FIRST OF LONG ISLAND CORP - Quarter Report: 2017 March (Form 10-Q)

flic20170331_10q.htm

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

March 31, 2017

[ ] 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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes X No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 [ ] (Do not check if a smaller reporting company)
Smaller reporting company [ ]	Emerging growth company [ ]

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Title of Each Class		Outstanding at April 30, 2017
Common stock, $.10 par value per share		24,082,418

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION

ITEM 1.	Financial Statements

	Consolidated Balance Sheets (Unaudited) – March 31, 2017 and December 31, 2016	1

	Consolidated Statements of Income (Unaudited) – Three Months Ended March 31, 2017 and 2016	2

	Consolidated Statements of Comprehensive Income (Unaudited) – Three Months Ended March 31, 2017 and 2016	3

	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Three Months Ended March 31, 2017 and 2016	4

	Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended March 31, 2017 and 2016	5

	Notes to Unaudited Consolidated Financial Statements	6

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	26

ITEM 4.	Controls and Procedures	28

PART II.	OTHER INFORMATION

ITEM 1.	Legal Proceedings	28

ITEM 1A.	Risk Factors	28

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

ITEM 3.	Defaults Upon Senior Securities	28

ITEM 4.	Mine Safety Disclosures	28

ITEM 5.	Other Information	28

ITEM 6.	Exhibits	28

	Signatures	30

PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	March 31,			December 31,
(dollars in thousands)	2017			2016

Assets:
Cash and cash equivalents	$	48,167		$	36,929

Investment securities:
Held-to-maturity, at amortized cost (fair value of $10,296 and $11,637)		10,079			11,387
Available-for-sale, at fair value		747,468			815,299
		757,547			826,686

Loans:
Commercial and industrial		123,175			126,038
Secured by real estate:
Commercial mortgages		1,093,387			1,085,198
Residential mortgages		1,361,871			1,238,431
Home equity lines		87,642			86,461
Consumer and other		9,206			9,293
		2,675,281			2,545,421
Allowance for loan losses		(30,843	)		(30,057	)
		2,644,438			2,515,364

Restricted stock, at cost		29,183			31,763
Bank premises and equipment, net		34,687			34,361
Bank-owned life insurance		58,446			33,097
Pension plan assets, net		17,350			17,316
Other assets		17,212			14,804
	$	3,607,030		$	3,510,320
Liabilities:
Deposits:
Checking	$	839,131		$	808,311
Savings, NOW and money market		1,616,467			1,519,749
Time, $100,000 and over		187,143			178,918
Time, other		104,853			101,739
		2,747,594			2,608,717

Short-term borrowings		139,484			207,012
Long-term debt		390,212			379,212
Accrued expenses and other liabilities		12,143			9,481
Deferred income taxes payable		1,165			68
		3,290,598			3,204,490

Stockholders' Equity:
Common stock, par value $.10 per share:
Authorized, 40,000,000 shares;
Issued and outstanding, 23,901,707 and 23,699,107 shares		2,390			2,370
Surplus		105,971			101,738
Retained earnings		209,051			203,326
		317,412			307,434
Accumulated other comprehensive loss, net of tax		(980	)		(1,604	)
		316,432			305,830
	$	3,607,030		$	3,510,320

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended March 31,
(dollars in thousands, except per share data)	2017		2016

Interest and dividend income:
Loans	$	22,919	$	19,814
Investment securities:
Taxable		2,202		1,890
Nontaxable		3,377		3,403
		28,498		25,107
Interest expense:
Savings, NOW and money market deposits		1,491		933
Time deposits		1,188		1,375
Short-term borrowings		389		124
Long-term debt		1,770		1,974
		4,838		4,406
Net interest income		23,660		20,701
Provision for loan losses		788		253
Net interest income after provision for loan losses		22,872		20,448

Noninterest income:
Investment Management Division income		522		476
Service charges on deposit accounts		703		634
Net gains on sales of securities		57		-
Other		838		644
		2,120		1,754
Noninterest expense:
Salaries		5,924		5,578
Employee benefits		1,809		1,669
Occupancy and equipment		2,521		2,377
Other		2,760		2,807
		13,014		12,431

Income before income taxes		11,978		9,771
Income tax expense		2,897		2,136
Net income	$	9,081	$	7,635

Earnings per share:
Basic	$	.38	$	.36
Diluted	$	.38	$	.35

Cash dividends declared per share	$	.14	$	.13

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended
	March 31,
(dollars in thousands)	2017		2016

Net income	$	9,081	$	7,635

Other comprehensive income:
Change in net unrealized holding gains on available-for-sale securities		1,071		5,142
Change in funded status of pension plan		5		61
Other comprehensive income before income taxes		1,076		5,203
Income tax expense		452		2,272
Other comprehensive income		624		2,931
Comprehensive income	$	9,705	$	10,566

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

Three Months Ended March 31, 2017

Accumulated

Other

Common Stock

Retained

Comprehensive

(dollars in thousands)

Shares

Amount

Surplus

Earnings

Loss

Total

Balance, January 1, 2017

23,699,107

2,370

101,738

203,326

(1,604

)

305,830

Net income

9,081

Other comprehensive income

624

Repurchase of common stock

(19,339

)

(525

)

(527

)

Common stock issued under stock compensation plans

75,219

142

149

Common stock issued under dividend reinvestment and stock purchase plan

146,720

3,869

3,884

Stock-based compensation

747

Cash dividends declared

(3,356

)

(3,356

)

Balance, March 31, 2017

23,901,707

2,390

105,971

209,051

(980

)

316,432

	Three Months Ended March 31, 2016
													Accumulated
													Other
	Common Stock									Retained			Comprehensive
(dollars in thousands)	Shares			Amount			Surplus			Earnings			Income		Total

Balance, January 1, 2016		14,116,677		$	1,412		$	56,931		$	185,069		$	7,524	$	250,936
Net income											7,635					7,635
Other comprehensive income														2,931		2,931
Repurchase of common stock		(13,393	)		(1	)		(369	)							(370	)
Common stock issued under stock compensation plans		58,469			5			215								220
Common stock issued under dividend reinvestment and stock purchase plan		50,601			5			1,424								1,429
Stock-based compensation								508								508
Cash dividends declared											(2,853	)				(2,853	)
Balance, March 31, 2016		14,212,354		$	1,421		$	58,709		$	189,851		$	10,455	$	260,436

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended March 31,
(dollars in thousands)	2017			2016

Cash Flows From Operating Activities:
Net income	$	9,081		$	7,635
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		788			253
Provision for deferred income taxes		645			817
Depreciation and amortization		824			848
Premium amortization on investment securities, net		838			920
Net gains on sales of securities		(57	)		-
Net loss on sales of loans held-for-sale		-			5
Stock-based compensation expense		747			508
Common stock issued in lieu of cash for director fees		13			-
Accretion of cash surrender value on bank-owned life insurance		(349	)		(234	)
Pension expense (credit)		(29	)		4
Increase in other assets		(2,408	)		(1,268	)
Increase (decrease) in accrued expenses and other liabilities		2,624			(3,724	)
Net cash provided by operating activities		12,717			5,764

Cash Flows From Investing Activities:
Proceeds from sales of available-for-sale investment securities		40,011			-
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity		1,331			812
Available-for-sale		34,753			22,369
Purchases of available-for-sale investment securities		(6,666	)		(65,438	)
Proceeds from sales of loans held-for-sale		-			100
Net increase in loans		(129,862	)		(60,954	)
Net decrease in restricted stock		2,580			7,943
Purchases of premises and equipment, net		(1,150	)		(1,504	)
Purchase of bank-owned life insurance		(25,000	)		-
Net cash used in investing activities		(84,003	)		(96,672	)

Cash Flows From Financing Activities:
Net increase in deposits		138,877			271,328
Net decrease in short-term borrowings		(67,528	)		(199,692	)
Proceeds from long-term debt		11,000			23,500
Proceeds from issuance of common stock, net		3,884			1,429
Proceeds from exercise of stock options		136			220
Repurchase and retirement of common stock		(527	)		(370	)
Cash dividends paid		(3,318	)		(2,821	)
Net cash provided by financing activities		82,524			93,594

Net increase in cash and cash equivalents		11,238			2,686
Cash and cash equivalents, beginning of year		36,929			39,635
Cash and cash equivalents, end of period	$	48,167		$	42,321

Supplemental Information:
Cash paid for:
Interest	$	4,872		$	7,426
Income taxes		260			694
Noncash investing and financing activities:
Cash dividends payable		3,406			2,855

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 in the United States. In preparing the consolidated financial statements, management is required to make estimates, such as the allowance for loan losses, and assumptions that affect the reported asset and liability balances, revenue and expense amounts, and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates.

