparing the six-month periods from a provision of $2.5 million in the 2020 period to a credit of $1.6 million in the 2021 period. The credit provision for the current period was mainly due to improvements in economic conditions, asset quality and other portfolio metrics, and a decline in outstanding mortgage loans, partially offset by net chargeoffs of $460,000. The net chargeoffs were mainly the result of sales of three commercial mortgages in the first quarter.

The increase in noninterest expense of $1.8 million was primarily due to an increase in salaries and employee benefits related to staffing our new Riverhead Branch, building our lending and credit teams and normal salary adjustments. Also contributing to the increase was higher FDIC insurance expense due to an assessment credit in 2020, increased marketing expense and the cost of facilities maintenance.

Income tax expense increased $2.1 million due to an increase in pre-tax earnings in the current six-month period as compared to the 2020 period and an increase in the effective tax rate to 20.6% from 16.1% when comparing the first six months of 2021 and 2020. The increase in the effective tax rate is mainly due to a decrease in the percentage of pre-tax income derived from tax-exempt municipal securities and bank-owned life insurance in 2021. Additionally, a change in New York State (“NYS”) tax law to implement a capital tax in the second quarter of 2021 increased the second quarter provision.

Asset Quality. The Bank’s allowance for credit losses to total loans (reserve coverage ratio) was 1.05% at June 30, 2021 as compared to 1.09% at December 31, 2020. Excluding PPP loans, the reserve coverage ratio was 1.08% and 1.13%, respectively. The decrease in the reserve coverage ratio was mainly due to improvements in economic conditions, asset quality and other portfolio metrics. Nonaccrual loans, TDRs and loans past due 30 through 89 days remain at low levels.

Key Initiatives and Challenges We Face. As the economy recovers from the pandemic, we remain optimistic that the Bank’s strategic initiatives will support the expansion and profitability of our relationship banking business. Such initiatives include updated branding, a custom designed website, expanded geographic footprint of the branch network eastward into Riverhead and East Hampton, N.Y. and recruitment of additional seasoned branch, lending and credit professionals. Renovations at our leased space at 275 Broadhollow Road in Melville, N.Y. for a state-of-the-art branch and needed office space are expected to be completed in early 2022. We continually assess our branch network for efficiencies while remaining cognizant of our customers’ branch banking needs. During the pandemic we experienced a notable increase in use of our mobile deposit functionality as well as our cash management offerings.

Low interest rates continue to exert pressure on operating results and growth. Current lending and investing rates are below the rates earned on loan and securities repayments. The net spread on securities purchased is significantly below the Bank’s current net interest margin, and the net spread on new lending is near or below current margin. Continued increases in the cost of cybersecurity, and regulatory expectations in areas such as environmental, social and governance present additional challenges.

Net Interest Income

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



	Six Months Ended June 30,
	2021						2020
	Average		Interest/		Average		Average		Interest/		Average
(dollars in thousands)	Balance		Dividends		Rate		Balance		Dividends		Rate

Assets:
Interest-earning bank balances	$	184,641	$	96	.10	%	$	91,821	$	120	.26	%
Investment securities:
Taxable		445,712		3,982	1.79			344,932		6,629	3.84
Nontaxable (1)		357,924		5,648	3.16			375,326		6,412	3.42
Loans (1)		3,008,594		53,459	3.55			3,170,449		56,891	3.59
Total interest-earning assets		3,996,871		63,185	3.16			3,982,528		70,052	3.52
Allowance for credit losses		(32,256)						(33,115)
Net interest-earning assets		3,964,615						3,949,413
Cash and due from banks		34,228						32,925
Premises and equipment, net		38,399						39,814
Other assets		133,715						134,421
	$	4,170,957					$	4,156,573
Liabilities and Stockholders' Equity:
Savings, NOW & money market deposits	$	1,786,527		2,260	.26		$	1,704,484		6,639	.78
Time deposits		371,919		3,897	2.11			503,364		5,928	2.37
Total interest-bearing deposits		2,158,446		6,157	.58			2,207,848		12,567	1.14
Short-term borrowings		56,813		700	2.48			92,235		885	1.93
Long-term debt		229,593		2,311	2.03			423,846		4,157	1.97
Total interest-bearing liabilities		2,444,852		9,168	.76			2,723,929		17,609	1.30
Checking deposits		1,285,761						1,013,832
Other liabilities		28,509						31,819
		3,759,122						3,769,580
Stockholders' equity		411,835						386,993
	$	4,170,957					$	4,156,573

