The First of Long Island Annual Report 2018

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FY2018 Annual Report · The First of Long Island

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________
FORM 10-K

(Mark One)
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

December 31, 2018

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

For the transition period from to
Commission file number 001-32964
THE FIRST OF LONG ISLAND CORPORATION

(Exact Name Of Registrant As Specified In Its Charter)

New York
(State or Other Jurisdiction of Incorporation or Organization)

11-2672906
(I.R.S. Employer Identification No.)

10 Glen Head Road, Glen Head, NY
(Address of Principal Executive Offices)

11545
(Zip Code)

(516) 671-4900
Registrant's telephone number, including area code

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

Title of Each Class

Common Stock, $.10 par value per share

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

Name of Each Exchange on Which Registered

The NASDAQ Stock Market

None
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  No 

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 requirement for the past 90
days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

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. (Check one):

Large accelerated filer 
Non-accelerated filer 

Accelerated filer 
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 Act). Yes  No 

The aggregate market value of the Corporation’s voting common stock held by nonaffiliates as of June 29, 2018, the last business day of the Corporation’s most recently
completed second fiscal quarter, was $605.3 million. This value was computed by reference to the price at which the stock was last sold on June 29, 2018 and excludes
$24.7 million representing the market value of common stock beneficially owned by directors and executive officers of the registrant.

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

Class
Common Stock, $.10 par value

Outstanding, March 1, 2019
25,153,936

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held April 16, 2019 are incorporated by reference into Part III.

TABLE OF CONTENTS

PART I

ITEM 1.

Business ..........................................................................................................................................................................

ITEM 1A. Risk Factors .....................................................................................................................................................................

ITEM 1B. Unresolved Staff Comments ........................................................................................................................................... 12

ITEM 2.

Properties ........................................................................................................................................................................ 12

ITEM 3.

Legal Proceedings ........................................................................................................................................................... 12

ITEM 4.

Mine Safety Disclosures .................................................................................................................................................. 12

PART II

ITEM 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ....... 13

ITEM 6.

Selected Financial Data ................................................................................................................................................... 14

ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations .......................................... 15

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk ........................................................................................ 31

ITEM 8.

Financial Statements and Supplementary Data ............................................................................................................... 35

ITEM 9.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure ......................................... 75

ITEM 9A. Controls and Procedures .................................................................................................................................................. 75

ITEM 9B. Other Information ............................................................................................................................................................ 75

PART III

ITEM 10.

Directors, Executive Officers and Corporate Governance .............................................................................................. 76

ITEM 11.

Executive Compensation ................................................................................................................................................. 76

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ........................ 76

ITEM 13.

Certain Relationships and Related Transactions and Director Independence ................................................................. 76

ITEM 14.

Principal Accountant Fees and Services .......................................................................................................................... 76

PART IV

ITEM 15.

Exhibits and Financial Statement Schedules ................................................................................................................... 77

ITEM 16.

Form 10-K Summary ...................................................................................................................................................... 77

INDEX OF EXHIBITS ................................................................................................................................................... 78

SIGNATURES ................................................................................................................................................................ 79

This page intentionally left blank

ITEM 1. BUSINESS

General

PART I

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

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

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

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

The Bank did not commence, abandon or significantly change any of its lines of business during 2018.

Markets Served and Products Offered

The Bank serves the financial needs of small and medium-sized businesses, professionals, consumers, public bodies and other
organizations primarily in Nassau and Suffolk Counties, Long Island, and the boroughs of New York City (“NYC”). The Bank’s head
office is located in Glen Head, New York, and the Bank has 51 other branch locations including six full-service branches in Queens,
three in Brooklyn and two commercial banking offices in Manhattan. The Bank continues to evaluate potential new branch sites on
Long Island and in the NYC boroughs of Brooklyn and Queens.

The Bank’s loan portfolio is primarily comprised of loans to borrowers on Long Island and in the boroughs of NYC, and its real estate
loans are principally secured by properties located in those areas. The Bank’s investment securities portfolio is comprised of direct
obligations of the U.S. government and its agencies, corporate bonds of large U.S. financial institutions and highly rated obligations of
states and political subdivisions. The Bank has an Investment Management Division that provides investment management, pension
trust, personal trust, estate and custody services.

In addition to its loan and deposit products, the Bank offers other services to its customers including the following:

• Account Reconciliation Services
• ACH Origination
• ATM Banking and Deposit Automation
• Bank by Mail
• Bill Payment
• Cash Management Services
• Collection Services
• Controlled Disbursement Accounts
• Drive-Through Banking
• Foreign Currency Sales and Purchases
• Healthcare Remittance Automation
• Instant Issue Debit Cards
• Investment Management and Trust Services
• Lock Box Services
• Merchant Credit Card Services

Competition

• Mobile Banking
• Mobile Capture
• Mutual Funds, Annuities and Life Insurance
• Night Depository Services
• Online Banking
• Payroll Services
• Personal Money Orders
• Remote Deposit
• Safe Deposit Boxes
• Securities Transactions
• Signature Guarantee Services
• Telephone Banking
• Travelers Checks
• Wire Transfers - Domestic and International
• Withholding Tax Depository Services

The Bank encounters substantial competition in its banking business from numerous other financial services organizations that have
offices located in the communities served by the Bank. Principal competitors are money center and large regional and community banks
located within the Bank’s market area, mortgage brokers, brokerage firms, credit unions and fintech or e-commerce companies. The
Bank competes for loans based on the quality of service it provides, loan structure, competitive pricing and branch locations, and

competes for deposits by offering a high level of customer service, paying competitive rates and through the geographic distribution of
its branch system.

Investment Activities

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

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

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

At year-end 2018 and 2017, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in
an amount greater than 10% of stockholders’ equity.

At December 31, 2018, $419.2 million of the Corporation’s municipal securities were rated AA or better, $2.1 million were rated A and
$3.9 million were non-rated bonds issued by local municipalities. The Corporation’s pass-through mortgage securities portfolio at
December 31, 2018 is comprised of $167.9 million and $52.9 million of securities issued by the Government National Mortgage
Association (“GNMA”) and the Federal National Mortgage Association (“FNMA”), respectively. Each issuer’s pass-through mortgage
securities are backed by residential mortgages conforming to the issuer’s underwriting guidelines and each issuer guarantees the timely
payment of principal and interest on its securities. All of the Corporation’s CMOs were issued by GNMA and such securities are backed
by GNMA residential pass-through mortgage securities. GNMA guarantees the timely payment of principal and interest on its CMOs
and the underlying pass-through mortgage securities. Obligations of GNMA, a U.S. government agency, represent full faith and credit
obligations of the U.S. government, while obligations of FNMA, which is a U.S. government-sponsored agency, do not. The
Corporation’s corporate bond portfolio is comprised of $117.6 million of senior unsecured fixed-to-floating rate securities issued by
large U.S. based financial institutions. The bonds are rated A- to BBB+, have a stated maturity of ten years, a fixed rate for a period of
two or three years and then reset quarterly based on the ten-year swap rate.

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

Lending Activities

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

The Bank conducts its lending activities out of its main office in Glen Head, New York and its Suffolk County regional office in
Hauppauge, New York. The Bank’s loan portfolio is primarily comprised of loans to small and medium-sized privately owned
businesses, professionals and consumers on Long Island and in the boroughs of NYC. The Bank offers a full range of lending services
including commercial and residential mortgage loans, home equity lines, commercial and industrial loans, small business credit scored
loans, Small Business Administration (“SBA”) loans, construction and land development loans, consumer loans and commercial and
standby letters of credit. The Bank makes both fixed and variable rate loans. Variable rate loans are primarily tied to and reprice with
changes in the prime interest rate of the Bank, the prime interest rate as published in The Wall Street Journal, U.S. Treasury rates,
Federal Home Loan Bank of New York advance rates and the London Interbank Offered Rate (LIBOR).

Residential mortgage loans in excess of $750,000, home equity and small business credit scored loans in excess of $500,000 and other
loans in excess of $750,000 generally require the approval of the Management Loan Committee. Loans in excess of $12.5 million require
the additional approval of two non-management members of the Board Loan Committee, while those in excess of $17.5 million require
the approval of a majority of the Board of Directors.

Commercial and Industrial Loans. Commercial and industrial loans include, among other things, short-term business loans and
lines of credit; term and installment loans; loans secured by marketable securities, the cash surrender value of life insurance policies,
deposit accounts or general business assets; small business credit scored loans as described hereinafter; and equipment finance loans.
The Bank makes commercial and industrial loans on a demand basis, short-term basis or installment basis. Short-term business loans
are generally due and payable within one year and should be self-liquidating during the normal course of the borrower’s business cycle.
Lines of credit are reaffirmed annually and generally require an annual cleanup period. Term and installment loans are usually due and
payable within five years. Generally, it is the policy of the Bank to request personal guarantees of principal owners on loans made to
privately-owned businesses.

Small Business Credit Scored Loans. The Bank makes small business credit scored loans and issues VISA® credit cards to
businesses that generally have annual sales at the time of application of less than $3.5 million. Most of these loans are in the form of
revolving credit lines and, depending on the type of business, the maximum amount generally ranges from $100,000 to $500,000. Others
are installment loans made to finance business automobiles, trucks and equipment and can be secured by the asset financed and/or
deposit accounts with the Bank. Both installment loans and revolving credit commitments generally have maturities up to 60 months.
Business profile reports are used in conjunction with credit reports and FICO (Fair Isaac Corporation) small business score cards for
loan underwriting and decision making purposes. Credit and FICO small business risk scores enable the Bank to quickly and efficiently
identify and approve loans to low-risk business applicants and decline loans to high-risk business applicants. There were $623,000 of
small business credit scored term loans outstanding at December 31, 2018. In addition, the Bank had commitments on small business
credit scored revolving lines of credit of $52.8 million, of which $20.0 million were drawn and funded.

Real Estate Mortgage Loans and Home Equity Lines. The Bank makes residential and commercial mortgage loans and establishes
home equity lines of credit. Applicants for residential mortgage loans and home equity lines will be considered for approval provided
they have satisfactory credit history and collateral and the Bank believes that there is sufficient monthly income to service both the loan
or line applied for and existing debt. Applicants for commercial mortgage loans will be considered for approval provided they, as well
as any guarantors, have satisfactory credit history and can demonstrate, through financial statements and otherwise, the ability to repay.
Commercial and residential mortgage loans are made with terms not in excess of 30 years and are generally maintained in the Bank’s
portfolio. The residential mortgage loans made by the Bank in recent years consist of both fixed rate loans with terms ranging from 10
to 30 years and variable rate loans that reprice in five, seven or ten years and then every year thereafter. Commercial mortgage loans
generally reprice within five years and home equity lines generally mature within ten years. Depending on the type of property, the Bank
will generally not lend more than 75% of appraised value on residential mortgage, home equity and commercial mortgage loans. The
lending limitations with regard to appraised value are more stringent for loans on co-ops and condominiums.

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

Construction Loans. From time to time, the Bank makes loans to finance the construction of both residential and commercial
properties. The maturity of such loans is generally 18 months or less and advances are made as the construction progresses. The advances
can require the submission of bills and lien waivers by the contractor, verification by a Bank-approved inspector that the work has been
performed, and title insurance updates to ensure that no intervening liens have been placed. Variable rate construction and land
development loans are included in Commercial Mortgages on the Consolidated Balance Sheet and amounted to $6.1 million at
December 31, 2018.

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

Sources of Funds

The Corporation’s primary sources of cash have been deposits, maturities and amortization of loans and investment securities,
operations, borrowings and funds received under the Dividend Reinvestment and Stock Purchase Plan (“DRIP”). The Corporation uses
cash from these and other sources to fund loan growth, purchase investment securities, repay borrowings, expand and improve its
physical facilities, pay cash dividends, repurchase its common stock and for general operating purposes.

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

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

Employees

As of December 31, 2018, the Bank had 344 full-time equivalent employees and considers employee relations to be good. Employees
of the Bank are not represented by a collective bargaining unit.

Supervision and Regulation

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

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

As a national bank, the Bank is subject to regulation and examination by the Office of the Comptroller of the Currency (“OCC”) and
the Federal Deposit Insurance Corporation (“FDIC”). Insured banks, such as the Bank, are subject to extensive regulation of many
aspects of their businesses. These regulations relate to, among other things: (i) the nature and amount of loans that may be made by the
Bank and the rates of interest that may be charged; (ii) types and amounts of other investments; (iii) branching; (iv) anti-money
laundering; (v) permissible activities; (vi) reserve requirements; and (vii) dealings with officers, directors and affiliates.

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

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

Payment of Dividends. A large source of the Corporation’s liquidity is dividends from the Bank. Prior approval of the OCC is
required if the total of all dividends declared by a national bank in any calendar year would exceed the sum of the bank’s net profits for
that year and its retained net profits for the preceding two calendar years, less any required transfers to surplus. Under the foregoing
dividend restrictions, and while maintaining its “well-capitalized” status and absent affirmative governmental approvals, during 2019
the Bank could declare dividends to the Corporation of approximately $52.3 million plus any 2019 net profits retained to the date of the
dividend declaration.

In addition, the Corporation and the Bank are subject to other regulatory policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital above regulatory minimum capital levels. The Federal Reserve Board is authorized
to determine under certain circumstances relating to the financial condition of a bank holding company or a bank that the payment of
dividends would be an unsafe or unsound practice and to prohibit payment thereof. Federal Reserve guidance sets forth the supervisory
expectation that bank holding companies will inform and consult with Federal Reserve staff in advance of declaring a dividend that
exceeds earnings for the quarter and should inform the Federal Reserve and should eliminate, defer or significantly reduce dividends if

(i) net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient
to fully fund the dividends, (ii) the prospective rate of earnings retention is not consistent with the bank holding company’s capital needs
and overall current and prospective financial condition, or (iii) the bank holding company will not meet, or is in danger of not meeting,
its minimum regulatory capital adequacy ratios.

Stock Repurchases. Current Federal Reserve regulations provide that a bank holding company that is not well capitalized or well
managed, as such terms are defined in the regulations, or that is subject to any unresolved supervisory issues, is required to give the
Federal Reserve prior written notice of any repurchase or redemption of its outstanding equity securities if the gross consideration for
repurchase or redemption, when combined with the net consideration paid for all such repurchases or redemptions during the preceding
12 months, will be equal to 10% or more of the company’s consolidated net worth. The Federal Reserve may disapprove such a
repurchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice or violate a law or regulation.
Federal Reserve guidance generally provides for bank holding company consultation with Federal Reserve Bank (“FRB”) staff prior to
engaging in a repurchase or redemption of a bank holding company’s stock, even if a formal written notice is not required. However, it
has recently come to the attention of the Corporation that the Federal Reserve staff is interpreting the capital regulations as requiring a
bank holding company to secure Federal Reserve approval prior to redeeming or repurchasing any capital stock that is included in
regulatory capital.

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

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

Capital Requirements. As a bank holding company, the Corporation is subject to consolidated regulatory capital requirements

administered by the Federal Reserve. The Bank is subject to similar capital requirements administered by the OCC.

The Corporation and the Bank are subject to the Basel III regulatory capital standards (“Basel III”) issued by the Federal Reserve Board
and the OCC. Under the Basel III capital requirements, the Corporation and the Bank are required to maintain minimum ratios of Tier
1 capital to average assets of 4.00%, Common equity tier 1 capital to risk weighted assets of 4.50%, Tier 1 capital to risk weighted assets
of 6.00% and Total capital to risk weighted assets of 8.00%. Common equity tier 1 capital, Tier 1 capital, Total capital, risk weighted
assets and average assets are defined in the Basel III rules. Failure to meet the minimum capital requirements can result in certain
mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on the
financial statements of the Corporation and Bank. The Corporation and the Bank exceeded the Basel III minimum capital adequacy
requirements at December 31, 2018.

Basel III also phased-in a capital conservation buffer from 2016 through 2019. The capital conservation buffer must be maintained in
order for a banking organization to avoid being subject to limitations on capital distributions, including dividend payments, and
discretionary bonus payments to executive officers. The capital conservation buffer of 2.5% is now fully phased in and the capital ratio
requirements for 2019, including the capital conservation buffer, for banks with $250 billion or less in total assets are 7.00% for Common
equity tier 1 capital to risk weighted assets, 8.50% for Tier 1 capital to risk weighted assets and 10.50% for Total capital to risk weighted
assets.

Federal legislation enacted in 2018 requires that the federal banking agencies, including the OCC and FRB, establish an alternative
framework that specifies a “community bank leverage ratio” of between 8 and 10% of average total consolidated assets for qualifying
banking organizations with less than $10 billion of assets. Institutions and holding companies with tangible equity (subject to certain
adjustments) meeting the specified level and electing to follow the alternative framework would be deemed to comply with the applicable
regulatory capital requirements, including the risk-based requirements, and be considered to be “well-capitalized” for purposes of the
Prompt Corrective Action (“PCA”) regulations, discussed in the following section. The agencies have issued a proposed rule that would
set the “community bank leverage ratio” at 9%. Management is evaluating the proposed rule to determine whether or not to elect the
alternative framework.

Prompt Corrective Action Regulations. The Federal Deposit Insurance Act, as amended (“FDIA”), requires among other things,
that the federal banking agencies take “prompt corrective action” with respect to banks that do not meet minimum capital requirements.
The FDIA sets forth the following five capital tiers for purposes of implementing the PCA regulations: “well-capitalized,” “adequately
capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” The PCA thresholds established by
Basel III for each of the capital tiers is as follows:

Well capitalized ..............................................................
Adequately capitalized ....................................................
Undercapitalized .............................................................
Significantly undercapitalized.........................................
Critically undercapitalized ..............................................

Total RBC
Measure (%)
> 10
> 8
< 8
< 6

Tier 1 RBC
Measure (%)
> 8
> 6
< 6
< 4

Common Equity
Tier 1 RBC
Measure (%)
> 6.5
> 4.5
< 4.5
< 3

Leverage
Measure (%)
> 5
> 4
< 4
< 3

Tangible equity to total assets < 2

The Bank was well capitalized under the Basel III PCA thresholds at December 31, 2018.

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

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

On September 30, 2018, the Deposit Insurance Fund Reserve Ratio exceeded 1.35%. As a result, small banks such as the Bank will
receive assessment credits for the portion of their assessment that contributed to the growth in the reserve ratio from 1.15% to 1.35%,
to be applied when the reserve ratio is at least 1.38%. Based on a notice received from the FDIC in January 2019, the Bank would
receive approximately $960,000 in credits toward future assessments once the reserve ratio reaches 1.38%.

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

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

Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank System (“FHLB System”), which
consists of 11 regional Federal Home Loan Banks (each a “FHLB”). The FHLB System provides a central credit facility primarily for
member banks. As a member of the FHLB of New York, the Bank is required to acquire and hold shares of capital stock in the FHLB
in an amount equal to 4.5% of its borrowings from the FHLB (transaction-based stock) plus .125% of the total principal amount at the
beginning of the year of the Bank’s unpaid residential real estate loans, commercial real estate loans, home equity loans, CMOs, and
other similar obligations (membership stock). At December 31, 2018, the Bank was in compliance with the FHLB’s capital stock
ownership requirement.

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

The federal banking agencies adopted guidelines establishing standards for safeguarding our customer information. The guidelines
describe the agencies’ expectation that regulated entities create, implement and maintain an information security program, which would
include administrative, technical and physical safeguards appropriate to the size and complexity and the nature and scope of our
activities. The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records and
information, protect against any anticipated threats or hazards to the security or integrity of customer records, and protect against
unauthorized access to records or information that could result in substantial harm or inconvenience to customers. Additionally, the
guidance states that banks, such as the Bank, should develop and implement a response program to address security breaches involving
customer information, including customer notification procedures. The Bank has developed such a program.

Anti-Money Laundering and the USA PATRIOT Act. A major focus of governmental policy on financial institutions in recent
years has been aimed at combating money laundering and terrorist financing. The USA PATRIOT Act of 2001 (“Patriot Act”)
substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance
and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States.
The United States Treasury Department has issued a number of regulations that apply various requirements of the Patriot Act to financial
institutions such as the Bank. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures
and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. Certain
of those regulations impose specific due diligence requirements on financial institutions that maintain correspondent or private banking
relationships with non-U.S. financial institutions or persons. Failure of a financial institution to maintain and implement adequate
programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have
serious legal, financial and reputational consequences for the institution. The Bank and the Corporation are firmly committed to
maintaining strong policies, procedures and controls to ensure compliance with anti-money laundering laws and regulations and to
combat money laundering and terrorist financing.

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

Availability of Reports

The Bank maintains a website at www.fnbli.com. The Corporation’s annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to these reports filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 are available free of charge through the Bank’s website as soon as reasonably practicable after they
are electronically filed with or furnished to the SEC. To access these reports go to the homepage of the Bank’s website and click on
“Investor Relations,” then click on “SEC Filings,” and then click on “Corporate SEC Filings.” This will bring you to a listing of the
Corporation’s reports maintained on the SEC’s EDGAR website. You can then click on any report to view its contents. Information on
our website shall not be considered a part of this Annual Report on Form 10-K. Our SEC filings are also available on the SEC’s website
at www.sec.gov.

ITEM 1A. RISK FACTORS

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

The inability to realize the full carrying value of the Bank’s investment securities, loans and BOLI could negatively impact our
financial condition and results of operations.

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

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

The credit risk within the Bank’s loan portfolio primarily stems from factors such as changes in the borrower’s financial condition,
credit concentrations, changes in collateral values, economic conditions and environmental contamination. The Bank’s commercial
loans, including those secured by mortgages, are primarily made to small and medium-sized businesses. Such loans sometimes involve
a higher degree of risk than those to larger companies because such businesses may have shorter operating histories, higher debt-to-
equity ratios and may lack sophistication in internal record keeping and financial and operational controls. In addition, most of the
Bank’s loans are made to businesses and consumers on Long Island and in the boroughs of NYC, and a large percentage of these loans
are mortgage loans secured by properties located in those areas. At December 31, 2018, residential mortgage loans, including home
equity lines of credit, amounted to approximately $1.9 billion and comprised approximately 59% of loans secured by real estate. The
primary source of repayment for residential mortgage loans is cash flows from individual borrowers and co-borrowers. Also, at
December 31, 2018, multifamily loans amounted to approximately $757 million and comprised approximately 59% of the Bank’s total
commercial mortgage portfolio and approximately 24% of the Bank’s total loans secured by real estate. 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 for both residential mortgage and multifamily loans are dependent on the strength of the local economy.

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

Uncertainty, changes in accounting rules and regulatory principals and other factors could result in a need to increase the Bank’s
Allowance for Loan Losses and adversely impact our financial condition and results of operations.

The Bank maintains an allowance for loan losses in an amount believed to be adequate to absorb probable incurred losses in its loan
portfolio. The maintenance of the allowance for loan losses is governed by a board committee approved allowance for loan and lease
losses policy. In arriving at the allowance for loan losses, an impairment analysis is performed on each loan where it is probable that the
borrower will not be able to make all required principal and interest payments according to contractual terms. In addition, incurred losses
for all other loans in the Bank’s portfolio are determined on a pooled basis taking into account, among other things, historical loss
experience, delinquencies, economic conditions, changes in value of underlying collateral, trends in nature and volume of loans,
concentrations of credit, changes in lending policies and procedures, experience, ability and depth of lending staff, changes in quality
of the loan review function, environmental risks and loan risk ratings. Because estimating the allowance for loan losses is highly
subjective in nature and involves a variety of estimates and assumptions that are inherently uncertain, there is the risk that management’s

estimate may not accurately capture probable incurred losses in the loan portfolio. The Bank’s allowance may need to be increased
based on, among other things, additional information that comes to light after the estimate is made, changes in circumstances or a
recommendation by bank regulators based on their review of the Bank’s loan portfolio. The impact of one or more of these factors on
the Bank’s allowance could result in the need for a significant increase in the Bank’s provision for loan losses and have a material
adverse impact on the Bank’s financial condition and results of operations.

In addition, the Financial Accounting Standards Board has adopted an Accounting Standards Update (“ASU”) 2016-13, that will be
effective for reporting periods beginning after December 15, 2019. This standard changes the accounting methodology used to determine
the allowance for loan losses from an incurred loss model to a current expected credit loss (“CECL”) model. The CECL model will
require the Bank to maintain at each periodic reporting date an allowance for loan losses in an amount that is equal to its estimate of
expected lifetime credit losses on the loans in its portfolio. Utilization of the CECL model is expected to increase the Bank’s allowance
for loan losses and add a component to the allowance for certain financial instruments other than loans and will increase the types and
amount of data the Bank will need to collect and consider in determining an appropriate level for its allowance for loan losses.

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

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

A sustained period of low interest rates and a flattening yield curve over the past several years have resulted in significant downward
pressure on our net interest margin. The curve significantly flattened as the FRB slowly changed from an accommodative monetary
policy to a tightening monetary policy with increases in the federal funds target rate of 225 basis points since December 2015.

Increases in the federal funds target rate have exerted upward pressure on non-maturity deposit liability rates and the cost of overnight
borrowings. Net interest margin is expected to be negatively impacted by further upward deposit repricing and increases in the federal
funds target rate. To date, increases in the federal funds target rate have not been met with and in the future may not be met with
corresponding increases in lending and investing yields. Adding to the downward pressure on net interest margin are timing differences
between the repricing of interest-earning assets and interest-bearing liabilities in a rising rate environment. While the Bank’s non-
maturity deposits and short-term borrowings are subject to immediate repricing with changes in market interest rates, most of its
investment securities and loans are not. The impact of these interest rate changes and timing differences is expected to continue to exert
downward pressure on net interest income and earnings. However, over a longer period of time, the Bank’s earnings could be positively
impacted if the yield curve steepens and results in higher lending and investment yields with no offsetting increase in interest expense
from those interest-earning assets funded by noninterest-bearing checking deposits and capital.

If interest rates decline, borrowers may refinance higher rate loans at lower rates causing prepayments on mortgage loans and mortgage-
backed securities to be elevated. Under those circumstances, the Bank may not be able to reinvest the resulting cash flows in new
interest-earning assets with rates as favorable as those that prepaid. In addition, subject to the floors contained in many of the Bank’s
loan agreements, the Bank’s loans at variable interest rates may adjust to lower rates at their reset dates. While lower rates may reduce
the Bank’s cost of funds on non-maturity deposits, certificates of deposits and FHLB advances, the cost savings could be somewhat
constrained because decreases in the Bank’s funding rates may occur more slowly than decreases in yields earned on the Bank’s assets
and a significant portion of the Bank’s funding already comes from noninterest bearing checking deposits and capital.