The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, The First National Bank of Long Island (“Bank”). The Bank has two wholly owned subsidiaries: FNY Service Corp., an investment company, and The First of Long Island Agency, Inc., a licensed insurance agency under the laws of the State of New York. 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, 2016.

The consolidated financial information included herein as of and for the periods ended March 31, 2017 and 2016 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, 2016 consolidated balance sheet was derived from the Corporation's December 31, 2016 audited consolidated financial statements. When appropriate, items in the prior year financial statements are reclassified to conform to the current period presentation.

In the fourth quarter of 2016, the Corporation adopted Accounting Standards Update (“ASU”) 2016-09 “Improvements to Employee Share-Based Payment Accounting.” Earnings for the first three quarters of 2016 were adjusted retroactively to reflect the adoption of the ASU effective as of January 1, 2016. The ASU increased net income in the first quarters of 2017 and 2016 through credits to income tax expense by $285,000 and $205,000, respectively.

2 – EARNINGS PER SHARE

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

	Three Months Ended March 31,
(dollars in thousands, except per share data)	2017		2016
Net income	$	9,081	$	7,635
Income allocated to participating securities (1)		34		32
Income allocated to common stockholders	$	9,047	$	7,603

Weighted average:
Common shares		23,858,640		21,275,579
Dilutive stock options and restricted stock units (1)		264,305		274,683
		24,122,945		21,550,262
Earnings per share:
Basic	$	.38	$	.36
Diluted		.38		.35

(1) Restricted stock units (“RSUs”) awarded in 2016 accrue dividends at the same rate as the dividends declared by the Board of Directors on the Corporation’s common stock. For purposes of computing EPS, these RSUs are considered to participate with common stock in the earnings of the Corporation and, therefore, the Corporation is required to calculate basic and diluted EPS using the two-class method. Under the two-class method, net income for the period is allocated between common stockholders and participating securities according to dividends declared and participation rights in undistributed earnings.

3 - COMPREHENSIVE INCOME

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

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

	Three Months Ended March 31,
	2017			2016
		(in thousands)
Change in net unrealized holding gains on available-for-sale securities:
Change arising during the period	$	1,128		$	5,142
Reclassification adjustment for gains included in net income (1)		(57	)		-
Change in net unrealized holding gains on available-for-sale securities		1,071			5,142
Tax effect		450			2,298
		621			2,844

Change in funded status of pension plan:
Amortization of net actuarial loss included in pension expense (2)		5			61
Tax effect		2			(26	)
		3			87
Other comprehensive income	$	624		$	2,931

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

(2) Represents the amortization into expense of net actuarial loss relating to the Corporation’s defined benefit pension plan. This item is included in net periodic pension cost (see Note 7) and in the consolidated statements of income in the line item, “Employee benefits.” The related income tax expense is included in the consolidated statements of income in the line item, “Income tax expense.”

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

				Current
	Balance			Period		Balance
	12/31/16			Change		3/31/17
	(in thousands)
Unrealized holding gains on available-for-sale securities	$	1,654		$	621	$	2,275
Unrealized actuarial losses on pension plan		(3,258	)		3		(3,255	)
Accumulated other comprehensive loss, net of tax	$	(1,604	)	$	624	$	(980	)

4 - INVESTMENT SECURITIES

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

	March 31, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Held-to-Maturity Securities:	(in thousands)
State and municipals	$	9,180	$	154	$	-		$	9,334
Pass-through mortgage securities		349		31		-			380
Collateralized mortgage obligations		550		32		-			582
	$	10,079	$	217	$	-		$	10,296
Available-for-Sale Securities:
State and municipals	$	438,399	$	10,681	$	(3,040	)	$	446,040
Pass-through mortgage securities		166,606		133		(2,759	)		163,980
Collateralized mortgage obligations		138,767		216		(1,535	)		137,448
	$	743,772	$	11,030	$	(7,334	)	$	747,468

	December 31, 2016
Held-to-Maturity Securities:
State and municipals	$	10,419	$	177	$	-		$	10,596
Pass-through mortgage securities		361		33		-			394
Collateralized mortgage obligations		607		40		-			647
	$	11,387	$	250	$	-		$	11,637
Available-for-Sale Securities:
State and municipals	$	444,154	$	10,137	$	(3,631	)	$	450,660
Pass-through mortgage securities		188,527		156		(2,874	)		185,809
Collateralized mortgage obligations		179,993		862		(2,025	)		178,830
	$	812,674	$	11,155	$	(8,530	)	$	815,299

At March 31, 2017 and December 31, 2016, investment securities with a carrying value of $452,298,000 and $415,419,000, respectively, were pledged as collateral to secure public deposits and borrowed funds.

There were no holdings of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity at March 31, 2017 and December 31, 2016.

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.

	March 31, 2017
	Less than					12 Months
	12 Months					or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
	(in thousands)
State and municipals	$	97,489	$	(3,021	)	$	1,534	$	(19	)	$	99,023	$	(3,040	)
Pass-through mortgage securities		156,715		(2,759	)		-		-			156,715		(2,759	)
Collateralized mortgage obligations		105,143		(1,347	)		7,144		(188	)		112,287		(1,535	)
Total temporarily impaired	$	359,347	$	(7,127	)	$	8,678	$	(207	)	$	368,025	$	(7,334	)

	December 31, 2016
State and municipals	$	117,181	$	(3,631	)	$	-	$	-		$	117,181	$	(3,631	)
Pass-through mortgage securities		175,000		(2,874	)		-		-			175,000		(2,874	)
Collateralized mortgage obligations		125,424		(1,820	)		7,737		(205	)		133,161		(2,025	)
Total temporarily impaired	$	417,605	$	(8,325	)	$	7,737	$	(205	)	$	425,342	$	(8,530	)

Because the unrealized losses reflected in the preceding tables are deemed by management to be attributable to changes in interest rates and not credit losses, and because management does not have the intent to sell these securities and it is not more likely than not that it will be required to sell these securities before their anticipated recovery, the Bank does not consider these securities to be other-than-temporarily impaired at March 31, 2017.

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

	Three Months Ended March 31,
	2017			2016
	(in thousands)
Proceeds	$	40,011		$	-

Gross gains	$	366		$	-
Gross losses		(309	)		-
Net gain	$	57		$	-

Income tax expense related to the net realized gains for the three months ended March 31, 2017 was $24,000.

Sales of Held-to-Maturity Securities. There were no sales of held-to-maturity securities during the three months ended March 31, 2017 and 2016.

Maturities. The following table sets forth by maturity the amortized cost and fair value of the Bank’s state and municipal securities at March 31, 2017 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 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.

	Amortized Cost		Fair Value
Held-to-Maturity Securities:	(in thousands)
Within one year	$	4,026	$	4,057
After 1 through 5 years		4,266		4,382
After 5 through 10 years		888		895
After 10 years		-		-
Mortgage-backed securities		899		962
	$	10,079	$	10,296
Available-for-Sale Securities:
Within one year	$	15,264	$	15,447
After 1 through 5 years		75,845		78,649
After 5 through 10 years		170,480		173,676
After 10 years		176,810		178,268
Mortgage-backed securities		305,373		301,428
	$	743,772	$	747,468

5 – LOANS

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

	March 31, 2017
	Loans						Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Ending Balance
	(in thousands)
Commercial and industrial	$	65	$	123,110	$	123,175	$	-	$	1,527	$	1,527
Commercial mortgages:
Multifamily		-		597,584		597,584		-		5,806		5,806
Other		-		390,375		390,375		-		4,303		4,303
Owner-occupied		549		104,879		105,428		-		998		998
Residential mortgages:
Closed end		884		1,360,987		1,361,871		44		16,714		16,758
Revolving home equity		1,760		85,882		87,642		513		826		1,339
Consumer and other		-		9,206		9,206		-		112		112
	$	3,258	$	2,672,023	$	2,675,281	$	557	$	30,286	$	30,843

	December 31, 2016
Commercial and industrial	$	131	$	125,907	$	126,038	$	-	$	1,408	$	1,408
Commercial mortgages:
Multifamily		-		610,385		610,385		-		6,119		6,119
Other		-		371,142		371,142		-		4,296		4,296
Owner-occupied		558		103,113		103,671		-		959		959
Residential mortgages:
Closed end		856		1,237,575		1,238,431		45		15,695		15,740
Revolving home equity		1,770		84,691		86,461		482		919		1,401
Consumer and other		-		9,293		9,293		-		134		134
	$	3,315	$	2,542,106	$	2,545,421	$	527	$	29,530	$	30,057

The following tables present the activity in the allowance for loan losses for the three months ended March 31, 2017 and 2016.

