The First of Long Island Corporation (FLIC) 10-Q 2005 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2005

OR

|_| 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 0-12220

THE FIRST OF LONG ISLAND CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

NEW YORK	11-2672906
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
10 Glen Head Road, Glen Head, New York	11545
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code

(516) 671-4900

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.)

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_|

         Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_|

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

CLASS	OUTSTANDING AT JULY 22, 2005
Common stock, par value	3,886,434
$.10 per share

THE FIRST OF LONG ISLAND CORPORATION
JUNE 30, 2005
INDEX

PART I.	FINANCIAL INFORMATION	PAGE NO.
Item 1	Financial Statements
	Consolidated Balance Sheets (Unaudited)
	June 30, 2005 and December 31, 2004	1
	Consolidated Statements Of Income (Unaudited)
	Six and Three Months Ended June 30, 2005 and 2004	2
	Consolidated Statements Of Changes In
	Stockholders’ Equity (Unaudited)
	Six Months Ended June 30, 2005 and 2004	3
	Consolidated Statements Of Cash Flows (Unaudited)
	Six Months Ended June 30, 2005 and 2004	4
	Notes To Unaudited Consolidated Financial Statements	5
Item 2	Management’s Discussion and Analysis Of
	Financial Condition and Results Of Operations	8
Item 3	Quantitative and Qualitative Disclosures About
	Market Risk	19
Item 4	Controls and Procedures	22
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	23
Item 2	Issuer Purchase of Equity Securities	23
Item 4	Submission of Matters To A Vote of Security Holders	23
Item 6	Exhibits and Reports on Form 8-K	24
SIGNATURES		26

ITEM 1. — FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	June 30, 2005			December 31, 2004
Assets:
Cash and due from banks	$	28,857,000		$	24,286,000
Federal funds sold		9,000,000			—
Cash and cash equivalents		37,857,000			24,286,000
Investment securities:
Held-to-maturity, at amortized cost (fair
value of $248,524,000 and $209,514,000)		247,535,000			207,335,000
Available-for-sale, at fair value (amortized cost
of $318,288,000 and $321,577,000)		320,280,000			324,778,000
		567,815,000			532,113,000
Loans:
Commercial and industrial		49,356,000			51,672,000
Secured by real estate		307,440,000			285,204,000
Consumer		5,147,000			5,566,000
Other		1,246,000			474,000
		363,189,000			342,916,000
Net deferred loan fees		(264,000	)		(479,000	)
		362,925,000			342,437,000
Allowance for loan losses		(3,128,000	)		(2,808,000	)
		359,797,000			339,629,000
Bank premises and equipment, net		6,711,000			6,531,000
Prepaid income taxes		282,000			141,000
Other assets		16,292,000			15,078,000
	$	988,754,000		$	917,778,000
Liabilities:
Deposits:
Checking	$	308,635,000		$	298,049,000
Savings and money market		422,251,000			427,941,000
Time, other		20,190,000			17,711,000
Time, $100,000 and over		60,663,000			27,549,000
		811,739,000			771,250,000
Securities sold under repurchase agreements		80,600,000			49,654,000
Accrued expenses and other liabilities		4,263,000			5,204,000
Deferred income taxes payable		838,000			1,430,000
		897,440,000			827,538,000
Stockholders’ Equity:
Common stock, par value $.10 per share:
Authorized, 20,000,000 shares;
Issued and outstanding, 3,926,317 and 3,967,548 shares		393,000			397,000
Surplus		561,000			1,135,000
Retained earnings		89,164,000			86,786,000
		90,118,000			88,318,000
Accumulated other comprehensive income net of tax		1,196,000			1,922,000
		91,314,000			90,240,000
	$	988,754,000		$	917,778,000

See notes to unaudited consolidated financial statements

1

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Six Months Ended June 30,					Three Months Ended June 30,
	2005			2004		2005		2004
Interest income:
Loans	$	10,236,000		$	9,177,000	$	5,257,000	$	4,633,000
Investment securities:
Taxable		6,564,000			6,630,000		3,538,000		3,341,000
Nontaxable		3,266,000			3,200,000		1,641,000		1,610,000
Federal funds sold		231,000			128,000		160,000		63,000
		20,297,000			19,135,000		10,596,000		9,647,000
Interest expense:
Savings and money market deposits		1,581,000			1,403,000		869,000		678,000
Time deposits		622,000			206,000		420,000		114,000
Securities sold under repurchase agreements		901,000			194,000		580,000		88,000
		3,104,000			1,803,000		1,869,000		880,000
Net interest income		17,193,000			17,332,000		8,727,000		8,767,000
Provision for loan losses		326,000			200,000		176,000		100,000
Net interest income after provision for loan losses		16,867,000			17,132,000		8,551,000		8,667,000
Noninterest income:
Investment Management Division income		872,000			704,000		400,000		348,000
Service charges on deposit accounts		1,793,000			1,974,000		936,000		1,034,000
Net gains (losses) on sales of securities		(9,000	)		93,000		153,000		—
Other		836,000			359,000		314,000		189,000
		3,492,000			3,130,000		1,803,000		1,571,000
Noninterest expense:
Salaries		6,136,000			5,333,000		3,403,000		2,697,000
Employee benefits		2,238,000			2,415,000		976,000		1,222,000
Occupancy and equipment expense		1,931,000			1,801,000		952,000		846,000
Other operating expenses		2,577,000			2,591,000		1,326,000		1,344,000
		12,882,000			12,140,000		6,657,000		6,109,000
Income before income taxes		7,477,000			8,122,000		3,697,000		4,129,000
Income tax expense		1,468,000			2,086,000		730,000		1,067,000
Net income	$	6,009,000		$	6,036,000	$	2,967,000	$	3,062,000
Weighted average:
Common shares		3,938,162			4,092,434		3,930,197		4,093,714
Dilutive stock options		58,683			92,381		46,607		84,512
		3,996,845			4,184,815		3,976,804		4,178,226
Earnings per share:
Basic	$	1.52		$	1.47	$	.75	$	.74
Diluted	$	1.50		$	1.44	$	.74	$	.73

See notes to unaudited consolidated financial statements

2

CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY (UNAUDITED)