Net interest income (1)			$	54,017					$	52,443
Net interest spread (1)					2.40	%					2.22	%
Net interest margin (1)					2.70	%					2.63	%

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

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



	Six Months Ended June 30,
	2021 Versus 2020
	Increase (decrease) due to changes in:
					Net
(in thousands)	Volume		Rate		Change
Interest Income:
Interest-earning bank balances	$	75	$	(99)	$	(24)
Investment securities:
Taxable		1,571		(4,218)		(2,647)
Nontaxable		(289)		(475)		(764)
Loans		(2,880)		(552)		(3,432)
Total interest income		(1,523)		(5,344)		(6,867)
Interest Expense:
Savings, NOW & money market deposits		288		(4,667)		(4,379)
Time deposits		(1,431)		(600)		(2,031)
Short-term borrowings		(396)		211		(185)
Long-term debt		(1,953)		107		(1,846)
Total interest expense		(3,492)		(4,949)		(8,441)
Increase (decrease) in net interest income	$	1,969	$	(395)	$	1,574

Net Interest Income

Net interest income on a tax-equivalent basis for the six months ended June 30, 2021 was $54.0 million, an increase of $1.6 million, or 3.0%, from $52.4 million for the same period of 2020. The increase in net interest income reflects a favorable shift in the mix of funding as an increase in average checking deposits of $271.9 million, or 26.8%, and a decline in average interest-bearing liabilities of $279.1 million, or 10.2%, resulted in average checking deposits comprising a larger portion of total funding. The increase is also attributable to higher income from SBA PPP loans of $3.0 million. PPP income for the 2021 period was $3.9 million driven by an average balance of $155.2 million and a weighted average yield earned of 5.0%. Net interest income for the six months of 2021 also benefited by approximately $450,000 from the maturity of a $150 million interest rate swap in May 2021 with a cost of funds of 2.85%. The Bank used excess cash to repay the interest rate swap.

Partially offsetting the favorable impact on net interest income was a decline in the average balance of loans of $161.9 million, or 5.1%. Also exerting downward pressure on net interest income were current market yields on securities and loans being lower than the runoff yields on both portfolios. The average yield on interest-earning assets declined 36 bps from 3.52% for the first six months of 2020 to 3.16% for the current six-month period. Management substantially offset the negative impact of declining asset yields on net interest income through reductions in non-maturity and time deposit rates. The average cost of interest-bearing liabilities declined 54 bps from 1.30% for the first six months of 2020 to .76% for the current six-month period.

Net interest margin for the first six months of 2021 was 2.70% versus 2.63% for the same period in 2020. Income on PPP loans improved net interest margin for the first six months of 2021 by 9 bps. As of June 30, 2021, the Bank had $97.6 million of outstanding PPP loans with unearned fees of $3.3 million. We expect substantially all outstanding PPP loans to payoff by the end of 2021. In the current interest rate environment, the Bank will be unable to replace the yield being earned on PPP loans putting downward pressure on the net interest margin in 2022.

Noninterest Income

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

The increase in noninterest income, net of gains on sales of securities, of $164,000 is primarily attributable to increases in the non-service cost components of the Bank’s defined benefit pension plan of $275,000 and fees from debit and credit cards of $242,000. These items were partially offset by decreases in investment services income of $276,000 and service charges on deposit accounts of $188,000. Revenue from assets under management fell as the shift to an outside service provider resulted in the loss of some relationships. Assets under management will likely decline further as the Bank transitions from its legacy trust and investment businesses to a single platform with LPL Financial. The decrease in service charges on deposit accounts is mainly attributable to the pandemic which has negatively affected most categories of fee income.