	Balance at 1/1/17		Chargeoffs		Recoveries		Provision for Loan Losses (Credit)			Balance at 3/31/17
	(in thousands)
Commercial and industrial	$	1,408	$	6	$	3	$	122		$	1,527
Commercial mortgages:
Multifamily		6,119		-		-		(313	)		5,806
Other		4,296		-		-		7			4,303
Owner-occupied		959		-		-		39			998
Residential mortgages:
Closed end		15,740		-		1		1,017			16,758
Revolving home equity		1,401		-		-		(62	)		1,339
Consumer and other		134		-		-		(22	)		112
	$	30,057	$	6	$	4	$	788		$	30,843

	Balance at 1/1/16		Chargeoffs		Recoveries		Provision for Loan Losses (Credit)			Balance at 3/31/16
	(in thousands)
Commercial and industrial	$	928	$	-	$	4	$	180		$	1,112
Commercial mortgages:
Multifamily		6,858		-		-		(53	)		6,805
Other		3,674		-		-		179			3,853
Owner-occupied		1,047		-		-		46			1,093
Residential mortgages:
Closed end		13,639		-		8		(4	)		13,643
Revolving home equity		1,016		-		3		(92	)		927
Consumer and other		94		-		-		(3	)		91
	$	27,256	$	-	$	15	$	253		$	27,524

For individually impaired loans, the following tables set forth by class of loans at March 31, 2017 and December 31, 2016 the recorded investment, unpaid principal balance and related allowance. The tables also set forth the average recorded investment of individually impaired loans and interest income recognized while the loans were impaired during the three months ended March 31, 2017 and 2016. The recorded investment is the unpaid principal balance of the loans less any interest payments applied to principal and any direct chargeoffs plus or minus net deferred loan costs and fees. Any principal and interest payments received on nonaccrual impaired loans are applied to the recorded investment in the loans. The Bank recognizes interest income on other impaired loans using the accrual method of accounting.

							Three Months Ended
	March 31, 2017						March 31, 2017
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(in thousands)
With no related allowance recorded:
Commercial and industrial	$	65	$	65	$	-	$	99	$	2
Commercial mortgages - owner occupied		549		632		-		552		4
Residential mortgages:
Closed end		266		355		-		272		-
Revolving home equity		280		279		-		280		-

With an allowance recorded:
Residential mortgages:
Closed end		618		627		44		621		12
Revolving home equity		1,480		1,480		513		1,483		-

Total:
Commercial and industrial		65		65		-		99		2
Commercial mortgages - owner occupied		549		632		-		552		4
Residential mortgages:
Closed end		884		982		44		893		12
Revolving home equity		1,760		1,759		513		1,763		-
	$	3,258	$	3,438	$	557	$	3,307	$	18

							Three Months Ended
	December 31, 2016						March 31, 2016
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(in thousands)
With no related allowance recorded:
Commercial and industrial	$	131	$	131	$	-	$	-	$	-
Commercial mortgages - owner-occupied		558		636		-		589		-
Residential mortgages:
Closed end		230		313		-		300		-
Revolving home equity		280		279		-		521		2

With an allowance recorded:
Residential mortgages:
Closed end		626		634		45		3,475		34
Revolving home equity		1,490		1,491		482		-		-

Total:
Commercial and industrial		131		131		-		-		-
Commercial mortgages - owner-occupied		558		636		-		589		-
Residential mortgages:
Closed end		856		947		45		3,775		34
Revolving home equity		1,770		1,770		482		521		2
	$	3,315	$	3,484	$	527	$	4,885	$	36

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

	March 31, 2017
	30-59 Days Past Due		60-89 Days Past Due		Past Due 90 Days or More and Still Accruing		Nonaccrual Loans		Total Past Due Loans & Nonaccrual Loans		Current		Total Loans
	(in thousands)
Commercial and industrial	$	213	$	-	$	-	$	65	$	278	$	122,897	$	123,175
Commercial mortgages:
Multifamily		-		-		-		-		-		597,584		597,584
Other		-		-		-		-		-		390,375		390,375
Owner-occupied		-		-		-		-		-		105,428		105,428
Residential mortgages:
Closed end		-		1,371		-		266		1,637		1,360,234		1,361,871
Revolving home equity		-		257		-		1,760		2,017		85,625		87,642
Consumer and other		19		-		-		-		19		9,187		9,206
	$	232	$	1,628	$	-	$	2,091	$	3,951	$	2,671,330	$	2,675,281

	December 31, 2016
Commercial and industrial	$	224	$	-	$	-	$	-	$	224	$	125,814	$	126,038
Commercial mortgages:
Multifamily		-		-		-		-		-		610,385		610,385
Other		-		-		-		-		-		371,142		371,142
Owner-occupied		-		-		621		558		1,179		102,492		103,671
Residential mortgages:
Closed end		881		-		-		230		1,111		1,237,320		1,238,431
Revolving home equity		-		-		-		1,770		1,770		84,691		86,461
Consumer and other		1		-		-		-		1		9,292		9,293
	$	1,106	$	-	$	621	$	2,558	$	4,285	$	2,541,136	$	2,545,421

The loans in the preceding table that were past due 90 days or more and still accruing at December 31, 2016 were well secured and in the process of collection. There were no loans in the process of foreclosure nor did the Bank hold any foreclosed residential real estate property at March 31, 2017 or December 31, 2016.

Troubled Debt Restructurings. A restructuring constitutes a troubled debt restructuring when it includes a concession by the Bank and the borrower is experiencing financial difficulty. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. The Bank performs the evaluation under its internal underwriting policy.

During the three months ended March 31, 2017 and 2016, the Bank did not modify any loans in troubled debt restructurings.

At March 31, 2017 and December 31, 2016, the Bank had an allowance for loan losses of $44,000 and $45,000, respectively, allocated to specific troubled debt restructurings. The Bank had no commitments to lend additional amounts in connection with loans that were classified as troubled debt restructurings.

There were no troubled debt restructurings for which there was a payment default during the three months ended March 31, 2017 and 2016 that were modified during the twelve-month period prior to default. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

Risk Characteristics. Credit risk within the Bank’s loan portfolio primarily stems from factors such as borrower size, geographic concentration, industry concentration, real estate values, local and national economic conditions and environmental impairment of properties securing mortgage loans. The Bank’s commercial loans, including those secured by mortgages, are primarily made to small and medium-sized businesses. Such loans sometimes involve a higher degree of risk than those to larger companies because such businesses may have shorter operating histories, higher debt-to-equity ratios and may lack sophistication in internal record keeping and financial and operational controls. In addition, most of the Bank’s loans are made to businesses and consumers on Long Island and in the boroughs of New York City, and a large percentage of these loans are mortgage loans secured by properties located in those areas. The primary source of repayment for multifamily loans is cash flows from the underlying properties, a substantial portion of which are rent stabilized or rent controlled. Such cash flows are dependent on 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 and current economic trends.

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

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

Risk ratings on commercial and industrial loans and commercial mortgages are initially assigned by the lending officer together with any necessary approval authority. The ratings are periodically reviewed and evaluated based upon borrower contact, credit department review or independent loan review.

The Bank's loan risk rating and review policy establishes requirements for the annual review of commercial real estate and commercial and industrial loans. The requirements include details of the scope of coverage and selection process based on loan-type and risk rating. Among other things, at least 60% of the recorded investment of commercial real estate loans as of December 31 of the prior year must be reviewed annually. The frequency of the review of other loans is determined by the Bank’s ongoing assessments of the borrower’s condition.