Six Months Ended June 30, 2005
Common Stock					Surplus			Compre- hensive Income			Retained Earnings			Accumulated Other Compre- hensive Income			Total
Shares		Amount
Balance, January 1, 2005	3,967,548		$	397,000		$	1,135,000					$	86,786,000		$	1,922,000		$	90,240,000
Net Income									$	6,009,000			6,009,000						6,009,000
Repurchase and retirement
of common stock	(81,630	)		(8,000	)		(3,774,000	)											(3,782,000	)
Exercise of stock options	40,399			4,000			1,064,000												1,068,000
Tax benefit of stock options							136,000												136,000
Cash dividends declared -
$.42 per share													(1,631,000	)					(1,631,000	)
Unrealized losses on available-
for-sale-securities, net of
reclassification adjustment
and income taxes										(726,000	)					(726,000	)		(726,000	)
Transfer from retained
earnings to surplus							2,000,000						(2,000,000	)					—
Comprehensive income									$	5,283,000
Balance, June 30, 2005	3,926,317		$	393,000		$	561,000					$	89,164,000		$	1,196,000		$	91,314,000
Comprehensive Income - Three
Months Ended June 30, 2005									$	4,352,000
Six Months Ended June 30, 2004
Common Stock					Surplus			Compre- hensive Income			Retained Earnings			Accumulated Other Compre- hensive Income (loss)			Total
Shares		Amount
Balance, January 1, 2004	4,083,733		$	408,000		$	781,000					$	84,864,000		$	3,238,000		$	89,291,000
Net Income									$	6,036,000			6,036,000						6,036,000
Repurchase and retirement
of common stock	(16,130	)		(2,000	)		(762,000	)											(764,000	)
Exercise of stock options	28,184			3,000			577,000												580,000
Tax benefit of stock options							37,000												37,000
Cash dividends declared -
$.36 per share													(1,472,000	)					(1,472,000	)
Unrealized losses on available-
for-sale-securities, net of
reclassification adjustment
and income taxes										(4,039,000	)					(4,039,000	)		(4,039,000	)
Comprehensive income									$	1,997,000
Balance, June 30, 2004	4,095,787		$	409,000		$	633,000					$	89,428,000		$	(801,000	)	$	89,669,000
Comprehensive Loss - Three
Months Ended June 30, 2004									$	(2,088,000	)

See notes to unaudited consolidated financial statements

3

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended June 30,
	2005			2004
Cash Flows From Operating Activities:
Net income	$	6,009,000		$	6,036,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses		326,000			200,000
Deferred income tax credit		(108,000	)		(2,000	)
Depreciation and amortization		676,000			655,000
Premium amortization on investment securities, net		753,000			1,389,000
Writeoff of bank premises and equipment		21,000			—
Net losses (gains) on sales of securities		9,000			(93,000	)
Accretion of cash surrender value on bank owned life insurance		(145,000	)		—
Increase in prepaid income taxes		(5,000	)		—
Decrease (increase) in other assets		(73,000	)		303,000
Decrease in accrued expenses and other liabilities		(905,000	)		(230,000	)
Decrease in income taxes payable		—			(36,000	)
Net cash provided by operating activities		6,558,000			8,222,000
Cash Flows From Investing Activities:
Proceeds from sales of available-for-sale securities		32,465,000			95,000
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity		34,382,000			59,663,000
Available-for-sale		12,304,000			25,404,000
Purchase of investment securities:
Held-to-maturity		(75,770,000	)		(54,989,000	)
Available-for-sale		(42,050,000	)		(69,022,000	)
Net increase in loans to customers		(20,494,000	)		(15,642,000	)
Purchases of bank premises and equipment		(877,000	)		(394,000	)
Net cash used in investing activities		(60,040,000	)		(54,885,000	)
Cash Flows From Financing Activities:
Net increase in total deposits		40,489,000			40,508,000
Net increase in securities sold under repurchase agreements		30,946,000			448,000
Proceeds from exercise of stock options		1,068,000			580,000
Repurchase and retirement of common stock		(3,782,000	)		(764,000	)
Cash dividends paid		(1,668,000	)		(1,470,000	)
Net cash provided by financing activities		67,053,000			39,302,000
Net increase (decrease) in cash and cash equivalents		13,571,000			(7,361,000	)
Cash and cash equivalents, beginning of year		24,286,000			61,430,000
Cash and cash equivalents, end of period	$	37,857,000		$	54,069,000
Supplemental Schedule of Noncash:
Investing Activities
Due from broker on sale of held-to-maturity security	$	996,000		$	—
Financing Activities
Cash dividends payable		1,648,000			1,472,000

The Corporation made interest payments of $2,821,000 and $1,767,000 and income tax payments of $1,582,000 and $2,125,000 during the first six months of 2005 and 2004, respectively.

See notes to unaudited consolidated financial statements

4

THE FIRST OF LONG ISLAND CORPORATION AND SUBSIDIARY
JUNE 30, 2005
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

         The accounting and reporting policies of the Corporation reflect banking industry practice and conform to generally accepted accounting principles in the United States. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported asset and liability balances and revenue and expense amounts and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates.

         The consolidated financial statements include the accounts of The First of Long Island Corporation and its wholly-owned subsidiary, The First National Bank of Long Island, and the Bank’s wholly-owned subsidiaries, The First of Long Island Agency, Inc. and FNY Service Corp., an investment company, and FNY Service Corp.’s wholly-owned subsidiary, The First of Long Island REIT, Inc. The consolidated entity is referred to as the “Corporation” and the Bank and its direct and indirect subsidiaries are collectively referred to as the “Bank.” The Corporation’s financial condition and operating results principally reflect those of the Bank. All intercompany balances and amounts have been eliminated. For further information refer to the consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004.

         The consolidated financial information included herein as of and for the periods ended June 30, 2005 and 2004 is unaudited; however, such information reflects all adjustments which are, in the opinion of management, necessary for a fair statement of results for the interim periods. The December 31, 2004 consolidated balance sheet was derived from the Corporation’s December 31, 2004 audited consolidated financial statements.

2. Stock-based Compensation

         At June 30, 2005, the Corporation had two stock option and appreciation rights plans. The Corporation accounts for those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. Except upon modification, no stock-based employee compensation cost is recorded for stock options as all options granted have an exercise price equal to the market value of the underlying common stock on the date of grant. If there had been any stock appreciation rights outstanding, compensation costs would have been recorded based on the quoted market price of the Corporation’s stock at the end of the period.

         The following table illustrates the effect on net income and earnings per share of applying the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 “Accounting for Stock Based Compensation” to stock-based employee compensation.

5

	Six Months Ended
	6/30/05			6/30/04
	(in thousands)
Net income, as reported	$	6,009		$	6,036
Deduct: Total cost of stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects		(906	)		(182	)
Pro forma net income	$	5,103		$	5,854
Earnings per share:
Basic - as reported	$	1.52		$	1.47
Basic - pro forma	$	1.30		$	1.43
Diluted - as reported	$	1.50		$	1.44
Diluted - pro forma	$	1.28		$	1.40
	Three Months Ended
	6/30/05			6/30/04
	(in thousands)
Net income, as reported	$	2,967		$	3,062
Deduct: Total cost of stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects		(147	)		(96	)
Pro forma net income	$	2,820		$	2,966
Earnings per share:
Basic - as reported	$	0.75		$	0.74
Basic - pro forma	$	0.72		$	0.72
Diluted - as reported	$	0.74		$	0.73
Diluted - pro forma	$	0.71		$	0.71

         When comparing the six months ended June 30, 2005 to the same period last year, the increase in pro forma stock-based compensation expense is primarily attributable to the fact that the options granted in January 2005 have a 90 day vesting period rather than the three year vesting period that has been used for stock options granted in the recent past and the vesting of a number of outstanding stock options was accelerated in January and February 2005 (for more information on the acceleration of vesting of outstanding stock options see Note J to the Corporation’s 2004 Consolidated Financial Statements). The 90 day vesting period for the options granted Janaury 2005 is also the primary reason for the increase in stock based compensation expense noted when comparing the quarter ended June 30, 2005 to the same period last year.