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

Liquidity risk is the risk that the Bank will not have sufficient funds to accommodate loan growth, meet deposit outflows or make
contractual payments on borrowing arrangements. The Bank has addressed liquidity risk by adopting a board committee approved
liquidity policy and liquidity contingency plan that set forth quantitative risk limits and a protocol for responding to liquidity stress
conditions should they arise. The Bank encounters significant competition in its market area from branches of larger banks, various
community banks, credit unions and other financial services organizations. This, in addition to consumer confidence in the equity
markets, could cause deposit outflows, and such outflows could be significant.

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

The Bank is a member of the FRB of New York and the FHLB of New York, and has a federal funds line with a commercial bank. In
addition to customer deposits, the Bank’s primary external sources of liquidity are secured borrowings from the FHLB of New York
and FRB of New York. In addition, the Bank can purchase overnight federal funds under its existing line and the Corporation can raise
funds through its DRIP. However, the Bank’s FRB of New York membership, FHLB of New York membership and federal funds line
do not represent legal commitments to extend credit to the Bank. The amount that the Bank can potentially borrow is currently dependent
on, among other things, the amount of unencumbered eligible securities and loans that the Bank can use as collateral and the collateral
margins required by the lenders. In addition, the Corporation may not be successful in raising funds from the issuance of its stock under
the DRIP or otherwise.

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

The Corporation’s market capitalization on December 31, 2018 was approximately $507 million, exceeding the $500 million market
capitalization which may make the Corporation’s common stock more attractive to certain investors. In addition, the Corporation’s
common stock is included in the Russell 3000 and Russell 2000 Indexes, which are reconstituted annually. Upon reconstitution in May
2018, the average market capitalization of companies in the Russell 2000 Index was $2.1 billion, the median market capitalization was
$900 million, the capitalization of the largest company in the index was $3.7 billion and the capitalization of the smallest company in
the index was $159 million. The Corporation believes that a market capitalization in excess of $500 million and inclusion in the Russell
indexes have positively impacted the price, trading volume and liquidity of its common stock. Conversely, if the Corporation’s market
capitalization falls below the minimum necessary to be included in the indexes at any future reconstitution date, the opposite could
occur. The Corporation also believes that the current activity under its Stock Repurchase Program is positively impacting the price and
trading volume of its common stock. Conversely, discontinuance of the Stock Repurchase Program could have the opposite effect.

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

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

Changes in national and local economic conditions could negatively impact our financial condition and results of operations.

Although the economy has improved, national and local economic conditions could deteriorate. This poses risks to both the
Corporation’s business and the banking industry as a whole. Specific risks include reduced loan demand from quality borrowers;
increased competition for loans; increased loan loss provisions resulting from deterioration in loan quality; reduced net interest income
and net interest margin caused by a sustained period of low interest rates or a flattening yield curve; interest rate volatility; price
competition for deposits due to liquidity concerns or otherwise; volatile equity markets; and higher cost to attract capital to support
growth.

In addition to the significant risks posed by economic conditions, the Corporation could experience deposit outflows as national and
local economic conditions improve and investors pursue alternative investment opportunities.

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

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

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

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

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

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

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

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

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

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

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

The Corporation and the Bank are subject to regulation, supervision and examination by, among others, the Federal Reserve Board,
OCC and FDIC. The FDIC also insures the Bank’s deposits. Regulation and supervision govern the activities in which a bank and its
holding company may engage and are intended primarily for the protection of depositors. Regulatory requirements affect virtually all
aspects of the Corporation’s and the Bank’s business, including, among other things, investment practices, lending practices, deposit
offerings and capital levels. The regulators have extensive discretion in connection with their supervisory and enforcement activities,
including imposing restrictions on Bank operations and expansion plans, imposing deposit insurance premiums and other assessments,
setting required levels for the allowance for loan losses, capital and liquidity, and imposing restrictions on the ability to pay cash
dividends and other capital distributions to stockholders. Changes in laws, regulations and supervisory guidance, or the Corporation’s
and the Bank’s compliance with these laws and regulations as judged by the regulators, could have a significant negative impact on the
Corporation’s financial condition and results of operations. The Corporation manages the risk of noncompliance with laws and
regulations by having board committee approved compliance policies, hiring and retaining employees with the experience and skills
necessary to address compliance on an ongoing basis, and consulting, when necessary with legal counsel and other outside experts on
compliance matters.

We may be adversely affected by recent changes in U.S. tax laws.

The Tax Cuts and Jobs Act (“Tax Act”), which was enacted in December 2017, placed limitations on certain deductions that may have
a negative impact on the banking industry, borrowers and the market for single-family residential real estate. These limitations include:
(1) a lower limit on the deductibility of mortgage interest on single-family residential mortgage loans; (2) the elimination of interest

deductions for home equity loans; (3) a limitation on the deductibility of business interest expense; and (4) a limitation on the
deductibility of property taxes and state and local income taxes.

Changes in the tax laws may have an adverse effect on the market for, and the valuation of, residential properties, and on the demand
for such loans in the future, and could make it harder for borrowers to make their loan payments. In addition, these recent changes may
also have a disproportionate effect on taxpayers in states with high residential home prices and high state and local taxes, like New York.
If home ownership becomes less attractive, demand for mortgage loans could decrease. The value of properties securing loans in our
portfolio may be adversely impacted as a result of the changing economics of home ownership, which could require an increase in our
provision for loan losses, which would reduce our profitability and could materially adversely affect our business, financial condition
and results of operations.

Weather-related and terrorist events could cause significant harm to our business.

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

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

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Corporation neither owns nor leases any real estate. Office facilities of the Corporation and the Bank’s main office are located at
10 Glen Head Road, Glen Head, New York in a building owned by the Bank.

As of December 31, 2018, the Bank owns 23 buildings and leases 40 other facilities, all of which are in Nassau and Suffolk Counties,
Long Island and the NYC boroughs of Queens, Brooklyn and Manhattan. The Corporation believes that the physical facilities of the
Bank are suitable and adequate at present and are being fully utilized.

ITEM 3. 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 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER

PURCHASES OF EQUITY SECURITIES

The Corporation’s common stock trades on the NASDAQ Capital Market tier of the NASDAQ Stock Market under the symbol “FLIC.”
At December 31, 2018, there were 580 stockholders of record of the Corporation’s common stock. The number of stockholders of record
includes banks and brokers who act as nominees, each of whom may represent more than one stockholder. The Corporation declared
cash dividends of $.64 per share for the year ended December 31, 2018, compared to cash dividends declared in 2017 of $.58 per share.
The Corporation currently expects that comparable cash dividends will continue to be paid in the future.

Performance Graph

The following performance graph compares the Corporation's total stockholder return with the NASDAQ U.S. Benchmark and
NASDAQ U.S. Benchmark Banks Indexes over a five-year measurement period assuming $100 invested on January 1, 2014, and
dividends reinvested in the Corporation’s stock.

Issuer Purchase of Equity Securities

The following table sets forth shares repurchased during the quarter ended December 31, 2018 under the Stock Repurchase Program
approved by the Corporation’s Board of Directors in October 2018.

Month
Purchased
December 2018

Total Number
of Shares
Purchased
77,300

Average
Price Paid
Per Share
$19.94

Total Number of Shares
Purchased as Part of
Its Publicly
Announced Program
77,300

Maximum Value of
Shares that may yet
be Purchased Under
Its Program
$18,459,000

ITEM 6. SELECTED FINANCIAL DATA

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

(dollars in thousands, except per share data)
INCOME STATEMENT DATA:

2018

2017

2016

2015

2014

Interest Income ................................................ $
Interest Expense ...............................................
Net Interest Income .........................................
Provision (Credit) for Loan Losses ..................
Net Income ......................................................

138,237
35,730
102,507
(1,755)
41,573

118,265
21,709
96,556
4,854
35,122

104,123
18,002
86,121
3,480
30,880

92,135
16,529
75,606
4,317
25,890

81,976
15,048
66,928
3,189
23,014

PER SHARE DATA:

Basic Earnings ................................................. $
Diluted Earnings .............................................
Cash Dividends Declared ................................
Dividend Payout Ratio ....................................
Book Value ..................................................... $
Tangible Book Value ......................................
BALANCE SHEET DATA AT YEAR END:
Total Assets .................................................... $
Loans ...............................................................
Allowance for Loan Losses ..............................
Deposits ...........................................................
Borrowed Funds ...............................................
Stockholders' Equity .......................................

AVERAGE BALANCE SHEET DATA:

Total Assets .................................................... $
Loans ...............................................................
Allowance for Loan Losses ..............................
Deposits ...........................................................
Borrowed Funds ...............................................
Stockholders' Equity .......................................

4,177,341
3,177,519
34,960
3,168,348
623,587
374,876

1.64
1.63
.64
39.26 %
15.27
15.26

1.44
1.43
.58
40.56 %
14.37
$
14.36

1.35
1.34
.55
41.04 %
12.90
$
12.90

1.23
1.22
.52
42.62 %
11.85
$
11.84

1.11
1.10
.48
43.64 %
11.20
11.19

4,241,060
3,263,399
30,838
3,084,972
750,950
388,187

3,894,708
2,950,352
33,784
2,821,997
704,938
354,450

3,695,850
2,758,116
32,022
2,812,733
540,307
334,088

3,510,320
2,545,421
30,057
2,608,717
586,224
305,830

3,329,308
2,364,187
28,238
2,590,988
432,554
290,806

3,130,343
2,248,183
27,256
2,284,675
577,214
250,936

2,897,548
1,990,823
24,531
2,215,883
419,372
243,330

2,721,494
1,804,819
23,221
1,985,025
481,486
233,303

2,515,103
1,584,198
21,554
1,922,172
347,946
224,585

FINANCIAL RATIOS:

Return on Average Assets (ROA) ....................
Return on Average

Stockholders' Equity (ROE) ..........................
Average Equity to Average Assets ..................

1.00 %

.95 %

.93 %

.89 %

.92 %

11.09 %
8.97 %

10.51 %
9.04 %

10.62 %
8.73 %

10.64 %
8.40 %

10.25 %
8.93 %

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

OPERATIONS

Overview – 2018 Versus 2017

Analysis of 2018 Earnings. Net income and diluted earnings per share (“EPS”) for 2018 were $41.6 million and $1.63, respectively,
representing increases of 18.4% and 14.0%, respectively, over the comparable 2017 amounts. Dividends per share increased 10.3% from
$.58 for 2017 to $.64 for 2018. ROA and ROE for 2018 were 1.00% and 11.09%, respectively, as compared to .95% and 10.51%,
respectively, for 2017.

Net income for 2018 increased $6.5 million over 2017. The increase is attributable to increases in net interest income of $6.0 million,
or 6.2%, and noninterest income, before securities losses, of $2.7 million, or 26.5%, and decreases in the provision for loan losses and
income tax expense of $6.6 million and $4.8 million, respectively. These items were partially offset by an increase in noninterest expense
of $5.1 million, or 9.2%, and securities losses of $10.4 million in 2018 versus $1.9 million last year.

The increase in net interest income is primarily attributable to growth in the average balance of loans of $419.4 million, or 15.2%, and
improved yield on the taxable securities portfolio largely resulting from portfolio restructuring activities. The positive impact of these
items was partially offset by higher funding costs and a decline in prepayment penalties and late charges of $758,000. Substantially all
the loan growth occurred in commercial and residential mortgage loans. Loan growth was funded with increases in the average balances
of noninterest-bearing checking deposits, interest-bearing deposits, borrowings and stockholders’ equity. Substantial contributors to the
growth in deposits were new branch openings, the Bank’s ongoing municipal deposit initiative, deposit promotions and the issuance of
brokered certificates of deposit. The growth in stockholders’ equity was substantially attributable to net income and the issuance of
shares under the Corporation’s DRIP, partially offset by cash dividends declared, a decline in the after-tax value of available-for-sale
securities and share purchases under the Corporation’s Stock Repurchase Program.

Net interest margin for 2018 was 2.64%, down 27 basis points from 2.91% for 2017. The Net Interest Income section of this discussion
and analysis sets forth the reasons for the decline in net interest margin and measures implemented by management to stabilize net
interest margin.

The mortgage loan pipeline at year-end 2018 was a modest $61 million, reflecting management’s tempered approach to loan growth in
the current interest rate environment.

The reduction in the provision for loan losses for 2018 versus 2017 is mainly due to lower levels of national and local unemployment,
increases in collateral values, a decline in historical loss rates and less loan growth in the current year, partially offset by a larger decline
in specific reserves in 2017. Net chargeoffs were essentially unchanged in 2018, amounting to $1.2 million versus $1.1 million last year.

The increase in noninterest income of $2.7 million, or 26.5%, before securities losses of $10.4 million, is primarily attributable to a gain
on the sale of bank premises of $1.2 million, a $565,000 BOLI death benefit and increases of $566,000 in cash value accretion on BOLI
and $356,000 in the net credit relating to the non-service cost components of the Bank’s defined benefit pension plan. Cash value
accretion increased because of purchases of BOLI during the first quarters of 2017 and 2018 of $25 million and $20 million, respectively.
The sale of bank premises consisted of the land and building of one bank branch whose deposits have since been consolidated with a
nearby branch.

In 2018, the Bank incurred pre-tax and after-tax losses on securities portfolio restructuring activities of $10.4 million and $7.5 million,
respectively. The earn-back period for these losses, excluding $3.2 million incurred in a deleveraging transaction, is approximately 2.0
years. Interest income and net interest margin in 2019 are expected to benefit from these transactions by approximately $3.7 million and
11 basis points, respectively, which will help to mitigate the ongoing pressure on net interest margin.

The increase in noninterest expense of $5.1 million, or 9.2%, is primarily attributable to increases in salaries of $2.6 million, or 10.1%,
employee benefits and other personnel expense of $1.3 million, or 17.5%, and occupancy and equipment expense of $1.4 million, or
14.1%. Partially offsetting these increases was a valuation allowance of $725,000 recorded in the fourth quarter of 2017 on other real
estate owned. The increase in salaries is primarily due to new branch openings, additions to staff in the back office, normal annual salary
adjustments and special salary-related accruals recorded in 2018. The increase in employee benefits and other personnel expense is
largely due to increases in incentive compensation expense, retirement plan expense and payroll tax expense. The increase in occupancy
and equipment expense is primarily due to the operating costs of new branches, increases in maintenance and repairs expense and a
growth-related increase in depreciation on the Bank’s facilities and equipment.

In addition to the measures undertaken by management to stabilize net interest margin, management continues to explore a variety of
cost saving measures aimed at reducing noninterest expense and further improving an already very strong efficiency ratio.

The decrease in income tax expense of $4.8 million is due to: (1) a reduction in the statutory federal income tax rate from 35% in 2017
to 21% in 2018; (2) recognition in 2018 of tax benefits of New York State (“NYS”) and NYC net operating loss carryforwards that
originated in 2017 of $542,000; (3) recognition of $717,000 in tax benefits related to accelerated tax depreciation resulting from a cost
segregation study; and (4) higher tax benefits in the 2018 period from BOLI. These items are the major contributors to the decline in the
Corporation’s effective tax rate from 22.0% in 2017 to 10.9% in 2018. Management expects the Corporation’s effective tax rate to
normalize in the range of 15% to 16% in 2019.

Analysis of Fourth Quarter 2018 Earnings. Net income for the fourth quarter of 2018 was $10.1 million, representing an increase
of $2.5 million, or 33.4%, over $7.6 million earned in the same quarter of last year. The increase is primarily attributable to increases in
net interest income of $1.8 million and noninterest income, before securities losses, of $1.5 million, and a decrease in the provision for
loan losses of $4.0 million. These items were partially offset by increases in noninterest expense and income tax expense of $446,000
and $765,000, respectively, and securities losses of $5.4 million in 2018 versus $1.9 million in 2017.

The increase in net interest income largely occurred for the same reasons discussed with respect to the full year period and because of
an increase in prepayment penalties and late charges of $283,000. The increase in noninterest income, before securities losses, was
mainly due to the aforementioned gain on the sale of bank premises and higher cash value accretion on BOLI. The decrease in the
provision for loan losses was primarily attributable to improved economic conditions, lower loan growth and lower net chargeoffs in
the fourth quarter of 2018, partially offset by a decrease in specific reserves in the 2017 period. The credit provision in the fourth quarter
of 2018 arose for the same reasons discussed hereinafter with respect to the full year period. The increase in noninterest expense largely
occurred for the same reasons discussed with respect to the full year period. The increase in income tax expense is mainly due to higher
pre-tax income in the current quarter and a $909,000 credit to income tax expense in the 2017 quarter resulting from the passage of the
Tax Act, partially offset by the aforementioned reduction in the statutory federal income tax rate.

Asset Quality. The Bank’s allowance for loan losses to total loans was 1.15% at year-end 2017 and trended down to .94% by
December 31, 2018. The decrease was driven mainly by an improvement in economic conditions and reductions in historical loss rates
and growth rates on certain pools of loans.

The credit quality of the Bank’s loan portfolio remains excellent. Nonaccrual loans amounted to $2.1 million, or .07% of total loans
outstanding, at December 31, 2018, compared to $1.0 million, or .03%, at December 31, 2017. The increase in nonaccrual loans is due
to loans of $5.0 million transferred to nonaccrual status partially offset by paydowns, loan sales and chargeoffs. Troubled debt
restructurings amounted to $1.8 million, or .05% of total loans outstanding, at December 31, 2018. Of the troubled debt restructurings,
$1.3 million are performing in accordance with their modified terms and $472,000 are nonaccrual and included in the aforementioned
amount of nonaccrual loans. Loans past due 30 through 89 days amounted to $909,000, or .03% of total loans outstanding, at December
31, 2018, compared to $2.8 million, or .09%, at December 31, 2017.

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 76% of these securities being full faith and credit obligations of the U.S. government and the
balance being obligations of U.S. government sponsored entities. The remainder of the Bank’s securities portfolio principally consists
of high quality, general obligation municipal securities rated AA or better by major rating agencies and investment grade corporate
bonds of large U.S. financial institutions. In selecting securities for purchase, the Bank uses credit agency ratings for screening purposes
only and then performs its own credit analysis. On an ongoing basis, the Bank periodically assesses the credit strength of the securities
in its portfolio and makes decisions to hold or sell based on such assessments.

Key Strategic Initiatives and Challenges We Face. The Bank’s strategy remains focused on increasing shareholder value through
loan and deposit growth when conditions warrant and the maintenance of stellar credit quality, a strong efficiency ratio and an optimal
amount of capital. We currently have 52 branches in Nassau and Suffolk Counties, Long Island and the NYC boroughs of Queens,
Brooklyn and Manhattan and will continue to open new branches but at a slower pace. In addition, management is also focused on
growing noninterest income from existing and potential new sources, which may include the development or acquisition of fee-based
businesses.

In response to the flattening yield curve management implemented a variety of measures to stabilize net interest margin and reduce
operating expenses and thereby enable continued earnings growth. Additional steps are likely. As a result of actions already taken,
quarterly net interest margin increased in the fourth quarter of 2018 as compared to the third quarter. However, net interest margin
remains under pressure and is expected to be negatively impacted by further deposit repricings and increases in the federal funds rate.
Management will continue to be measured and disciplined in its approach to the deposit repricings, deposit rate promotions and loan
growth, and will not meaningfully loosen its underwriting standards to improve net interest margin. Assuming the persistence of the
relatively flat yield curve, management believes that net interest margin for 2019 could be approximately 2.55%.

With respect to its lending activities, the Bank will continue to prudently manage concentration and credit risk and maintain its broker
and correspondent relationships. Commercial mortgage loans will be emphasized over residential mortgage loans because of the better
yield and shorter duration that such mortgages generally provide. Small business credit scored loans, equipment finance loans and SBA

loans, along with the Bank’s traditional commercial and industrial loan products, will be originated to diversify the Bank’s loan portfolio
and help mitigate the impact on net interest margin of the flattening yield curve.

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

Overview – 2017 Versus 2016

Analysis of 2017 Earnings. Net income and diluted EPS for 2017 were $35.1 million and $1.43, respectively, representing increases
of 13.7% and 6.7%, respectively, over the comparable 2016 amounts. Dividends per share increased 5.5% from $.55 for 2016 to $.58
for 2017. ROA and ROE for 2017 were .95% and 10.51%, respectively, as compared to .93% and 10.62%, respectively, for 2016.

Net income for 2017 increased $4.2 million over 2016. The increase was primarily attributable to increases in net interest income of
$10.4 million, or 12.1%, and noninterest income, before securities gains and losses, of $1.2 million, or 15.8%. The impact of these items
was partially offset by securities losses of $1.9 million and increases in the provision for loan losses of $1.4 million, noninterest expense,
before debt extinguishment costs of $3.2 million, or 6.3%, and income tax expense of $840,000.

The increase in net interest income was mainly attributable to growth in average interest-earning assets of $335.6 million, or 10.4%,
which was driven by an increase in the average balance of loans of $393.9 million, or 16.7%. Although most of the loan growth occurred
in residential and commercial mortgage loans, commercial and industrial loans also grew with an increase in average outstandings of
$19.6 million, or 18.9%. The growth in loans was funded mainly by growth in the average balances of noninterest-bearing checking
deposits of $81.0 million, or 10.2%, interest-bearing deposits of $140.8 million, or 7.8%, short-term borrowings of $74.7 million and
stockholders’ equity of $43.3 million, or 14.9%. Also funding the growth in loans was a decrease in the average balance of taxable
investment securities of $46.7 million, or 12.5%.

The increase in noninterest income, before securities gains and losses, of $1.2 million, or 15.8%, was primarily attributable to increases
in income from BOLI of $530,000, service charges on deposit accounts of $126,000, checkbook income of $116,000 and Investment
Management Division income of $90,000. Also contributing to the increase in noninterest income were refunds of sales taxes, real estate
taxes and telecommunications charges of $167,000.

The increase in noninterest expense, before debt extinguishment costs, of $3.2 million, or 6.3%, was primarily attributable to increases
in salaries of $2.0 million, or 9.2%, employee benefits expense of $261,000, or 3.8%, occupancy and equipment expense of $981,000,
or 10.6%, and marketing expense of $389,000. Also contributing to the increase was a valuation allowance of $725,000 recorded in the
fourth quarter of 2017 on other real estate owned. The impact of these items was partially offset by decreases in consulting fees of
$635,000, computer and telecommunications expense of $743,000 and FDIC insurance expense of $201,000.

During the fourth quarter of 2017, the Bank sold approximately $88.6 million of mortgage-backed securities with a yield of 1.55% and
an expected average life of 3.4 years and reinvested substantially all of the proceeds in mortgage-backed securities with a yield of 2.61%
and an expected average life of 4.9 years. The sale resulted in a pre-tax loss of $1.9 million and an after-tax loss of $1.3 million, or $.05
per share. Due to changes in federal tax law enacted in December 2017, most of the future incremental income will be taxed at a federal
tax rate of 21% while the $1.9 million pre-tax loss in 2017 received a federal tax benefit at a rate of 35%. Considering both the future
incremental income on the replacement securities and the change in the federal tax rate effective in 2018, the payback period for the
2017 loss is approximately 1.7 years. The securities loss negatively impacted 2017 ROA and ROE by 3 and 38 basis points, respectively.

The $1.4 million increase in the provision for loan losses in 2017 was mainly due to more loan growth, an increase in net chargeoffs of
$448,000 from $679,000 in 2016 to $1,127,000 in 2017 and a decline in historical loss rates in 2016. The impact of these items was
partially offset by improved economic conditions in 2017 and a $510,000 decline in specific reserves on loans individually deemed to
be impaired.

The $840,000 increase in income tax expense was due to higher pre-tax earnings in 2017 and a decline in income from tax-exempt
securities. Another important contributor to the increase in income tax expense was the fact that in 2017 the Corporation was subject to
NYS and NYC taxes based on capital rather than business income and did not record the potential NYS and NYC tax benefits of
deductible temporary differences that arose in 2017. The impact of these items was partially offset by a $909,000 credit to income tax
expense in 2017 resulting from a reduction in the Corporation’s net deferred tax liability to reflect the decrease in the federal income
tax rate effective January 1, 2018. In addition, the Corporation realized higher tax benefits in 2017 from stock awards and BOLI. The
vesting and exercise of stock awards resulted in tax benefits over and above those accrued during the vesting period of $762,000 and
$385,000 in 2017 and 2016, respectively.

Analysis of Fourth Quarter 2017 Earnings. Net income for the fourth quarter of 2017 was $7.6 million, up slightly from $7.5
million in the same quarter of 2016. The increase was primarily attributable to increases in net interest income and income from BOLI
of $1.9 million and $188,000, respectively, and decreases in the provision for loan losses and income tax expense of $319,000 and
$968,000, respectively. These items were substantially offset by increases in salaries and occupancy and equipment expense of $536,000
and $380,000, respectively, and the aforementioned securities loss and valuation allowance of $1.9 million and $725,000, respectively.
The securities loss negatively impacted fourth quarter 2017 ROA and ROE by 13 and 141 basis points, respectively. The decrease in
the provision for loan losses was primarily driven by a decrease in specific reserves in the fourth quarter of 2017 of $821,000 versus an
increase of $482,000 in the same quarter of 2016, as partially offset by higher net chargeoffs in the 2017 quarter and adjustments to
qualitative factors used in determining the allowance for loan losses. The decrease in income tax expense occurred because of lower
pre-tax earnings in the fourth quarter of 2017 and for the same reasons discussed above with respect to the full year periods. Other fourth
quarter variances occurred for substantially the same reasons discussed above with respect to the full year 2017 and 2016 periods.

Asset Quality. The Bank’s allowance for loan losses to total loans decreased three basis points from 1.18% at year-end 2016 to
1.15% at year-end 2017. The decrease was primarily due to an improvement in the local housing market and overall economic conditions
and a decline in specific reserves.

The overall credit quality of the Bank’s loan portfolio at year end 2017 was excellent. Nonaccrual loans amounted to $1.0 million, or
.03% of total loans outstanding, at December 31, 2017, compared to $2.6 million, or .10%, at December 31, 2016. The decrease was
attributable to paydowns and loans returned to an accrual status, partially offset by new nonaccrual loans. Troubled debt restructurings
amounted to $1.0 million, or .04% of total loans outstanding, at December 31, 2017, representing a decrease of $498,000 from year-end
2016. The decrease was primarily attributable to payoffs of some loans and paydowns on other loans. Troubled debt restructurings at
year-end 2017 included $785,000 that were performing in accordance with their modified terms and $100,000 that were nonaccrual and
included in the aforementioned amount of nonaccrual loans. Loans past due 30 through 89 days amounted to $2.8 million, or .09% of
total loans outstanding, at December 31, 2017, compared to $1.1 million, or .04%, at December 31, 2016.

The credit quality of the Bank’s securities portfolio was also excellent. The Bank’s mortgage securities were backed by mortgages
underwritten on conventional terms, with 74% 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 consisted
of high quality, general obligation municipal securities rated AA or better by major rating agencies.