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

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

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

	March 31, 2017
	Internally Assigned Risk Rating
					Special
	Pass		Watch		Mention		Substandard		Doubtful		Total
	(in thousands)
Commercial and industrial	$	122,528	$	582	$	-	$	65	$	-	$	123,175
Commercial mortgages:
Multifamily		590,344		-		7,240		-		-		597,584
Other		388,986		1,389		-		-		-		390,375
Owner-occupied		100,317		3,053		1,509		549		-		105,428
	$	1,202,175	$	5,024	$	8,749	$	614	$	-	$	1,216,562

	December 31, 2016
Commercial and industrial	$	125,097	$	810	$	-	$	131	$	-	$	126,038
Commercial mortgages:
Multifamily		603,103		-		7,282		-		-		610,385
Other		369,740		1,402		-		-		-		371,142
Owner-occupied		102,725		389		-		557		-		103,671
	$	1,200,665	$	2,601	$	7,282	$	688	$	-	$	1,211,236

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

	March 31, 2017
	Internally Assigned Risk Rating
					Special
	Pass		Watch		Mention		Substandard		Doubtful		Total
	(in thousands)
Residential mortgages:
Closed end	$	1,358,222	$	2,335	$	430	$	884	$	-	$	1,361,871
Revolving home equity		84,720		661		501		1,760		-		87,642
Consumer and other		8,497		-		-		-		-		8,497
	$	1,451,439	$	2,996	$	931	$	2,644	$	-	$	1,458,010

	December 31, 2016
Residential mortgages:
Closed end	$	1,236,152	$	982	$	441	$	856	$	-	$	1,238,431
Revolving home equity		84,189		-		501		1,771		-		86,461
Consumer and other		8,614		-		-		-		-		8,614
	$	1,328,955	$	982	$	942	$	2,627	$	-	$	1,333,506

Deposit account overdrafts were $709,000 and $679,000 at March 31, 2017 and December 31, 2016, respectively. Overdrafts are not assigned a risk rating and are therefore excluded from consumer loans in the tables above.

6 - STOCK-BASED COMPENSATION

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

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

The Corporation has 2,250,000 shares of common stock reserved for awards under the 2014 Plan. Awards granted under the 2006 Plan that expire or are forfeited after April 22, 2014 will be added to the number of shares of common stock reserved for issuance of awards under the 2014 Plan. All of the 2,250,000 shares may be issued pursuant to the exercise of stock options or SARs. A maximum of 787,500 shares may be issued as restricted stock awards or RSUs. At March 31, 2017, 1,938,649 shares of common stock remain available for issuance of awards under the 2014 Plan of which 457,699 shares remain available for issuance as restricted stock awards or RSUs.

In January 2017, 91,079 RSUs were awarded under the 2014 Plan, including 59,083 performance-based RSUs that will vest based on the financial performance of the Corporation in 2019 and have a maximum payout potential of 1.25 shares of the Corporation’s common stock for each RSU awarded, 31,696 RSUs that will vest in equal annual installments at the end of one, two and three years of service and 300 RSUs that will vest at the end of a three-year service-based vesting period.

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

Fair Value of RSUs. The grant date fair value of RSUs awarded prior to 2016 and in 2017 is equal to the market price of the shares underlying the awards on the grant date, discounted for dividends that are not paid or accrued on these RSUs. RSUs awarded in 2016 accrue dividends at the same rate as the dividends declared by the Board of Directors on the Corporation’s common stock. The grant date fair value of the 2016 RSU awards is equal to the market price of the shares underlying the awards on the grant date.

Fair Value of Stock Options. The grant date fair value of option awards is estimated on the date of grant using the Black-Scholes option pricing model.

Compensation Expense. The Corporation recorded compensation expense for share-based payments of $747,000 and $508,000 and recognized related income tax benefits of $314,000 and $213,000 for the three months ended March 31, 2017 and 2016, respectively.

Stock Option Activity. The following table presents a summary of options outstanding under the Corporation’s stock-based compensation plans as of March 31, 2017, and changes during the three month period then ended.

						Weighted-
				Weighted-		Average		Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value
	Options			Price		Term (yrs.)		(in thousands)
Outstanding at January 1, 2017		257,262		$	10.61
Exercised		(14,205	)		9.58
Forfeited or expired		-			-
Outstanding at March 31, 2017		243,057		$	10.67		2.24	$	3,981
Exercisable at March 31, 2017		242,457		$	10.66		2.23	$	3,974

All options outstanding at March 31, 2017 are either fully vested or expected to vest. The total intrinsic value of options exercised during the first quarter of 2017 and 2016 was $255,000 and $152,000, respectively.

RSU Activity. The following table presents a summary of RSUs outstanding under the Corporation’s stock-based compensation plans as of March 31, 2017 and changes during the three month period then ended.

						Weighted-
				Weighted-		Average		Aggregate
				Average		Remaining		Intrinsic
	Number of			Grant-Date		Contractual		Value
	RSUs			Fair Value		Term (yrs.)		(in thousands)
Outstanding at January 1, 2017		245,010		$	16.52
Granted		91,079			26.27
Converted		(60,534	)		17.40
Forfeited		-			-
Outstanding at March 31, 2017		275,555		$	19.55		1.64	$	7,454
Vested and Convertible at March 31, 2017		-		$	-		-	$	-

The number of RSUs outstanding at January 1, 2017 in the table above represents the maximum number of shares of the Corporation’s common stock into which the RSUs can be converted. The performance-based RSUs granted in 2017 have a maximum payout potential of 1.25 shares of the Corporation’s common stock for each RSU awarded. All of the RSUs outstanding at March 31, 2017 are currently expected to vest and become convertible in the future. The total intrinsic value of RSUs converted during the first three months of 2017 and 2016 was $1,650,000 and $1,237,000, respectively.

Unrecognized Compensation Cost. As of March 31, 2017, there was $3,012,000 of total unrecognized compensation cost related to non-vested equity awards comprised of $3,000 for stock options and $3,009,000 for RSUs. The total cost is expected to be recognized over a weighted-average period of 1.4 years, which is based on weighted-average periods of 3.2 years and 1.4 years for stock options and RSUs, respectively.

Cash Received and Tax Benefits Realized. Cash received from stock option exercises for the three months ended March 31, 2017 and 2016 was $136,000 and $220,000, respectively. Tax benefits from stock option exercises for the three months ended March 31, 2017 and 2016 were $107,000 and $63,000, respectively.

Other. No cash was used to settle stock options during the first three months of 2017 or 2016. The Corporation uses newly issued shares to settle stock option exercises and for the conversion of RSUs. During the first quarter of 2017, 480 shares of the Corporation’s common stock were issued to a member of the Board of Directors in payment of director fees.

7 - DEFINED BENEFIT PENSION PLAN

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

	Three Months Ended March 31,
	2017			2016
	(in thousands)
Service cost plus expected expenses and net of expected plan participant contributions	$	304		$	286
Interest cost		398			396
Expected return on plan assets		(736	)		(739	)
Amortization of net actuarial loss		5			61
Net pension cost (credit)	$	(29	)	$	4

The Bank makes cash contributions to the pension plan (“Plan”) which comply with the funding requirements of applicable Federal laws and regulations. For funding purposes, the laws and regulations set forth both minimum required and maximum tax-deductible contributions. The Bank has no minimum required pension contribution for the Plan year ending September 30, 2017 and it cannot make a tax-deductible contribution for the tax year beginning January 1, 2017.

8 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

The Corporation deems transfers between levels of the fair value hierarchy to have occurred on the date of the event or change in circumstance that caused the transfer. There were no transfers between levels of the fair value hierarchy during the three months ended March 31, 2017 or 2016.

The fair values of the Corporation’s investment securities designated as available-for-sale at March 31, 2017 and December 31, 2016 are set forth in the tables that follow. These values 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.