3. Earnings Per Share

         Options to purchase 32,354 and 55,282 shares of common stock at $47.89 and $45.53 per share, respectively, were outstanding at June 30, 2005 and for the quarterly period then ended but were not included in the computation of diluted earnings per share for the second quarter of 2005 because the exercise price of these options was greater than the average market price of the common shares. These antidilutive options were issued on

6

January 20, 2004 and January 18, 2005, respectively, and expire ten years from their date of grant. Options to purchase 33,165 shares of common stock at $47.89 per share were outstanding at June 30, 2004 and for the quarterly period then ended but were not included in the computation of diluted earnings per share for the second quarter of 2004 because the exercise price of these options was greater than the average market price of the common shares. These antidilutive options were issued on January 20, 2004 and expire ten years from their date of grant.

4. Sale of Held-To-Maturity Security

         In the second quarter of 2005, the Bank sold a held-to-maturity corporate bond based on a downgrade of the security’s credit rating from AA₂ to A₂ over a two month time period. The bond had a stated maturity of October 9, 2026 and could be put back to the issuer at par on October 9, 2006. In light of the long-term nature of this bond, management deemed the downgrade to be a significant deterioration in the issuer’s creditworthiness. The bond had carrying value of $996,000 at the time of sale and the Corporation realized a gain upon sale of $157,000.

5. Stockholders’ Equity

         The line captioned repurchase and retirement of common stock in the Consolidated Statement of Changes in Stockholders’ Equity includes shares of common stock tendered upon the exercise of stock options. For the six months ended June 30, 2005, 12,801 shares of common stock with a value of $577,000 were tendered and for the same period in 2004, 5,860 shares with a value of $288,000 were tendered.

6. Defined Benefit Pension Plan

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

	Six Months Ended June 30,						Three Months Ended June 30,
	2005			2004			2005			2004
	(in thousands)
Service cost, net of plan participant contributions	$	381		$	336		$	191		$	168
Interest cost		345			314			172			157
Expected return on plan assets		(420	)		(352	)		(210	)		(176	)
Net amortization and deferral		39			36			19			18
Net pension cost	$	345		$	334		$	172		$	167

         The Bank makes cash contributions to the pension plan (the “Plan”) which comply with the funding requirements of applicable Federal laws and regulations. For funding purposes, the laws and regulations set forth both minimum required and maximum tax deductible contributions. The Bank’s cash contributions are usually made once a year just prior to the Plan’s year end of September 30. The Bank currently expects to contribute $1,283,522 to the Pension Plan on or before September 30, 2005, representing the maximum tax deductible contribution for the Plan year then ended. In September 2004, the Bank contributed $1,182,755 to the Pension Plan representing the maximum tax deductible contribution for the Plan year ended September 30, 2004.

7

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

          The following is management’s discussion and analysis of certain significant factors that have affected the Corporation’s financial condition and operating results during the periods included in the accompanying consolidated financial statements, and should be read in conjunction with such financial statements. The Corporation’s financial condition and operating results principally reflect those of its wholly-owned subsidiary, The First National Bank of Long Island, and the Bank’s wholly-owned subsidiaries, The First of Long Island Agency, Inc. and FNY Service Corp., an investment company, and FNY Service Corp.’s wholly-owned subsidiary, The First of Long Island REIT, Inc. The consolidated entity is referred to as the “Corporation” and the Bank and its direct and indirect subsidiaries are collectively referred to as the “Bank.” The Bank’s primary service area has historically been Nassau and Suffolk Counties, Long Island. However, the Bank opened three new commercial banking branches in Manhattan in the second quarter of 2003 and may open additional Manhattan branches in the future.

Overview

         For the first six months of 2005 the Corporation earned $1.50 per share, an increase of 4% over the $1.44 earned for the same period last year. For the second quarter of 2005, the Corporation earned $.74 per share versus $.73 for the same quarter last year.

         During the twelve months ended June 30, 2005, the Corporation experienced a good degree of success with its share repurchase program in that it was able to purchase 209,879 shares, representing approximately 5% of the total shares outstanding at the beginning of the period. Although the amount expended for these share repurchases reduced the funds available for investments and loans, the repurchases are estimated to have contributed five cents to the earnings per share growth when comparing the first six months of 2005 to the same period last year.

         Thus far this year earnings have been positively impacted by loan growth, particularly in commercial mortgages and home equity loans, and continued but modest growth in checking balances. Commercial mortgage balances grew by 10.3% during the first six months of 2005, while home equity products grew by 15.2%. The Bank attributes the loan growth to the relatively low interest rate environment, carefully designed calling programs, more assertive direct advertising, and a change in lending philosophy. In a measured and disciplined manner, management is working to increase the Bank’s loan to deposit ratio and thereby enhance its earnings prospects. Credit quality remains excellent.

         Despite the growth in loans and deposits, the Corporation’s earnings continue to be challenged by the interest rate environment. While short-term interest rates have increased by 225 basis points over the last twelve months, intermediate-term interest rates have remained relatively stable and longer-term interest rates have actually declined. This flattening of the yield curve caused the Corporation’s cost of deposits to increase while at the same time provided limited opportunity to reinvest cash flows from intermediate and longer-term loans and securities at similar or higher rates. Along with the challenging interest rate environment, competition in the Bank’s market area has increased, and alternatives to bank deposit products have become more attractive.

8

         Earnings for the six and three month periods ended June 30, 2005 were also impacted by the second quarter severance payment of $575,000 to the Corporation’s former Chairman. The impact of this payment was largely offset by a real estate tax recovery of $333,000, most of which was recorded in the first quarter, and the second quarter termination of a retiree insurance benefit resulting in the reversal of a $193,000 liability. In addition, second quarter earnings were helped by net gains on sales of securities of $153,000.

         The Corporation continues to explore potential new branch locations and product offerings and is scheduled to open a full service branch in Merrick, New York later this year.

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.

	Six Months Ended June 30,
	2005								2004
	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
	(dollars in thousands)
Assets
Federal funds sold	$	17,235		$	231		2.70	%	$	26,651		$	128		0.97	%
Investment Securities:
Taxable		388,738			6,564		3.41			372,183			6,630		3.58
Nontaxable (1)		157,043			4,948		6.30			151,950			4,848		6.38
Loans (1)		350,189			10,239		5.90			328,762			9,181		5.62
Total interest-earning assets		913,205			21,982		4.85			879,546			20,787		4.75
Allowance for loan losses		(2,945	)							(2,552	)
Net interest-earning assets		910,260								876,994
Cash and due from banks		34,101								35,898
Premises and equipment, net		6,597								6,567
Other assets		14,763								6,580
	$	965,721							$	926,039
Liabilities and
Stockholders’ Equity
Savings and money market deposits	$	432,264			1,581		.74		$	448,808			1,403		.63
Time deposits		60,652			622		2.07			38,926			206		1.06
Securities sold under
repurchase agreements		69,618			901		2.61			43,094			194		.91
Total interest-bearing liabilities		562,534			3,104		1.11			530,828			1,803		.68
Checking deposits (2)		309,375								299,438
Other liabilities		3,825								4,814
		875,734								835,080
Stockholders’ equity		89,987								90,959
	$	965,721							$	926,039
Net interest income (1)				$	18,878							$	18,984
Net interest spread (1)							3.74	%							4.07	%
Net interest margin (1)							4.17	%							4.34	%

⁽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

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same after-tax income. The tax-equivalent amount of $1.00 of nontaxable income was $1.52 in each period presented, based on a Federal income tax rate of 34%.