Tax Reform. On December 22, 2017, the Tax Act was signed into law. The most significant impact of the Tax Act on the
Corporation was a reduction in the federal corporate tax rate from 35% to 21% commencing in 2018. Some of the other provisions
affecting the Corporation were:

• Advance refunding municipal bonds issued after December 31, 2017 are no longer tax-exempt.
• The Corporation is no longer able to deduct any compensation in excess of $1 million paid to a named executive officer.
• Bonus depreciation is increased to 100% for qualified property placed in service after September 27, 2017 and before January

1, 2023, with phase downs over the next four years.

• The immediate expensing of tangible property that qualifies as Internal Revenue Code Section 179 property was increased to

$1 million with an increase of the phase-out threshold to $2.5 million.

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 OCC 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 national and local unemployment levels; (3) changes in value of underlying collateral
as judged by things such as median home prices, commercial vacancy rates and forecasted vacancy and rental rates in the Bank’s service
area; (4) trends in the nature and volume of loans; (5) concentrations of credit; (6) changes in lending policies and procedures; (7)
experience, ability and depth of lending staff; (8) changes in the quality of the loan review function; (9) environmental risks; and (10)
loan risk ratings. Substantially all of the Bank’s allowance for loan losses allocable to pools of loans that are collectively evaluated for
impairment results from these qualitative adjustments to historical loss experience. Because of the nature of the qualitative factors and
the difficulty in assessing their impact, management’s resulting estimate of losses may not accurately reflect actual losses in the portfolio.

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

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.

(dollars in thousands)

Assets:
Interest-earning bank balances ........ $
Investment securities:

2018

2017

2016

Average
Balance

Interest/
Dividends

Average
Rate

Average
Balance

Interest/
Dividends

Average
Rate

Average
Balance

Interest/
Dividends

Average
Rate

29,588 $

561

1.90 % $

25,356 $

281

1.11 % $

32,711 $

168

.51 %

Taxable .........................................
Nontaxable (1) ..............................
Loans (1) ..........................................

357,650
451,174
3,177,519

11,479
16,978
112,790

3.21
3.76
3.55

327,491
461,149
2,758,116

7,473
20,744
97,040

2.28
4.50
3.52

374,199
465,457
2,364,187

7,813
21,056
82,469

2.09
4.52
3.49

Total interest-earning assets ............

4,015,931

141,808

3.53

3,572,112

125,538

3.51

3,236,554

111,506

3.45

Allowance for loan losses ...............

(34,960)

Net interest-earning assets ...............
Cash and due from banks ................
Premises and equipment, net ...........
Other assets ......................................

3,980,971
36,377
40,240
119,753

(32,022)

3,540,090
31,555
36,279
87,926

(28,238)

3,208,316
30,450
31,597
58,945

4,177,341

3,695,850

3,329,308

Liabilities and Stockholders'

Equity:

Savings, NOW & money market

deposits ......................................... $

Time deposits ...................................

Total interest-bearing deposits ........
Short-term borrowings ....................
Long-term debt ................................

1,720,936
493,584

2,214,520
210,023
413,564

12,105
10,452

22,557
4,858
8,315

.70
2.12

1.02
2.31
2.01

1,635,044
305,029

1,940,073
132,137
408,170

7,113
5,479

12,592
1,345
7,772

.44
1.80

.65
1.02
1.90

1,501,096
298,194

1,799,290
57,395
375,159

5,344
5,107

10,451
296
7,255

.36
1.71

.58
.52
1.93

Total interest-bearing liabilities ......

2,838,107

35,730

1.26

2,480,380

21,709

.88

2,231,844

18,002

.81

Checking deposits ............................
Other liabilities ................................

Stockholders' equity ........................

953,828
10,530

3,802,465
374,876

872,660
8,722

3,361,762
334,088

791,698
14,960

3,038,502
290,806

4,177,341

3,695,850

3,329,308

Net interest income (1) ....................

106,078

103,829

93,504

Net interest spread (1) .....................

Net interest margin (1) ....................

2.27 %

2.64 %

2.63 %

2.91 %

2.64 %

2.89 %

(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. In 2018, the tax-equivalent amount of $1.00 of nontaxable
income was $1.27 using the statutory federal income tax rate of 21%. For 2017 and 2016, the tax-equivalent amount of $1.00 of
nontaxable income was $1.54 using the statutory federal income tax rate of 35%.

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

2018 versus 2017
Increase (decrease) due to changes in:

2017 versus 2016
Increase (decrease) due to changes in:

Volume

Rate

Net
Change

Volume

Rate

Net
Change

(in thousands)
Interest Income:
Interest-earning bank balances ............................ $
Investment securities:

Taxable .............................................................
Nontaxable ........................................................
Loans ...................................................................
Total interest income...........................................
Interest Expense:
Savings, NOW & money market deposits ..........
Time deposits ......................................................
Short-term borrowings ........................................
Long-term debt ...................................................
Total interest expense .........................................
Increase (decrease) in net interest income .......... $

Net Interest Income – 2018 Versus 2017

53 $

227 $

280 $

(45) $

158 $

113

740
(440)
14,880
15,233

3,266
(3,326)
870
1,037

4,006
(3,766)
15,750
16,270

(1,027)
(194)
13,854
12,588

392
3,857
1,112
104
5,465
9,768 $

4,600
1,116
2,401
439
8,556
(7,519) $

4,992
4,973
3,513
543
14,021
2,249 $

507
119
600
630
1,856
10,732 $

687
(118)
717
1,444

1,262
253
449
(113)
1,851
(407) $

(340)
(312)
14,571
14,032

1,769
372
1,049
517
3,707
10,325

Net interest income on a tax-equivalent basis was $106.1 million in 2018, an increase of $2.2 million, or 2.2%, over $103.8 million in
2017. The increase is primarily attributable to growth in the average balance of loans of $419.4 million, or 15.2%, and higher interest
income from improved yields on taxable investment securities, partially offset by higher funding costs, a decline in prepayment penalties
and late charges of $758,000 and the impact of the aforementioned reduction in the federal income tax rate on tax-equivalent interest
income. Loans grew primarily because of increases in commercial and residential mortgage loans. Growth in the average balance of
loans was funded mainly by increases in the average balances of noninterest bearing checking deposits of $81.2 million, or 9.3%,
interest-bearing deposits of $274.4 million, or 14.1%, borrowings of $83.3 million, or 15.4%, and stockholders’ equity of $40.8 million,
or 12.2%.

Net interest margin for 2018 was 2.64%, down 27 basis points from 2.91% for 2017. The decrease in net interest margin is largely
attributable to:

• A reduction in prepayment penalties and late charges from $2.1 million for 2017 to $1.3 million for 2018, thus reducing net

interest margin by 3 basis points;

• Yield curve flattening resulting from a significant increase in the federal funds target rate with lesser increases in intermediate

and longer-term interest rates;

• Timing differences between the repricing of interest-earning assets and interest-bearing liabilities in a rising rate environment.
While non-maturity deposits and short-term borrowings are subject to immediate repricing with changes in market interest rates,
securities and most of the Bank’s loans reprice over time upon paydown or maturity;

• Competitive market pressure to raise deposit rates to fund growth and protect against deposit outflows; and
• A reduction in the statutory federal income tax rate from 35% for 2017 to 21% for 2018, thus reducing the tax-equivalent amount

of each dollar of tax-exempt income and causing a 9 basis point decline in net interest margin.

When comparing 2018 to 2017, these factors largely account for the significant increases experienced by the Bank in the cost of its non-
maturity deposits and short-term borrowings of 26 basis points and 129 basis points, respectively, with a much more modest increase
occurring in its loan portfolio yield of 3 basis points and a decrease in the non-taxable securities portfolio yield of 74 basis points.

Management has implemented and will continue to implement a variety of measures designed to stabilize net interest margin. These
measures slowed the rate of decline in quarterly net interest margin in the second and third quarters of 2018 and made a significant
contribution to an increase in the fourth quarter. They include, among others, the following:

• Reducing overall balance sheet growth by slowing loan growth and the related need for funding. As a result, management has
been able to slow the pace of branch openings and related growth in noninterest expense, limit deposit rate promotions and be
more selective in offering higher rates to new and existing customers;

• Changing the mix of loans being originated toward higher yielding commercial mortgages rather than lower yielding residential

mortgages;

• Restructuring the securities portfolio by selling lower yielding securities and replacing them with higher yielding securities or
using the proceeds to eliminate inefficient leverage by paying down borrowings. The overall yield on the taxable securities
portfolio increased by 87 basis points, or from 3.06% in the third quarter to 3.93% in the fourth quarter, mainly due to the
restructuring transactions; and

• Hedging a portion of short-term borrowings with interest rate swaps and thereby providing a degree of net interest margin
protection in the event of an increase in overnight borrowing rates. In 2018, the Bank entered into a pay-fixed/receive-variable
interest rate swap with a notional amount of $150 million and in January 2019 entered into another pay-fixed/receive-variable
interest rate swap with a notional amount of $50 million.

The mortgage loan pipeline at year-end 2018 was a modest $61 million, reflecting management’s tempered approach to loan growth.

During the third and fourth quarters of 2018, the Bank sold $274.4 million of available-for-sale securities in restructuring transactions
designed to improve securities portfolio yield and net interest margin and eliminate inefficient leverage. In the third quarter, the Bank
sold $135 million of mortgage-backed securities and $39.6 million of short-term municipal bonds with yields of 2.51% and 2.90%,
respectively, and reinvested the proceeds in mortgage-backed securities and corporate bonds with an overall yield of 4.02%. In October
2018, the Bank eliminated inefficient leverage by selling $60.6 million of mortgage-backed securities with a yield of 2.51% and used
the proceeds to pay down overnight borrowings with a cost of 2.47%. In November 2018, the Bank sold an additional $39.2 million of
mortgage-backed securities with a yield of 2.55% and reinvested the proceeds in corporate bonds with an overall current yield of 5.08%.
The pre-tax and after-tax loss on all 2018 securities sales totaled $10.4 million and $7.5 million, respectively, and the payback period,
excluding the deleveraging transaction, is approximately 2.0 years. Because these transactions were completed toward the end of 2018,
they had only a partial impact on interest income and net interest margin for the year. On a full year basis for 2019, interest income and
net interest margin are expected to benefit from these transactions by approximately $3.7 million and 11 basis points, respectively.

Net Interest Income – 2017 Versus 2016

Net interest income on a tax-equivalent basis was $103.8 million in 2017, an increase of $10.3 million, or 11.0%, over $93.5 million in
2016. The increase was mainly attributable to growth in average interest-earning assets of $335.6 million, or 10.4%, which was driven
by an increase in the average balance of loans of $393.9 million, or 16.7%. The growth in loans was funded mainly by growth in the
average balances of noninterest bearing checking deposits of $81.0 million, or 10.2%, interest-bearing deposits of $140.8 million, or
7.8%, short-term borrowings of $74.7 million and stockholders’ equity of $43.3 million, or 14.9%. Also funding the growth in loans
was a decrease in the average balance of taxable investment securities of $46.7 million, or 12.5%. Substantial contributors to the growth
in deposits were new branch openings, the Bank’s ongoing municipal deposit initiative and deposit promotions. Substantial contributors
to the growth in stockholders’ equity were net income, $35.3 million of capital raised in an underwritten public offering in the first half
of 2016 and an ongoing issuance of shares under the Corporation’s DRIP. During 2017, shares issued under the DRIP added $22.6
million to capital. These sources of capital were partially offset by the declaration of cash dividends which amounted to $14.1 million.

Net interest income also benefitted from an improvement in the Bank’s net interest margin. Net interest margin was 2.91% for 2017 as
compared to 2.89% for 2016. The increase in net interest margin was attributable to higher portfolio yields on loans and taxable securities
partially offset by higher rates on deposits and borrowings. The cost of deposits and borrowings were driven up, by among other things,
increases in the federal funds target rate. The level of net interest margin reflected the low interest rate environment that had persisted
for an extended period of time.

Noninterest Income

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

Noninterest income before securities losses increased $2.7 million, or 26.5%, when comparing 2018 to 2017. The increase is primarily
attributable to a gain on the sale of bank premises of $1.2 million, a $565,000 BOLI death benefit and increases of $566,000 in cash
value accretion on BOLI, $356,000 in the net credit relating to the non-service cost components of the Bank’s defined benefit pension
plan and $99,000 on the sale of loans held-for-sale. Cash value accretion increased because of purchases of BOLI during the first quarters
of 2017 and 2018 of $25 million and $20 million, respectively. The sale of bank premises consisted of the land and building of one bank
branch whose deposits will be consolidated with a nearby branch.

Noninterest income before securities gains and losses increased $1.2 million, or 15.8%, when comparing 2017 to 2016. The increase
was primarily attributable to increases in income from BOLI of $530,000, service charges on deposit accounts of $126,000, checkbook
income of $116,000 and Investment Management Division income of $90,000. Also contributing to the increase in noninterest income
were refunds of sales taxes, real estate taxes and telecommunications charges of $167,000. BOLI income increased largely because of
$25 million in BOLI purchased during the first quarter of 2017. The increase in service charges on deposit accounts was due to higher

overdraft and maintenance and activity charges resulting from, among other things, growth in the number of deposit accounts. Growth
in the number of deposit accounts and a reduction in fee waivers contributed to the increase in checkbook income. Investment
Management Division income increased largely because equity market gains resulted in an increase in assets under management.

Noninterest Expense

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

Noninterest expense increased $5.1 million, or 9.2%, when comparing 2018 to 2017. The increase is primarily attributable to increases
in salaries of $2.6 million, or 10.1%, employee benefits and other personnel expense of $1.3 million, or 17.5%, and occupancy and
equipment expense of $1.4 million, or 14.1%. Partially offsetting these increases was a valuation allowance of $725,000 recorded in the
fourth quarter of 2017 on other real estate owned. The increase in salaries is primarily due to new branch openings, additions to staff in
the back office, normal annual salary adjustments and special salary-related accruals recorded in 2018. The increase in employee benefits
and other personnel expense is largely due to increases in incentive compensation expense of $520,000, retirement plan expense of
$299,000 and payroll tax expense of $201,000. The increase in occupancy and equipment expense is primarily due to the operating costs
of new branches, increases in maintenance and repairs expense and a growth-related increase in depreciation on the Bank’s facilities
and equipment.

Noninterest expense before debt extinguishment costs increased $3.2 million, or 6.3%, when comparing 2017 to 2016. The increase was
primarily attributable to increases in salaries of $2.0 million, or 9.2%, employee benefits expense of $261,000, or 3.8%, occupancy and
equipment expense of $981,000, or 10.6%, and marketing expense of $389,000. Also contributing to the increase was a valuation
allowance of $725,000 recorded in the fourth quarter of 2017 on other real estate owned. The impact of these items was partially offset
by decreases in consulting fees of $635,000, computer and telecommunications expense of $743,000 and FDIC insurance expense of
$201,000. The increase in salaries was 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 group health insurance expense of $260,000, incentive compensation expense of $101,000 and payroll tax expense of
$88,000, partially offset by a decrease in retirement plan expense of $257,000. The increase in group health insurance expense resulted
from increases in staff count and the rates being charged by insurance carriers and the decrease in retirement plan expense resulted from
an increase in the discount rate and the favorable performance of plan assets. The increase in occupancy and equipment expense was
primarily due to the operating costs of new branches, a growth-related increase in depreciation on the Bank’s facilities and equipment
and the cost of servicing equipment. The increase in marketing expense was largely due to new branch and deposit account promotions.
The decrease in consulting fees was mainly due to a charge of $800,000 in the second quarter of 2016 for advisory services rendered in
connection with renegotiating the Bank’s data processing contract. The decrease in computer and telecommunications expense reflected
the cost savings arising from this renegotiation. The decrease in FDIC insurance expense was attributable to a lower FDIC assessment
rate effective July 1, 2016, partially offset by a growth-related increase in the assessment base.

Income Taxes

Income tax expense as a percentage of pre-tax book income (“effective tax rate”) was 10.9%, 22.0% and 22.7% in 2018, 2017 and 2016,
respectively. Among other things, the Corporation’s effective tax rate reflects the tax benefits derived from the Bank’s municipal
securities portfolio, ownership of BOLI, maintenance of a captive REIT and for 2018, a reduction in the statutory federal income tax
rate due to the Tax Act and the benefits of a cost segregation study, state and local net operating loss carryforwards and the BOLI death
proceeds.

2018 Versus 2017. The Corporation’s effective tax rate decreased from 22.0% in 2017 to 10.9% in 2018. Income tax expense
decreased $4.8 million from $9.9 million in 2017 to $5.1 million in 2018. The decrease in income tax expense is due to: (1) a reduction
in the statutory federal income tax rate from 35% in 2017 to 21% in 2018; (2) recognition in 2018 of tax benefits of NYS and NYC net
operating loss carryforwards of $542,000; (3) recognition of $717,000 in tax benefits related to accelerated tax depreciation resulting
from a cost segregation study; and (4) higher tax benefits in the 2018 period from BOLI. Management expects the Corporation’s effective
tax rate to normalize in the range of 15% to 16% in 2019.

2017 Versus 2016. The Corporation’s effective tax rate decreased from 22.7% in 2016 to 22.0% in 2017. The decrease was almost
entirely due to higher tax benefits in 2017 from stock awards and BOLI and a $909,000 credit to income tax expense in 2017 resulting
from a reduction in the Corporation’s net deferred tax liability to reflect the changes in federal tax law. The impact of these items was
partially offset by higher state and local taxes and a decrease in tax-exempt interest on securities and loans. The vesting and exercise of
stock awards resulted in tax benefits over and above those accrued during the vesting period of $762,000 and $385,000 in 2017 and
2016, respectively. Higher state and local taxes occurred because for 2017 the Corporation was subject to NYS and NYC taxes based
on capital rather than business income and did not record the potential NYS and NYC tax benefits of deductible temporary differences
arising in 2017.

Financial Condition

Total assets were $4.2 billion at December 31, 2018, an increase of $346.4 million, or 8.9%, from the previous year-end. The increase
was primarily attributable to growth in loans of $313.0 million, or 10.6%, and available-for-sale securities of $37.9 million, or 5.3%.

Asset growth during 2018 was largely funded by growth in deposits, borrowings and stockholders’ equity. Total deposits grew
$263.0 million, or 9.3%, to $3.1 billion at December 31, 2018. The growth in deposits is comprised of increases in noninterest-bearing
checking deposits of $39.4 million, or 4.4%, and time deposits of $235.6 million, or 72.9%, partially offset by a decrease in savings,
NOW and money market deposits of $12.1 million. Substantial contributors to the growth in time deposits were deposit promotions and
the issuance of brokered certificates of deposit amounting to $100 million. The growth in borrowings is comprised of an increase in
short-term borrowings of $107.8 million, partially offset by a decrease in long-term debt of $61.8 million. Substantial contributors to
the growth in stockholders’ equity were net income and the issuance of shares under the Corporation’s stock-based compensation plan
and DRIP, partially offset by dividends declared and shares repurchased.

Investment Securities. The following table presents the estimated fair value of available-for-sale securities and amortized cost of

held-to-maturity securities at December 31, 2018, 2017 and 2016.

(in thousands)
Held-to-Maturity Securities:

State and municipals .......................................................................................... $
Pass-through mortgage securities ......................................................................
Collateralized mortgage obligations ..................................................................

Available-for-Sale Securities:

2018

2017

2016

5,142 $
267
95
5,504 $

6,970 $
311
355
7,636 $

420,038 $
65,486
154,901
117,590
758,015 $

461,323 $
71,391
187,414
—
720,128 $

10,419
361
607
11,387

450,660
185,809
178,830
—
815,299

The following table presents the maturities and weighted average tax equivalent yields of the Bank’s investment securities at
December 31, 2018.

(dollars in thousands)
Held-to-Maturity Securities:
State and municipals .......................... $
Pass-through mortgage securities ......
Collateralized mortgage obligations ..

Within
One Year

Amount Yield

Principal Maturing (1)

After One But
Within Five Years
Amount Yield

After Five But
Within Ten Years
Amount Yield

After
Ten Years

Amount Yield

3,059
—
—
3,059

3.09 % $

—
—

3.09 % $

2,083
51
—
2,134

5.26 % $
6.29
—

5.28 % $

—
2
—
2

— % $

5.68
—

5.68 % $

—
214
95
309

— %

4.99
8.53
6.08 %

Available-for-Sale Securities: (2)
State and municipals .......................... $ 48,271
—
Pass-through mortgage securities ......
—
Collateralized mortgage obligations ..
—
Corporate bonds ................................
$ 48,271

5.15 % $ 37,683
—
—
—
5.15 % $ 37,683

—
—
—

3.30 % $ 166,086
2,347
—
117,590
3.30 % $ 286,023

—
—
—

3.46 % $ 167,998
63,139
2.56
154,901
—
5.14
—
4.14 % $ 386,038

3.75 %
3.08
3.34
—
3.48 %

(1) Maturities shown are stated maturities, except in the case of municipal securities, which are shown at the earlier of their stated
maturity or pre-refunded dates. Securities backed by mortgages, which include the pass-through mortgage securities and collateralized
mortgage obligations shown above, are expected to have substantial periodic repayments resulting in weighted average lives
considerably shorter than would be surmised from the above table.

(2) Yields on available-for-sale securities have been computed based on amortized cost.

During 2018, the Bank received cash dividends of $2.2 million on its FRB and FHLB stock, representing an average yield of 6.33%.

Loans. The composition of the Bank’s loan portfolio is set forth below.

(in thousands)
Commercial and industrial .................... $
Commercial mortgages:

Multifamily ..........................................
Other ....................................................
Owner-occupied ..................................

Residential mortgages:

Closed end ...........................................
Revolving home equity ........................
Consumer and other ...............................

Allowance for loan losses .....................

2018

2017

December 31,
2016

2015

2014

98,785 $

109,623 $

126,038 $

93,056 $

77,140

756,714
433,330
91,251

682,593
414,783
95,631

610,385
371,142
103,671

572,322
348,909
115,100

1,809,651
67,710
5,958
3,263,399
(30,838)
3,232,561 $

1,558,564
83,625
5,533
2,950,352
(33,784)
2,916,568 $

1,238,431
86,461
9,293
2,545,421
(30,057)
2,515,364 $

1,025,215
87,848
5,733
2,248,183
(27,256)
2,220,927 $

529,093
222,537
107,345

779,994
83,109
5,601
1,804,819
(23,221)
1,781,598

Maturity and rate information for commercial and industrial loans outstanding at December 31, 2018 is set forth below.

(in thousands)
Commercial and industrial loans:

Maturity

Within
One Year

After One
But Within
Five Years

After
Five Years

Total

Fixed rate ............................................................................. $
Variable rate ........................................................................
$

302 $
27,127
27,429 $

23,885 $
34,197
58,082 $

6,573 $
6,701
13,274 $

30,760
68,025
98,785

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.

(dollars in thousands)
Nonaccrual loans (includes loans held-for-sale):
Troubled debt restructurings ..............................
$
Other ..................................................................
Total nonaccrual loans .......................................

Loans past due 90 days or more
and still accruing ................................................
Other real estate owned .......................................
Total nonperforming assets ..............................
Troubled debt restructurings – performing ..........
$
Total risk elements ...........................................

Nonaccrual loans as a percentage
of total loans .......................................................
Nonperforming assets as a percentage
of total loans and other real estate owned ..........
Risk elements as a percentage of total
loans and other real estate owned ......................

2018

2017

December 31,
2016

2015

2014

472
1,663
2,135

—
—
2,135
1,289
3,424

100
900
1,000

—
5,125
6,125
947
7,072

788
1,770
2,558

621
—
3,179
757
3,936

900
535
1,435

—
—
1,435
3,581
5,016

1,280
424
1,704

—
—
1,704
704
2,408

.07 %

.03 %

.10 %

.06 %

.09 %

.07 %

.21 %

.12 %

.06 %

.09 %

.10 %

.24 %

.15 %

.22 %

.13 %

The following table sets forth the gross interest income that would have been recorded under their original terms on nonaccrual loans
and troubled debt restructurings and the actual amounts recorded for the years indicated.

(in thousands)
Gross interest income on nonaccrual loans
and troubled debt restructurings:

Amount that would have been recorded
during the year under original terms ................
Actual amount recorded during the year ...........

2018

Year Ended December 31,
2016

2015

2017

2014

185
135

101
66

153
82

276
171

127
33

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

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

Loan Risk Ratings. Risk ratings of the Corporation’s commercial and industrial loans and commercial real estate loans are set forth
in the tables below. Risk ratings are defined in “Note C – Loans” to the Corporation’s consolidated financial statements of this Form
10-K.

(in thousands)
Commercial and
industrial ......................... $
Commercial mortgages:

Multifamily .....................
Other ...............................
Owner-occupied .............

December 31, 2018
Internally Assigned Risk Rating

1 - 2

Pass
3 - 4

5 - 6

Watch

Special
Mention Substandard Doubtful

Total

4,278 $

6,113 $

87,293 $

— $

667 $

434 $

— $

98,785

—
—
—

58,645
13,769
642

698,069
404,069
85,068

—
14,194
1,090

4,278 $ 79,169 $ 1,274,499 $ 15,284 $

—
1,298
3,911
5,876 $

—
—
540
974 $

756,714
—
433,330
—
—
91,251
— $ 1,380,080

Commercial and
industrial ........................ $
Commercial mortgages:

Multifamily .....................
Other ...............................
Owner-occupied .............

December 31, 2017

5,633 $

5,594 $

97,619 $

450 $

279 $

48 $

— $

109,623

—
—
—

637,699
384,007
92,731
5,633 $ 62,282 $ 1,212,056 $ 10,371 $ 11,709 $

35,429
20,372
887

7,111
2,837
1,482

2,354
7,567
—

—
—
531
579 $

682,593
—
414,783
—
—
95,631
— $ 1,302,630

Risk ratings of the Corporation’s residential mortgage loans, home equity lines and other consumer loans are set forth in the tables
below. Risk ratings are defined in “Note C – Loans” to the Corporation’s consolidated financial statements of this Form 10-K.

December 31, 2018
Internally Assigned Risk Rating

Pass
2

Watch

Special
Mention Substandard Doubtful

Total

(in thousands)
Residential mortgages:

Closed end ...................... $ 1,756,792 $ 36,834 $
1,979
Revolving home equity ...
3,576
Consumer and other ..........

63,291
1,344

$ 1,821,427 $ 42,389 $

13,899 $
1,448
38

15,385 $

312 $
—
—
312 $

— $
249
—
249 $

1,814 $
743
324
2,881 $

— $ 1,809,651
67,710
—
—
5,282
— $ 1,882,643

Residential mortgages:

Closed end ...................... $ 1,512,041 $ 29,270 $
2,112
Revolving home equity ...
299
Consumer and other ..........