Noninterest Expense

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

The increase in noninterest expense of $1.8 million was primarily due to an increase of $1.0 million in salaries and employee benefits related to staffing our new Riverhead Branch, building our lending and credit teams and normal salary adjustments. Also contributing to the increase was higher FDIC insurance expense due to an assessment credit of $390,000 in 2020, increased marketing expense of $142,000 and the cost of facilities maintenance.

Income Taxes

Income tax expense increased $2.1 million due to an increase in pre-tax earnings in the current six-month period as compared to the 2020 period and an increase in the effective tax rate to 20.6% from 16.1% when comparing the first six months of 2021 and 2020. The increase in the effective tax rate is mainly due to a decrease in the percentage of pre-tax income derived from tax-exempt municipal securities and bank-owned life insurance in 2021. Additionally, a change in NYS tax law to implement a capital tax in the second quarter of 2021 increased the second quarter provision by approximately $400,000.

Results of Operations – Second Quarter 2021 Versus Second Quarter 2020

Net income for the second quarter of 2021 increased $629,000, or 5.8%, from $10.8 million earned in the same quarter of last year. The increase is mainly attributable to an increase in net interest income of $818,000 and a decline in the provision for credit losses of $715,000, partially offset by an increase in income tax expense of $991,000. The variances in each of these items occurred for substantially the same reasons discussed above with respect to the six-month periods.

Critical Accounting Policies and Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported asset and liability balances and revenue and expense amounts. Our determination of the ACL is a critical accounting estimate because it is based on our subjective evaluation of a variety of factors at a specific point in time and involves difficult and complex judgements about matters that are inherently uncertain. In the event that management’s estimate needs to be adjusted based on additional information that comes to light after the estimate is made or changes in circumstances, such adjustment could result in the need for a significantly different ACL and thereby materially impact, either positively or negatively, the Bank’s results of operations.

The Bank’s Allowance for Credit Losses Committee (“ACL Committee”), which is a management committee chaired by the Chief Credit Officer, meets on a quarterly basis and is responsible for determining the ACL after considering, among other things, the results of credit reviews performed by the Bank’s independent loan review function and the Bank’s credit department. In addition, and in consultation with the Bank’s Chief Financial Officer, the ACL Committee is responsible for implementing and maintaining accounting policies and procedures surrounding the calculation of the required allowance. The Loan Committee of the Board reviews and approves the Bank’s Loan Policy at least once each calendar year. The Bank’s ACL is reviewed and ratified by the Loan Committee on a quarterly basis and is subject to periodic examination by the Office of the Comptroller of the Currency (“OCC”), whose safety and soundness examination includes a determination as to the adequacy of the allowance to absorb current expected credit losses.

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

Management estimates the ACL balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical loss information from the Bank’s own loan portfolio has been compiled since December 31, 2007 and generally provides a starting point for management’s assessment of expected credit losses. A historical look-back period that begins in 2007 covers an entire economic cycle and impacts the average historical loss rates used to calculate the final ACL. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term as well as for current and potential future changes

in economic conditions over a one year to two year forecasting horizon, such as unemployment rates, GDP, vacancy rates, home prices or other relevant factors. The immediate reversion method is applied for periods beyond the forecasting horizon. The ACL is an amount that management currently believes will be adequate to absorb expected lifetime losses in the Bank’s loan portfolio. The process for estimating credit losses and determining the ACL as of any balance sheet date is subjective in nature and requires material estimates and judgements. Actual results could differ significantly from those estimates.