⁽²⁾ Includes official check and treasury tax and loan balances.

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

	Six Months Ended June 30, 2005 Versus 2004
	Increase (decrease) due to changes in:
	Volume			Rate			Rate/ Volume(2)			Net Change
	(in thousands)
Interest Income:
Federal funds sold	$	(45	)	$	230		$	(82	)	$	103
Investment securities:
Taxable		276			(327	)		(15	)		(66	)
Nontaxable (1)		162			(60	)		(2	)		100
Loans (1)		572			457			29			1,058
Total interest income		965			300			(70	)		1,195
Interest Expense:
Savings and money market deposits		(56	)		242			(8	)		178
Time deposits		114			194			108			416
Securities sold under repurchase agreements		118			364			225			707
Total interest expense		176			800			325			1,301
Increase (decrease) in net
interest income	$	789		$	(500	)	$	(395	)	$	(106	)

⁽¹⁾ Tax-equivalent basis.

⁽²⁾ Represents the change not solely attributable to change in rate or change in volume but a combination of these two factors. The rate/volume variance could be allocated between the volume and rate variances shown in the table based on the absolute value of each to the total for both.

         Net interest income on a tax-equivalent basis decreased by $106,000, or .6%, from $18,984,000 for the first six months of 2004 to $18,878,000 for the same period this year. As can be seen from the above rate/volume analysis, the decrease is comprised of negative rate and rate/volume variances of $500,000 and $395,000, respectively, as partially offset by a positive volume variance of $789,000.

         Volume Variance.When comparing the first half of 2005 to the same period last year, the Bank experienced an increase of approximately $9.9 million, or 3.3%, in the average balance of checking deposits, approximately half of which is attributable to two of the three Manhattan branches opened in the middle of 2003. Checking growth, along with a portion of the growth in time deposit accounts, was used to fund loan growth. Although checking deposit growth contributed to the positive volume variance shown in the table above, the contribution was more modest than in recent prior years when checking growth was consistently higher. When comparing the first six months of 2004, 2003, and 2002 to the comparable periods of the prior years, average checking balances grew by 14.4%, 13.6%, and 20.1%, respectively. The recent increase in short-term interest rates may cause depositors to keep smaller balances in noninterest-bearing checking accounts and thereby put pressure on the Bank’s ability to continue to grow these balances, particularly at a rate similar to that experienced in recent prior years. In addition, increased competition in the Bank’s market area may have a similar impact.

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         Also contributing to the positive volume variance was a deliberate move by management to reduce the Bank’s overnight federal funds sold position with an offsetting increase in higher yielding securities and loans. The Bank’s average federal funds sold position declined by $9.4 million from $26.6 million for the first half of 2004 to $17.2 million for the same six month period this year.

         The Bank’s purchase of $7.5 million of bank owned life insurance in the fourth quarter of 2004 caused the positive volume variance for the first half of 2005 to be lower than it otherwise would have been. This purchase caused a reduction in net interest income with a more than offsetting increase in noninterest income.

         The loan growth experienced by the Bank when comparing the first half of 2005 to the same period last year occurred primarily in residential and commercial mortgages and home equity products. On a combined basis, the average balance of residential mortgages and home equity products grew by 8.1% and commercial mortgages grew by 9.2%. The residential mortgage growth resulted primarily from growth that occurred during the second and third quarters of 2004. Residential mortgage balances were then relatively flat during the fourth quarter of 2004 and thus far this year largely as a result of a reduction in mortgage refinance activity. The growth in home equity products was primarily attributable to the promotion of fixed rate, amortizing home equity loans with terms of between five and twelve years. The commercial mortgage growth occurred principally because of one large loan made during the third quarter of 2004 along with continued growth during the first half of 2005. The 2005 growth is attributable to, among other things, carefully designed calling programs and a change in lending philosophy.

         Rate Variance. Short-term interest rates increased during the latter half of 2004 and the first half of 2005 as evidenced by a 225 basis point (2.25%) increase in the federal funds target rate. The Bank’s prime lending rate also increased by 225 basis points during the same time period. As a result, the Bank’s earnings on its federal funds sold position increased as did its earnings on those interest-earning assets that reprice with changes in short-term interest rates or the Bank’s prime lending rate. In addition, the Bank’s earnings also increased to the extent that it was able to reinvest cash flows from short-term securities in higher yielding securities of similar duration. In addition to federal funds sold, the Bank’s interest-earning assets that reprice with changes in short-term interest rates or the Bank’s prime lending rate include a majority of its commercial loans, home equity lines, and certain adjustable rate commercial and residential mortgages.

         The increase in short-term interest rates not only caused earnings on certain of the Bank’s interest-earning assets to increase, but also drove up the Bank’s cost of deposits and borrowings. The negative rate variance shown in the preceding table was largely caused by the fact that the amount of deposits and borrowings impacted by the change in short-term interest rates was greater than the amount of interest-earning assets so impacted. Also adding to the negative rate variance is a securities portfolio that is currently shorter in duration than the portfolio held at the same time last year.

         Management is currently employing a variety of strategies to minimize the impact of increases in interest rates on the Bank’s cost of deposits while at the same time allowing the Bank to remain competitive. With respect to the shorter duration securities portfolio, management deliberately moved in this direction during the latter half of 2004 to better position the Bank for an increase in intermediate and longer-term interest rates. However, intermediate-term interest rates have not increased over the last year and long-

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term interest rates have actually declined. Because management currently believes that these rates will not improve significantly in the near term and may even decline, management has been purchasing intermediate rather than short-term securities as a means of improving the overall yield of the existing portfolio and protecting the Bank against a decline in rates. Whether or not management will continue in this direction will be based on, among other things, management’s ongoing view as to how much and when intermediate and longer-term interest rates will change.

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 Reserve Committee, which is chaired by the Senior Lending 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 officer. In addition, and in consultation with the Bank’s Chief Financial Officer, the Reserve Committee is responsible for implementing and maintaining policies and procedures surrounding the calculation of the required allowance. The Bank’s allowance for loan losses is subject to periodic examination by the Office of the Comptroller of the Currency, the Bank’s primary federal banking regulator, whose safety and soundness examination includes a determination as to its adequacy to absorb probable 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. In doing so, subjective judgments need to be made regarding whether or not it is probable that a borrower will be unable to pay all principal and interest due according to contractual terms. Once a loan is identified as being impaired, management uses the fair value of the underlying collateral and/or the discounted value of expected future cash flows to determine the amount of the impairment loss, if any, that needs to be included in the overall allowance for loan losses. In estimating the fair value of real estate collateral management utilizes appraisals and also makes qualitative judgments based on its knowledge of the local real estate market, analyses of current economic conditions, and expectations with regard to conditions that may prevail in the future. 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. Statistical information regarding the Bank’s historical loss experience over a period of time is the starting point in making such estimates. However,

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future losses could vary significantly from those experienced in the past and accordingly management periodically 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, national and local economic conditions, environmental risks, trends in volume and terms of loans, concentrations of credit, changes in lending policies and procedures, and experience, ability, and depth of the Bank’s lending staff. Because of the nature of the factors and the difficulty in assessing their impact, management’s resulting estimate of losses may not accurately reflect actual losses in the portfolio.