			Fair Value Measurements Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
March 31, 2017:
Available-for-Sale Securities:
State and municipals	$	446,040	$	-	$	446,040	$	-
Pass-through mortgage securities		163,980		-		163,980		-
Collateralized mortgage obligations		137,448		-		137,448		-
	$	747,468	$	-	$	747,468	$	-

December 31, 2016:
Available-for-Sale Securities:
State and municipals	$	450,660	$	-	$	450,660	$	-
Pass-through mortgage securities		185,809		-		185,809		-
Collateralized mortgage obligations		178,830		-		178,830		-
	$	815,299	$	-	$	815,299	$	-

Assets measured at fair value on a nonrecurring basis at March 31, 2017 and December 31, 2016, are set forth in the table that follows. Real estate appraisals utilized in measuring the fair value of impaired loans may employ a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. In arriving at fair value, the Corporation adjusts the value set forth in the appraisal by deducting costs to sell and a distressed sale adjustment when appropriate. The adjustments made by the appraisers and the Corporation are deemed to be significant unobservable inputs and therefore result in a Level 3 classification of the inputs used for determining the fair value of impaired loans. Because the Corporation has a small amount of impaired loans measured at fair value, the impact of unobservable inputs on the Corporation’s financial statements is not material.

			Fair Value Measurements Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
March 31, 2017:
Impaired loan:
Residential mortgage - revolving home equity	$	967	$	-	$	-	$	967
December 31, 2016:
Impaired loan:
Residential mortgage - revolving home equity	$	1,009	$	-	$	-	$	1,009

The impaired loan set forth in the preceding table had principal balances of $1,480,000 and $1,491,000 at March 31, 2017 and December 31, 2016, respectively, and valuation allowances of $513,000 and $482,000, respectively. During the three months ended March 31, 2017 and 2016, the Corporation recorded provisions (credit) for loan losses of $31,000 and $(9,000), respectively, for impaired loans measured at fair value.

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, 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 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	March 31, 2017				December 31, 2016
	Fair Value	Carrying				Carrying
	Hierarchy	Amount		Fair Value		Amount		Fair Value
		(in thousands)
Financial Assets:
Cash and cash equivalents	Level 1	$	48,167	$	48,167	$	36,929	$	36,929
Held-to-maturity securities	Level 2		8,596		8,813		9,904		10,154
Held-to-maturity securities	Level 3		1,483		1,483		1,483		1,483
Loans	Level 3		2,643,471		2,594,147		2,514,355		2,472,849
Restricted stock	Level 1		29,183		29,183		31,763		31,763
Accrued interest receivable:
Investment securities	Level 2		4,464		4,464		4,564		4,564
Loans	Level 3		6,700		6,700		6,418		6,418

Financial Liabilities:
Checking deposits	Level 1		839,131		839,131		808,311		808,311
Savings, NOW and money market deposits	Level 1		1,616,467		1,616,467		1,519,749		1,519,749
Time deposits	Level 2		291,996		293,637		280,657		282,024
Short-term borrowings	Level 1		139,484		139,484		207,012		207,012
Long-term debt	Level 2		390,212		387,331		379,212		375,003
Accrued interest payable:
Checking, savings, NOW and money market deposits	Level 1		119		119		160		160
Time deposits	Level 2		27		27		25		25
Short-term borrowings	Level 1		4		4		8		8
Long-term debt	Level 2		598		598		590		590

The following methods and assumptions are used by the Corporation in measuring the fair value of financial instruments disclosed in the preceding table.

Cash and cash equivalents. The recorded book value of cash and cash equivalents is their fair value.

Investment securities. Fair values are based on quoted prices for similar assets in active markets or derived principally from observable market data.

Loans. The total loan portfolio is divided into three segments: (1) residential mortgages; (2) commercial mortgages and commercial loans; and (3) consumer loans. Each segment is further divided into pools of loans with similar financial characteristics (i.e. product type, fixed versus variable rate, time to rate reset, length of term, conforming versus nonconforming). Cash flows for each pool, including estimated prepayments if applicable, are discounted utilizing market or internal benchmarks which management believes are reflective of current market rates for similar loan products. The discounted value of the cash flows is reduced by the related allowance for loan losses to arrive at an estimate of fair value.

Restricted stock. The recorded book value of Federal Home Loan Bank stock and Federal Reserve Bank stock is their fair value because the stock is redeemable at cost.

Deposit liabilities. The fair value of deposits with no stated maturity, such as checking deposits, money market deposits, NOW accounts and savings deposits, is equal to their recorded book value. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is equivalent to the rate at which the Bank could currently replace these deposits with wholesale borrowings from the Federal Home Loan Bank.

Borrowed funds. For short-term borrowings maturing within ninety days, the recorded book value is a reasonable estimate of fair value. The fair value of long-term debt is based on the discounted value of contractual cash flows. The discount rate is equivalent to the rate at which the Bank could currently replace these borrowings with wholesale borrowings from the Federal Home Loan Bank.

Accrued interest receivable and payable. For these short-term instruments, the recorded book value is a reasonable estimate of fair value.

Off-balance-sheet items. The fair value of off-balance sheet items is not considered to be material.

9 - IMPACT OF ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS

The pronouncements discussed in this section are not intended to be an all-inclusive list and should be read in conjunction with the disclosure of issued but not yet effective accounting standards in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016.

In March 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU 2017-07 applies to all employers that offer to their employees defined benefit pension plans, other postretirement benefit plans or other types of benefits accounted for under Topic 715. The ASU requires, among other things, that an employer disaggregate the service cost component from other components of net benefit cost and provides explicit guidance on how to present the service cost component and other components of net benefit cost in the income statement. ASU 2017-07 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued. Management currently believes that implementation of ASU 2017-07 in 2018 will result in reclassifications between certain noninterest income and noninterest expense categories, but that the amendments in the ASU will not have a material impact on the Corporation’s financial position, results of operations or disclosures.

In March 2017, the FASB issued ASU 2017-08 “Premium Amortization on Purchased Callable Debt Securities.” ASU 2017-08 affects all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date. The amendments shorten the amortization period for certain callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount, which continue to be amortized to maturity. ASU 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. Adoption of ASU 2017-08 will not have a material impact on the Corporation’s financial position, results of operations or disclosures.

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

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

Overview

Net income and earnings per share for the first quarter of 2017 were $9.1 million and $.38, respectively, representing increases over the same period last year of 18.9% and 8.6%, respectively. Dividends per share increased 7.7%, from $.13 for the first three months of 2016 to $.14 for the current three-month period. Returns on average assets (ROA) and average equity (ROE) for the first three months of 2017 were 1.02% and 11.75%, respectively, versus .97% and 11.94%, respectively, for the same period last year. Book value per share increased from $12.90 at year-end 2016 to $13.24 at the close of the current quarter. The credit quality of the Bank’s loan and securities portfolios remains excellent and the mortgage pipeline at quarter-end was strong at $154 million.

Analysis of First Quarter Earnings. Net income for the first quarter of 2017 was $9.1 million, an increase of $1.4 million, or 18.9%, over the same quarter last year. The increase is primarily attributable to increases in net interest income of $3.0 million, or 14.3%, and noninterest income of $366,000, partially offset by increases in the provision for loan losses of $535,000, noninterest expense of $583,000 and income tax expense of $761,000.

The increase in net interest income was primarily driven by growth in average interest-earning assets of $401.9 million, or 13.1%. Average interest-earning assets grew due to increases in the average balances of loans and securities. The growth in loans and securities was funded by growth in the average balances of noninterest-bearing checking deposits, interest-bearing deposits, short-term borrowings and stockholders’ equity. Net interest margin was 2.92% for the first quarter of 2017, essentially unchanged as compared to 2.93% for the first quarter of 2016.

The $366,000 increase in noninterest income is primarily attributable to increases in cash value accretion on bank-owned life insurance, service charges on deposit accounts, securities gains, Investment Management Division income and real estate tax refunds.

The $535,000 increase in the provision for loan losses is largely due to more loan growth in the current quarter. Loans grew $129.9 million in the first quarter of 2017 versus $61.0 million in the same quarter last year. The impact of loan growth on the provision in each quarter was partially offset by improved economic conditions and, in the first quarter of 2016, a reduction in historical loss rates.

The $583,000 increase in noninterest expense is primarily attributable to increases in salaries, employee benefits expense, occupancy and equipment expense, and legal and consulting expense, partially offset by decreases in FDIC insurance expense and computer and telecommunications expense.