The ACL is measured on a collective (pool) basis when similar risk characteristics exist. Management segregates its loan portfolio into eleven distinct pools: (1) commercial and industrial; (2) small business credit scored; (3) multifamily; (4) owner-occupied; (5) other commercial real estate; (6) construction and land development; (7) residential mortgage; (8) revolving home equity; (9) consumer; (10) municipal loans; and (11) SBA PPP loans. The vintage method is applied to measure the historical loss component of lifetime credit losses inherent in most of its loan pools. For the revolving home equity and small business credit scored pools, the migration method was selected to measure historical losses; no historical loss method was applied to the SBA PPP loan pool. Management believes that the methods selected fairly reflect the historical loss component of expected losses inherent in the Bank’s loan portfolio. However, since future losses could vary significantly from those experienced in the past, on a quarterly basis management adjusts its historical loss experience to reflect current conditions and reasonable and supportable forecasts. In doing so, management considers a variety of general qualitative and quantitative factors and then subjectively determines the weight to assign to each in estimating losses. The factors include, among others: (1) changes in lending policies and procedures; (2) experience, ability and depth of lending staff; (3) trends in the nature and volume of loans; (4) changes in the quality of the loan review function; (5) delinquencies; (6) environmental risks; (7) current and forecasted economic conditions as judged by things such as national and local unemployment levels and GDP; (8) changes in the value of underlying collateral as judged by things such as median home prices and forecasted vacancy rates in the Bank’s service area; and (9) direction and magnitude of changes in the economy. The Bank’s ACL allocable to its loan pools results primarily from these qualitative and quantitative adjustments to historical loss experience. Because of the nature of the qualitative factors and the difficulty in assessing their impact, management’s resulting estimate of losses may not accurately reflect lifetime losses in the portfolio.

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

TDRs are individually evaluated for loss and generally reported at the present value of estimated future cash flows using the loan’s effective rate at inception. However, if a TDR is a collateral dependent loan, the loan is reported at the fair value of the collateral.

Asset Quality

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



	June 30,		December 31,
(dollars in thousands)	2021		2020
Nonaccrual loans:
Troubled debt restructurings	$	—	$	494
Other		260		628
Total nonaccrual loans		260		1,122
Loans past due 90 days or more and still accruing		—		—
Other real estate owned		—		—
Total nonperforming assets		260		1,122
Troubled debt restructurings - performing		570		815
Total risk elements	$	830	$	1,937

Nonaccrual loans as a percentage of total loans		.01%		.04%
Nonperforming assets as a percentage of total loans and other real estate owned		.01%		.04%
Risk elements as a percentage of total loans and other real estate owned		.03%		.06%

The disclosure of other potential problem loans can be found in “Note 4 – Loans” to the Corporation’s consolidated financial statements of this Form 10-Q.

Allowance and Provision for Credit Losses

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

The ACL decreased $2.1 million during the first six months of 2021, amounting to $31.0 million, or 1.05% of total loans, at June 30, 2021 compared to $33.0 million, or 1.09% of total loans, at December 31, 2020. Excluding SBA PPP loans, the reserve coverage ratio was 1.08% and 1.13% at June 30, 2021 and December 31, 2020, respectively. During the first half of 2021, the Bank had loan chargeoffs of $723,000, recoveries of $263,000 and recorded a credit provision for credit losses of $1.6 million. During the first half of 2020, the Bank had loan chargeoffs of $837,000, recoveries of $261,000 and recorded a provision for credit losses of $2.5 million. The credit provision in the current period was mainly due to improvements in economic conditions, asset quality and other portfolio metrics and a decline in outstanding residential mortgage loans, partially offset by net chargeoffs. The provision in the 2020 period was mainly attributable to the pandemic.

The ACL is an amount that management currently believes will be adequate to absorb expected lifetime losses in the Bank’s loan portfolio. As more fully discussed in “Application of Critical Accounting Policies,” the process for estimating credit losses and determining the ACL as of any balance sheet date is subjective in nature and requires material estimates and judgements. Actual results could differ significantly from those estimates. Other detailed information on the Bank’s loan portfolio and ACL can be found in “Note 4 – Loans” to the Corporation’s consolidated financial statements included in this Form 10-Q.

The amount of future chargeoffs and provisions for credit losses will be affected by, among other things, economic conditions on Long Island and in NYC. Such conditions could affect the financial strength of the Bank’s borrowers and will affect the value of real estate collateral securing the Bank’s mortgage loans. Loans secured by real estate represent approximately 94% of the Bank’s total loans outstanding at June 30, 2021. The majority of these loans are collateralized by properties located on Long Island and in the boroughs of NYC. While business activity in the NYC metropolitan area has improved since the pandemic lows of 2020, the pace of the recovery remains uncertain. These challenges may result in higher past due and nonaccrual loans, TDRs and credit losses.