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

Asset Quality

         The Corporation has identified certain assets as risk elements. These assets include nonaccruing loans, foreclosed real estate, 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. The Corporation’s risk elements at June 30, 2005 and December 31, 2004 are as follows:

	June 30, 2005			December 31, 2004
	(dollars in thousands)
Nonaccruing loans	$	180		$	—
Loans past due 90 days or more as to
principal or interest payments and still accruing		—			18
Foreclosed real estate		—			—
Total nonperforming assets		180			18
Troubled debt restructurings		—			—
Total risk elements	$	180		$	18
Nonaccruing loans as a percentage of total loans		.05	%		.00	%
Nonperforming assets as a percentage of total loans
and foreclosed real estate		.05	%		.01	%
Risk elements as a percentage of total loans and
foreclosed real estate		.05	%		.01	%

Allowance and Provision For Loan Losses

         The allowance for loan losses grew by $320,000 during the first six months of 2005, amounting to $3,128,000 at June 30, 2005, or .9% of total loans, as compared to $2,808,000 at December 31, 2004, or .8% of total loans. During the first six months of 2005, the Bank had loan chargeoffs and recoveries of $22,000 and $16,000, respectively, and recorded a $326,000 provision for loan losses. The provision for loan losses increased by $126,000 when compared to the same period last year primarily because of an increase in estimated impairment losses on certain pools of loans. Management increased its estimate of such losses after considering, among other things, recent trends in the volume and terms of loans, changes in lending policies and procedures, and national and local economic conditions.

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         The allowance for loan losses is an amount that management currently believes will be adequate to absorb probable losses inherent in the Bank’s loan portfolio. In determining the allowance for loan losses, there is not an exact amount but rather a range for what constitutes an appropriate allowance. 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 these estimates.

         The amount of future chargeoffs and provisions for loan losses will be affected by, among other things, economic conditions on Long Island. Such conditions could affect the financial strength of the Bank’s borrowers and do affect the value of real estate collateral securing the Bank’s mortgage loans. Loans secured by real estate represent approximately 85% of the Bank’s total loans outstanding at June 30, 2005. Most of these loans were made to borrowers domiciled on Long Island and are secured by Long Island properties. In recent years, economic conditions on Long Island have been good and residential real estate values have grown to unprecedented highs. Such conditions and values could deteriorate in the future, and such deterioration could be substantial. If this were to occur, some of the Bank’s borrowers may be unable to make the required contractual payments on their loans, and the Bank may be unable to realize the full carrying value of such loans through foreclosure. However, management believes that the Bank’s underwriting policies are relatively conservative and, as a result, the Bank should be less affected than the overall market.

         Future provisions and chargeoffs could also be affected by environmental impairment of properties securing the Bank’s mortgage loans. Environmental audits for commercial mortgages were instituted by the Bank in 1987. Under the Bank’s current policy, an environmental audit is required on practically all commercial-type properties that are considered for a mortgage loan. At the present time, the Bank is not aware of any existing loans in the portfolio where there is environmental pollution originating on the mortgaged properties that would materially affect the value of the portfolio.

Noninterest Income, Noninterest Expense, and Income Taxes

         Noninterest income includes service charges on deposit accounts, Investment Management Division income, gains or losses on sales of securities, and all other items of income, other than interest, resulting from the business activities of the Corporation. Excluding net gains and losses on sales of securities, noninterest income increased by $464,000, or 15.3%, when comparing the first six months of 2005 to the same period last year. The increase is comprised of an increase in Investment Management Division income of $168,000 and an increase in other income of $477,000, as offset by a decrease in service charge income of $181,000. The increase in Investment Management Division income is attributable to a change in the mix of business from nonmanaged to managed assets and the first quarter receipt of a final executor’s commission of $72,000 on one estate. The increase in other income is primarily due to a $333,000 recovery of real estate taxes previously paid and a $144,000 increase in the cash surrender value of bank owned life insurance. Service charge income decreased primarily as a result of a reduction in return check charges and maintenance and activity charges.

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

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business activities of the Corporation. Noninterest expense increased by $742,000, or 6.1%, from $12,140,000 for the first six months of 2004 to $12,882,000 for the current six-month period. The increase is primarily comprised of an increase in salaries of $803,000, or 15.1%, and an increase in occupancy and equipment expense of $130,000, or 7.2%, as offset by a decrease in employee benefits expense of $177,000, or 7.3%. The increase in salaries is primarily attributable to normal annual salary increases and $575,000 in severance paid during the second quarter to the Corporation’s former Chairman. The increase in occupancy and equipment expense is largely attributable to increases in expenses of maintenance and repairs, rent, and equipment service contracts. The decrease in employee benefits expense is largely attributable to the second quarter termination of a retiree insurance benefit and the resulting reversal of a $193,000 liability.

         Income tax expense as a percentage of book income (“effective tax rate”) was 19.6% for the first six months of 2005 as compared to 25.7% for the same period last year. The benefit of tax-exempt interest on municipal securities results in an effective tax rate that is considerably lower than the statutory Federal income tax rate of 34% despite state income taxes. The reduction in the effective tax rate is primarily attributable to tax planning strategies and a reduction of taxes accrued with respect to the Bank’s investment subsidiary.

Results of Operations – Three Months Ended June 30, 2005 Versus June 30, 2004

         Net income for the second quarter of 2005 was $2,967,000, or $.74 per share, as compared to $3,062,000, or $.73 per share, for the same quarter last year. The largest components of the decrease in net income are an increase in salaries of $706,000, as offset by a decrease in employee benefits expense of $246,000, net gains on sales of securities of $153,000, an increase in other noninterest income of $125,000 and a decrease in the Corporation’s effective tax rate from 25.8% in the second quarter of 2004 to 19.7% for the current quarter. In addition, for the second quarter of 2005 the provision for loan losses increased by $76,000, service charges on deposit accounts decreased by $98,000, and occupancy and equipment expense increased by $106,000.

         The increase in salaries is attributable to the $575,000 in severance paid to the Corporation’s former Chairman and normal annual salary increases. The decrease in employee benefits is primarily due to the termination of the retiree insurance benefit. The net gains on sales of securities resulted mostly from the sale of a held-to-maturity security following a downgrade of the security’s credit rating. The increase in other noninterest income is mostly attributable to an increase of $79,000 in the cash surrender value of bank owned life insurance and a real estate tax refund of $50,000 more than that previously accrued.

         The reasons for the increases in the provision for loan losses and occupancy and equipment expense and the decrease in service charges on deposit accounts are the same as those discussed with respect to the six-month periods.

Capital

         The Corporation’s capital management policy is designed to build and maintain capital levels that exceed regulatory standards. Under current regulatory capital standards, banks are classified as well capitalized, adequately capitalized or undercapitalized. Under such standards, a well capitalized bank is one that has a total risk-based capital ratio equal to or greater than 10%, a Tier 1 risk-based capital ratio equal to or greater than 6%, and a Tier 1 leverage capital ratio equal to or greater than 5%. The Corporation’s total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage capital ratios of 25.52%,

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24.66% and 9.07%, respectively, at June 30, 2005 substantially exceed the requirements for a well-capitalized bank.