79,084
4,829

$ 1,595,954 $ 31,681 $

12,857 $
1,469
108
14,434 $

2,200 $
256
—
2,456 $

828 $
704
—
1,532 $

1,368 $
—
—
1,368 $

— $ 1,558,564
83,625
—
—
5,236
— $ 1,647,425

December 31, 2017

Deposit account overdrafts are not assigned a risk rating and are therefore excluded from consumer loans in the above tables.

Allowance and Provision for Loan Losses. The allowance for loan losses decreased by $2.9 million during 2018, amounting to
$30.8 million, or .94% of total loans, at December 31, 2018, as compared to $33.8 million, or 1.15% of total loans, at December 31,
2017. The decrease of 21 basis points in the reserve coverage ratio is primarily due to an improvement in economic conditions and
reductions in historical loss rates and growth rates on certain pools of loans.

During 2018, the Bank had loan chargeoffs and recoveries of $1.5 million and $306,000, respectively, and recorded a credit provision
for loan losses $1.8 million. The credit provision for loan losses for 2018 resulted from a consistently applied pre-determined
methodology and was primarily attributable to:

Increases in the value of underlying collateral measured by such things as median home prices and commercial vacancy rates;

• Lower levels of national and local unemployment measured on a 12-month rolling average basis;
•
• Continued improvement in overall economic conditions; and
• A decline in historical loss rates. In calculating the provision for loan losses, the historical loss rate applied to each pool of

loans is equal to the highest average annualized loss rate over a lookback period of 24, 36, 48 and 60 months.

• The impact of the preceding factors on the provision for loan losses was partially offset by loan growth and net chargeoffs.

During 2017, the Bank had loan chargeoffs and recoveries of $1.1 million and $19,000, respectively, and recorded a $4.9 million
provision for loan losses. The $4.9 million provision for loan losses was primarily attributable to loan growth and net chargeoffs, partially
offset by an improvement in the local housing market and in overall economic conditions.

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 C – Loans” to the Corporation’s consolidated financial statements of this Form 10-K.

The following table sets forth changes in the Bank’s allowance for loan losses.

(dollars in thousands)
Balance, beginning of year
Loans charged off:

2018
33,784

Year ended December 31,
2016
27,256

2017
30,057

Commercial and industrial ...................
Commercial mortgages:

Multifamily ........................................
Other ..................................................
Owner-occupied .................................

Residential mortgages:

Closed end ..........................................
Revolving home equity ......................
Consumer and other ..............................

Recoveries of loans charged off:

Commercial and industrial ...................
Commercial mortgages:

Multifamily ........................................
Other ..................................................

Residential mortgages:

Closed end ..........................................
Revolving home equity ......................
Consumer and other ..............................

Net chargeoffs .........................................
Provision for loan losses .........................
Balance, end of year ................................ $
Ratio of net chargeoffs to

683

—
—
—

552
253
9
1,497

—
—

118
150
4
306
1,191
(1,755)
30,838

102

—
—
820

97
100
27
1,146

—
—

3
—
3
19
1,127
4,854
33,784

2015
23,221

2014
20,848

166

91
1
—

7
67
37
369

27
39

—
37
400

121
173
7
834

—
—

445

—
—
—

259
—
5
709

—
—

9
12
5
30
679
3,480
30,057

9
5
—
87
282
4,317
27,256

3
4
9
18
816
3,189
23,221

average loans outstanding .....................

.04 %

.03 %

.01 %

.05 %

The following table sets forth the allocation of the Bank’s total allowance for loan losses by loan type.

2018

2017

December 31,
2016

2015

2014

% of
Loans
to Total
Loans

Amount

% of
Loans
to Total
Loans

Amount

% of
Loans
to Total
Loans

Amount

% of
Loans
to Total
Loans

Amount

% of
Loans
to Total
Loans

1,158

3.0% $

1,441

3.7% $

1,408

4.9% $

928

4.1% $

838

4.3%

(dollars in thousands)
Commercial and industrial ... $
Commercial mortgages:

Amount

Multifamily .......................
Other .................................
Owner-occupied ................

5,851
3,783
743

23.2
13.3
2.8

6,423
4,734
1,076

23.2
14.1
3.2

6,119
4,296
959

24.0
14.6
4.1

6,858
3,674
1,047

25.5
15.5
5.1

7,207
2,340
1,023

29.3
12.3
6.0

Residential mortgages:

Closed end ........................
Revolving home equity .....
Consumer and other .............

18,844
410
49
$ 30,838

55.4
2.1
.2

19,347
689
74
100.0% $ 33,784

52.8
2.8
.2

15,740
1,401
134
100.0% $ 30,057

48.6
3.4
.4

13,639
1,016
94
100.0% $ 27,256

45.6
3.9
.3

10,599
1,121
93
100.0% $ 23,221

43.2
4.6
.3
100.0%

The amount of future chargeoffs and provisions for loan losses will be affected by, among other things, economic conditions on Long
Island and in NYC. Such conditions could affect the financial strength of the Bank’s borrowers and will affect the value of real estate
collateral securing the Bank’s mortgage loans. Loans secured by real estate represent approximately 97% of the Bank’s total loans
outstanding at December 31, 2018. Most of these loans were made to businesses and consumers on Long Island and in the boroughs of
NYC, and a large percentage of these loans are secured by properties located in those areas. The primary sources of repayment for
residential and commercial mortgage loans include employment and other income of the borrowers, the businesses of the borrowers and
cash flows from the underlying properties. In the case of multifamily mortgage loans, a substantial portion of the underlying properties
are rent stabilized or rent controlled. These sources of repayment are dependent on, among other things, the strength of the local
economy.

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.

Deposits and Other Borrowings. Total deposits grew $263.0 million, or 9.3%, to $3.1 billion at December 31, 2018. The increase
is attributable to growth in noninterest-bearing checking deposits of $39.4 million, or 4.4%, and time deposits of $235.6 million, or
72.9%, partially offset by a decrease in savings, NOW and money market deposits of $12.1 million. The increase in time deposits
includes $100 million of brokered certificates of deposit issued during the first quarter of 2018.

The remaining maturities of the Bank’s time deposits at December 31, 2018 can be found in “Note E – Deposits” to the Corporation’s
December 31, 2018 consolidated financial statements.

Borrowings include short-term and long-term FHLB borrowings and borrowings under repurchase agreements. Total borrowings
increased $46.0 million during 2018 to $751.0 million at year-end. The increase is comprised of an increase in short-term borrowings
of $107.8 million, partially offset by a decrease in long-term debt of $61.8 million. Short-term borrowings are used to, among other
things, offset the seasonal outflow of deposits. The decrease in long-term debt includes maturities of $101.5 million, partially offset by
new fixed rate long-term FHLB borrowings of $39.7 million.

Deleveraging Transactions. During the third and fourth quarters of 2018, the Bank sold $274.4 million of available-for-sale
securities in restructuring transactions designed to improve securities portfolio yield and net interest margin and eliminate inefficient
leverage. In the third quarter, the Bank sold $135 million of mortgage-backed securities and $39.6 million of short-term municipal bonds
with yields of 2.51% and 2.90%, respectively, and reinvested the proceeds in mortgage-backed securities and corporate bonds with an
overall yield of 4.02%. In October 2018, the Bank eliminated inefficient leverage by selling $60.6 million of mortgage-backed securities
with a yield of 2.51% and used the proceeds to pay down overnight borrowings with a cost of 2.47%. In November 2018, the Bank sold
an additional $39.2 million of mortgage-backed securities with a yield of 2.55% and reinvested the proceeds in corporate bonds with an
overall current yield of 5.08%. The pre-tax and after-tax loss on all 2018 securities sales totaled $10.4 million and $7.5 million,
respectively, and the payback period, excluding the deleveraging transaction, is approximately 2.0 years. Because these transactions
were completed toward the end of 2018, they had only a partial impact on interest income and net interest margin for the year. On a full
year basis for 2019, interest income and net interest margin are expected to benefit from these transactions by approximately $3.7 million
and 11 basis points, respectively.

During the fourth quarter of 2017, the Bank sold approximately $88.6 million of mortgage-backed securities with a yield of 1.55% and
an expected average life of 3.4 years and reinvested substantially all of the proceeds in mortgage-backed securities with a yield of 2.61%
and an expected average life of 4.9 years. The sale resulted in a pre-tax loss of $1.9 million and an after-tax loss of $1.3 million. During
the first quarter of 2017, the Bank executed a deleveraging transaction in which the Bank sold approximately $40 million of mortgage-
backed securities at a gain of $57,000 and used the resulting proceeds to pay down short-term borrowings. During the second quarter of
2016, the Bank executed a deleveraging transaction involving the sale of $40.3 million of mortgage-backed securities at a gain of $1.8
million and the prepayment of $30 million of long-term debt at a cost of $1.8 million.

Capital. Stockholders’ equity totaled $388.2 million at December 31, 2018, an increase of $33.7 million from $354.5 million at
December 31, 2017. The increase is primarily attributable to net income of $41.6 million and the issuance of shares under the
Corporation’s stock-based compensation and DRIP of $19.0 million, partially offset by cash dividends declared of $16.2 million, a
decrease in the after-tax value of available-for-sale securities of $5.9 million and the repurchase of common stock amounting to $1.5
million.

The deliberate slowing of balance sheet growth in 2018 eliminated the need to raise capital through the DRIP and has provided the
Corporation with an opportunity to control capital growth through stock repurchases at what management believes to be very attractive
pricing. In this regard, effective with the second quarter 2018 cash dividend, the Corporation reduced the optional quarterly cash
purchase limit per shareholder under the DRIP from $75,000 to $5,000. Effective with the first quarter 2019 cash dividend, optional
quarterly cash purchases are currently unavailable. The change in 2018 substantially reduced the number of shares issued under the
DRIP resulting in less dilution to earnings per share. Sale of shares under the DRIP contributed $18.2 million and $22.6 million to
capital in 2018 and 2017, respectively, with a substantial portion of the 2018 amount generated during the first half of the year. In
addition, in October 2018, the Corporation’s Board of Directors approved a common stock repurchase program in an amount up to $20
million. Under this program, the Corporation may repurchase shares through open market purchases, privately negotiated transactions
or in any manner that is compliant with applicable securities laws. The Corporation purchased and retired 77,300 shares of its common
stock in the fourth quarter of 2018 at an average price of $19.94 per share, totaling $1.5 million.

The Corporation’s ROE was 11.09%, 10.51% and 10.62% for the years ended December 31, 2018, 2017 and 2016, respectively and its
ROA was 1.00%, .95% and .93%, respectively. Book value per share increased 6.3% during 2018 to $15.27 at December 31, 2018.
Book value per share was $14.37 and $12.90 at December 31, 2017 and 2016, respectively.

The Corporation’s capital management policy is designed to build and maintain capital levels that exceed regulatory standards and
appropriately provide for growth. The Basel III regulatory capital ratios of the Corporation and the Bank as of December 31, 2018 are
set forth in the table below. The Corporation and the Bank exceeded the Basel III minimum capital adequacy requirements, including
the capital conservation buffer of 1.875% applicable to the Bank for 2018, and the Bank was well capitalized under the PCA provisions
at December 31, 2018.

Corporation

Bank

Tier 1 leverage ......................................
Common equity tier 1 risk-based ..........
Tier 1 risk-based ...................................
Total risk-based .....................................

9.40 %
15.29 %
15.29 %
16.48 %

9.45 %
15.38 %
15.38 %
16.57 %

The Corporation and the Bank implemented the Basel III regulatory capital standards issued by the Federal Reserve Board and the OCC.
Basel III includes guidelines with respect to the calculation of risk weighted assets for both on and off-balance-sheet positions. The
Corporation and the Bank made a one-time election to exclude accumulated other comprehensive income components from regulatory
capital.

Cash Flows and Liquidity

Cash Flows. During 2018, the Corporation’s cash and cash equivalent position decreased by $22.3 million, from $69.7 million at
December 31, 2017 to $47.4 million at December 31, 2018. The decrease occurred primarily because cash used to originate loans,
purchase securities and BOLI, repay borrowings, repurchase common stock and pay cash dividends exceeded cash provided by the
growth in deposits and borrowings, paydowns and sales of securities, paydowns of loans, common stock issued under the DRIP and
operations.

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.

At December 31, 2018, the Bank had approximately $298 million of unencumbered available-for-sale securities. In addition, based on
securities and loan collateral in place at the FRB of New York and FHLB of New York, the Bank had borrowing capacity of
approximately $1.2 billion at December 31, 2018.

Off-Balance-Sheet Arrangements and Contractual Obligations

The Corporation’s off-balance-sheet arrangements and contractual obligations at December 31, 2018 are summarized in the table that
follows. Since some of the commitments to extend credit and letters of credit are expected to expire without being drawn upon and, with
respect to unused home equity, small business credit scored and certain other lines, can be frozen, reduced or terminated by the Bank
based on the financial condition of the borrower, the total commitment amounts shown in the table do not necessarily represent future
cash requirements. The amounts shown for long-term debt and time deposits are based on the contractual maturities and do not include
interest payments. The Corporation believes that its current sources of liquidity are more than sufficient to fulfill the obligations it has
at December 31, 2018 pursuant to off-balance-sheet arrangements and contractual obligations.

(in thousands)
Commitments to extend credit ........................... $
Standby letters of credit .....................................
Long-term debt ..................................................
Operating lease obligations ................................
Purchase obligations ..........................................
Time deposits .....................................................

Amount of Commitment Expiration Per Period

Total
Amounts
Committed

One
Year
or Less

Over
One Year
Through
Three Years

Over
Three Years
Through
Five Years

235,568 $
3,670
362,027
22,044
9,550
559,057
1,191,916 $

108,003 $
3,265
73,500
2,986
1,593
283,259
472,606 $

39,894 $
405
136,975
5,741
4,017
163,173
350,205 $

13,277 $
—
131,552
5,200
3,940
49,978
203,947 $

Over
Five
Years

74,394
—
20,000
8,117
—
62,647
165,158

Commitments to extend credit and letters of credit arise in the normal course of the Bank’s business of meeting the financing needs of
its customers and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance
sheets.

The Bank's exposure to credit loss in the event of nonperformance by the other party to financial instruments for commitments to extend
credit and letters of credit is represented by the contractual notional amount of these instruments. The Bank uses the same credit policies
in making commitments to extend credit, and generally uses the same credit policies for letters of credit, as it does for on-balance sheet
instruments such as loans.

The purchase obligations shown in the preceding table are pursuant to contracts that the Bank has with providers of data processing
services.

Impact of Inflation and Changing Prices

The consolidated financial statements and notes thereto presented herein have been prepared in accordance with accounting principles
generally accepted in the United States, which require the measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary effect of inflation
on the operations of the Corporation is reflected in increased operating costs. Unlike industrial companies, most of the assets and
liabilities of a financial institution are monetary in nature. As a result, changes in interest rates generally have a more significant effect
on the performance of a financial institution than do the effects of changes in the general rate of inflation and changes in prices. Interest
rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. Interest rates are highly
sensitive to many factors, which are beyond the control of the Corporation, including the influence of domestic and foreign economic
conditions and the monetary and fiscal policies of the United States government and federal agencies, particularly the Federal Reserve
Board, and foreign governments.

Impact of Issued But Not Yet Effective Accounting Standards

For a discussion regarding the impact of issued but not yet effective accounting standards, see “Note A – Summary of Significant
Accounting Policies” to the Corporation’s consolidated financial statements of this Form 10-K.

ITEM 7A. 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 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.

Gap Analysis. 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.

The table that follows summarizes the Corporation's cumulative interest rate sensitivity gap at December 31, 2018, based upon
significant estimates and assumptions that the Corporation believes to be reasonable. The table arranges interest-earning assets and
interest-bearing liabilities according to the period in which they contractually mature or, if earlier, are estimated to repay or reprice.
Repayment and repricing estimates are based on internal data, market data and management’s assumptions about factors that are
inherently uncertain. These factors include, among others, prepayment speeds, changes in market interest rates and the Bank’s response
thereto, early withdrawal of deposits and competition. The balances of non-maturity deposit products have been included in categories
beyond three months in the table because management believes, based on past experience and its knowledge of current competitive
pressures, that the repricing of these products will lag market changes in interest rates to varying degrees.

Repricing Period

Over
Three
Months
Through
One Year

Over
One Year
Through
Five
Years

Three
Months
or Less

Over
Five
Years

Non-
Interest-
Sensitive

Total

(in thousands)
Assets:

Investment securities ...................... $
Loans ..............................................
Other assets .....................................

31,689 $
184,616
41,256
257,561

105,615 $
205,081
81,132
391,828

322,434 $
1,251,133
—
1,573,567

308,010 $
1,620,434
—
1,928,444

(4,229) $
(28,703)
122,592
89,660

763,519
3,232,561
244,980
4,241,060

Liabilities &

Stockholders' Equity:
Checking deposits ...........................
Savings, NOW and

—

935,574

money market deposits .................

272,338

286,369

862,556

169,078

—

1,590,341

Time deposits,

$100,000 and over ........................
Time deposits, other .......................
Borrowed funds ..............................
Other liabilities ...............................
Stockholders' equity .......................

Interest-rate sensitivity gap ............... $
Cumulative interest-rate

46,094
24,646
248,923
—
—
592,001
(334,440) $

80,627
131,892
63,500
—
—
562,388
(170,560) $

145,187
67,964
418,527
—
—
1,494,234
79,333 $

37,257
25,390
20,000
—
—
251,725
1,676,719 $

—
—
—
16,951
388,187
1,340,712
(1,251,052) $

309,165
249,892
750,950
16,951
388,187
4,241,060
—

sensitivity gap ................................. $

(334,440) $

(505,000) $

(425,667) $

1,251,052 $

— $

—

As shown in the preceding table, the Bank has a larger volume of interest-bearing deposit accounts and borrowings than interest-earning
assets that are subject to repricing in a one-year time frame. Net interest income in the near-term could be negatively impacted if the
rates paid on the Bank’s deposit accounts and short-term borrowings are increased at the same time or earlier than, and in an amount
equal to or greater than, increases in the rates earned on the Bank’s interest-earning assets as they reprice or cashflows are reinvested.
Conversely, an increase in short-term interest rates could positively impact the Bank’s net interest income in the near-term if increases
in the rates paid on the Bank’s deposit accounts lag and occur in lesser amounts than increases in the rates earned on the Bank’s interest-
earning assets.

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

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

In utilizing interest rate sensitivity modeling to project net interest income and calculate EVE, management makes a variety of estimates
and assumptions which include, among others, the following: (1) how much and when yields and costs on individual categories of
interest-earning assets and interest-bearing liabilities will change in response to projected changes in market interest rates; (2) future
cash flows, including 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 non-maturity 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 non-
maturity deposits is not. For non-maturity deposits, management makes estimates of how much and when it will need to change the

rates paid on the Bank’s various non-maturity deposit products in response to changes in general market interest rates. These estimates
are based on, among other things, product type, management’s experience with needed deposit rate adjustments in prior interest rate
change cycles, the results of a non-maturity deposit study conducted by an independent consultant and updated on a periodic basis and
management’s assessment of competitive conditions in its marketplace.

The information provided in the following table is based on a variety of estimates and assumptions that management believes to be
reasonable, the more significant of which are set forth hereinafter. The base case information in the table shows (1) a calculation of the
Corporation’s EVE at December 31, 2018 arrived at by discounting estimated future cash flows at rates that management believes are
reflective of current market conditions and (2) an estimate of net interest income for the year ending December 31, 2019 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 non-maturity deposits are assumed to have an overall average life of 6.3 years based on the current mix of such
deposits and the most recently updated non-maturity deposit study.

The rate change information in the following table shows estimates of net interest income for the year ending December 31, 2019 and
calculations of EVE at December 31, 2018 assuming rate changes of plus 100, 200 and 300 basis points and minus 100 and 200 basis
points. The rate change scenarios were selected based on, among other things, the relative level of current interest rates and: (1) are
assumed to be shock or immediate changes for both EVE and net interest income; (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 non-maturity deposits, by the full amount of the rate change. In projecting future net interest income under the indicated
rate change scenarios, activity is simulated by assuming that cash flows from maturing assets and liabilities are reinvested in a mix of
assets and liabilities that mirrors the Bank’s strategic plan. The changes in EVE from the base case have not been tax affected.

Economic Value of Equity
at December 31, 2018

Net Interest Income
for 2019

Rate Change Scenario (dollars in thousands)
+ 300 basis point rate shock .......................................... $
+ 200 basis point rate shock ..........................................
+ 100 basis point rate shock ..........................................
Base case (no rate change) .........................................
- 100 basis point rate shock ...........................................
- 200 basis point rate shock ...........................................

Amount

514,661
563,732
615,146
657,746
679,906
650,242

Percent Change
From Base Case

-21.8%
-14.3%
-6.5%
—
3.4%
-1.1%

Amount

87,476
93,918
100,576
106,748
111,075
112,516

Percent Change
From Base Case

-18.1%
-12.0%
-5.8%
—
4.1%
5.4%

As shown in the preceding table, assuming a static balance sheet, an immediate increase in interest rates of 100, 200 or 300 basis points
could negatively impact the Bank’s net interest income for the year ended December 31, 2019 because, among other things, the Bank
would need to pay more for overnight borrowings and it is assumed the Bank would need to increase the rates paid on its non-maturity
deposits in order to remain competitive. Unlike non-maturity deposits and short-term borrowings, the Bank’s securities and almost all
of its loans are not subject to immediate repricing with changes in market rates. Conversely, an immediate decrease in interest rates of
100 or 200 basis points could positively impact the Bank’s net interest income for the same time period because, among other things,
the Bank would immediately pay less for overnight borrowings and be able to reduce deposit rates while the downward repricing of its
interest-earning assets would lag. The decline in EVE in the minus 200 basis points scenario is predominantly due to the inability to
reduce interest rates on deposit accounts below zero. Changes in management’s estimates as to the rates that will need to be paid on
non-maturity deposits could have a significant impact on the net interest income amounts shown for each scenario in the table.

Forward-Looking Statements

This Annual Report on Form 10-K and the documents incorporated into it by reference contain or may contain various forward-looking
statements. These forward-looking statements include statements of goals; intentions and expectations; estimates of risks and of future
costs and benefits; assessments of probable loan losses; assessments of market risk; and statements of the ability to achieve financial
and other goals. Forward-looking statements are typically identified by words such as “would,” “should,” “could,” “believe,” “expect,”
“anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project” and other similar words and expressions. Forward-looking statements
are subject to numerous assumptions, risks and uncertainties which may change over time. Forward-looking statements speak only as
of the date they are made. We do not assume any duty and do not undertake to update our forward-looking statements. Because forward-
looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from
those that we anticipated in our forward-looking statements and future results could differ materially from historical performance.

Our forward-looking statements are subject to the following principal risks and uncertainties: general economic conditions and trends,
either nationally or locally; conditions in the securities markets; fluctuations in the trading price of our common stock; changes in interest
rates; changes in the shape of the yield curve; changes in deposit flows, and in the demand for deposit and loan products and other
financial services; changes in real estate values; changes in the quality or composition of our loan or investment portfolios; changes in
competitive pressures among financial institutions or from non-financial institutions; our ability to retain key members of management;
changes in legislation, regulation, and policies; and a variety of other matters which, by their nature, are subject to significant
uncertainties. We provide greater detail regarding some of these factors in Item 1A, “Risk Factors” included in this report. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS

December 31 (dollars in thousands)
Assets:

2018

2017

Cash and cash equivalents .............................................................................................................. $

47,358 $

69,672

Investment securities:

Held-to-maturity, at amortized cost (fair value of $5,552 and $7,749) ...................................
Available-for-sale, at fair value ...............................................................................................

Loans:

Commercial and industrial ......................................................................................................
Secured by real estate:

Commercial mortgages .......................................................................................................
Residential mortgages .........................................................................................................
Home equity lines ...............................................................................................................
Consumer and other .................................................................................................................

Allowance for loan losses ........................................................................................................

Restricted stock, at cost ..................................................................................................................
Bank premises and equipment, net .................................................................................................
Bank-owned life insurance .............................................................................................................
Pension plan assets, net ..................................................................................................................
Deferred income tax benefit ...........................................................................................................
Other assets .....................................................................................................................................

Liabilities:
Deposits:

Checking ................................................................................................................................. $
Savings, NOW and money market ..........................................................................................
Time, $100,000 and over ........................................................................................................
Time, other .............................................................................................................................

Short-term borrowings ....................................................................................................................
Long-term debt ...............................................................................................................................
Accrued expenses and other liabilities ...........................................................................................
Deferred income taxes payable .......................................................................................................

Commitments and Contingent Liabilities (Note L)

Stockholders' Equity:

Common stock, par value $.10 per share:

Authorized, 80,000,000 shares;
Issued and outstanding, 25,422,740 and 24,668,390 shares ......................................................
Surplus ............................................................................................................................................
Retained earnings ...........................................................................................................................

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

5,504
758,015
763,519

7,636
720,128
727,764

98,785

109,623

1,281,295
1,809,651
67,710
5,958
3,263,399
(30,838)
3,232,561
40,686
41,267
80,925
15,154
3,447
16,143
4,241,060 $

1,193,007
1,558,564
83,625
5,533
2,950,352
(33,784)
2,916,568
37,314
39,648
59,665
19,152
—
24,925
3,894,708

935,574 $

1,590,341
309,165
249,892
3,084,972
388,923
362,027
16,951
—
3,852,873

896,129
1,602,460
203,890
119,518
2,821,997
281,141
423,797
10,942
2,381
3,540,258

2,542
145,163
249,922
397,627
(9,440)
388,187
4,241,060 $

2,467
127,122
224,315
353,904
546
354,450
3,894,708

See notes to consolidated financial statements

CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31 (dollars in thousands, except per share data)
Interest and dividend income:

Loans ................................................................................................................. $
Investment securities:

Taxable .........................................................................................................
Nontaxable ...................................................................................................

Interest expense:

Savings, NOW and money market deposits .....................................................
Time deposits ....................................................................................................
Short-term borrowings .......................................................................................
Long-term debt ..................................................................................................

Net interest income ......................................................................................
Provision (credit) for loan losses .......................................................................
Net interest income after provision (credit) for loan losses ...............................

Noninterest income:

Investment Management Division income ........................................................
Service charges on deposit accounts ..................................................................
Net gains (losses) on sales of securities .............................................................
Other ..................................................................................................................

Noninterest expense:

Salaries ..............................................................................................................
Employee benefits and other personnel expense ...............................................
Occupancy and equipment ................................................................................
Debt extinguishment ..........................................................................................
Other ................................................................................................................

Income before income taxes .........................................................................
Income tax expense ............................................................................................