The $761,000 increase in income tax expense is mainly attributable to higher pre-tax earnings in the current quarter and an increase in the effective tax rate from 21.9% in the 2016 quarter to 24.2% in the current quarter.

Asset Quality. The Bank’s allowance for loan losses to total loans decreased 3 basis points from 1.18% at year-end 2016 to 1.15% at March 31, 2017. The decrease is primarily due to adjustments to certain qualitative factors to reflect improved economic conditions. The provision for loan losses was $788,000 and $253,000 in the first quarter of 2017 and 2016, respectively. The amount of the provision in each quarter was driven mainly by loan growth, offset by improved economic conditions and, in the first quarter of 2016, further offset by a reduction in the historical loss component of the allowance for loan losses.

The credit quality of the Bank’s loan portfolio remains excellent. Nonaccrual loans amounted to $2.1 million, or .08% of total loans outstanding at March 31, 2017, compared to $2.6 million, or .10%, at December 31, 2016. The decrease was primarily attributable to two loans accounted for as troubled debt restructurings being returned to accrual status based on the demonstrated ability of the borrowers to service their debt. Troubled debt restructurings amounted to $1.5 million, or .05% of total loans outstanding at March 31, 2017. Of the troubled debt restructurings, $1.2 million are performing in accordance with their modified terms and $286,000 are nonaccrual and included in the aforementioned amount of nonaccrual loans. Loans past due 30 through 89 days amounted to $1.9 million, or .07% of total loans outstanding, at March 31, 2017, compared to $1.1 million, or .04%, at December 31, 2016. Management does not believe that the increase in loans past due 30 to 89 days is indicative of a deterioration in the overall credit quality of the Bank’s loan portfolio.

The credit quality of the Bank’s securities portfolio also remains excellent. The Bank’s mortgage securities are backed by mortgages underwritten on conventional terms, with 58% of these securities being full faith and credit obligations of the U.S. government and the balance being obligations of U.S. government sponsored entities. The remainder of the Bank’s securities portfolio principally consists of high quality, general obligation municipal securities rated AA or better by major rating agencies. In selecting municipal securities for purchase, the Bank uses credit agency ratings for screening purposes only and then performs its own credit analysis. On an ongoing basis, the Bank periodically assesses the credit strength of the municipal securities in its portfolio and makes decisions to hold or sell based on such assessments.

Key Strategic Initiatives. Key strategic initiatives will continue to include loan and deposit growth through effective relationship management, targeted solicitation efforts, new product offerings and continued expansion of the Bank’s branch distribution system on Long Island and in the New York City boroughs of Queens and Brooklyn. With respect to loan growth, the Bank will continue to prudently manage concentration risk and further develop its broker and correspondent relationships. Small business credit scored loans, equipment finance loans and Small Business Administration (SBA) loans, along with the Bank’s traditional commercial and industrial loan products, will be originated to diversify the Bank’s loan portfolio and help mitigate the impact of the low rate environment on the Bank’s earnings.

The Bank’s growing branch distribution system currently consists of 47 branches in Nassau and Suffolk Counties, Long Island and the boroughs of Queens, Brooklyn and Manhattan. The Bank expects to open four more branches in the next 12 months and continues to evaluate sites for further branch expansion. One of the new branches will be in East Setauket, Long Island, one will be in Queens and two will be in Brooklyn. In addition to loan and deposit growth, management is also focused on growing noninterest income from existing and potential new sources, which may include the development or acquisition of fee-based businesses.

Challenges We Face. Since December 2015, there have been three 25 basis point increases in the federal funds target rate to its current level of .75% to 1%. Further increases are expected and could exert upward pressure on non-maturity deposit rates. At the same time, intermediate and long-term interest rates remain relatively low resulting in suboptimal investing and lending rates. Additionally, there is significant price competition for loans in the Bank’s marketplace and little room for the Bank to reduce its deposit rates. These factors will make it difficult to improve net interest margin and could result in a decline in net interest margin from its current level and inhibit earnings growth for the foreseeable future.

The banking industry continues to be faced with new and complex regulatory requirements and enhanced supervisory oversight. The President has indicated that regulatory relief and tax reform will be forthcoming, but the timing, magnitude and impact of any such changes are yet to be determined. In the current environment, banking regulators are increasingly concerned about, among other things, growth, commercial real estate concentrations, underwriting of commercial real estate and commercial and industrial loans, capital levels, cyber security and, as of late, predatory sales practices. Regulatory requirements and enhanced oversight are exerting downward pressure on revenues and upward pressure on required capital levels and the cost of doing business.

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.

	Three Months Ended March 31,
	2017								2016
	Average			Interest/		Average			Average			Interest/		Average
	Balance			Dividends		Rate			Balance			Dividends		Rate
	(dollars in thousands)
Assets:
Interest-earning bank balances	$	25,240		$	52		.84	%	$	29,131		$	38		.52	%
Investment securities:
Taxable		381,352			2,150		2.26			324,428			1,852		2.28
Nontaxable (1)		454,957			5,195		4.57			455,961			5,235		4.59
Loans (1)		2,618,352			22,922		3.50			2,268,449			19,817		3.49
Total interest-earning assets		3,479,901			30,319		3.49			3,077,969			26,942		3.50
Allowance for loan losses		(30,703	)							(27,703	)
Net interest-earning assets		3,449,198								3,050,266
Cash and due from banks		31,892								30,230
Premises and equipment, net		34,589								30,557
Other assets		79,281								57,938
	$	3,594,960							$	3,168,991

Liabilities and Stockholders' Equity:
Savings, NOW & money market deposits	$	1,579,338			1,491		.38		$	1,336,350			933		.28
Time deposits		282,749			1,188		1.70			309,577			1,375		1.79
Total interest-bearing deposits		1,862,087			2,679		.58			1,645,927			2,308		.56
Short-term borrowings		194,189			389		.81			92,208			124		.54
Long-term debt		380,621			1,770		1.89			382,470			1,974		2.08
Total interest-bearing liabilities		2,436,897			4,838		.81			2,120,605			4,406		.84
Checking deposits		836,519								774,549
Other liabilities		8,068								16,741
		3,281,484								2,911,895
Stockholders' equity		313,476								257,096
	$	3,594,960							$	3,168,991

Net interest income (1)				$	25,481							$	22,536
Net interest spread (1)							2.68	%							2.66	%
Net interest margin (1)							2.92	%							2.93	%

(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 $1.54 in each period presented using the statutory Federal income tax rate of 35%.

Rate/Volume Analysis. The following table sets forth the effect of changes in volumes, rates and rate/volume on tax-equivalent interest income, interest expense and net interest income.

	Three Months Ended March 31,
	2017 Versus 2016
	Increase (decrease) due to changes in:
							Rate/			Net
	Volume			Rate			Volume (1)			Change
	(in thousands)
Interest Income:
Interest-earning bank balances	$	(6	)	$	22		$	(2	)	$	14
Investment securities:
Taxable		322			(19	)		(5	)		298
Nontaxable		(14	)		(26	)		-			(40	)
Loans		3,028			32			45			3,105
Total interest income		3,330			9			38			3,377

Interest Expense:
Savings, NOW & money market deposits		157			319			82			558
Time deposits		(127	)		(77	)		17			(187	)
Short-term borrowings		135			60			70			265
Long-term debt		(22	)		(192	)		10			(204	)
Total interest expense		143			110			179			432
Increase (decrease) in net interest income	$	3,187		$	(101	)	$	(141	)	$	2,945

(1) Represents the change not solely attributable to change in rate or change in volume but a combination of these two factors. The rate/volume variance could be allocated between the volume and rate variances shown in the table based on the absolute value of each to the total for both.

Net Interest Income

Net interest income on a tax-equivalent basis for the first quarter of 2017 was $25.5 million, an increase of $2.9 million, or 13.1%, over $22.5 million for the first quarter of 2016. The increase resulted primarily from an increase in average interest-earning assets of $401.9 million, or 13.1%, partially offset by a one basis point decline in net interest margin from 2.93% to 2.92%.