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

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, 2021 was $191.0 million, down from $211.2 million at December 31, 2020. The decrease occurred primarily because cash used to repay borrowings, purchase securities, repurchase common stock and pay cash dividends exceeded cash provided by deposit growth, paydowns or repayments of securities and loans and operations.

Securities increased $143.5 million during the first six months of 2021, from $662.7 million at year-end 2020 to $806.2 million at June 30, 2021. The increase is primarily attributable to purchases of $268.0 million, partially offset by sales of $54.2 million and maturities and redemptions of $65.6 million.

During the first half of 2021, total deposits grew $62.0 million, or 1.9%, to $3.4 billion at June 30, 2021. The increase was attributable to growth in checking deposits of $110.9 million and savings, NOW and money market deposits of $154.4 million, partially offset by decreases in time deposits of $203.3 million. The decrease in time deposits includes the maturity of $150.0 million in brokered CDs used to hedge an interest rate swap which expired in May 2021.

On November 28, 2021, corporate bonds with a current fair value of $31.7 million and a weighted average fixed rate of 5.10% will convert to a floating rate. At current rates, the weighted average floating rate would be 1.47% and would reduce net interest income in the fourth quarter by approximately $105,000. On a full quarter basis, the impact to net interest income would be approximately $293,000.

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

The Bank has both internal and external sources of liquidity that can be used to fund loan growth and accommodate deposit outflows. The Bank’s primary internal sources of liquidity are overnight investments, maturities and monthly payments on its investment securities and loan portfolios, operations and investment securities designated as available-for-sale. At June 30, 2021, the Bank had approximately $271.4 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. In addition, the Bank can purchase overnight federal funds under its existing line and the Corporation can raise funds through its Dividend Reinvestment and Stock Purchase Plan. However, the Bank’s FRB 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 dependent on the amount of unencumbered eligible securities and loans that the Bank can use as collateral and the collateral margins required by the lenders. Based on the Bank’s unencumbered securities and loan collateral, a substantial portion of which is in place at the FRB of New York and FHLB of New York, the Bank had a borrowing capacity of approximately $1.8 billion at June 30, 2021.

Capital

Stockholders’ equity was $416.6 million at June 30, 2021 versus $407.1 million at December 31, 2020. The increase was mainly due to net income of $22.7 million, partially offset by cash dividends declared of $9.0 million and common stock repurchases of $4.1 million.

The Corporation and the Bank have elected to adopt the community bank leverage ratio (“CBLR”) framework, which requires a leverage ratio of greater than 9.00%. As a qualifying community banking organization, the Corporation and the Bank may opt out of the CBLR framework in any subsequent quarter by completing its regulatory agency reporting using the traditional capital rules.

The Corporation’s capital management policy is designed to build and maintain capital levels that exceed regulatory standards and appropriately provide for growth. The Leverage Ratios of both the Corporation and the Bank at June 30, 2021 were 9.82%, and considered to have met the well capitalized ratio requirements under the Prompt Corrective Action statutes. The Corporation and the Bank elected the optional five-year transition period provided by the federal banking agencies for recognizing the regulatory capital impact of the implementation of CECL.

On April 6, 2020, the federal banking agencies issued interim final rules pursuant to section 4012 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), temporarily lowering the CBLR requirement to 8.50% for calendar year 2021 and returning to

9.00% in 2022. The CARES Act also provides that, during the same period, if a qualifying community banking organization falls no more than 1% below the CBLR, it will have a two-quarter grace period to satisfy the CBLR.

The Corporation has a stock repurchase program under which it is authorized to purchase up to $65 million in shares of its common stock from time to time through open market purchases, privately negotiated transactions, or in any other manner that is compliant with applicable securities laws. During the first half of 2021, the Corporation repurchased 200,420 shares of its common stock at a total cost of $4.1 million. Total repurchases completed since the commencement of the program in 2018 amount to 2,341,020 shares at a cost of $51.7 million. We expect to continue repurchases during 2021.

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 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.

Using interest rate sensitivity modeling, the Bank projects net interest income over a five-year 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 projected over a five-year period utilizing various interest rate change scenarios, including both ramped and shocked changes as well as changes in the shape of the yield curve. The interest rate scenarios modeled are based on the shape of the current yield curve and the relative level of rates and management’s expectations as to potential future yield curve shapes and rate levels.