         Total stockholders’ equity increased by $1,074,000, or from $90,240,000 at December 31, 2004 to $91,314,000 at June 30, 2005. The increase is primarily attributable to net income of $6,009,000 and proceeds from the exercise of stock options of $1,068,000, as largely offset by $3,782,000 spent for share repurchases and $1,631,000 in cash dividends declared.

         Stock Repurchase Program and Market Liquidity. Since 1988, the Corporation has had a stock repurchase program under which it has purchased, from time to time, shares of its own common stock in market or private transactions. The Corporation’s market transactions are intended to comply with the manner, timing, price and volume conditions set forth in SEC Rule 10b-18 and therefore, with respect to such transactions, provide the Corporation with safe harbor from liability for market manipulation under section 9(a)(2) and Rule 10b-5 of the Securities Exchange Act of 1934.

         The stock repurchase program has historically enhanced earnings per share and return on average stockholders’ equity. Without the share repurchase program, the increase in earnings per share for the first six months of 2005 would have been approximately five cents lower. In estimating the impact on earnings per share, management considered the volume and timing of shares purchased in 2004 and thus far in 2005, the price paid per share, and the earnings loss resulting from using funds to purchase shares rather than investment securities.

         The Corporation periodically reevaluates whether it wants to continue purchasing shares of its own common stock in open market transactions under Rule 10b-18 or otherwise. Because the trading volume in the Corporation’s common stock is limited, the Corporation believes that a reduction or discontinuance of its share repurchase program could adversely impact market liquidity for its common stock, the price of its common stock, or both. The publicly reported trading volume in the Corporation’s common stock for the year ended June 30, 2005 was 1,988,127 shares, 6% of which resulted from open market purchases by the Corporation under its share repurchase program.

         Russell 3000®, 2000® and Microcap Indices®.Frank Russell Company (“Russell”) currently maintains 24 U.S. common stock indices. The indices are reconstituted effective the last Friday in June of each year using objective criteria, primarily market capitalization, and do not reflect subjective opinions. All Indices are subsets of the Russell 3000® Index which represents most of the investable U. S. equity market.

         Effective June 24, 2005, the Corporation’s common stock was no longer included in the Russell 3000® and 2000® Indices but was selected for inclusion in the newly-created Russell Microcap Index®. The Russell Microcap Index® includes the smallest 1,000 companies in terms of market capitalization in the small-cap Russell 2000 Index plus the next 1,000 companies. As of the June 24, 2005 reconstitution, the average market capitalization of companies in the Russell Microcap Index® was approximately $217 million, the median market capitalization was approximately $182.6 million, the capitalization of the largest company in the index was approximately $539.5 million, and the capitalization of the smallest company in the index was approximately $54.8 million. The Corporation’s market capitalization as of June 30, 2005 was approximately $164 million.

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         As with its former inclusion in the Russell 3000® and 2000® Indices, the Corporation believes that inclusion in the Russell Microcap Index® will positively impact 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 Russell Microcap Index® at any future annual reconstitution date, the Corporation believes that this could adversely affect the price, volume and liquidity of its common stock.

Cash Flows and Liquidity

         Cash Flows. The Corporation’s primary sources of cash are deposit growth, maturities and amortization of loans and investment securities, operations, and borrowing. The Corporation uses cash from these and other sources to first fund loan growth. Any remaining cash is used primarily to purchase a combination of short, intermediate, and longer-term investment securities, pay cash dividends, and repurchase common stock under the Corporation’s share repurchase program. During the first six month of 2005, the Corporation’s cash and cash equivalent position increased by $13,571,000. The increase occurred primarily because cash provided by deposit growth and additional borrowings under repurchase agreements exceeded the cash needed to grow loans and used to increase the size of the Bank’s investment securities portfolio.

         Liquidity. The Corporation has both internal and external sources of near-term liquidity that can be used to fund loan growth and accommodate deposit outflows. The primary internal sources of liquidity are its overnight position in federal funds sold; its short-term investment securities portfolio which generally consists of securities purchased to mature within two years and securities with average lives of approximately two years; maturities and monthly payments on the balance of the investment securities portfolio and the loan portfolio; and intermediate and longer-term investment securities designated as available-for-sale. At June 30, 2005, the Corporation had an overnight federal funds sold position of $9,000,000, a short-term securities portfolio not subject to pledge agreements of $160,683,000, and intermediate and longer-term available-for-sale securities not subject to pledge agreements of $98,179,000. While maturities of shorter-term securities in the Corporation’s portfolio provide a significant source of near term liquidity, the intermediate and longer-term securities provide higher current returns and their maturities will provide a significant source of liquidity in the future.

         The Corporation’s primary external sources of liquidity are customer deposits and borrowings from brokerage firms, the Federal Home Loan Bank of New York (“FHLB”), and other commercial banks. The Bank’s deposit base primarily consists of core deposits from businesses and consumers in its local market area and does not include any brokered deposits. The Bank has the ability to borrow on a secured basis from the FHLB under a variety of borrowing arrangements and from brokerage firms under repurchase agreements. Although the Bank is currently a member of the FHLB and has repurchase agreements in place with five brokerage firms, the membership and agreements do not represent legal commitments on the part of the FHLB or the brokerage firms to extend credit to the Bank. The amount that the Bank can potentially borrow from the FHLB and brokerage firms is believed to be well in excess of $100 million and depends on, among other things, the amount and quality of the Bank’s eligible collateral and the financial condition of the Bank.

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         The Bank can also borrow overnight federal funds on an unsecured basis under lines with two other commercial banks. These lines in the aggregate amount of $30 million do not represent legal commitments to extend credit on the part of the other banks.

         As a backup to borrowing from the FHLB, brokerage firms and other commercial banks, the Bank is eligible to borrow on a secured basis at the Federal Reserve Bank (“FRB”) discount window under the primary credit program. Primary credit, which is normally extended on a very short-term basis, typically overnight, at a rate 100 basis points above the federal funds target rate, is viewed by the FRB as a backup source of short-term funds for sound depository institutions like the Bank. The amount that the Bank can borrow under the primary credit program depends on, among other things, the amount of available eligible collateral.

Legislation

         Commercial checking deposits currently account for approximately 28% of the Bank’s total deposits. Congress is considering legislation that would allow corporate customers to cover checks by sweeping funds from interest-bearing deposit accounts each business day and repeal the prohibition of the payment of interest on corporate checking deposits in the future. Although management currently believes that the Bank’s earnings could be more severely impacted by permitting the payment of interest on corporate checking deposits than the daily sweeping of funds from interest-bearing accounts to cover checks, either could have a material adverse impact on the Bank’s future results of operations.

Adoption of New Accounting Pronouncements

         In December 2004, the Financial Accounting Standards Board issued a revised Statement of Financial Accounting Standards No. 123 “Share Based Payments” (“SFAS No. 123”). SFAS No. 123 applies to awards granted or modified on or after the beginning of the first interim or annual period that begins after June 15, 2005. However, in April 2005 the Securities and Exchange Commission announced the adoption of a new rule that allows calendar year companies to implement SFAS No. 123 at the beginning of the first fiscal year rather than the first interim period beginning after June 15, 2005. Therefore the revised compliance date for calendar year companies like the Corporation is January 1, 2006 (the “Compliance Date”). The Corporation currently intends to adopt SFAS No. 123 on the Compliance Date.