The increase in average interest-earning assets is comprised of growth in the average balances of loans of $349.9 million, or 15.4%, and securities of $55.9 million, or 7.2%. Although most of the loan growth occurred in mortgage loans, commercial and industrial loans also grew with an increase in average outstandings of $30.8 million, or 32.5%. The Bank’s continued ability to grow loans is attributable to a variety of factors including, among others, competitive pricing, targeted solicitation efforts, the introduction of new loan products, advertising campaigns and broker and correspondent relationships for both residential and commercial mortgages.

The growth in loans and securities was funded by growth in the average balances of noninterest-bearing checking deposits of $62.0 million, or 8.0%, interest-bearing deposits of $216.2 million, or 13.1%, short-term borrowings of $102.0 million and stockholders’ equity of $56.4 million. A substantial contributor to the growth in deposits was new branch openings. The Bank’s ongoing ability to grow deposits is attributable to, among other things, continued expansion of the Bank’s branch distribution system, targeted solicitation of local commercial businesses and municipalities, new and expanded lending relationships, new small business checking and loan products and the expansion of merchant sales relationships. In addition, management believes that the Bank’s positive reputation in its marketplace has contributed to both loan and deposit growth. A substantial contributor to the growth in stockholders’ equity was $35.3 million of capital raised in an underwritten public offering completed in May 2016.

Net interest margin of 2.92% for the first quarter of 2017 remained essentially unchanged as compared to 2.93% in the same quarter last year. The current level of net interest margin reflects the low interest rate environment that has persisted for an extended period of time. On a going forward basis, if available yields for loans and securities, prepayment penalties and the cost of deposits and borrowings remain at current levels, net interest margin is not expected to meaningfully decline. This expectation is based on the fact that significant portions of the Bank’s mortgage loan and securities portfolios were originated or purchased in a low rate environment at yields similar to those currently available.

Noninterest Income

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

Noninterest income increased $366,000, or 20.9%, when comparing the first quarter of 2017 to the same period last year. The increase is primarily attributable to increases in cash value accretion on bank-owned life insurance of $116,000, service charges on deposit accounts of $69,000, securities gains of $57,000, Investment Management Division income of $46,000 and real estate tax refunds of $33,000. Cash value accretion increased because of purchases of bank-owned life insurance during the first quarter of 2017 with an initial cash value of $25.0 million. The increase in service charges on deposit accounts is due to higher deposit account overdraft and maintenance and activity charges. Securities gains of $57,000 in the current quarter resulted from a deleveraging transaction involving the sale of approximately $40.0 million of available-for-sale mortgage-backed securities and use of the proceeds to pay down short-term borrowings. If interest rates remain at current levels, this transaction will reduce the Bank’s net interest income on a going forward basis. However, it will improve the Bank’s Tier 1 leverage capital ratio and, more importantly, reduces the Bank’s exposure to increasing interest rates. Investment Management Division income increased because of increases in assets under management resulting principally from improved equity market conditions.

Noninterest Expense

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

Noninterest expense increased $583,000, or 4.7%, when comparing the first quarter of 2017 to the same period last year. The increase is primarily attributable to increases in salaries of $346,000, or 6.2%, employee benefits expense of $140,000, or 8.4%, occupancy and equipment expense of $144,000, or 6.1%, and legal and consulting expense of $92,000. The impact of these items was partially offset by decreases in FDIC insurance expense of $118,000 and computer and telecommunications expense of $93,000. The increase in salaries is primarily due to new branch openings, additions to staff in the back office, higher stock-based compensation expense and normal annual salary adjustments. The increase in employee benefits expense resulted primarily from increases in incentive compensation cost of $99,000 and group health insurance expense of $71,000, partially offset by a decrease in retirement plan expense of $59,000. The increase in health insurance expense resulted from increases in staff count and the rates being charged by insurance carriers. The increase in occupancy and equipment expense includes the operating costs of new branches and increases in maintenance and repairs expense and the cost of servicing equipment. The decrease in FDIC insurance expense is attributable to lower FDIC assessment rates effective July 1, 2016 partially offset by a growth-related increase in the assessment base. The decrease in computer and telecommunications expense reflects cost savings arising from renegotiation of the Bank's data processing contract in the fourth quarter of 2016 and the elimination of phone lines due to the installation of a new phone system.

Income Taxes

Income tax expense as a percentage of book income (“effective tax rate”) was 24.2% for the first quarter of 2017 compared to 21.9% for the same period last year. The increase in the effective tax rate was primarily due to a decline in the percentage of pre-tax book income represented by income on tax-exempt securities and state taxes in additional jurisdictions. The impact of these items on the effective tax rate was partially offset by the tax benefit derived from the first quarter of 2017 purchase of bank-owned life insurance and the additional tax benefit derived in the current quarter from vesting and exercise of stock awards. The $761,000 increase in income tax expense in the first quarter of 2017 reflects the aforementioned increase in the effective tax rate and higher pre-tax earnings in the current quarter.

In the fourth quarter of 2016, the Corporation adopted ASU 2016-09 “Improvements to Employee Share-Based Payment Accounting.” Earnings for the first quarter of 2016 were adjusted retroactively to reflect the adoption of the ASU effective as of January 1, 2016. The ASU increased net income in the first quarters of 2017 and 2016 through credits to income tax expense by $285,000 and $205,000, respectively.

Application of Critical Accounting Policies

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

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

The first step in determining the allowance for loan losses is to identify loans in the Bank’s portfolio that are individually deemed to be impaired and then measure impairment losses based on either the fair value of collateral or the discounted value of expected future cash flows. In estimating the fair value of real estate collateral, management utilizes appraisals or evaluations adjusted for costs to dispose and a distressed sale adjustment, if needed. Estimating the fair value of collateral other than real estate is also subjective in nature and sometimes requires difficult and complex judgments. Determining expected future cash flows can be more subjective than determining fair values. Expected future cash flows could differ significantly, both in timing and amount, from the cash flows actually received over the loan’s remaining life.

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

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

Asset Quality

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

	March 31,			December 31,
	2017			2016
	(dollars in thousands)
Nonaccrual loans:
Troubled debt restructurings	$	286		$	788
Other		1,805			1,770
Total nonaccrual loans		2,091			2,558
Loans past due 90 days or more and still accruing		-			621
Other real estate owned		-			-
Total nonperforming assets		2,091			3,179
Troubled debt restructurings - performing		1,167			757
Total risk elements	$	3,258		$	3,936

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

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

Allowance and Provision for Loan Losses

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

The allowance for loan losses increased $786,000 during the first quarter of 2017, amounting to $30.8 million, or 1.15% of total loans, at March 31, 2017, compared to $30.1 million, or 1.18% of total loans, at December 31, 2016. During the first quarter of 2017, the Bank had loan chargeoffs of $6,000, recoveries of $4,000 and recorded a provision for loan losses of $788,000. During the first quarter of 2016, the Bank had no loan chargeoffs, recoveries of $15,000 and recorded a provision for loan losses of $253,000. The amount of the provision in each quarter was mainly driven by loan growth, offset by improved economic conditions and, in the first quarter of 2016, further offset by a reduction in the historical loss component of the allowance for loan losses.

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

The amount of future chargeoffs and provisions for loan losses will be affected by, among other things, economic conditions on Long Island and in New York City. 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 95% of the Bank’s total loans outstanding at March 31, 2017. Most of these loans were made to borrowers domiciled on Long Island and in the boroughs of New York City. Although economic conditions are showing signs of improvement, they have been sluggish for an extended period of time. These conditions have caused some of the Bank’s borrowers to be unable to make the required contractual payments on their loans and could cause the Bank to be unable to realize the full carrying value of such loans through foreclosure or other collection efforts.

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, borrowings and funds from the Dividend Reinvestment and Stock Purchase Plan. 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 and for general operating purposes.

During the first quarter of 2017, the Corporation’s cash and cash equivalent position increased by $11.2 million, from $36.9 million at December 31, 2016 to $48.2 million at March 31, 2017. The increase occurred primarily because cash provided by deposit growth, an increase in long-term debt, paydowns and sales of securities, paydowns of loans and operations exceeded cash used to repay short-term borrowings, originate loans and purchase bank-owned life insurance and securities.

Securities decreased $69.1 million during the first quarter of 2017, from $826.7 million at year-end 2016 to $757.5 million at March 31, 2017. The decrease is mainly attributable to the sale of approximately $40.0 million of available-for-sale mortgage-backed securities and maturities and redemptions of $36.1 million, partially offset by purchases of $6.7 million of available-for-sale securities during the period.