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

In utilizing interest rate sensitivity modeling to project net interest income and calculate EVE, management makes a variety of estimates and assumptions which include, among others, the following: (1) how much and when yields and costs on individual categories of interest-earning assets and interest-bearing liabilities will change in response to projected changes in market interest rates; (2) future cash flows, including 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 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, 2021 arrived at by discounting estimated future cash flows at rates that management believes are reflective of current market conditions; and (2) an estimate of net interest income for the year ending June 30, 2022 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 is intended to substantially reflect the Bank’s strategic plan. In addition, in calculating EVE, cash flows for nonmaturity deposits are assumed to have an overall life of 6.1 years based on the current mix of such deposits and the most recently updated nonmaturity deposit study.

The rate change information in the following table shows estimates of net interest income for the year ending June 30, 2022 and calculations of EVE at June 30, 2021 assuming rate changes of plus 100, 200 and 300 bps and minus 100 bps. The rate change scenarios were selected based on current interest rates and: (1) are assumed to be shock or immediate changes for both EVE and net interest income; (2) occur uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities; and (3) impact the repricing and reinvestment of all assets and liabilities, except nonmaturity 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 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
	at June 30, 2021			Year Ending June 30, 2022
			Percent Change			Percent Change
			From			From
Rate Change Scenario (dollars in thousands)	Amount		Base Case	Amount		Base Case
+ 300 basis point rate shock	$	613,419	-7.4%	$	98,721	-4.2%
+ 200 basis point rate shock		637,600	-3.8%		100,561	-2.4%
+ 100 basis point rate shock		660,018	-0.4%		102,241	-0.8%
Base case (no rate change)		662,665	—		103,030	—
- 100 basis point rate shock		580,035	-12.5%		97,893	-5.0%

As shown in the preceding table, assuming a static balance sheet, an immediate increase in interest rates of 100, 200 or 300 bps could negatively impact the Bank’s net interest income for the year ending June 30, 2022 because the Bank would need to increase the rates paid on its nonmaturity deposits in order to remain competitive. Unlike nonmaturity 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. An immediate decrease in interest rates of 100 bps could also negatively impact the Bank’s net interest income and EVE for the same period 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 nonmaturity deposits could have a significant impact on the net interest income amounts shown for each scenario in the table.

Forward-Looking Statements

This Quarterly 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 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 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: the recent and continuing global pandemic, general economic conditions and trends, either nationally or locally; conditions in the securities markets; fluctuations in the trading price of our common stock; changes in interest rates; changes in the shape of the yield curve; changes in deposit flows, and in the demand for deposit and loan products and other financial services; changes in real estate values; changes in the quality or composition of our loan or investment portfolios; changes in competitive pressures among financial institutions or from non-financial institutions; our ability to retain key members of management; changes in legislation, regulation, and policies; and a variety of other matters which, by their nature, are subject to significant uncertainties. We provide greater detail regarding some of these factors in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020, in Part I under “Item 1A. Risk Factors.” 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, Christopher Becker, and Principal Financial Officer, 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 were no changes in internal control over financial reporting that occurred during the second quarter of 2021 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

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

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in Item 1A. Risk Factors, in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020.

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 quarter of 2021 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 2021	—		—	—		$15,353,793
May 2021	92,533		$22.695	92,533		$13,253,794
June 2021	—		—	—		$13,253,794
Total	92,533		$22.695	92,533

(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. 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 $65 million. The Corporation’s stock repurchase program does not have a fixed expiration date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

Not applicable

ITEM 6. EXHIBITS

See Index of Exhibits that follows.

‎

INDEX OF EXHIBITS


Exhibit No.	Description of Exhibit
10.1	The First of Long Island Corporation 2021 Equity Incentive Plan (incorporated by reference to Appendix A to the Proxy Statement for the Annual Meeting of Stockholders filed with the Securities and Exchange Commission on March 12, 2021 (File No. 001-32964))
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, 2021, formatted in 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)

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 4, 2021	By /s/ CHRISTOPHER BECKER
	Christopher Becker, President & Chief Executive Officer
	(principal executive officer)

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

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