Net income ................................................................................................... $

2018

2017

2016

112,784 $

97,027 $

82,456

7,754
13,484
118,265

7,981
13,686
104,123

12,040
13,413
138,237

12,105
10,452
4,858
8,315
35,730
102,507
(1,755)
104,262

2,175
2,634
(10,406)
7,876
2,279

7,113
5,479
1,345
7,772
21,709
96,556
4,854
91,702

2,090
2,792
(1,866)
5,145
8,161

27,926
8,539
11,686
—
11,755
59,906
46,635
5,062
41,573 $

25,373
7,268
10,245
—
11,966
54,852
45,011
9,889
35,122 $

5,344
5,107
296
7,255
18,002
86,121
3,480
82,641

2,000
2,666
1,868
3,970
10,504

23,258
6,872
9,264
1,756
12,066
53,216
39,929
9,049
30,880

$1.35
$1.34

$.55

Earnings per share:

Basic ..................................................................................................................
Diluted ..............................................................................................................

$1.64
$1.63

$1.44
$1.43

Cash dividends declared per share ...................................................................

$.64

$.58

See notes to consolidated financial statements

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 31 (in thousands)

2018

2017

2016

Net income .............................................................................................................. $

41,573 $

35,122 $

30,880

Other comprehensive income (loss):

Change in net unrealized holding gains (losses) on available-for-sale securities ..
Change in funded status of pension plan ...............................................................
Change in net unrealized loss on derivative instrument ........................................
Other comprehensive income (loss) before income taxes ...................................
Income tax expense (benefit) .................................................................................
Other comprehensive income (loss) ...................................................................
Comprehensive income .......................................................................................... $

(8,485)
(4,316)
(1,130)
(13,931)
(4,222)
(9,709)
31,864 $

1,631
1,718
—
3,349
1,199
2,150
37,272 $

(17,004)
1,443
—
(15,561)
(6,433)
(9,128)
21,752

See notes to consolidated financial statements

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(dollars in thousands)
Balance, January 1, 2016 ..................
Net income .....................................
Other comprehensive loss ...............
Common stock issued in public

Common Stock

Amount

Surplus

Retained
Earnings

Comprehensive
Income (Loss)

14,116,677 $

1,412 $

56,931 $

185,069 $
30,880

7,524 $

(9,128)

offering, net of issuance costs ......

1,300,000

130

35,140

Accumulated

Other

Shares withheld upon the vesting

and conversion of RSUs ...............
Common stock issued under stock
compensation plans ......................

Common stock issued under

dividend reinvestment and stock
purchase plan ................................
3-for-2 stock split ...........................
Stock-based compensation .............
Cash dividends declared .................
Balance, December 31, 2016 ............
Net income .....................................
Other comprehensive income .........
Shares withheld upon the vesting

and conversion of RSUs ...............
Common stock issued under stock
compensation plans ......................

Common stock issued under

dividend reinvestment and stock
purchase plan ................................
Stock-based compensation .............
Cash dividends declared .................
Balance, December 31, 2017 ............
Net income .....................................
Other comprehensive loss ...............
Reclassification of stranded tax
effects upon the adoption of
ASU 2018-02 ...............................
Repurchase of common stock .........
Shares tendered upon the exercise
of stock options ............................

Shares withheld upon the vesting

and conversion of RSUs ...............
Common stock issued under stock
compensation plans ......................

Common stock issued under

dividend reinvestment and stock
purchase plan ................................
Stock-based compensation .............
Cash dividends declared .................
Balance, December 31, 2018 ............

(13,393)

(1)

(369)

109,409

895

287,498
7,898,916

28
790

8,414
(790)
1,517

23,699,107

2,370

101,738

(19,339)

(2)

(525)

164,720

959

823,902

22,516
2,434

24,668,390

2,467

127,122

(77,300)

(8)

(1,533)

(14,549)

(27,591)

(1)

(3)

(365)

(771)

174,164

727

699,626

18,169
1,814

(12,623)
203,326
35,122

(1,604)

2,150

(14,133)
224,315
41,573

546

(9,709)

277

(277)

25,422,740 $

2,542 $

145,163 $

(16,243)
249,922 $

(9,440) $

Total
250,936
30,880
(9,128)

35,270

(370)

906

8,442
—
1,517
(12,623)
305,830
35,122
2,150

(527)

976

22,598
2,434
(14,133)
354,450
41,573
(9,709)

—
(1,541)

(366)

(774)

744

18,239
1,814
(16,243)
388,187

See notes to consolidated financial statements

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31 (in thousands)
Cash Flows From Operating Activities:

2018

2017

2016

Net income ...................................................................................................................... $
Adjustments to reconcile net income to net cash provided by operating activities:

41,573 $

35,122 $

30,880

Provision (credit) for loan losses .................................................................................
Provision (credit) for deferred income taxes ................................................................
Provision for losses on other real estate owned ............................................................
Depreciation and amortization .....................................................................................
Premium amortization on investment securities, net ....................................................
Net losses (gains) on sales of securities ........................................................................
Net gain on sale of premises and equipment ................................................................
Loss on debt extinguishment ........................................................................................
Stock-based compensation expense ..............................................................................
Accretion of cash surrender value on bank-owned life insurance ................................
Pension expense (credit) less contribution ...................................................................
Increase (decrease) in accrued expenses and other liabilities .......................................
Other decreases (increases) ..........................................................................................
Net cash provided by operating activities ..................................................................

Cash Flows From Investing Activities:

Proceeds from sales of investment securities:

Proceeds from maturities and redemptions of investment securities:

Purchases of investment securities:

Held-to-maturity ...........................................................................................................
Available-for-sale .........................................................................................................
Proceeds from sales of loans held-for-sale ......................................................................
Proceeds from sale of real estate .....................................................................................
Net increase in loans .......................................................................................................
Net increase in restricted stock .......................................................................................
(Purchases of) proceeds from bank-owned life insurance, net ........................................
Purchases of premises and equipment, net ......................................................................
Net cash used in investing activities ..........................................................................

Cash Flows From Financing Activities:

Net increase in deposits ..................................................................................................
Net increase (decrease) in short-term borrowings ...........................................................
Proceeds from long-term debt .........................................................................................
Repayment of long-term debt .........................................................................................
Proceeds from issuance of common stock, net ...............................................................
Proceeds from exercise of stock options .........................................................................
Repurchases of common stock ........................................................................................
Shares withheld upon the vesting and conversion of RSUs ............................................
Cash dividends paid ........................................................................................................
Net cash provided by financing activities ..................................................................
Net (decrease) increase in cash and cash equivalents ........................................................
Cash and cash equivalents, beginning of year ...................................................................
Cash and cash equivalents, end of period .......................................................................... $
Supplemental Cash Flow Disclosures:

Cash paid for interest ...................................................................................................... $
Cash paid for income taxes .............................................................................................
Noncash investing and financing activities:

Cash dividends payable ................................................................................................
Additions to other real estate owned ............................................................................
Loans transferred from portfolio to held-for-sale .........................................................

See notes to consolidated financial statements

(1,755)
(1,601)
—
4,068
1,714
10,406
(1,176)
—
1,814
(2,134)
(319)
4,002
2,782
59,374

—
263,994

5,240
74,639

(3,059)
(397,174)
1,250
6,793
(315,389)
(3,372)
(18,561)
(5,687)
(391,326)

4,854
1,114
725
3,604
3,045
1,866
—
—
2,434
(1,568)
(118)
1,031
(4,937)
47,172

355
135,695

6,089
100,994

(2,606)
(144,885)
—
—
(411,908)
(5,551)
(25,000)
(8,891)
(355,708)

262,975
107,782
39,680
(101,450)
18,239
312
(1,541)
(774)
(15,585)
309,638
(22,314)
69,672
47,358 $

213,280
74,129
71,635
(27,050)
22,598
917
—
(527)
(13,703)
341,279
32,743
36,929
69,672 $

35,274 $
2,490

21,545 $
12,838

4,456
—
1,151

3,798
5,850
—

3,480
1,233
—
3,219
4,002
(1,868)
—
1,756
1,517
(932)
(1,536)
(3,313)
(2,849)
35,589

123
62,047

4,322
108,486

(1,403)
(267,329)
544
—
(298,361)
(3,328)
388
(7,250)
(401,761)

324,042
(4,490)
43,500
(31,756)
43,712
906
—
(370)
(12,078)
363,466
(2,706)
39,635
36,929

21,158
9,006

3,368
—
—

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements include the accounts of The First of Long Island Corporation and its wholly-owned subsidiary,
The First National Bank of Long Island, and subsidiaries wholly-owned by the Bank, either directly or indirectly: The First of Long
Island Agency, Inc.; FNY Service Corp. (“FNY”); and The First of Long Island REIT, Inc. (“REIT”). The Corporation’s financial
condition and operating results principally reflect those of the Bank and its subsidiaries. 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. 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 accounting and reporting policies of the Corporation reflect banking industry practice and conform to generally accepted accounting
principles (“GAAP”) in the United States. The following is a summary of the Corporation’s significant accounting policies.

Cash and Cash Equivalents

Cash and cash equivalents include cash and deposits with other financial institutions that generally mature within 90 days.

Investment Securities

Current accounting standards require that investment securities be classified as held-to-maturity, available-for-sale or trading. The
trading category is not applicable to any securities in the Bank's portfolio because the Bank does not buy or hold debt or equity securities
principally for the purpose of selling in the near term. Held-to-maturity securities, or debt securities which the Bank has the intent and
ability to hold to maturity, are reported at amortized cost. Available-for-sale securities, or debt securities which are neither held-to-
maturity securities nor trading securities, are reported at fair value, with unrealized gains and losses, net of the related income tax effect,
included in other comprehensive income (loss). Equity securities, if any, are carried at fair value, with changes in fair value reported in
net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus
changes resulting from observable price changes in orderly transactions for the identical or a similar investment.

Interest income includes amortization or accretion of purchase premium or discount. Premiums and discounts on securities are amortized
or accreted using the level-yield method. Prepayments are anticipated for mortgage-backed securities. Premiums on municipal securities
are amortized to the earlier of the stated maturity date or the first call date, while discounts on municipal securities are accreted to the
stated maturity date. Realized gains and losses on the sale of securities are determined using the specific identification method.

Investment securities are evaluated for other-than-temporary impairment (“OTTI”) no less often than quarterly. In determining OTTI,
management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost;
(2) the financial condition and near-term prospects of the issuer; (3) whether the market decline was affected by macroeconomic
conditions; and (4) whether management has the intent to sell the debt security or more likely than not will be required to sell the debt
security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of
subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, management considers whether it intends to sell, or, more likely than not, will be required to sell a security in an
unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between
amortized cost and fair value is recognized in earnings. For securities that do not meet the aforementioned criteria, the amount of
impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized
in other comprehensive income (loss).

Loans Held-for-Sale

Loans held-for-sale are carried at the lower of cost or fair value. Any subsequent declines in fair value below the initial carrying value
are recorded as a valuation allowance established through a charge to noninterest income.

Loans and Allowance for Loan Losses

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their
outstanding principal balance less any chargeoffs and the allowance for loan losses and plus or minus net deferred loan costs and fees,
respectively. Interest on loans is credited to income based on the principal amount outstanding. Direct loan origination costs, net of loan
origination fees, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

The past due status of a loan is based on the contractual terms in the loan agreement. Unless a loan is well secured and in the process of
collection, the accrual of interest income is discontinued when a loan becomes 90 days past due as to principal or interest payments. The
accrual of interest income on a loan is also discontinued when it is determined that the borrower will not be able to make principal and
interest payments according to the contractual terms of the current loan agreement. When the accrual of interest income is discontinued
on a loan, any accrued but unpaid interest is reversed against current period income. Interest received on nonaccrual loans is applied to
the outstanding principal balance until the loans qualify for return to an accrual status, if ever. Return to an accrual status occurs when
all the principal and interest amounts contractually past due are brought current and all future payments are reasonably assured.

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 against the allowance for loan losses, and
subsequent recoveries, if any, are credited to the allowance.

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. 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.

The allowance for loan losses is comprised of specific reserves allocated to individually impaired loans plus estimated losses on pools
of loans that are collectively reviewed. 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.

Estimated losses for loans individually deemed to be impaired are based on either the fair value of collateral or the discounted value of
expected future cash flows. For all collateral dependent impaired loans, impairment losses are measured based on the fair value of the
collateral. A loan is considered to be impaired when, based on current information and events, it is probable that the Bank will be unable
to collect the scheduled principal and interest when due according to the contractual terms of the current loan agreement. Loans that
experience insignificant payment delays and payment shortfalls are not automatically considered to be impaired. Management
determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior
payment record and financial condition and the amount of the shortfall in relation to the principal and interest owed. 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.

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. Loan pools include: commercial and industrial loans; small business credit scored
loans; owner-occupied commercial mortgages; multifamily commercial mortgages; other commercial mortgages; construction and land
development loans; first-lien residential mortgages; junior-lien residential mortgages; first-lien home equity lines; junior-lien home
equity lines; and consumer loans. The Bank’s highest average annualized loss experience over periods of 24, 36, 48 or 60 months is
generally the starting point in determining the allowance for loan losses for each pool of loans. Management believes that this approach
appropriately reflects losses from the current economic cycle and those incurred losses in the Bank’s loan portfolio. However, since
future losses could vary significantly from those experienced in the past, on a quarterly basis management adjusts its historical loss
experience to reflect current conditions. In doing so, management considers a variety of general qualitative factors and then subjectively
determines the weight to assign to each in estimating losses. The factors include, among others: (1) delinquencies, (2) economic
conditions as judged by things such as national and local unemployment levels, (3) changes in value of underlying collateral as judged
by things such as median home prices, commercial vacancy rates and forecasted vacancy and rental rates in the Bank’s service area, (4)
trends in the nature and volume of loans, (5) concentrations of credit, (6) changes in lending policies and procedures, (7) experience,
ability and depth of lending staff, (8) changes in the quality of the loan review function, (9) environmental risks, and (10) loan risk
ratings. Substantially all of the Bank’s allowance for loan losses allocable to pools of loans that are collectively evaluated for impairment
results from these qualitative adjustments to historical loss experience. Because of the nature of the qualitative factors and the difficulty
in assessing their impact, management’s resulting estimate of losses may not accurately reflect actual losses in the portfolio.

Troubled debt restructurings are by definition impaired loans and are generally reported at the present value of estimated future cash
flows using the loan’s effective rate at inception. However, if a troubled debt restructuring is considered to be a collateral dependent
loan, the loan is reported at the fair value of the collateral.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred
assets is deemed to be surrendered when the assets have been isolated from the Corporation, the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Corporation does
not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Bank Premises and Equipment

Land is carried at cost. Other bank premises and equipment are carried at cost less accumulated depreciation and amortization. Buildings
are depreciated using the straight-line method over their estimated useful lives, which range from 31 to 40 years. Building and leasehold
improvements are depreciated using the straight-line method over the remaining lives of the buildings or leases, as applicable, or their
estimated useful lives, whichever is shorter. The lives of the respective leases range from five to twenty years. Furniture, fixtures and
equipment are depreciated using the straight-line method over their estimated useful lives, which range from three to ten years. Premises
and equipment held-for-sale, if any, is included in Other Assets on the Corporation’s consolidated balance sheet and carried at the lower
of cost or fair value.

Bank-owned Life Insurance

The Bank is the owner and beneficiary of insurance policies on the lives of certain officers. Bank-owned life insurance (“BOLI”) is
recorded at the amount that can be realized under the contract at the balance sheet date, which is the cash surrender value adjusted for
other charges or amounts due that are probable at settlement, if any.

Restricted Stock

The Bank is a member of and is required to own stock in the Federal Home Loan Bank of New York (“FHLB”) and the Federal Reserve
Bank of New York (“FRB”). The amount of FHLB stock held is based on membership and the level of FHLB advances. The amount of
FRB stock held is based on the Bank’s capital and surplus balances. These stocks do not have a readily determinable fair value, are
carried at cost, classified as restricted stock and periodically evaluated for impairment based on the prospects for the ultimate recovery
of cost. Cash dividends, if any, are reported as interest income on taxable investment securities.

Other Real Estate Owned

Real estate acquired through foreclosure or by deed-in-lieu of foreclosure is initially recorded at the lower of cost or fair value, less
estimated selling costs and is included in other assets on the consolidated balance sheet. Chargeoffs recorded at the time of acquisition
are charged to the allowance for loan losses. Thereafter, decreases in the property’s estimated fair value are charged to earnings and
credited to a valuation allowance and subsequent recoveries in fair value are credited to earnings and charged to the valuation allowance.
Such adjustments to earnings are included in other noninterest expense along with any additional property maintenance costs incurred
in owning the property. Rental income received from tenants of other real estate owned is included in other noninterest income.

Long-term Assets

Premises and equipment, intangible assets, BOLI and other long-term assets, if any, are reviewed for impairment when events indicate
that their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Loan Commitments and Related Financial Instruments

Financial instruments include off-balance-sheet credit instruments, such as commitments to make loans, commercial letters of credit
and standby letters of credit. The face amount of these items represents the exposure to loss, before considering collateral held or ability
to repay. The Bank maintains a reserve for losses on off-balance-sheet credit exposures which is included in accrued expenses and other
liabilities on the consolidated balance sheet. Off-balance-sheet credit instruments are recorded on the balance sheet when they are funded
or drawn down.

Derivatives

The Corporation records cash flow hedges at the inception of a derivative contract based on management’s intentions and belief as to
the likely effectiveness of the hedge. Cash flow hedges represent a hedge of a forecasted transaction or the variability of cash flows to
be received or paid related to a recognized asset or liability. For a cash flow hedge, the gain or loss on the derivative is recorded in other
comprehensive income (loss) and is reclassified into earnings in the same period during which the hedged transaction affects earnings.
The changes in the fair value of a derivative that is not highly effective in hedging the expected cash flows of the hedged item are
recognized immediately as noninterest income in the consolidated income statements.

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the
item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in noninterest income. Cash
flows from hedges are classified in the consolidated statements of cash flows in the same manner as the items being hedged.

The Corporation formally documents the relationship between derivatives and hedged items, as well as the risk management objective
and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking
cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The
Corporation also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are
used are highly effective in offsetting changes in cash flows of the hedged item. The Corporation discontinues hedge accounting when
it determines that the derivative is no longer effective in offsetting changes in cash flows of the hedged item, the derivative is settled or
terminated, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm or treatment of the
derivative as a hedge is no longer appropriate or intended.

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as noninterest income. When a
cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were
accumulated in other comprehensive income (loss) are amortized into earnings over the same periods which the hedged transactions
will affect earnings.

Checking Deposits

The Bank’s commercial checking accounts generally have a related noninterest-bearing sweep account. The sole purpose of the sweep
accounts is to reduce the reserve balances that the Bank is required to maintain with the FRB, and thereby increase funds available for
investment. Although the sweep accounts are classified as savings accounts for regulatory purposes, they are included in checking
deposits in the accompanying consolidated balance sheets.

Income Taxes

A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current year. A deferred
tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. The
measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not
expected to be realized. The measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law.
The effects of future changes in tax laws or rates are not considered. The Corporation recognizes interest and/or penalties related to
income tax matters in noninterest income or noninterest expense as appropriate.

Retirement Plans

Pension expense is the sum of service cost, interest cost, amortization of actuarial gains and losses and plan expenses, net of the expected
return on plan assets and participant contributions. The service cost component of pension expense is included in salaries on the
consolidated statement of income. All other components of pension expense are included in other noninterest income. Employee 401(k)
plan expense is equal to the amount of the Corporation’s matching contributions and is included in employee benefits and other personnel
expense on the consolidated statement of income.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Stockholders’ Equity

Earnings Per Share. The Corporation calculates basic and diluted earnings per share (“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. Basic EPS excludes the dilutive effect of outstanding stock options
and restricted stock units (“RSUs”) and is computed by dividing net income allocated to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if outstanding stock
options and RSUs were converted into shares of common stock that then shared in the earnings of the Corporation. Diluted EPS is
computed by dividing net income allocated to common stockholders by the weighted average number of common shares and dilutive
stock options and RSUs. 6,122 RSUs were excluded from the calculation of EPS at December 31, 2018 because their inclusion would
be anti-dilutive. There were no anti-dilutive stock options or RSUs at December 31, 2017 or 2016. Other than the stock options and
RSUs described in “Note I – Stock-Based Compensation”, the Corporation has no securities that could be converted into common stock
nor does the Corporation have any contracts that could result in the issuance of common stock.

The following table is a calculation of basic and diluted EPS for the periods indicated.

(dollars in thousands, except per share data)
Net income ........................................................................................................... $
Income allocated to participating securities (1) ...................................................

Income allocated to common stockholders ........................................................ $

2018

2017

2016

41,573 $
115
41,458 $

35,122 $
128
34,994 $

30,880
127
30,753

Weighted average:

Common shares .................................................................................................
Dilutive stock options and restricted stock units (1) ..........................................

25,293,698
164,301
25,457,999

24,219,813
255,333
24,475,146

22,745,967
271,929
23,017,896

Earnings per share:

$1.64
$1.63

$1.44
$1.43

$1.35
$1.34

(1) 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 calculates 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. Substantially all of the RSUs awarded in 2016 vested on December 31, 2018.

Stock Split. On October 27, 2016, the Corporation declared a 3-for-2 stock split effected through a 50% stock dividend. Additional
shares issued as a result of the stock split are shown for 2016 on the line captioned “3-for-2 stock split” in the Consolidated Statement
of Changes in Stockholders’ Equity. Share and per share amounts included in the consolidated financial statements and notes thereto
have been adjusted as appropriate to reflect the effect of the split.

Public Offering of Common Stock. In May 2016, the Corporation sold 1,300,000 shares of common stock (1,950,000 shares post-
split) in an underwritten public offering at a price of $29.00 per share ($19.33 post-split). The net proceeds of the offering, after the
underwriting discount and offering expenses paid by the Corporation, were $35,270,000.

Stock-based Compensation

The Corporation’s stock-based compensation plans are described in “Note I – Stock-Based Compensation”. Compensation cost is
determined for stock options and RSUs issued to employees and non-employee directors based on the grant date fair value of the award.

Compensation expense for RSUs is recognized over the applicable performance or service period, which is usually the vesting period,
or the period from the grant date to the participant’s eligible retirement date, whichever is shorter. Compensation expense is adjusted at
the end of the performance period, if applicable, to reflect the actual number of shares of the Corporation’s common stock into which
the RSUs will be converted. Compensation expense for stock options is recognized ratably over the five-year vesting period or the period
from the grant date to the participant’s eligible retirement date, whichever is shorter. The Corporation accounts for forfeitures as they
occur.

Comprehensive Income

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

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

(in thousands)
Change in net unrealized holding gains (losses) on available-for-sale securities:

Change arising during the period ....................................................................... $
Reclassification adjustment for losses (gains) included in net income (1) ........

Tax effect ...........................................................................................................

Change in funded status of pension plan:

Unrecognized net gain (loss) arising during the period .....................................
Amortization of net actuarial loss included in pension expense (2) ..................

Tax effect ...........................................................................................................

Change in unrealized loss on derivative instrument:

Amount of loss recognized during the period .................................................
Reclassification adjustment for net interest expense included in

net income (3) ...............................................................................................

Tax effect ........................................................................................................

Other comprehensive income (loss) .............................................................. $

2018

2017

2016

(18,891) $
10,406
(8,485)
(2,569)
(5,916)

(236) $
1,867
1,631
685
946

(15,153)
(1,851)
(17,004)
(6,983)
(10,021)

(4,316)
—
(4,316)
(1,312)
(3,004)

1,700
18
1,718
514
1,204

1,199
244
1,443
550
893

(1,607)

—

477
(1,130)
(341)
(789)
(9,709) $

—
—
—
—
2,150 $

—
—
—
—
(9,128)

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

(2) Represents the amortization of net actuarial loss relating to the Corporation’s defined benefit pension plan. This item is a component
of net periodic pension cost (see “Note J – Retirement Plans”) and included in the consolidated statements of income in the line item,
“Other noninterest income.”

(3) Represents the net interest expense recorded on a derivative transaction and included in the consolidated statements of income in the
line item “Interest expense – short-term borrowings.”

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

(in thousands)
Unrealized holding gains (losses) on available-for-sale securities ... $
Unrealized actuarial losses on pension plan .....................................
Unrealized loss on derivative instrument .........................................
Accumulated other comprehensive income (loss), net of tax ...... $

Current Period Change due to
Adoption
of ASU

Other
Comprehensive

Income (Loss) 2018-02 (1)

Balance
12/31/18

Balance
12/31/17

2,600 $
(2,054)
—
546 $

(5,916) $
(3,004)
(789)
(9,709) $

361 $
(638)
—
(277) $

(2,955)
(5,696)
(789)
(9,440)

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

Operating Segments

While management monitors the revenue streams of the Bank’s various products and services, the identifiable segments are not material
and operations are managed and financial performance is evaluated on a company-wide basis. Accordingly, all of the financial operations
of the Bank are aggregated in one reportable operating segment.

Investment Management Division

Assets held in a fiduciary capacity are not assets of the Corporation and, accordingly, are not included in the accompanying consolidated
financial statements. The Investment Management Division records fees on the accrual basis.

Reclassifications

When appropriate, items in the prior year financial statements are reclassified to conform to the current period presentation.

Adoption of New Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09 “Revenue from Contracts with Customers.”
While the guidance in ASU 2014-09 supersedes most existing industry-specific revenue recognition accounting guidance, much of a
bank’s revenue comes from financial instruments such as debt securities and loans that are scoped-out of the guidance. The amendments
in ASU 2014-09 also include improved disclosures to enable users of financial statements to better understand the nature, amount, timing
and uncertainty of revenue that is recognized. The adoption of ASU 2014-09 and all subsequent amendments on January 1, 2018, using
the modified retrospective transition method, did not materially impact the Corporation’s financial position or results of operations and,
as such, no cumulative effect adjustment was recorded. See “Note N – Revenue from Contracts with Customers” for disclosures
pertaining to the revenue streams within the scope of ASU 2014-09.

In January 2016, the FASB issued ASU 2016-01 “Financial Instruments – Overall.” The adoption of ASU 2016-01 on January 1, 2018
did not have a material impact on the Corporation’s financial position or results of operations but resulted in the prospective application
of an exit price notion in the determination of the fair value of certain financial instruments as disclosed in “Note M – Fair Value of
Financial Instruments.” Adoption of the ASU also resulted in the elimination of disclosures regarding the methods and assumptions
used to estimate fair value. The Bank’s FHLB and FRB stock, included under the line item “Restricted stock, at cost” in the consolidated
balance sheets, are specifically excluded from the scope of the ASU.

In August 2016, the FASB issued ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 addresses
eight specific cash flow issues with the objective of reducing diversity in practice. The adoption of ASU 2016-15 on January 1, 2018
did not have a material impact on the Corporation’s cash flows or disclosures.

In March 2017, the FASB issued ASU 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost.” 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. The adoption of ASU 2017-07 on January 1, 2018 resulted in revised income statement
classifications of the components of net periodic pension cost for all periods presented. The Corporation used the amounts disclosed in
“Note J – Retirement Plans” as the basis for applying the retrospective presentation requirements of the ASU. See Note J for details of
the reclassified amounts. The other amendments in the ASU did not materially impact the Corporation’s financial position or results of
operations.