         SFAS No. 123 requires all public companies to record compensation cost for stock options provided to employees in return for employee service. The cost is measured at the fair value of the options when granted, and the cost is expensed over the employee service period, which is normally the vesting period of the options. Compensation cost also needs to be recorded for prior option grants that vest after the Compliance Date. The effect on results of operations for options granted after the Compliance Date will depend on the number of options granted, the calculated fair value of such options, and the applicable vesting periods, and accordingly cannot currently be predicted with any degree of certainty. Existing options that will vest after the Compliance Date are expected to result in additional compensation expense of approximately $40,000 in 2006 and $2,000 in 2007. There will be no significant effect on financial position since total equity will not change.

         In March 2005, the Financial Accounting Standards Board issued FASB Interpretation No. 47 “Accounting for Conditional Asset Retirement Obligations” as an interpretation of Statement of Financial Accounting Standards No. 143 “Accounting for

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Asset Retirement Obligations” (“SFAS No. 143”). This Interpretation, which serves to clarify the term conditional asset retirement obligation as used in SFAS No. 143, is not expected to materially impact the Corporation’s financial statements.

         In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 154 “Accounting Changes and Error Corrections” as a replacement of APB Opinion No. 20 and FASB Statement No. 3. This Statement applies to all voluntary changes in accounting principle and changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. This Statement carries forward without change the guidance contained in APB Opinion No. 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate. This Statement also carries forward the guidance in APB Opinion No. 20 requiring justification of a change in accounting principle on the basis of preferability. This Statement shall be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Corporation is not currently aware of any accounting changes or errors to which the provisions of this Statement will apply.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Bank invests in interest-earning assets which are funded by interest-bearing deposits and borrowings, noninterest-bearing deposits, and capital. The Bank’s results of operations are subject to risk resulting from interest rate fluctuations generally and having assets and liabilities that have different maturity, repricing, and prepayment/withdrawal characteristics. The Bank defines interest rate risk as the risk that the Bank’s earnings and/or net portfolio value (present value of expected future cash flows from assets less the present value of expected future cash flows from liabilities) will change when interest rates change. The principal objective of the Bank’s asset/liability management activities is to maximize net interest income while at the same time maintaining acceptable levels of interest rate and liquidity risk and facilitating the funding needs of the Bank.

          Because the Bank’s loans and investment securities generally reprice slower than its interest-bearing deposit accounts, an immediate increase in interest rates uniformly across the yield curve should initially have a negative effect on net interest income. However, if the Bank does not increase the rates paid on its deposit accounts as quickly or in the same amount as market increases in the overnight federal funds rate, the prime lending rate, and other short-term market rates, the magnitude of the negative impact will decline. If the Bank does not increase its deposit rates at all, the impact should be positive. Over a longer period of time, and assuming that interest rates remain stable after the initial rate increase and the Bank purchases securities and originates loans at yields higher than those maturing and reprices loans at higher yields, the impact of an increase in interest rates should be positive. This occurs primarily because with the passage of time more loans and investment securities will reprice at the higher rates and there will be no offsetting increase in interest expense for those loans and investment securities funded by noninterest-bearing checking deposits and capital.

         Conversely, a decrease in interest rates uniformly across the yield curve should initially have a positive impact on the Bank’s net interest income. However, if the Bank does not or cannot decrease the rates paid on its deposit accounts as quickly or in the same amount as market decreases in the overnight federal funds rate or the prime lending

19

rate, the magnitude of the positive impact will decline. If the Bank does not decrease its deposit rates at all, the impact should be negative.

         If interest rates decline, or have declined, and are sustained at the lower levels and, as a result, the Bank purchases securities at lower yields and loans are originated or repriced at lower yields, the impact on net interest income should be negative because 38% of the Bank’s average interest-earning assets are funded by noninterest-bearing checking deposits and capital.

         The Bank monitors and controls interest rate risk through a variety of techniques including the use of interest rate sensitivity models and traditional interest rate sensitivity gap analysis. Through use of the models, the Bank projects future net interest income and then estimates the effect on projected net interest income of various changes in interest rates and balance sheet growth rates. The Bank also uses the models to calculate the change in net portfolio value over a range of interest rate change scenarios.

         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.

         Both interest rate sensitivity modeling and gap analysis involve a variety of significant estimates and assumptions and are done at a specific point in time. Interest rate sensitivity modeling requires, among other things, estimates of: (1) how much and when yields and costs on individual categories of interest-earning assets and interest-bearing liabilities will adjust because of projected changes in market interest rates; (2) future cash flows; and (3) discount rates.

         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. Like sensitivity modeling, 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.

         Changes in the estimates and assumptions made for interest rate sensitivity modeling and gap analysis 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 net portfolio value.

         The table that follows is provided pursuant to the market risk disclosure rules set forth in Item 305 of Regulation S-K of the Securities and Exchange Commission. The information provided in the following table is based on significant estimates and assumptions and constitutes, like certain other statements included herein, a forward-looking statement. The base case information in the table shows (1) an estimate of the Corporation’s net portfolio value at June 30, 2005 arrived at by discounting estimated future cash flows at current market rates and (2) an estimate of net interest income for the year ending June 30, 2006 assuming that maturing assets or liabilities are replaced with new balances of the same type, in the same amount, and at current rate levels and repricing balances are adjusted to current rate levels. For purposes of both the base case and the indicated rate change scenarios, checking deposits are included in the calculation of net portfolio value at their carrying amount. The rate change information in the table shows estimates of net portfolio value at June 30, 2005 and net interest income for the year ending June 30, 2006 assuming rate changes of plus 100 and 200 basis points and

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minus 100 and 200 basis points. The changes in net portfolio value from the base case have not been tax affected. In addition, rate changes are assumed to be shock or immediate changes and occur uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. In projecting future net interest income under the indicated rate change scenarios, activity is simulated by replacing maturing balances with new balances of the same type, in the same amount, but at the assumed rate level and adjusting repricing balances to the assumed rate level.

         Based on the foregoing assumptions and as depicted in the table that follows, an immediate increase in interest rates of 100 or 200 basis points would have a negative effect on net interest income over a one-year time period. This is principally because the Bank’s interest-bearing deposit accounts reprice faster than its loans and investment securities. However, if the Bank does not increase the rates paid on its deposit accounts as quickly or in the same amount as market increases in the overnight federal funds rate or the prime lending rate, the magnitude of the negative impact will decline. If the Bank does not increase its deposit rates at all, the impact should be positive. Over a longer period of time, and assuming that interest rates remain stable after the initial rate increase and the Bank purchases securities and originates loans at yields higher than those maturing and reprices loans at higher yields, the impact of an increase in interest rates should be positive. This occurs primarily because with the passage of time more loans and investment securities will reprice at the higher rates and there will be no offsetting increase in interest expense for those loans and investment securities funded by noninterest-bearing checking deposits and capital. Generally, the reverse should be true of an immediate decrease in interest rates of 100 or 200 basis points. However, deposit rates are currently very low as indicated by the Bank’s overall cost of funds of 111 basis points for the first six months of 2005. Therefore, while rates on many of the Bank’s interest earning assets could drop by 100 or 200 basis points, rates on many of its deposit products could not. It is for this reason that in rates down 100 and 200 basis points the projected increases in net interest income as compared to the base case is less than the projected decreases in rates up 100 and 200 basis points.