During the first quarter of 2017, total deposits grew $138.9 million, or 5.3%, to $2.7 billion at March 31, 2017. The increase was attributable to growth in savings, NOW and money market deposits of $96.7 million, or 6.4%, noninterest-bearing checking balances of $30.8 million and time deposits of $11.3 million. The growth in deposits is mainly attributable to new branch openings and an increase in municipal deposit balances.

Borrowings include Federal Home Loan Bank (“FHLB”) borrowings and liabilities under repurchase agreements. Total borrowings decreased $56.5 million, or 9.6%, during the first quarter of 2017. The decrease is attributable to a reduction in short-term borrowings of $67.5 million, partially offset by an increase in long-term debt of $11.0 million. The decrease in short-term borrowings during the quarter was funded by the aforementioned sale of available-for-sale securities. Long-term debt totaled $390.2 million at March 31, 2017, representing 74% of total borrowings at quarter-end. The Bank’s long-term fixed-rate borrowing position and time deposits are intended to reduce the impact that an eventual increase in interest rates could have on the Bank’s earnings.

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

The Bank has both internal and external sources of liquidity that can be used to fund loan growth and accommodate deposit outflows. The Bank’s primary internal sources of liquidity are its overnight investments, investment securities designated as available-for-sale, maturities and monthly payments on its investment securities and loan portfolios and operations. At March 31, 2017, the Bank had approximately $295 million of unencumbered available-for-sale securities.

The Bank is a member of the Federal Reserve Bank of New York (“FRB”) 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 and FHLB of New York. In addition, the Bank can purchase overnight federal funds under its existing line. However, the Bank’s FRB membership, FHLB of New York membership and federal funds line do not represent legal commitments to extend credit to the Bank. The amount that the Bank can potentially borrow is currently dependent on, among other things, the amount of unencumbered eligible securities and loans that the Bank can use as collateral and the collateral margins required by the lenders. Based on the Bank’s unencumbered securities and loan collateral, a substantial portion of which is in place at the FRB and FHLB of New York, the Bank had borrowing capacity of approximately $1.6 billion at March 31, 2017.

Capital

Stockholders’ equity totaled $316.4 million at March 31, 2017, an increase of $10.6 million from $305.8 million at December 31, 2016. The increase resulted primarily from net income of $9.1 million and the issuance of shares under the Corporation’s Dividend Reinvestment and Stock Purchase Plan of $3.9 million, partially offset by cash dividends declared of $3.4 million.

During the first quarter of 2017, the Corporation’s Board of Directors increased the amount of stock that an individual can purchase on a quarterly basis under the stock purchase component of the Dividend Reinvestment and Stock Purchase Plan from $50,000 to $75,000. This change is intended to provide additional capital that can be used to accommodate further balance sheet growth.

The Corporation’s capital management policy is designed to build and maintain capital levels that exceed regulatory standards and appropriately provide for growth. The regulatory capital ratios of the Corporation and the Bank as of March 31, 2017 are as follows:

	Corporation			Bank
Tier 1 leverage		8.82	%		8.86	%
Common Equity Tier 1 risk-based		14.92	%		15.01	%
Tier 1 risk-based		14.92	%		15.01	%
Total risk-based		16.17	%		16.26	%

The Corporation and the Bank exceeded the Basel III minimum capital adequacy requirements, including the capital conservation buffer of 1.25% applicable to the Bank for 2017, and the Bank was well capitalized under the prompt corrective action provisions at March 31, 2017.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Bank invests in interest-earning assets, which are funded by interest-bearing deposits and borrowings, noninterest-bearing deposits and capital. The Bank’s results of operations are subject to risk resulting from interest rate fluctuations generally and having assets and liabilities that have different maturity, repricing, and prepayment/withdrawal characteristics. The Bank defines interest rate risk as the risk that the Bank's net interest income and/or economic value of equity (“EVE”) will change when interest rates change. The principal objective of the Bank’s asset liability management activities is to optimize current and future net interest income while at the same time maintain acceptable levels of interest rate and liquidity risk and facilitate the funding needs of the Bank.

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

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

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

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

In utilizing interest rate sensitivity modeling to project net interest income and calculate EVE, management makes a variety of estimates and assumptions which include, among others, the following: (1) how much and when yields and costs on individual categories of interest-earning assets and interest-bearing liabilities will change in response to projected changes in market interest rates; (2) future cash flows, including 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 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 during 2015 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 March 31, 2017 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 on a tax-equivalent basis for the year ending March 31, 2018 assuming a static balance sheet, the adjustment of repricing balances to current rate levels, and the reinvestment at current rate levels of cash flows from maturing assets and liabilities in a mix of assets and liabilities that mirrors the Bank’s strategic plan. In addition, in calculating EVE, cash flows for nonmaturity deposits are derived using a base case average life by product as determined by a nonmaturity deposit study conducted in 2015 and the current mix of deposits.

The rate change information in the following table shows estimates of net interest income on a tax-equivalent basis for the year ending March 31, 2018 and calculations of EVE at March 31, 2017 assuming rate changes of plus 100, 200 and 300 basis points and minus 100 basis points. The rate change scenarios were selected based on, among other things, the relative level of current interest rates and are: (1) assumed to be shock or immediate changes, (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 mirrors the Bank’s strategic plan. The changes in EVE from the base case have not been tax affected.

	Economic Value of Equity					Net Interest Income for
	at March 31, 2017					Year Ending March 31, 2018
			Percent Change					Percent Change
			From					From
Rate Change Scenario (dollars in thousands)	Amount		Base Case			Amount		Base Case
+ 300 basis point rate shock	$	326,387		-20.0	%	$	93,994		-9.2	%
+ 200 basis point rate shock		389,733		-4.5	%		98,352		-5.0	%
+ 100 basis point rate shock		404,051		-1.0	%		101,086		-2.3	%
Base case (no rate change)		408,208		-			103,501		-
- 100 basis point rate shock		361,273		-11.5	%		100,463		-2.9	%

Any of the rate shock scenarios shown in the preceding table could negatively impact the Bank’s net interest income for the year ending March 31, 2018. The Bank’s net interest income could be negatively impacted in a shock down 100 basis point scenario because, among other things, the rates currently being paid on many of the Bank’s deposit products are approaching zero and there is little room to reduce them further. In the shock up 100, 200 or 300 basis point scenarios the Bank would need to pay more for overnight borrowings and it is assumed the Bank would need to increase the rates paid on its nonmaturity deposits in order to remain competitive. 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 Report on Form 10-Q and the documents incorporated into it by reference contain various forward-looking statements. These forward-looking statements include statements of goals; intentions and expectations; estimates of risks and of future costs and benefits; assessments of probable loan losses; assessments of market risk; and statements of the ability to achieve financial and other goals. Forward-looking statements are typically identified by words such as “would,” “should,” “could,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project” and other similar words and expressions. Forward-looking statements are subject to numerous assumptions, risks and uncertainties which may change over time. Forward-looking statements speak only as of the date they are made. We do not assume any duty and do not undertake to update our forward-looking statements. Because forward-looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those that we anticipated in our forward-looking statements and future results could differ materially from historical performance.

Our forward-looking statements are subject to the following principal risks and uncertainties: general economic conditions and trends, either nationally or locally; conditions in the securities markets; fluctuations in the trading price of our common stock; changes in interest rates; changes in 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, 2016, 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, Michael N. Vittorio, and Principal Financial Officer, Mark D. Curtis, have evaluated the Corporation’s disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this report. Based upon that evaluation, they have concluded that the Corporation’s disclosure controls and procedures are effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting that occurred during the first quarter of 2017 that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

Not applicable

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

Not applicable

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

3(ii)	Bylaws, as amended (incorporated by reference to Exhibit 3(ii) of Registrant’s Form 8-K filed April 25, 2017)

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 March 31, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statements.

SIGNATURES

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

	THE FIRST OF LONG ISLAND CORPORATION
	(Registrant)

Dated: May 10, 2017	By /s/ MICHAEL N. VITTORIO
	MICHAEL N. VITTORIO, President & Chief Executive Officer
	(principal executive officer)

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

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