In February 2018, the FASB issued ASU 2018-02 “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income.” The ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Act which was signed into law on December 22, 2017. Management early-adopted the ASU in the first quarter
of 2018 and reclassified $277,000 of stranded tax effect credits from accumulated other comprehensive income to retained earnings on
January 1, 2018. The reclassification did not materially impact the Corporation’s financial position or results of operations.

Impact of Issued But Not Yet Effective Accounting Standards

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

In February 2016, the FASB issued ASU 2016-02 “Leases.” ASU 2016-02 affects any entity that enters into a lease and is intended to
increase the transparency and comparability of financial statements among organizations. The ASU requires, among other changes, a
lessee to recognize on its balance sheet a lease asset and a lease liability for those leases previously classified as operating leases. The
lease asset would represent the right to use the underlying asset for the lease term and the lease liability would represent the discounted
value of the required lease payments to the lessor. The ASU would also require entities to disclose key information about leasing
arrangements. ASU 2016-02, as amended, is effective for interim and annual reporting periods beginning after December 15, 2018. The
Corporation utilized the transition method described in ASU 2018-11 “Leases – Targeted Improvements” to implement ASU 2016-02
on January 1, 2019. Upon adoption of the ASU, the Corporation recorded a right-of-use asset and lease liability approximating $15
million. Implementation did not significantly impact the Corporation’s results of operations or regulatory capital ratios, but will require
additional disclosures in 2019.

In June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 affects entities
holding financial assets that are not accounted for at fair value, including loans, debt securities and other financial assets. The ASU
requires financial assets measured at amortized cost to be presented at the net amount expected to be collected by recording an allowance
for credit losses. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption
is permitted beginning after December 15, 2018, including interim periods within those fiscal years. Management has established an
internal committee to manage the implementation of the ASU. The committee is led by the Bank’s Chief Accounting Officer and
includes the Chief Financial Officer and Chief Risk Officer. A broader group of Bank staff has been identified to assist, as needed, in
implementing the ASU including representatives of the Bank’s loan operations, credit administration, lending, investments and
technology functions. The committee has selected and engaged a third-party software provider, developed an implementation timeline,
accumulated the historical data needed to implement the ASU and is reviewing the accounting policy decisions, documentation and
internal control processes needed to fully implement the ASU. Implementation of ASU 2016-13 is expected to increase the Bank’s
allowance for loan losses and add a component to the allowance for certain financial instruments other than loans.

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

NOTE B – INVESTMENT SECURITIES

The following tables set forth the amortized cost and estimated fair values of the Bank’s investment securities at December 31, 2018
and 2017.

(in thousands)
Held-to-Maturity Securities:

State and municipals ............................................................ $
Pass-through mortgage securities ........................................
Collateralized mortgage obligations ....................................

Available-for-Sale Securities:

Held-to-Maturity Securities:

Available-for-Sale Securities:

2018

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Amortized
Cost

5,142 $
267
95
5,504 $

422,235 $
66,631
154,378
119,000
762,244 $

6,970 $
311
355
7,636 $

36 $
11
1
48 $

3,220 $
24
886
—
4,130 $

2017

78 $
21
14
113 $

Fair
Value

5,178
278
96
5,552

420,038
65,486
154,901
117,590
758,015

— $
—
—
— $

(5,417) $
(1,169)
(363)
(1,410)
(8,359) $

— $
—
—
— $

7,048
332
369
7,749

453,158 $
72,539
190,175
715,872 $

10,051 $
84
15
10,150 $

(1,886) $
(1,232)
(2,776)
(5,894) $

461,323
71,391
187,414
720,128

At December 31, 2018 and 2017, investment securities with a carrying value of $342,712,000 and $423,360,000, respectively, were
pledged as collateral to secure public deposits and borrowed funds.

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

Securities With Unrealized Losses. The following tables set forth securities with unrealized losses at December 31, 2018 and 2017

presented by length of time the securities had been in a continuous unrealized loss position.

(in thousands)
State and municipals ................................. $
Pass-through mortgage securities ..............
Collateralized mortgage obligations ........
Corporate bonds ........................................
Total temporarily impaired ..................... $

Fair
Value
102,882 $
38,421
32,577
97,590
271,470 $

Less than
12 Months

Unrealized
Loss

2018
12 Months
or More

Fair
Value

Unrealized
Loss

(1,639) $
(142)
(89)
(1,410)
(3,280) $

62,995 $
23,425
7,342
—
93,762 $

(3,778) $
(1,027)
(274)
—
(5,079) $

Total

Fair
Value
165,877 $
61,846
39,919
97,590
365,232 $

Unrealized
Loss

(5,417)
(1,169)
(363)
(1,410)
(8,359)

State and municipals ................................. $
Pass-through mortgage securities ..............
Collateralized mortgage obligations ........

Total temporarily impaired ..................... $

54,732 $
10,172
130,267
195,171 $

(574) $
(81)
(1,230)
(1,885) $

2017
28,723 $
52,652
54,751
136,126 $

(1,312) $
(1,151)
(1,546)
(4,009) $

83,455 $
62,824
185,018
331,297 $

(1,886)
(1,232)
(2,776)
(5,894)

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 December 31, 2018.

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

(in thousands)

2018

2017

2016

Proceeds ............................................................................................................ $

263,994 $

135,695 $

62,047

Gains ................................................................................................................. $
Losses ...............................................................................................................

Net gain (loss) ................................................................................................ $

300 $

(10,706)
(10,406) $

382 $

(2,249)
(1,867) $

1,869
(18)
1,851

The income tax expense (benefit) related to these net realized gains (losses) was ($2,907,000), ($782,000) and $772,000 in 2018, 2017
and 2016, respectively, and is included in the consolidated statements of income in the line item, “Income tax expense.”

Sales of Held-to-Maturity Securities. During 2018, the Bank did not sell any securities that were classified as held-to-maturity.

During 2017, the Bank sold one municipal security that was classified as held-to-maturity. The sale was in response to a significant
deterioration in the creditworthiness of the issuer. The security sold had a carrying value of $354,000 at the time of sale and the Bank
realized a gain upon sale of $1,000.

During 2016, the Bank sold one mortgage-backed security that was classified as held-to-maturity. The sale occurred after the Bank
collected 85% or more of the principal amount outstanding at acquisition. The security sold had a carrying value of $106,000 at the time
of sale and the Bank realized a gain upon sale of $17,000.

Maturities. The following table sets forth by maturity the amortized cost and fair value of the Bank’s state and municipal securities
and corporate bonds at December 31, 2018 based on the earlier of their stated maturity or, if applicable, their pre-refunded date. The
remaining securities in the Bank’s investment securities portfolio are mortgage-backed securities, consisting of pass-through mortgage
securities and collateralized mortgage obligations. Although these securities are expected to have substantial periodic repayments they
are reflected in the table below in aggregate amounts.

(in thousands)
Held-to-Maturity Securities:

Within one year .............................................................................................................................. $
After 1 through 5 years ...................................................................................................................
After 5 through 10 years .................................................................................................................
After 10 years .................................................................................................................................
Mortgage-backed securities ............................................................................................................

Available-for-Sale Securities:

Amortized
Cost

Fair Value

3,059 $
2,083
—
—
362
5,504 $

47,839 $
37,588
284,907
170,901
221,009
762,244 $

3,059
2,119
—
—
374
5,552

48,271
37,683
283,676
167,998
220,387
758,015

NOTE C – LOANS

The following tables set forth by class of loans as of December 31, 2018 and 2017 the amount of loans individually and collectively
evaluated for impairment and the portion of the allowance for loan losses allocable to such loans.

December 31, 2018

(in thousands)
Commercial and industrial ............... $
Commercial mortgages:

Individually
Evaluated for
Impairment

Loans
Collectively
Evaluated for
Impairment

Ending
Balance

Allowance for Loan Losses
Collectively
Evaluated for
Impairment

Individually
Evaluated for
Impairment

Ending
Balance

22 $

98,763 $

98,785 $

— $

1,158 $

1,158

Multifamily .....................................
Other ...............................................
Owner-occupied .............................

Residential mortgages:

Closed end ......................................
Revolving home equity ...................
Consumer and other ..........................
$

—
—
520

756,714
433,330
90,731

756,714
433,330
91,251

1,814
743
324
3,423 $

1,807,837
66,967
5,634
3,259,976 $

1,809,651
67,710
5,958

3,263,399 $

—
—
—

16
—
—
16 $

5,851
3,783
743

18,828
410
49

30,822 $

5,851
3,783
743

18,844
410
49
30,838

Commercial and industrial ............... $
Commercial mortgages:

Multifamily .....................................
Other ...............................................
Owner-occupied .............................

Residential mortgages:

Closed end ......................................
Revolving home equity ...................
Consumer and other ..........................

48 $

109,575 $

December 31, 2017
109,623 $

— $

1,441 $

1,441

—
—
531

682,593
414,783
95,100

682,593
414,783
95,631

1,368
—
—
1,947 $

1,557,196
83,625
5,533

1,558,564
83,625
5,533

2,948,405 $

2,950,352 $

—
—
—

18
—
—
18 $

6,423
4,734
1,076

19,329
689
74

33,766 $

6,423
4,734
1,076

19,347
689
74
33,784

The following tables present the activity in the allowance for loan losses for the years ended December 31, 2018, 2017 and 2016.

(in thousands)
Commercial and industrial .................... $
Commercial mortgages:

Multifamily ..........................................
Other ....................................................
Owner-occupied ..................................

Residential mortgages:

Closed end ...........................................
Revolving home equity ........................
Consumer and other ...............................

Balance at
1/1/18

Chargeoffs

Recoveries

Provision for
Loan Losses
(Credit)

Balance at
12/31/18

1,441 $

683 $

34 $

366 $

1,158

6,423
4,734
1,076

19,347
689

74
33,784 $

—
—
—

552
253

9
1,497 $

—
—
—

118
150

4
306 $

(572)
(951)
(333)

(69)
(176)
(20)
(1,755) $

5,851
3,783
743

18,844
410
49
30,838

(in thousands)
Commercial and industrial .................... $
Commercial mortgages:

Multifamily ..........................................
Other ....................................................
Owner-occupied ..................................

Residential mortgages:

Closed end ...........................................
Revolving home equity ........................
Consumer and other ...............................
$

Balance at
1/1/17

Chargeoffs

Recoveries

Provision for
Loan Losses
(Credit)

Balance at
12/31/17

1,408 $

102 $

13 $

122 $

1,441

6,119
4,296
959

15,740
1,401

134
30,057 $

—
—
820

97
100

27
1,146 $

—
—
—

3
—
3
19 $

304
438
937

3,701
(612)
(36)
4,854 $

6,423
4,734
1,076

19,347
689
74
33,784

Balance at
1/1/16

Chargeoffs

Recoveries

Provision for
Loan Losses
(Credit)

Balance at
12/31/16

928 $

445 $

4 $

921 $

1,408

(in thousands)
Commercial and industrial .................... $
Commercial mortgages:

Multifamily ..........................................
Other ....................................................
Owner-occupied ..................................

Residential mortgages:

Closed end ...........................................
Revolving home equity ........................
Consumer and other ...............................

6,858
3,674
1,047

13,639
1,016

27,256 $

—
—
—

259
—
5
709 $

—
—
—

9
12
5
30 $

(739)
622
(88)

2,351
373
40
3,480 $

6,119
4,296
959

15,740
1,401
134
30,057

For individually impaired loans, the following tables set forth by class of loans at December 31, 2018, 2017 and 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 years ended December 31, 2018, 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.

Recorded
Investment

Unpaid
Principal
Balance

2018

Related
Allowance

Average
Recorded
Investment

Interest
Income
Recognized

(in thousands)
With no related allowance recorded:

Commercial and industrial .......................... $
Commercial mortgages - owner-occupied ...
Residential mortgages:

Closed end .................................................
Revolving home equity .............................
Consumer and other .....................................

With an allowance recorded:

Residential mortgages - closed end .............

Total:

Commercial and industrial ..........................
Commercial mortgages - owner-occupied ...
Residential mortgages:

Closed end .................................................
Revolving home equity .............................
Consumer and other .....................................
$

With no related allowance recorded:

Commercial and industrial .......................... $
Commercial mortgages - owner-occupied ...
Residential mortgages - closed end .............

With an allowance recorded:

22 $
520

22 $

604

— $
—

48 $

530

1,561
743
324

253

22
520

1,814
743
324
3,423 $

1,573
747
324

253

22
604

1,826
747
324
3,523 $

—
—
—

—
—

16
—
—
16 $

1,566
754
339

266

48
530

1,832
754
339
3,503 $

2017

48 $
531
1,095

48 $

615
1,102

— $
—
—

67 $

654
1,122

Residential mortgages - closed end .............

273

272

280

Total:

Commercial and industrial ..........................
Commercial mortgages - owner-occupied ...
Residential mortgages - closed end .............

48
531
1,368
1,947 $

48
615
1,374
2,037 $

—
—
18
18 $

67
654
1,402
2,123 $

With no related allowance recorded:

Commercial and industrial .......................... $
Commercial mortgages - owner-occupied ...
Residential mortgages:

Closed end .................................................
Revolving home equity .............................

With an allowance recorded:

Residential mortgages:

Closed end .................................................
Revolving home equity .............................

Total:

Commercial and industrial ..........................
Commercial mortgages - owner-occupied ...
Residential mortgages:

Closed end .................................................
Revolving home equity .............................

2016

— $
—

—
—

45
482

—
—

45
482
527 $

131 $
636

313
279

634
1,491

131
636

947
1,770
3,484 $

134 $
575

245
280

641
1,493

134
575

886
1,773
3,368 $

131 $
558

230
280

626
1,490

131
558

856
1,770
3,315 $

3
25

5
—
17

3
25

17
—
17
62

5
21
7

5
21
20
46

1
—

—
—

29
—

1
—

29
—
30

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

December 31, 2018

Past Due
90 Days or
More and
Still Accruing

Nonaccrual
Loans

Total Past
Due Loans &
Nonaccrual
Loans

60-89 Days
Past Due

Current

Total
Loans

30-59 Days
Past Due

— $

43 $

— $

43 $

98,742 $

98,785

(in thousands)
Commercial and industrial .. $
Commercial mortgages:

Multifamily .......................
Other .................................
Owner-occupied ...............

Residential mortgages:

Closed end ........................
Revolving home equity .....
Consumer and other ............

—
—
—

864
—
2
866 $

—
—
—

—
—
—
43 $

—
—
—

—
—
—
— $

—
—
—

756,714
433,330
91,251

1,392
743
—
2,135 $

2,256
743
2

1,809,651
1,807,395
67,710
66,967
5,958
5,956
3,044 $ 3,260,355 $ 3,263,399

Commercial and industrial .. $
Commercial mortgages:

Multifamily .......................
Other .................................
Owner-occupied ...............

Residential mortgages:

Closed end ........................
Revolving home equity .....
Consumer and other ............

—
—
—

2,186
522
7

2,735 $

20 $

— $

20 $

109,603 $

109,623

December 31, 2017

—
—
—

21
—
—
21 $

—
—
—

—
—
—
— $

—
—
—

682,593
414,783
95,631

1,000
—
—
1,000 $

3,207
522
7

1,555,357
1,558,564
83,103
83,625
5,533
5,526
3,756 $ 2,946,596 $ 2,950,352

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

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

The following table presents information about loans modified in troubled debt restructurings during the years ended December 31,
2018 and 2016. The Bank did not modify any loans in troubled debt restructurings during 2017.

(dollars in thousands)
2018:

Residential mortgages - closed end ......
Consumer and other ..............................

2016:

Commercial and industrial....................
Residential mortgages - closed end ......

Outstanding
Recorded Investment

Interest Rates

Number
of Loans

Pre-
Modification

Post-
Modification

Pre-
Modification

Post-
Modification

1
1
2

2
1
3

432 $
350
782 $

1,131 $
109
1,240 $

472
350
822

5.86%
6.50%

4.50%
6.50%

1,131 5.00% and 6.75%

109
1,240

3.95%

5.00% and 6.75%
3.95%

In 2018, the Bank consolidated an unsecured business line of credit, residential mortgage and home equity line of credit to a single
borrower into a new first lien residential mortgage. The restructured residential mortgage resulted in a below market interest rate and
extended term. Also in 2018, the Bank modified two consumer loans to a single borrower into one loan. The term of the restructured
loan was extended for 12 months and the post-modification interest rate was lower than the current market rate for new debt with similar
risk.

The 2016 troubled debt restructurings include the modification of a $1.0 million commercial and industrial loan into a new time loan
which was subsequently repaid during 2016. The post-modification interest rates for all of the 2016 restructurings in the table above
were lower than the current market rates for new debt with similar risk.

At December 31, 2018, 2017 and 2016, the Bank had an allowance for loan losses of $16,000, $18,000 and $45,000, respectively,
allocated to specific troubled debt restructurings. The Bank had no commitments to lend additional amounts to loans that were classified
as troubled debt restructurings.

There were no troubled debt restructurings for which there was a payment default during 2018, 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 changes in the borrower’s
financial condition, credit concentrations, changes in collateral values, economic conditions and environmental contamination of
properties securing mortgage loans. The Bank’s commercial loans, including those secured by real estate mortgages, are primarily made
to small and medium-sized businesses. Such loans sometimes involve a higher degree of risk than those to larger companies because
such businesses may have shorter operating histories, higher debt-to-equity ratios and may lack sophistication in internal record keeping
and financial and operational controls. In addition, most of the Bank’s loans are made to businesses and consumers on Long Island and
in the boroughs of New York City, and a large percentage of these loans are mortgage loans secured by properties located in those areas.
The primary sources of repayment for residential and commercial mortgage loans include employment and other income of the
borrowers, the businesses of the borrowers and cash flows from the underlying properties. In the case of multifamily mortgage loans, a
substantial portion of the underlying properties are rent stabilized or rent controlled. These sources of repayment are dependent on,
among other things, the strength of the local economy.

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

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

Internally
Assigned
Risk Rating
1 – 2

3 – 4

5 – 6

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.
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.
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.
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.
Special Mention - The borrower has potential weaknesses that deserve management’s close attention. If left uncorrected,
these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank’s credit
position at some future date. Special mention assets are not adversely classified and do not expose the Bank to risk
sufficient to warrant adverse classification.
Substandard - Loans are inadequately protected by the current sound worth and paying capacity of the borrower or the
collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation
of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are
not corrected.
Doubtful - Loans have all the inherent weaknesses of those classified substandard with the added characteristic that the
weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly
questionable and improbable.

Risk ratings on commercial and industrial loans and commercial mortgages are initially assigned during the underwriting process and
affirmed as part of the approval process. The ratings are periodically reviewed and evaluated based 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 80% of the recorded investment of commercial real estate loans as of December 31 of the prior year must
be reviewed annually. Lines of credit are also reviewed annually at each proposed reaffirmation. The frequency of the review of other
loans is determined by the Bank’s ongoing assessments of the borrower’s condition.

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

Internally
Assigned
Risk Rating
1
2
3

Credit score is equal to or greater than 680.
Credit score is 635 to 679.
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 real estate 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.

December 31, 2018

(in thousands)
Commercial and industrial ........................ $
Commercial mortgages:

Internally Assigned Risk Rating
Special
Mention

Pass

Watch

97,684 $

— $

Substandard Doubtful
434 $

667 $

— $

Total

98,785

Multifamily ..............................................
Other ........................................................
Owner-occupied ......................................
$

756,714
417,838
85,710
1,357,946 $

—
14,194
1,090
15,284 $

—
1,298
3,911
5,876 $

—
—
540
974 $

756,714
—
433,330
—
—
91,251
— $ 1,380,080

Commercial and industrial ........................ $
Commercial mortgages:

Multifamily ..............................................
Other ........................................................
Owner-occupied ......................................

108,846 $

450 $

279 $

48 $

— $

109,623

December 31, 2017

673,128
404,379
93,618
1,279,971 $

2,354
7,567
—
10,371 $

7,111
2,837
1,482
11,709 $

—
—
531
579 $

682,593
—
414,783
—
—
95,631
— $ 1,302,630

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.

December 31, 2018

(in thousands)
Residential mortgages:

Pass

Internally Assigned Risk Rating
Special
Mention

Watch

Substandard Doubtful

Total

Closed end ............................................... $
Revolving home equity ............................
Consumer and other ...................................

1,807,525 $
66,718
4,958

1,879,201 $

312 $
—
—
312 $

— $
249
—
249 $

1,814 $
743
324
2,881 $

— $ 1,809,651
67,710
—
—
5,282
— $ 1,882,643

(in thousands)
Residential mortgages:

Pass

December 31, 2017

Internally Assigned Risk Rating
Special
Mention

Watch

Substandard Doubtful

Total

Closed end ............................................... $
Revolving home equity ............................
Consumer and other ...................................

1,554,168 $
82,665
5,236
1,642,069 $

2,200 $
256
—
2,456 $

828 $
704
—
1,532 $

1,368 $
—
—
1,368 $

— $ 1,558,564
—
83,625
5,236
—
— $ 1,647,425

Deposit account overdrafts were $676,000 and $297,000 at December 31, 2018 and 2017, respectively. They are not assigned a risk
rating and are therefore excluded from consumer loans in the tables above.

Loans to Directors and Executive Officers. At December 31, 2018, there were no outstanding loans to directors, including their
immediate families and companies in which they are principal owners, or executive officers. The aggregate outstanding amount of these
loans was $36,000 at December 31, 2017, all of which was repaid in 2018. There were no loans to directors or executive officers that
were nonaccrual at December 31, 2018 or 2017.

NOTE D – PREMISES AND EQUIPMENT

Bank premises and equipment consist of the following:

(in thousands)
Land ...................................................................... $
Buildings and improvements .................................
Leasehold improvements ......................................
Furniture and equipment .......................................
Construction in process .........................................

Accumulated depreciation and amortization ........

December 31,

2018

2017

9,038 $

28,201
14,175
32,026
3,412
86,852
(45,585)
41,267 $

9,038
26,825
12,652
30,800
2,425
81,740
(42,092)
39,648

NOTE E – DEPOSITS

The following table sets forth the remaining maturities of the Bank’s time deposits at December 31, 2018.

Year (dollars in thousands)
2019 ..................................................................... $
2020 .....................................................................
2021 .....................................................................
2022 .....................................................................
2023 .....................................................................
Thereafter ............................................................

Less than
$100,000

$100,000 or
More

156,538 $
18,285
30,492
10,489
8,698
25,390
249,892 $

126,721 $
48,379
66,017
17,981
12,810
37,257
309,165 $

Total

283,259
66,664
96,509
28,470
21,508
62,647
559,057

Time deposits less than $100,000 in the table above include brokered certificates of deposit amounting to $100 million which mature in
2019. The total amount of time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2018 and 2017 was
$128.1 million and $75.1 million, respectively. Deposits from executive officers, directors and their affiliates at December 31, 2018 and
2017 were approximately $9.2 million and $9.4 million, respectively.

NOTE F – BORROWED FUNDS

The following table summarizes borrowed funds at December 31, 2018 and 2017.

(in thousands)
Short-term borrowings:

Securities sold under repurchase agreements ............... $
Federal Home Loan Bank advances .............................

Long-term debt:

Securities sold under repurchase agreements ...............
Federal Home Loan Bank advances .............................

December 31,

2018

2017

8,923
380,000
388,923

—
362,027
362,027
750,950

11,141
270,000
281,141

5,000
418,797
423,797
704,938

Accrued interest payable on borrowed funds is included in “accrued expenses and other liabilities” in the consolidated balance sheets
and amounted to $1,076,000 and $711,000 at December 31, 2018 and 2017, respectively.

Securities Sold Under Repurchase Agreements. Securities sold under repurchase agreements are short-term, fixed rate financing

arrangements as of December 31, 2018.

The following table sets forth information concerning securities sold under repurchase agreements.

(dollars in thousands)
Average daily balance during the year ............................ $
Average interest rate during the year ...............................
Maximum month-end balance during the year ................ $
Weighted average interest rate at year-end ......................

2018
15,790

1.31 %

2017
15,903

1.77 %

18,548

19,188

.05 %

1.72 %

At December 31, 2018, securities sold under repurchase agreements amounted to $8,923,000 with overnight contractual maturities and
weighted average interest rates of 0.05%. The repurchase agreements are collateralized by $3.1 million of municipal securities.

Federal Home Loan Bank Advances. FHLB advances are collateralized by a blanket lien on residential and commercial mortgage
loans with a lendable value of $2.3 billion and $2.0 billion at December 31, 2018 and 2017, respectively. Each advance is non-amortizing
and, for those advances with a term greater than one day, subject to a prepayment penalty.

The following table sets forth information concerning FHLB advances.

2018
607,797

2.05 %

2017
524,404

1.68 %

742,027

688,797

2.34 %

1.75 %

The following table sets forth as of December 31, 2018 the contractual maturities and weighted average interest rates of FHLB advances
for each of the next five years and the period thereafter.

Contractual Maturity (dollars in thousands)
Overnight ................................................................ $
2019 .........................................................................
2020 .........................................................................
2021 .........................................................................
2022 .........................................................................
2023 .........................................................................
After 2023 ...............................................................

Amount

230,000
223,500
82,750
54,225
75,872
55,680
20,000
512,027
742,027

Weighted
Average
Rate

2.60 %
2.43
1.84
1.90
2.05
2.54
2.01
2.22
2.34 %

Other Borrowings. The Bank had no other borrowings at December 31, 2018 or 2017. In 2018 and 2017, the average balance of

other borrowings was de minimus.

NOTE G – INCOME TAXES

The Corporation, the Bank and the Bank’s subsidiaries, except for the REIT, file a consolidated federal income tax return. Income taxes
charged to earnings in 2018, 2017 and 2016 had effective tax rates of 10.9%, 22.0% and 22.7%, respectively. The following table sets
forth a reconciliation of the statutory federal income tax rate to the Corporation’s effective tax rate.

Statutory federal income tax rate ......................................................................
State and local income taxes, net of federal income tax benefit .......................
Tax-exempt income, net of disallowed cost of funding ....................................
BOLI income .....................................................................................................
Excess tax benefit of stock-based compensation ...............................................
Impact of cost segregation study ........................................................................
Impact of federal tax reform on deferred taxes ..................................................
Other ..................................................................................................................

Year Ended December 31,
2017
35.0 %
2.0
(10.2)
(1.2)
(1.7)
—
(2.0)
.1
22.0 %

2018
21.0 %
(.8)
(5.8)
(1.2)
(.9)
(1.5)
—
.1
10.9 %

2016
35.0 %
.9
(11.8)
(.9)
(.9)
—
—
.4
22.7 %

During 2018, the Corporation completed a cost segregation study which enabled the acceleration of tax depreciation and resulted in a
credit to income tax expense of $717,000.