Rate Change Scenario	Net Portfolio Value (NPV) at June 30, 2005					Net Interest Income Year Ended June 30, 2006
	Amount		Percent Change From Base Case			Amount		Percent Change From Base Case
	(dollars in thousands)
+ 200 basis point rate shock	$	51,250		(44.5	)%	$	28,197		(19.7	)%
+ 100 basis point rate shock		71,275		(22.8	)		31,661		(9.9	)
Base case (no rate change)		92,302		—			35,126		—
- 100 basis point rate shock		114,378		23.9			37,110		5.7
- 200 basis point rate shock		137,806		49.3			37,240		6.0

Forward Looking Statements

         “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures About Market Risk” contain various forward-looking statements with respect to financial performance and business matters. Such statements are generally contained in sentences including the words “expect” or “could” or “should” or “would” or “believe”. The Corporation cautions that these forward-looking statements are subject to numerous assumptions, risks and

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uncertainties, and therefore actual results could differ materially from those contemplated by the forward-looking statements. In addition, the Corporation assumes no duty to update forward-looking statements.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

         The Company’s Chief Executive Officer, Michael N. Vittorio, and Chief Financial Officer, Mark D. Curtis, have evaluated the Corporation’s disclosure controls and procedures 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 in ensuring that material information related to the Corporation is made known to them by others within the Corporation.

(b) Changes in Internal Control Over Financial Reporting

         There have been no significant changes in internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

         From time to time the Corporation and the Bank may be involved in litigation that arises in the normal course of business. As of the date of this Form 10-Q, neither the Corporation nor the Bank is a party to any litigation that management believes could reasonably be expected to have a material adverse effect on the Corporation’s or the Bank’s financial position or results of operations for an annual period.

Item 2. Issuer Purchase of Equity Securities

         Since 1988, the Corporation has had a stock repurchase program under which it is authorized to purchase, from time to time, shares of its own common stock in market or private transactions. The details of the Corporation’s purchases under the stock repurchase program during the second quarter of 2005 are set forth in the table that follows.

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)	Maximum Number of of Shares that May Yet Be Purchased Under the Plans or Programs(1)
April 1, 2005 to April 30, 2005	—			—	18,764
May 1, 2005 to May 31, 2005	10,170	$	38.35	10,170	108,594
June 1, 2005 to June 30, 2005	—			—	108,594

⁽¹⁾ The shares purchased by the Corporation under its stock repurchase program in the second quarter of 2005 were purchased under a 100,000 share plan approved by the Corporation’s board of directors on December 14, 2004 and publicly announced on December 15, 2004. The Corporation’s share repurchase plans do not have fixed expiration dates.

Item 4. Submission Of Matters To A Vote Of Security Holders

         The Annual Meeting of Stockholders of The First of Long Island Corporation (the “Corporation”) held April 19, 2005 was called to elect five directors to serve for two-year terms or until their successors have been elected and qualified.

         For the election of directors, each share is entitled to as many votes as there are directors to be elected, and such votes may be cumulated and voted for one nominee or divided among as many different nominees as is desired. If authority to vote for any nominee or nominees is withheld on any proxy, the votes are spread among the remaining nominees. The following table lists the Class I directors elected at the annual meeting and, for each director elected, the number of votes cast for and the number of votes withheld. No other persons were nominated and no other persons received any votes.

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Directors Elected At Annual Meeting	Number of Votes
	Cast For	Withheld
Howard Thomas Hogan, Jr.	3,015,110	8,281
J. Douglas Maxwell, Jr.	3,015,785	7,606
John R. Miller III	3,015,785	7,606
Walter C. Teagle III	3,015,785	7,606
Michael N. Vittorio	3,004,661	18,730

         The name of each Class II director whose term of office as a director continued after the annual meeting is as follows:

Name	Term as Director Expires
Allen E. Busching	2006
Paul T. Canarick	2006
Alexander L. Cover	2006
Beverly Ann Gehlmeyer	2006
J. William Johnson	2006

Item 6. Exhibits and Reports on Form 8-K

         a) The following exhibits are included herein.

Exhibit No.	Name
31	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules
	13a-14 and 15d-14 of the Exchange Act)
32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18
	U.S.C. Section 1350)

         b)Reports on Form 8-K

         During the quarter ended June 30, 2005 (and thereafter to the date hereof) the Corporation filed the following reports on Form 8-K with the Securities and Exchange Commission:

1) The Corporation filed a Form 8-K dated May 3, 2005 to report that it had: (1) issued a press release disclosing material non-public information regarding the Corporation’s financial condition as of March 31, 2005 and results of operations for the three month period then ended, and (2) mailed a quarterly report to shareholders disclosing substantially similar non-public information regarding the Corporation’s financial condition and results of operations. The press release was furnished as Exhibit 99.1 to the Form 8-K filing and the quarterly report to shareholders was furnished as Exhibit 99.2 to the Form 8-K filing.

2) The Corporation filed a Form 8-K dated May 25, 2005 to report that pursuant to the terms of a severance agreement dated May 25, 2005, The First of Long Island Corporation and J. William Johnson, Chairman of the Corporation, mutually agreed to terminate the employment agreement between the Corporation and Mr. Johnson dated January 31, 1996 to allow Mr. Johnson to

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pursue other interests. The Severance Agreement was furnished as exhibit 10.1 to the Form 8-K filing.

3) The Corporation filed a Form 8-K dated July 25, 2005 to report that Stephen V. Murphy had been elected in accordance with the Corporation’s bylaws to serve as a Class II director of the Corporation until the 2006 annual meeting of stockholders and to serve as a director of the Corporation’s wholly-owned subsidiary, The First National Bank of Long Island.

4) The Corporation filed a Form 8-K dated August 3, 2005 to report that it had: (1) issued a press release disclosing material non-public information regarding the Corporation’s financial condition as of June 30, 2005 and results of operations for the six and three month periods then ended, and (2) mailed a quarterly report to shareholders disclosing substantially similar non-public information regarding the Corporation’s financial condition and results of operations. The press release was furnished as Exhibit 99.1 to the Form 8-K filing and the quarterly report to shareholders was furnished as Exhibit 99.2 to the Form 8-K filing.

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SIGNATURES

         Pursuant To The Requirements 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.

Date: July 29, 2005 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 VICE PRESIDENT & TREASURER
(principal financial and accounting officer)

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EXHIBIT INDEX

EXHIBIT	DESCRIPTION	EXHIBIT BEGINS ON PAGE NO.
31	Certification by Chief Executive Officer and	28
	Chief Financial Officer In Accordance With Section
	302 Of The Sarbanes-Oxley Act of 2002
32	Certification by Chief Executive Officer and	30
	Chief Financial Officer In Accordance With Section
	906 Of The Sarbanes-Oxley Act of 2002

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