Upon enactment of the Tax Act on December 22, 2017, the Corporation recorded a $909,000 credit to income tax expense to reflect a
decrease in its net deferred tax liability.

Provision for Income Taxes. The following table sets forth the components of the provision for income taxes.

(in thousands)
Current:

Federal ...................................... $
State and local ...........................

Deferred:

Federal ......................................
State and local ...........................

Year Ended December 31,
2017

2016

2018

5,975
688
6,663

(458)
(1,143)
(1,601)
5,062

8,139
636
8,775

335
779
1,114
9,889

7,407
409
7,816

1,114
119
1,233
9,049

Net Deferred Tax Asset (Liability). The following table sets forth the components of the Corporation’s net deferred tax asset

(liability.)

(in thousands)
Deferred tax assets:

Allowance for loan losses and off-balance-sheet credit exposure ....... $
Stock-based compensation ..................................................................
Unrealized losses on available-for-sale securities ...............................
Accrued bonuses .................................................................................
Contract incentive ...............................................................................
Net operating loss carryforwards ........................................................
Unrealized loss on interest rate swap ..................................................
Accrued rent expense ..........................................................................
Asset writedown and other real estate owned valuation allowance ....
Directors' retirement expense ..............................................................
Supplemental executive retirement expense .......................................
Interest on nonperforming loans .........................................................
Depreciation ........................................................................................
Accrued legal settlement .....................................................................

Valuation allowance ..............................................................................

Deferred tax liabilities:

Deferred loan costs ..............................................................................
Prepaid pension ...................................................................................
Depreciation ........................................................................................
Deferred gain on Section 1031 exchange ............................................
Prepaid expenses .................................................................................
REIT spillover dividend ......................................................................
Unrealized gains on available-for-sale securities ................................

Net deferred tax asset (liability) ............................................................ $

December 31,

2018

2017

9,312 $
1,384
1,274
686
680
371
341
239
80
45
36
16
—
—
14,464
—
14,464

5,462
4,545
675
276
59
—
—
11,017
3,447 $

10,097
1,382
—
—
—
—
—
224
266
47
17
55
724
12
12,824
—
12,824

5,142
5,615
—
—
146
3,043
1,259
15,205
(2,381)

The Corporation had no material unrecognized tax benefits at December 31, 2018, 2017 or 2016. The Corporation has not taken any tax
positions for which it is reasonably possible that unrecognized tax benefits will significantly increase within the next twelve months.

The Corporation is subject to Federal, New York State, New York City, New Jersey and Connecticut income taxes. The Corporation
did not incur any amounts for interest and penalties due taxing authorities for calendar years 2018, 2017 or 2016. During 2018 the
Internal Revenue Service completed an examination of the Corporation’s 2015 federal income tax return with no changes.

NOTE H – REGULATORY MATTERS

Minimum Regulatory Capital Requirements. The Corporation and the Bank are subject to the Basel III regulatory capital
requirements issued by the Federal Reserve Board and the Office of the Comptroller of the Currency. These requirements are intended
to ensure that the Corporation and the Bank maintain minimum ratios of Tier 1 capital to average assets as well as Common Equity Tier
1 capital, Tier 1 capital and Total capital to risk weighted assets. Failure to meet the minimum capital requirements can result in certain
mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on the
financial statements of the Corporation and Bank.

Basel III includes guidelines with respect to the components of regulatory capital and calculation of risk weighted assets for balance
sheet assets and liabilities and off-balance-sheet positions. The Corporation and the Bank exclude accumulated other comprehensive
income (loss) components from Tier 1 and Total regulatory capital.

Basel III sets forth prompt corrective action (“PCA”) requirements for all banks and establishes a capital conservation buffer which is
phased-in through 2019. The Corporation and the Bank exceeded the Basel III minimum capital adequacy requirements, including the
capital conservation buffer of 1.875% applicable to the Bank for 2018. The most recent regulatory notifications categorized the Bank as
well capitalized under the PCA provisions and there are no conditions or events since that notification that management believes have
changed that category. The Corporation’s and the Bank’s actual capital amounts and ratios under the Basel III rules at December 31,
2018 and 2017 are presented in the table below.

2018
Minimum
Capital Adequacy
Requirement

Minimum To Be Well
Capitalized Under Prompt
Corrective Action Provisions

Actual Capital

Amount

Ratio

Amount

Ratio

Amount

Ratio

(dollars in thousands)
Tier 1 capital to average assets:

Consolidated ............................................... $
Bank ...........................................................

397,036
399,237

9.40 % $
9.45

169,015
168,916

4.00 %
$
4.00

N/A
211,145

N/A
5.00 %

Common equity tier 1 capital to risk
weighted assets:

Consolidated ...............................................
Bank ...........................................................

397,036
399,237

15.29
15.38

Tier 1 capital to risk weighted assets:

Consolidated ...............................................
Bank ...........................................................

397,036
399,237

15.29
15.38

Total capital to risk weighted assets:

Consolidated ...............................................
Bank ...........................................................

428,020
430,221

16.48
16.57

116,840
116,820

155,786
155,761

207,715
207,681

4.50
4.50

6.00
6.00

8.00
8.00

2017

N/A
168,741

N/A
207,681

N/A
6.50

N/A
8.00

N/A
259,601

N/A
10.00

Tier 1 capital to average assets:

Consolidated ............................................... $
Bank ...........................................................

353,684
353,568

9.34 % $
9.34

151,398
151,358

4.00 %
$
4.00

N/A
189,197

N/A
5.00 %

Common equity tier 1 capital to risk
weighted assets:

Consolidated ...............................................
Bank ...........................................................

353,684
353,568

15.28
15.29

Tier 1 capital to risk weighted assets:

Consolidated ...............................................
Bank ...........................................................

353,684
353,568

15.28
15.29

Total capital to risk weighted assets:

Consolidated ...............................................
Bank ...........................................................

382,670
382,533

16.54
16.54

104,128
104,051

138,837
138,735

185,116
184,980

4.50
4.50

6.00
6.00

8.00
8.00

N/A
150,296

N/A
184,980

N/A
6.50

N/A
8.00

N/A
231,225

N/A
10.00

Other Matters. A source of funds for dividend payments to shareholders is dividends received from the Bank. Banking regulations
limit the amount of dividends that may be paid by the Bank without prior approval of regulatory agencies. Under these regulations, the
amount of dividends that the Bank may pay in any calendar year is limited to the current year’s net profits, combined with the retained
net profits of the preceding two years, subject to the minimum capital requirements described above. During 2019, the Bank could,
without prior approval, declare dividends of approximately $52,340,000 plus any 2019 net profits retained to the date of the dividend
declaration.

Regulation D of the Board of Governors of The Federal Reserve System requires banks to maintain reserves against certain deposit
balances. The Bank’s average reserve requirement for 2018 was approximately $33,135,000.

NOTE I – STOCK-BASED COMPENSATION

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

2014 Plan. Under the 2014 Plan, awards may be granted to employees and non-employee directors as non-qualified stock options
(“NQSOs”), stock appreciation rights (“SARs”), restricted stock awards, RSUs, or any combination thereof, any of which may be subject
to performance-based vesting conditions. Awards may also be granted to employees as incentive stock options (“ISOs”). The exercise

price of stock options and SARs granted under the 2014 Plan may not be less than the fair market value of the Corporation’s common
stock on the date the stock option or SAR is granted. The 2014 Plan is administered by the Compensation Committee of the Board of
Directors. Substantially 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 December 31, 2018, 1,860,384 equity awards remain available to
be granted under the 2014 Plan of which 405,777 may be granted as restricted stock awards or RSUs.

Details of RSUs. The following table summarizes the vesting schedule of RSUs outstanding at December 31, 2018.

Number of RSUs :

Total

Granted During the Year Ended December 31,
2017

2016

2018

Granted ..................................................................................
Outstanding at December 31, 2018 .......................................

272,291
215,084

70,688
65,390

94,329
76,033

107,274
73,661

Vested and convertible at December 31, 2018 ......................
Scheduled to vest during:

2019 .....................................................................................
2020 .....................................................................................
2021 .....................................................................................

80,348

14,233

—

66,115

91,581
18,708
24,447
215,084

21,178
8,782
21,197
65,390

62,857
9,926
3,250
76,033

7,546
—
—
73,661

The RSUs in the table above include performance-based RSUs with vesting based on the financial performance of the Corporation in
2018 and 2019 and service-based RSUs with various service-based vesting periods. The grant date fair value of RSUs awarded in 2016
is equal to the market price of the shares underlying the awards on the grant date. The grant date fair value of RSUs awarded in 2018
and 2017 is equal to the market price of the shares underlying the awards on the grant date, discounted for dividends that are not paid
on these RSUs. The fair values of awards made in 2018, 2017 and 2016, as well as the assumptions utilized in determining such values,
is presented below.

Performance-Based

2018

Grant date fair value .....................................
Market price on grant date ............................
Expected annual dividend .............................
Expected term (in years) ...............................
Risk-free interest rate ....................................

Vesting
$27.09
$28.25
$.60
2.0
2.02%

$26.27
$27.90
$.56
3.0
1.49%

2017

2016

Service-Based
Vesting
$27.09 to $27.33
$28.25 to $28.50
$.60
2.0 to 3.0
1.89% to 2.02%

$25.35 to $26.00
$27.50 to $28.15
$.56
3.0 to 4.0
1.60% to 1.67%

Grant date fair value .....................................
Market price on grant date ............................

$18.17
$18.17

$18.17 to $22.17
$18.17 to $22.17

In January 2019, 107,511 RSUs were awarded under the 2014 Plan, including 47,072 performance-based RSUs and 60,439 service-
based RSUs.

The following table presents a summary of RSUs outstanding at December 31, 2018 and changes during the year then ended.

Outstanding at January 1, 2018 .............................................
Granted .................................................................................
Converted ..............................................................................
Forfeited ................................................................................
Outstanding at December 31, 2018 .......................................

Number of
RSUs
274,134
70,688
(107,722)
(22,016)
215,084

Weighted-
Average
Grant-Date
Fair Value
$ 19.64
27.10
15.58
22.86
$ 23.79

Vested and Convertible at December 31, 2018 .....................

80,348

$ 19.76

Weighted-
Average
Remaining
Contractual
Term (yrs.)

Aggregate
Intrinsic
Value
(in thousands)

0.68

—

$ 4,291

$ 1,603

The performance-based RSUs granted in 2018 and 2017 have a maximum payout potential of 1.50 and 1.25 shares, respectively, of the
Corporation’s common stock for each RSU awarded. All other RSUs outstanding at December 31, 2018 have a maximum payout
potential of one share of the Corporation’s common stock for each RSU awarded. RSUs outstanding at December 31, 2018 include
80,348 RSUs that were vested and convertible into common stock at year-end and 134,736 RSUs that are currently expected to vest and
become convertible in the future. The total intrinsic value of RSUs converted in 2018, 2017 and 2016 was $3,035,000, $1,779,000 and
$1,445,000, respectively.

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

Fair Value of Stock Options. The grant date fair value of options was estimated on the date of grant using the Black-Scholes option

pricing model. Substantially all outstanding stock options were expensed in prior years.

Stock Option Activity. The following table presents a summary of options outstanding at December 31, 2018 and changes during

the year then ended.

Outstanding at January 1, 2018 .............................................
Exercised ...............................................................................
Outstanding at December 31, 2018 .......................................
Exercisable at December 31, 2018 ........................................

Number of
Options

159,807
(63,695)
96,112
95,812

Weighted-
Average
Exercise
Price
$ 11.35
10.66
$ 11.80
$ 11.79

Weighted-
Average
Remaining
Contractual
Term (yrs.)

Aggregate
Intrinsic
Value
(in thousands)

1.40
1.38

$ 783
$ 782

All options outstanding at December 31, 2018 are either fully vested or expected to vest. The total intrinsic value of options exercised
in 2018, 2017 and 2016 was $900,000, $1,833,000 and $853,000, respectively. Cash received from option exercises in 2018, 2017 and
2016, was $312,000, $917,000 and $906,000, respectively. Tax benefits from stock option exercises were $271,000, $767,000 and
$356,000 in 2018, 2017 and 2016, respectively.

Compensation Expense. The Corporation recorded compensation expense for share-based payments of $1,814,000, $2,434,000
and $1,517,000 in 2018, 2017 and 2016, respectively, and related income tax benefits of $547,000, $1,019,000 and $637,000,
respectively.

Unrecognized Compensation Cost. As of December 31, 2018, there was $1,009,000 of total unrecognized compensation cost
related to non-vested equity awards comprised of $1,000 for options and $1,008,000 for RSUs. The total cost is expected to be recognized
over a weighted-average period of 1.39 years which is based on weighted average periods of 1.43 years and 1.39 years for options and
RSUs, respectively.

Other. No cash was used to settle stock options in 2018, 2017 or 2016. The Corporation uses newly issued shares to settle stock
option exercises and for the conversion of RSUs. During 2018 and 2017, 2,747 and 2,060 shares, respectively, of the Corporation’s
common stock were issued to a member of the Board of Directors in payment of director fees.

NOTE J – RETIREMENT PLANS

The Bank has a 401(k) plan, defined benefit pension plan and supplemental executive retirement plan. Employees are immediately
eligible to participate in the 401(k) plan provided they are at least 18 years of age. Participants may elect to contribute, on a tax-deferred
basis, up to 100% of gross compensation, as defined, subject to the limitations of Section 401(k) of the Internal Revenue Code. The
Bank may, at its sole discretion, make matching contributions to each participant's account based on the amount of the participant's tax
deferred contributions. Participants are fully vested in their elective contributions and, after five years of participation in the 401(k) plan,
are fully vested (20% vesting per year) in the matching contributions, if any, made by the Bank. The Bank’s expense for matching
contributions was $486,000, $441,000 and $396,000 for 2018, 2017 and 2016, respectively.

The Bank has a defined benefit pension plan (“Pension Plan” or “Plan”). An internal management committee (the “Committee”) oversees
the affairs of the Plan and acts as named fiduciary. The Committee has retained Vanguard Group, Inc., including its subsidiaries and
affiliates (“Vanguard”), to act as discretionary investment agent, trustee and custodian for the Plan. Vanguard has formulated investment
recommendations customized to meet the Committee’s objectives and, after approval by the Committee, such investment
recommendations are incorporated into the investment guidelines and policies contained in the investment management agreement
between the Bank and Vanguard (the “Investment Management Agreement”). The Committee utilizes a formal Investment Policy
Statement which includes, among other things, the investment guidelines and policies contained in the Investment Management
Agreement. The Investment Policy Statement is periodically revised by the Committee as deemed appropriate.

Employees are eligible to participate in the Pension Plan after attaining 21 years of age and completing 12 full months of service. Pension
benefits are generally based on a percentage of average annual compensation during the period of creditable service. The Bank makes
contributions to the Pension Plan which, when taken together with participant contributions equal to 2% of their compensation, will be
sufficient to fund these benefits. The Bank’s funding method, the unit credit actuarial cost method, is consistent with the funding
requirements of applicable federal laws and regulations which set forth both minimum required and maximum tax deductible
contributions. Employees become fully vested after four years of participation in the Pension Plan (no vesting occurs during the four-
year period).

Significant Actuarial Assumptions. The following table sets forth the significant actuarial assumptions used to determine the

benefit obligation at December 31, 2018, 2017 and 2016 and the benefit cost for each of the Plan years then ended.

2018

2017

2016

Weighted average assumptions used to determine the
benefit obligation at year end:

Discount rate ..........................................................................................
Rate of increase in compensation levels ................................................

4.53%
3.50%

Weighted average assumptions used to determine net pension cost:

Discount rate ..........................................................................................
Rate of increase in compensation levels ................................................
Expected long-term rate of return on plan assets ...................................

3.93%
3.50%
5.50%

3.93%
3.50%

4.40%
3.50%
5.50%

4.40%
3.50%

4.54%
3.50%
6.00%

The increase in the discount rate from 3.93% in 2017 to 4.53% in 2018 decreased the projected benefit obligation at December 31, 2018
by approximately $3,093,000. In calculating the benefit obligation at December 31, 2018, the mortality table previously utilized, RP-
2014 Healthy Annuitant/Employee Mortality Table with Projection Scale MP-2017, was adjusted to reflect Scale MP-2018. The updated
mortality table decreased the projected benefit obligation at December 31, 2018 by approximately $133,000.

The decrease in the discount rate from 4.40% in 2016 to 3.93% in 2017 increased the projected benefit obligation at December 31, 2017
by approximately $2,377,000. In calculating the benefit obligation at December 31, 2017, the mortality table previously utilized, RP-
2014 Healthy Annuitant/Employee Mortality Table with Projection Scale MP-2016, was adjusted to reflect Scale MP-2017. The updated
mortality table decreased the projected benefit obligation at December 31, 2017 by approximately $277,000.

The decrease in the discount rate from 4.54% in 2015 to 4.40% in 2016 increased the projected benefit obligation at December 31, 2016
by $643,000. In calculating the benefit obligation at December 31, 2016, the mortality table previously utilized, RP-2014 Healthy
Annuitant/Employee Mortality Table with Projection Scale MP-2015, was adjusted to reflect Scale MP-2016. The updated mortality
table decreased the projected benefit obligation at December 31, 2016 by approximately $536,000. In addition, a change in the
withdrawal/turnover assumption from the T-3 table of the Pension Actuary’s Handbook to the 2003 SOA Pension Plan Turnover Table
decreased the projected benefit obligation at December 31, 2016 by $157,000.

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

(in thousands)
Service cost plus expected expenses and net of expected plan

2018

2017

2016

participant contributions .........................................................................
Interest cost ...............................................................................................
Expected return on plan assets ..................................................................
Amortization of net actuarial loss .............................................................
Net pension cost (credit) ...........................................................................

1,369
1,587
(3,275)
—
(319)

1,214
1,590
(2,940)
18
(118)

1,142
1,584
(2,953)
244
17

As a result of the adoption of ASU 2017-07, for all periods presented, the components of net pension credit other than the service cost
component were included in the line item “Other noninterest income” in the consolidated statements of income. The service cost
component was included in the line item “Salaries” in the consolidated statements of income. See “Note A – Summary of Significant
Accounting Policies” for more information regarding the provisions of ASU 2017-07.

The net actuarial loss for the defined benefit plan that will be amortized from accumulated other comprehensive income (loss) into net
periodic pension cost in 2019 is $352,000. Prior service cost was fully amortized from accumulated other comprehensive income (loss)
into net periodic pension cost as of December 31, 2014.

Funded Status of the Plan. The following table sets forth the change in the projected benefit obligation and Plan assets for each

year and, as of the end of each year, the funded status of the Plan and accumulated benefit obligation.

(in thousands)
Change in projected benefit obligation:

Projected benefit obligation at beginning of year ...................................
Service cost ............................................................................................
Interest cost .............................................................................................
Benefits paid ...........................................................................................
Assumption changes ...............................................................................
Experience loss (gain) and other ............................................................
Projected benefit obligation at end of year ...............................................

Change in fair value of plan assets:

Fair value of plan assets at beginning of year .........................................
Actual return on plan assets ....................................................................
Employer contributions ..........................................................................
Plan participant contributions .................................................................
Benefits paid ...........................................................................................
Expenses .................................................................................................
Fair value of plan assets at end of year .....................................................
Funded status at end of year ......................................................................
Accumulated benefit obligation ................................................................

$
$

2018

2017

2016

41,384
1,533
1,587
(1,574)
(3,226)
766
40,470

60,536
(3,563)
—
333
(1,574)
(108)
55,624
15,154
38,042

$
$

37,016
1,386
1,590
(1,510)
2,100
802
41,384

54,332
7,497
—
321
(1,510)
(104)
60,536
19,152
38,544

$
$

35,684
1,283
1,584
(1,364)
(50)
(121)
37,016

50,021
3,919
1,553
301
(1,365)
(97)
54,332
17,316
34,451

During 2018, the Bank did not make a contribution to the Plan and the Bank has no minimum required pension contribution for the Plan
year ending September 30, 2019. It’s maximum tax-deductible contribution for the tax year beginning January 1, 2019 is $7,700,000.
The contribution the Bank will make in 2019, if any, has not yet been determined.

Plan Assets. The objective for the Plan’s assets is to generate long-term investment returns from both income and capital
appreciation which outpaces the rate of inflation, while maintaining sufficient liquidity to ensure the Plan’s ability to pay all anticipated
benefit and expense obligations when due. The Plan will maintain a de minimis amount of cash equivalents, with the remaining assets
allocated across two broadly-defined financial asset categories: (1) equity, both domestic and international; and (2) fixed income of
various durations and issuer type. The goal of the equity allocation is to supplement the Bank’s contributions to the Plan when the Plan
is underfunded and increase surplus when the Plan is overfunded. The fixed income component will include longer-duration bonds
designed to match and hedge the characteristics of the Plan’s liabilities. Cash equivalents, under normal circumstances, will be temporary
holdings for the purpose of paying expenses and monthly benefits.

For fixed income investments: (1) the minimum average credit quality shall be investment grade (Standard & Poor’s BBB or Moody’s
Baa) or higher; and (2) no more than 5% of the portfolio may be invested in securities with ratings below investment grade, and none
may be rated below investment grade at the time of purchase.

Reasonable precautions are taken to avoid excessive concentrations to protect the portfolio against unfavorable outcomes within an asset
class. Specifically, the following guidelines are in place:

• With the exception of fixed income investments explicitly guaranteed by the U.S. government, no single investment security

shall represent more than 5% of total Plan assets; and

• With the exception of passively managed investment vehicles seeking to match the returns of broadly diversified market indices
or diversified investment vehicles chosen specifically to hedge the interest rate risk embedded in Plan liabilities, no single
investment pool or investment company (mutual fund) shall comprise more than 10% of total plan assets.

The portfolio will be rebalanced to the target asset allocation, if needed, no less often than quarterly. Unless expressly authorized in
writing by the Committee, the following investing activities are prohibited:

Purchasing securities on margin;
Pledging or hypothecating securities, except for loans of securities that are fully collateralized;
Purchasing or selling derivative securities for speculation or leverage; and

•
•
•
• Engaging in investment strategies that have the potential to amplify or distort the risk of loss beyond a level that is reasonably

expected given the objectives of the portfolio.

The Plan’s actual asset allocations, target allocations and expected long-term rates of return by asset category at December 31, 2018 and
2017 are set forth in the tables that follow.

Cash equivalents ..........................
Equity mutual funds ...................
Fixed income mutual funds .........

December 31, 2018

Target
Allocation
0% - 1%
15% - 25%
75% - 85%

Percentage of
Plan Assets

.2%
18.1%
81.7%
100.0%

Weighted
Average Expected
Long-term
Rates of Return
<1.00%
5.9% to 8.3%
3.8% to 5.0%
4.2% to 5.6%

Cash equivalents ..........................
Equity mutual funds ...................
Fixed income mutual funds .........

0% - 1%
15% - 25%
75% - 85%

December 31, 2017

.2%
20.1%
79.7%
100.0%

<1.00%
6.2% to 8.4%
3.4% to 4.4%
4.5% to 5.5%

The ranges for the weighted average expected long-term rates of return for equity funds, bond funds and total plan assets set forth in the
preceding table represent expected 25th to 75th percentile returns provided by Vanguard. For these purposes Vanguard utilizes a
proprietary capital markets model (the “model”) developed and maintained by Vanguard’s primary investment research and advice
teams. The model forecasts distributions of future returns for a wide array of broad asset classes. The theoretical and empirical foundation
of the model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic
risk. At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from
statistical analysis based on available historical monthly financial and economic data.

At December 31, 2018, the equity and fixed income components of Plan assets consist of the following Vanguard institutional funds:

Equity

• Vanguard Total Stock Market Index Fund (VITSX). This fund seeks to track the performance of the Center for Research in
Security Prices (CRSP) U.S. Total Market Index. The fund is passively managed using index sampling and consists of large,
small and mid-cap equity securities diversified across growth and value styles.

• Vanguard Total International Stock Index Fund (VTSNX). This fund seeks to track the performance of the Financial Times
Stock Exchange (FTSE) Global All Cap ex U.S. Index. The fund is passively managed and includes broad exposure across
developed and emerging non-U.S. equity markets.

Fixed Income

• Vanguard Long-Term Investment-Grade Fund (VWETX). This fund seeks high and sustainable current income. Investments
are selected using a fundamental, bottom-up credit selection process and consist of long-term, high-quality bonds broadly
diversified by issuer and industry sector.

• Vanguard Long-Term Bond Index Fund (VBLLX). This fund seeks high current income with high credit quality and to track
the performance of the Barclays U.S. Long Government/Credit Float Adjusted Index. The fund is passively managed using
index sampling and includes diversified exposure to long-term, investment-grade U.S. bond market instruments. Obligations
of the U.S. government make up a significant portion of the fund’s holdings.

Fair Value of Plan Assets. The fair value of the Plan assets at December 31, 2018 and 2017, by asset category, is summarized

below.

(in thousands)
December 31, 2018:
Cash equivalents:

Total

Fair Value Measurements Using:
Significant
Other
Observable
Inputs
(Level 2)

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Unobservable
Inputs
(Level 3)

Vanguard Prime Money Market Mutual Fund ...................... $
Total cash equivalents .........................................................

137 $
137

— $
—

Equity mutual funds:

Vanguard Total Stock Market Index Fund (VITSX) .............
Vanguard Total International Stock Index Fund (VTSNX)...
Total equity mutual funds ...................................................

Fixed income mutual funds:

Vanguard Long-Term Investment Grade Fund (VWETX) ...
Vanguard Long-Term Bond Index Fund (VBLLX) ..............
Total fixed income mutual funds ........................................
Total Plan Assets ..................................................................... $

5,513
4,539
10,052

27,260
18,175
45,435
55,624 $

5,513
4,539
10,052

27,260
18,175
45,435
55,487 $

December 31, 2017:
Cash equivalents:

Vanguard Prime Money Market Mutual Fund ...................... $
Total cash equivalents .........................................................

117 $
117

— $
—

Equity mutual funds:

Vanguard Total Stock Market Index Fund (VITSX) .............
Vanguard Total International Stock Index Fund (VTSNX)...
Total equity mutual funds ...................................................

Fixed income mutual funds:

6,658
5,479
12,137

29,065
19,217
48,282
60,536 $

6,658
5,479
12,137

29,065
19,217
48,282
60,419 $

137 $
137

—
—
—

—
—
—
137 $

117 $
117

—
—
—

—
—
—
117 $

—
—

—
—
—

—
—
—
—

—
—

—
—
—

—
—
—
—

The fair values of the Vanguard mutual funds represent their net asset values (“NAV”) at December 31, 2018 and 2017. On an ongoing
basis, the Plan has the ability to readily redeem its investments in these funds at their NAV per share with no advance notification.

An explanation of matrix pricing and the definitions of Level 1, 2 and 3 fair value measurements are included in “Note M – Fair Value
of Financial Instruments” to these consolidated financial statements.

At both December 31, 2018 and 2017, the Plan’s cash and cash equivalents amounted to .2% of the Plan’s total assets and represented
investments in the Vanguard Prime Money Market Mutual Fund.

Estimated Future Benefit Payments. The following benefit payments, which reflect expected future service as appropriate, are

expected to be made by the Plan.

Year (dollars in thousands)
2019 ..................................................... $
2020 .....................................................
2021 .....................................................
2022 .....................................................
2023 .....................................................
2024 – 2028 .........................................

Amount

1,926
2,067
2,169
2,346
2,542
14,372

The Bank’s Supplemental Executive Retirement Plan (“SERP”) currently covers the Bank’s Chief Executive Officer (“CEO”). The
benefit under the SERP is equal to the additional amount that the CEO would be entitled to under the Pension and 401(k) plans in the
absence of Internal Revenue Code limitations. SERP expense was $285,000, $31,000 and $197,000 in 2018, 2017 and 2016,
respectively.

NOTE K – OTHER OPERATING EXPENSES

Expenses included in other operating expenses that exceed one percent of the aggregate of total interest income and noninterest income
in one or more of the years shown are as follows:

(in thousands)
Computer services ............................ $
Marketing .........................................
FDIC assessment ..............................
Consultants .......................................

2018

2017

2016

1,987 $
1,414
1,222
542

1,888 $
1,442
1,178
702

2,631
1,053
1,379
1,337

NOTE L – COMMITMENTS AND CONTINGENT LIABILITIES

Financial Instruments With Off-Balance-Sheet Risk. In the normal course of business, the Bank enters into various types of off-
balance-sheet arrangements to meet the financing needs of its customers. These off-balance-sheet financial instruments include
commitments to extend credit, standby letters of credit and commercial letters of credit. These instruments involve varying degrees of
credit risk in excess of the amount recognized in the consolidated balance sheets and expose the Bank to credit loss in the event of
nonperformance by the Bank’s customers. The Bank's exposure to credit loss is represented by the contractual notional amount of these
instruments. The Bank uses the same credit policies in making commitments to extend credit, and generally uses the same credit policies
for letters of credit, as it does for on-balance sheet instruments such as loans.

At December 31, 2018 and 2017, financial instruments whose contract amounts represent credit risk are as follows:

(in thousands)
Commitments to extend credit ............................................. $
Standby letters of credit .......................................................

2018

2017

Fixed
Rate

31,496 $
3,670

Variable
Rate
204,072 $
—

Fixed
Rate

90,635 $
4,244

Variable
Rate
227,385
—

A commitment to extend credit is a legally binding agreement to lend to a customer as long as there is no violation of any condition
established in the contract. Unused home equity, small business and commercial lines of credit are a large component of the Bank’s
variable rate loan commitments. Since some of the commitments to extend credit and letters of credit are expected to expire without
being drawn upon and, with respect to unused lines of credit, can be frozen, reduced or terminated by the Bank based on the financial
condition of the borrower, the total commitment amounts do not necessarily represent future cash requirements. Home equity lines
generally expire ten years from their date of origination and small business lines generally have a three-year term. Other real estate loan
commitments generally expire within 60 days and commercial line commitments generally expire within one year. At December 31,
2018, the Bank’s fixed rate loan commitments are to make loans with interest rates ranging from 4.00% to 4.75% and maturities of ten
years or more. The amount of collateral obtained, if any, by the Bank upon extension of credit is based on management’s credit
evaluation of the borrower. Collateral held varies but may include mortgages on commercial and residential real estate, securities, deposit
accounts with the Bank or other financial institutions and security interests in business assets and equipment.

Standby letters of credit are conditional commitments issued by the Bank to assure the performance or financial obligations of a customer
to a third party. The Bank's standby letters of credit extend through February 2020. The credit risk involved in issuing standby letters of
credit is essentially the same as that involved in extending loans to customers. The Bank generally holds collateral and/or obtains
personal guarantees supporting these commitments. The extent of collateral held for these commitments at December 31, 2018 varied
from 50% to 100% of the contractual notional amount of each instrument, with the average amount of collateral totaling 96% of the
aggregate outstanding notional amount. Standby letters of credit are considered financial guarantees and are recorded at fair value.

Employment Agreements. At December 31, 2018, the chief executive officer, senior executive vice president and four of the
Corporation’s other executive vice presidents, collectively referred to as the senior executives, had employment agreements with the
Corporation under which they are entitled to severance compensation in the event that their employment is terminated without cause or
they terminate their employment following an event constituting Good Reason, as defined. The chief executive officer’s employment
agreement has a term of three calendar years beginning January 1, 2017. Each of the other senior executives has an employment
agreement with a term of two calendar years beginning either January 1, 2017 or January 1, 2018. These two-year employment
agreements automatically renew for an additional period of one year on each anniversary date unless the Corporation gives written
notice of non-renewal at least 30 days prior to such date. Notwithstanding the foregoing, each of these two-year employment agreements
expire on December 31 of the calendar year in which the executive attains normal retirement age (“Retirement Age Termination Date”),
which for these purposes is age 65. The senior executive vice president’s employment agreement has been extended for two years
beyond its Retirement Age Termination Date of December 31, 2019. At the appropriate time and at its option, the Corporation can
extend the other two-year employment agreements for two years beyond their retirement age termination dates. The current aggregate
annual salaries provided for in these employment agreements is $2,222,000.

Lease Commitments. At December 31, 2018, minimum annual rental commitments under non-cancelable operating leases are as

follows:

Year (dollars in thousands)
2019 ............................................................................................... $
2020 ...............................................................................................
2021 ...............................................................................................
2022 ...............................................................................................
2023 ...............................................................................................
Thereafter ......................................................................................

Amount

2,986
2,925
2,816
2,781
2,419
8,117
22,044

The Bank has various renewal options on the above leases. Rent expense, including amounts paid for real estate taxes and common area
maintenance, was $2,966,000, $2,466,000 and $2,085,000 in 2018, 2017 and 2016, respectively.

Related Party Leases. Buildings occupied by two of the Bank’s branch offices are leased from a director of the Corporation and the
Bank. The leases expire on October 31, 2022 and December 31, 2019 with options to renew. The Bank expects to renew both leases
prior to their expiration. Aggregate base rent expense for these leases, plus a proportionate share of real estate taxes on one of the leased
properties, amounted to approximately $78,000 for each of the years ending December 31, 2018, 2017 and 2016. The Corporation
believes that the terms of the leases are comparable to competitive terms that could have been obtained from an unrelated third party.

Litigation. The Corporation is a named defendant in several legal actions incidental to the business. For some of these actions there

is a possibility that the Corporation will sustain a financial loss. Management believes that none of the possible losses are material.

NOTE M – 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 in either 2018 or 2017.

The fair values of the Corporation’s investment securities designated as available-for-sale at December 31, 2018 and 2017 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.

—
—
—

—

—
—
—
—

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Fair Value Measurements Using:
Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

420,038 $
65,486
154,901
117,590
758,015 $

— $
—
—

— $

420,038 $
65,486
154,901
117,590
758,015 $

(in thousands)
December 31, 2018:
Financial Assets:

Available-for-Sale Securities:

State and municipals ................................. $
Pass-through mortgage securities .............
Collateralized mortgage obligations .........
Corporate bonds ........................................

Financial Liabilities:

Derivative - interest rate swap .................. $

1,130 $

— $

1,130 $

December 31, 2017:
Financial Assets:

Available-for-Sale Securities:

State and municipals ................................. $
Pass-through mortgage securities .............
Collateralized mortgage obligations .........

461,323 $
71,391
187,414
720,128 $

— $
—
—
— $

461,323 $
71,391
187,414
720,128 $

There were no assets measured at fair value on a nonrecurring basis at December 31, 2018. Assets measured at fair value on a
nonrecurring basis at December 31, 2017 are set forth in the table that follows. Real estate appraisals utilized in measuring the fair value
of other real estate and 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 and other real estate owned. Because the Corporation has no impaired loans or other
real estate owned measured at fair value at December 31, 2018, the impact of unobservable inputs on the Corporation’s financial
statements is not material.

(in thousands)
December 31, 2017:

Total

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Fair Value Measurements Using:
Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Other real estate owned ............................... $

5,125 $

— $

5,125

The other real estate owned in the preceding table is one commercial real estate property acquired by deed-in-lieu of foreclosure at a
fair value of $5,850,000 in the fourth quarter of 2017. A valuation allowance of $725,000 was subsequently recorded and is included in
other noninterest expense in the consolidated statements of income for the year ended December 31, 2017. The Bank sold the property
for its carrying value in the first quarter of 2018.

The Corporation had no impaired loans recorded at fair value at December 31, 2018 or 2017. During the years ended December 31,
2017 and 2016, the Corporation recorded provisions (credits) for loan losses of ($482,000) and $449,000, respectively, for impaired
loans measured at fair value. No such provisions were recorded in 2018.

Financial Instruments Not Recorded at Fair Value. Fair value estimates are made at a specific point in time. Such estimates are
generally subjective in nature and dependent upon a number of significant assumptions associated with each financial instrument or
group of similar financial instruments, including estimates of discount rates, liquidity, risks associated with specific financial
instruments, 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 at December 31, 2018 and 2017.

(in thousands)
Financial Assets:
Cash and cash equivalents ....................................
Held-to-maturity securities ..................................
Held-to-maturity securities ..................................
Loans .....................................................................
Restricted stock .....................................................

Financial Liabilities:
Checking deposits ................................................
Savings, NOW and money market deposits .........
Time deposits .......................................................
Short-term borrowings ..........................................
Long-term debt .....................................................

Level of
Fair Value
Hierarchy

Level 1
Level 2
Level 3
Level 3
Level 1

Level 1
Level 1
Level 2
Level 1
Level 2

December 31, 2018

December 31, 2017

Carrying
Amount

Fair Value

Carrying
Amount

Fair Value

47,358 $
2,445
3,059
3,232,561
40,686

47,358 $
2,493
3,059
3,079,946
40,686

69,672 $
5,030
2,606
2,916,568
37,314

69,672
5,143
2,606
2,855,812
37,314

935,574
1,590,341
559,057
388,923
362,027

935,574
1,590,341
553,900
388,923
354,651

896,129
1,602,460
323,408
281,141
423,797

896,129
1,602,460
323,108
281,141
418,465

As described in “Note A – Summary of Significant Accounting Policies” the Corporation adopted ASU 2016-01 on January 1, 2018 and
applied the provisions of the standard prospectively to the fair value amounts in the table above.

NOTE N – REVENUE FROM CONTRACTS WITH CUSTOMERS

As described in “Note A – Summary of Significant Accounting Policies,” the Corporation adopted ASU 2014-09 “Revenue from
Contracts with Customers” and all subsequent amendments on January 1, 2018. The majority of the Bank's income streams are outside
of the scope of ASU 2014-09, such as interest and dividend income on loans and securities. Income streams that are within the scope of
ASU 2014-09 are recorded in the noninterest income section of the consolidated statements of income and include the following types
of fees earned from the Bank's contracts with customers.

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

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

Transaction and Branch Service Fees. The following revenue streams are components of “Other noninterest income” on the
consolidated statements of income. These components totaled $2,089,000 and $1,912,000 for the years ended December 31, 2018 and
2017, respectively. Other items included in “Other noninterest income,” such as BOLI income, non-service components of net pension
cost, real estate tax refunds and gains on sales of fixed assets are outside of the scope of ASU 2014-09.

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

Branch Services Revenues. The Bank charges fees for safe deposit box rentals, wire transfers, money orders, checkbook printing,

official checks and ATM usage. Fees are earned, collected and generally recorded as revenue when the service is provided.

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

NOTE O – DERIVATIVES

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

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

The following table summarizes information about the interest rate swap designated as a cash flow hedge at December 31, 2018.

Notional amount ..........................................................
Weighted average fixed pay rate .................................
Weighted average 3-month LIBOR receive rate .........
Weighted average maturity .........................................

$150 million
2.90%
Currently 2.38%
2.43 Years

Interest expense recorded on the swap transaction, which totaled $477,000 for 2018, is included in the line item “Interest expense –
short-term borrowings” in the consolidated statements of income. Amounts reported in accumulated other comprehensive income (loss)
related to the swap will be reclassified to interest expense as interest payments are received/made on the Bank’s variable-rate
assets/liabilities. During 2018, the Corporation had $477,000 of reclassifications to interest expense. During the next twelve months, the
Corporation estimates that $322,000 will be reclassified as an increase to interest expense.

The following table presents the net gains (losses) recorded in the consolidated statements of income and the consolidated statements of
comprehensive income relating to the interest rate swap for the year ended 2018.

(in thousands)
Interest rate contract:
Year ended December 31, 2018 ...................... $

Amount of
Gain/(Loss)
Recognized in OCI
(Effective Portion)

Amount of Loss

Reclassified from OCI

to Interest Expense

Amount of Loss
Recognized in Other
Noninterest Income
(Ineffective Portion)

(1,607) $

477 $

—

The following table reflects the amounts relating to the interest rate swap included in the consolidated balance sheet at December 31,
2018.

(in thousands)
Included in other assets or other liabilities ......................................................
Interest rate swap related to FHLB advances .................................................. $

Notional
Amount

Fair Value

Asset

Liability

— $

1,130

150,000

Credit Risk Related Contingent Features. The Bank’s agreement with its interest rate swap counterparty sets forth minimum
collateral posting thresholds. If the termination value of the swap is a net asset position, the counterparty may be required to post
collateral against its obligations to the Bank under the agreement. However, if the termination value of the swap is a net liability position,
the Bank may be required to post collateral to the counterparty. At December 31, 2018, the Bank posted collateral of $1.7 million to its
counterparty under the agreement which is in a net liability position. If the Bank had breached any of these provisions at December 31,
2018, it could have been required to settle its obligations under the agreement at the termination value.

NOTE P – PARENT COMPANY FINANCIAL INFORMATION

Condensed financial information for the Corporation (parent company only) is as follows:

CONDENSED BALANCE SHEETS

(in thousands)
Assets:

Cash and due from banks............................................................................................................. $
Investment in subsidiary bank, at equity .....................................................................................
Prepaid income taxes ...................................................................................................................
Deferred income tax benefits ......................................................................................................
Other assets .................................................................................................................................

Liabilities:

Other liabilities ............................................................................................................................ $
Cash dividends payable ..............................................................................................................

Stockholders' equity:

Common stock .............................................................................................................................
Surplus ........................................................................................................................................
Retained earnings .......................................................................................................................

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

December 31,

2018

2017

583 $

390,388
—
1,924
80
392,975 $

332 $

4,456
4,788

2,542
145,163
249,922
397,627
(9,440)
388,187
392,975 $

925
354,334
1,552
1,381
81
358,273

25
3,798
3,823

2,467
127,122
224,315
353,904
546
354,450
358,273

CONDENSED STATEMENTS OF INCOME

(in thousands)
Income:

Year ended December 31,
2017

2016

2018

Dividends from subsidiary bank ........................................................................ $

15,525 $

11,150 $

4,500

Expenses:

Salaries ..............................................................................................................
Other operating expenses...................................................................................

Income before income taxes ..............................................................................
Income tax benefit ...............................................................................................
Income before undistributed earnings of subsidiary bank .................................
Equity in undistributed earnings ..........................................................................

Net income ........................................................................................................ $

1,814
343
2,157

13,368
(1,442)
14,810
26,763
41,573 $

2,434
406
2,840

8,310
(1,235)
9,545
25,577
35,122 $

1,517
376
1,893

2,607
(1,181)
3,788
27,092
30,880

Comprehensive income ........................................................................................ $

31,864 $

37,272 $

21,752

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)
Cash Flows From Operating Activities:

Net income ........................................................................................................ $
Adjustments to reconcile net income to net cash
provided by operating activities:

Undistributed earnings of subsidiary bank ....................................................
Deferred income tax provision (credit) .........................................................
Stock-based compensation expense ..............................................................
Increase (decrease) in other liabilities ...........................................................
Other decreases (increases) ..........................................................................
Net cash provided by operating activities .......................................................

Year ended December 31,
2017

2016

2018

41,573 $

35,122 $

30,880

(26,763)
(543)
1,814
307
1,619
18,007

(25,577)
167
2,434
5
(1,383)
10,768

(27,092)
(84)
1,517
(19)
532
5,734

Cash Flows From Investing Activities:

Capital contributions to Bank subsidiary ...........................................................

(19,000)

(20,500)

(38,883)

Cash Flows From Financing Activities:

Repurchase of common stock ............................................................................
Shares withheld upon the vesting and conversion of RSUs ..............................
Proceeds from exercise of stock options ...........................................................
Proceeds from issuance of common stock, net ..................................................
Cash dividends paid ...........................................................................................
Net cash provided by financing activities .......................................................
Net decrease in cash and cash equivalents* ........................................................
Cash and cash equivalents, beginning of year .....................................................
Cash and cash equivalents, end of year ................................................................ $

(1,541)
(774)
312
18,239
(15,585)
651
(342)
925
583 $

—
(527)
917
22,598
(13,703)
9,285
(447)
1,372

925 $

—
(370)
906
43,712
(12,078)
32,170
(979)
2,351
1,372

Supplemental Schedule of Noncash Financing Activities:

Cash dividends payable ..................................................................................... $

4,456 $

3,798 $

3,368

* Cash and cash equivalents is defined as cash and due from banks and includes, among other things, the checking and money market
accounts with the Corporation’s wholly-owned bank subsidiary.

NOTE Q – QUARTERLY FINANCIAL DATA (Unaudited)

(in thousands, except per share data)
2018
Interest income .................................................. $
Interest expense .................................................
Net interest income ............................................
Provision (credit) for loan losses .......................
Noninterest income before

net securities losses ..........................................
Net losses on sales of securities .........................
Noninterest expense ..........................................
Income before income taxes .............................
Income tax expense ............................................
Net income .........................................................
Earnings per share:

Basic ................................................................
Diluted ............................................................
Comprehensive income ......................................

2017
Interest income .................................................. $
Interest expense .................................................
Net interest income ............................................
Provision for loan losses ....................................
Noninterest income before

net securities gains (losses) ..............................
Net gains (losses) on sales of securities .............
Noninterest expense ..........................................
Income before income taxes .............................
Income tax expense ............................................
Net income .........................................................
Earnings per share:

Basic ................................................................
Diluted ............................................................
Comprehensive income ......................................

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Total

32,304 $
7,148
25,156
1,512

34,946 $
9,061
25,885
803

34,859 $
9,568
25,291
(1,768)

36,128 $
9,953
26,175
(2,302)

3,292
—
14,868
12,068
957
11,111

.44
.44
2,925

2,679
—
15,707
12,054
1,739
10,315

.41
.40
7,869

2,735
(4,960)
14,242
10,592
535
10,057

.39
.39
8,952

3,979
(5,446)
15,089
11,921
1,831
10,090

.40
.39
12,118

138,237
35,730
102,507
(1,755)

12,685
(10,406)
59,906
46,635
5,062
41,573

1.64
1.63
31,864

28,498 $
4,838
23,660
788

28,970 $
5,177
23,793
1,293

30,337 $
5,634
24,703
1,122

30,460 $
6,060
24,400
1,651

118,265
21,709
96,556
4,854

2,396
57
13,347
11,978
2,897
9,081

.38
.38
9,705

2,681
1
13,468
11,714
2,581
9,133

.38
.37
11,619

2,484
16
13,394
12,687
3,345
9,342

.38
.38
9,009

2,466
(1,940)
14,643
8,632
1,066
7,566

.31
.30
6,939

10,027
(1,866)
54,852
45,011
9,889
35,122

1.44
1.43
37,272

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of
The First of Long Island Corporation
Glen Head, New York

Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of The First of Long Island Corporation (“the Company”) as of
December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively referred to as
the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018,
based on criteria established in Internal Control – Integrated Framework:(2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-
year period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal Control – Integrated Framework:(2013) issued by COSO.

Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
financial statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud,
and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risk of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ CROWE LLP
Crowe LLP

We have served as the Company’s auditor since 2003.

New York, New York
March 15, 2019

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL

DISCLOSURE

None.

ITEM 9A. 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.

Management's Report on Internal Control Over Financial Reporting

The management of The First of Long Island Corporation is responsible for establishing and maintaining adequate internal control over
financial reporting, based on the criteria established in Internal Control - Integrated Framework:(2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). The First of Long Island Corporation’s system of internal control
over financial reporting was designed by or under the supervision of the Corporation’s Principal Executive Officer and Principal
Financial Officer to provide reasonable assurance regarding the reliability of the preparation of the Corporation’s financial statements
for external and regulatory reporting purposes, in accordance with U.S. GAAP. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

The First of Long Island Corporation’s management assessed the effectiveness of the Corporation’s internal control over financial
reporting as of December 31, 2018, based on the criteria established in Internal Control - Integrated Framework:(2013) issued by
COSO. Based on the assessment, management determined that, as of December 31, 2018, the Corporation’s internal control over
financial reporting is effective.

Report of Independent Registered Public Accounting Firm

Crowe LLP, an independent registered public accounting firm, has expressed an opinion on the effectiveness of the Corporation’s
internal control over financial reporting as of December 31, 2018 in their report which appears on page 74.

Changes in Internal Control Over Financial Reporting

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

ITEM 9B. OTHER INFORMATION

None.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

PART III

The information regarding directors, executive officers and corporate governance is incorporated herein by reference to the Registrant's
Proxy Statement for its Annual Meeting of Stockholders to be held April 16, 2019 that was filed with the Securities and Exchange
Commission (“SEC”).

The Corporation has adopted a code of ethics that applies to its principal executive officer, principal financial officer, chief risk officer,
chief accounting officer, controller and persons performing similar functions. The Corporation’s Code of Ethics and amendments to and
waivers from the Code of Ethics are posted on the Bank’s website. To access the Code of Ethics for Senior Financial Officers go to the
homepage of the Bank’s Internet website at www.fnbli.com and click on “Investor Relations,” and then click on “Code of Ethics.”

ITEM 11. EXECUTIVE COMPENSATION

The information regarding executive compensation is incorporated herein by reference to the Registrant's Proxy Statement for its Annual
Meeting of Stockholders to be held April 16, 2019 that was filed with the SEC.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED

STOCKHOLDER MATTERS

The information regarding security ownership of certain beneficial owners and management and related stockholder matters is
incorporated herein by reference to the Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held April 16, 2019
that was filed with the SEC.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information regarding certain relationships and related transactions and director independence is incorporated herein by reference
to the Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held April 16, 2019 that was filed with the SEC.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information regarding principal accountant fees and services is incorporated herein by reference to the Registrant's Proxy Statement
for its Annual Meeting of Stockholders to be held April 16, 2019 that was filed with the SEC.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Consolidated Financial Statements

PART IV

The following consolidated financial statements of the Corporation and its subsidiary and report of independent registered public
accounting firm thereon as required by this Item are included in Part II, Item 8.

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statement of Changes in Stockholders' Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

(a) 2. Financial Statement Schedules

None applicable.

(a) 3. Listing of Exhibits

See Index of Exhibits that follows.

ITEM 16. FORM 10-K SUMMARY

Not applicable.

Exhibit No. Description of Exhibit
3(i)

INDEX OF EXHIBITS

3(ii)
10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9
10.10

21
23
31.1
31.2
32

101

Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3(i) of Registrant’s Form 10-Q filed
May 10, 2018)
By-laws, as amended (incorporated by reference to Exhibit 3(ii) of Registrant’s Form 8-K filed April 25, 2017)
Incentive Compensation Plan for Directors and Executive Officers, as amended (incorporated by reference to Items 1.01
of Registrant’s Form 8-K filed March 7, 2012 and Item 5.02 of Registrant’s Form 8-K filed January 28, 2013)
The First of Long Island Corporation 2006 Stock Compensation Plan, as amended (incorporated by reference to
Appendix A of Registrant’s Proxy Statement filed March 16, 2006, Exhibit 10.9 of Registrant’s Form 8-K filed
December 19, 2008, part of Item 5.02 of Registrant’s Form 8-K filed June 21, 2010 and Item 5.02 and Exhibit 10.15 of
Registrant’s Form 8-K filed September 27, 2010)
The First of Long Island Corporation 2014 Equity Incentive Plan (incorporated by reference to Appendix A of
Registrant’s Proxy Statement filed March 17, 2014)
The First of Long Island Corporation 2016 Cash Incentive Plan (incorporated by reference to Appendix A of Registrant’s
Proxy Statement filed March 15, 2016)
Employment Agreement between Registrant and Michael N. Vittorio (incorporated by reference to Exhibit 10.1 of
Registrant’s Form 8-K filed April 7, 2017)
Employment Agreement between Registrant and Mark D. Curtis (incorporated by reference to Exhibit 10.1 of
Registrant’s Form 8-K filed September 11, 2017 and Item 5.02 of Registrant’s Form 8-K filed January 8, 2019)
Employment Agreement between Registrant and Christopher Becker (incorporated by reference to Exhibit 10.7 of
Registrant’s Form 10-K filed March 16, 2018)
Employment Agreement between Registrant and Paul Daley (incorporated by reference to Exhibit 10.8 of Registrant’s
Form 10-K filed March 16, 2018)
Employment Agreement between Registrant and Christopher J. Hilton, Executive Vice President
Amendment to Supplemental Executive Retirement Program (incorporated by reference to Exhibit 10.10 of Registrant’s
Form 8-K filed December 19, 2008)
Subsidiary information included in Part 1, “Business” of this Form 10-K
Consent of Crowe LLP, Independent Registered Public Accounting Firm
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)
Certification of Chief Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(b) and U.S.C. Section
1350
The following materials from the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018,
formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated
Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Changes
in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial
Statements.

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.

SIGNATURES

Dated: March 15, 2019

THE FIRST OF LONG ISLAND CORPORATION
(Registrant)

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)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date indicated.

Signatures

Titles

Date

Non-executive Chairman of the Board

March 15, 2019

/s/ WALTER C. TEAGLE III
Walter C. Teagle III

/s/ PAUL T. CANARICK
Paul T. Canarick

/s/ ALEXANDER L. COVER
Alexander L. Cover

/s/ JOHN J. DESMOND
John J. Desmond

Director

/s/ HOWARD THOMAS HOGAN JR.
Howard Thomas Hogan Jr.

Director

/s/ LOUISA M. IVES
Louisa M. Ives

/s/ STEPHEN V. MURPHY
Stephen V. Murphy

/s/ PETER QUICK
Peter Quick

/s/ DENISE STRAIN
Denise Strain

/s/ MILBREY RENNIE TAYLOR
Milbrey Rennie Taylor

/s/ ERIC TVETER
Eric Tveter

/s/ MICHAEL N. VITTORIO
Michael N. Vittorio

Director

March 15, 2019

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