form10k.htm

The aggregate market value of the Corporation’s voting common stock held by nonaffiliates as of June 30, 2011, the last business day of the Corporation’s most recently completed second fiscal quarter, was $220,464,314. This value was computed by reference to the price at which the stock was last sold on June 30, 2011 and excludes $23,905,160 representing the market value of common stock beneficially owned by directors and executive officers of the registrant.

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: The First of Long Island Agency, Inc. (“Agency”), a licensed insurance agency under the laws of the State of New York; and, FNY Service Corp., an investment company. The Bank and FNY Service Corp. jointly own another subsidiary, The First of Long Island REIT, Inc., a real estate investment trust.

The Bank has historically served the financial needs of privately owned businesses, professionals, consumers, public bodies and other organizations primarily in Nassau and Suffolk Counties, Long Island, New York. Additionally, the Bank has three commercial banking branches in Manhattan. The Bank’s main office is located in Glen Head, New York, and the Bank has twenty other full service offices, twelve commercial banking offices and two select service banking centers which serve the needs of both businesses and consumers. The Bank continues to evaluate potential new branch sites on Long Island and in the boroughs of New York City.

The Bank’s loan portfolio is primarily comprised of loans to borrowers on Long Island and in the boroughs of New York City, and its real estate loans are principally secured by properties located in those geographic areas. The Bank’s investment securities portfolio is primarily comprised of direct obligations of the U.S. government and its agencies 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.

·	Account Reconciliation Services	·	Lock Box Services
·	ATM Banking	·	Night Depository Services
·	Bank by Mail	·	Payroll Services
·	Bill Payment	·	Remote Deposit
·	Cash Management Services	·	Safe Deposit Boxes
·	Collection Services	·	Securities Transactions
·	Controlled Disbursement Accounts	·	Signature Guarantee Services
·	Counter Checks	·	Telephone Banking
·	Drive-Through Banking	·	Travelers Checks
·	Personal Money Orders	·	Trust and Investment Management Service
·	Online Banking	·	Wire Transfers and Foreign Cables
·	Merchant Credit Card Depository Services	·	Withholding Tax Depository Services
·	Mutual Funds, Annuities, Life Insurance and Securities

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 large regional and community banks located within the market area, as well as mortgage brokers, brokerage firms and credit unions. 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.

The Bank’s investment policy generally limits individual maturities to twenty years and average lives on collateralized mortgage obligations (“CMOs”) and other mortgage-backed securities to 10 years. At the time of purchase, bonds of states and political subdivisions must generally be rated A or better, notes of states and political subdivisions must generally be rated MIG-2 (or equivalent) or better, and commercial paper must be rated A-1 or P-1. In addition, management periodically reviews issuer credit ratings for all securities in the Bank’s portfolio other than those issued by the U.S. government. Any significant deterioration in the creditworthiness of an issuer will be analyzed and action will be taken if deemed appropriate.

At December 31, 2011, $352.7 million of the Corporation’s municipal securities were rated AA or better, $2.4 million were rated A and $1.2 million were non-rated bonds of local municipalities. The Corporation’s pass-through mortgage securities portfolio at December 31, 2011 is comprised of $69.4 million, $8.8 million and $2.4 million issued by the Government National Mortgage Association (“GNMA”), the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), respectively. Each issuer’s pass-through mortgage securities are backed by residential mortgages conforming to its underwriting guidelines and each issuer guarantees the timely payment of principal and interest on its securities. All of the Corporation’s collateralized mortgage obligations (“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 represent full faith and credit obligations of the U.S. government, while obligations of Fannie Mae, which is a corporate instrumentality of the U.S. government, and Freddie Mac, which is a U.S. government sponsored corporation, do not. Fannie Mae and Freddie Mac have been placed into conservatorship by their primary regulator, the Federal Housing Finance Agency (“FHFA”) which also acts as conservator. In conjunction with the conservatorship, the U.S. Department of the Treasury entered into Preferred Stock Purchase Agreements with Fannie Mae and Freddie Mac to ensure that each of these entities maintains positive net worth, and established new borrowing facilities for these entities intended to serve as an ultimate liquidity backstop. The Preferred Stock Purchase Agreements and borrowing facilities serve to protect the existing and future holders of Fannie Mae and Freddie Mac mortgage securities and other debt instruments.

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 policies. The loan policies allow for exceptions and set 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 and banking agency guidance issued in December 2010 and, for those loans in excess of $250,000, be reviewed by the Bank’s appraisal review staff who are independent of the loan underwriting process.

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 New York City. The Bank offers a full range of lending services including commercial and residential mortgage loans, home equity loans and lines, commercial and industrial loans, construction 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, or the Federal Home Loan Bank of New York regular fixed advance rates.

Commercial and Industrial Loans. Commercial and industrial loans include, among other things, short-term business loans; term and installment loans; revolving credit term loans; and loans secured by marketable securities, the cash surrender value of life insurance policies, deposit accounts or general business assets. 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. 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.

Real Estate Mortgage and Home Equity Loans and Lines. The Bank makes residential and commercial mortgage loans and home equity loans and establishes home equity lines of credit. Applicants for residential mortgage loans and home equity loans and 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, generally 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 thirty years. Fixed rate residential mortgage loans with terms greater than twenty years are generally not maintained in the Bank’s portfolio. Commercial mortgage loans generally reprice within five years, and home equity loans and home equity lines generally mature within ten years. Depending on the type of property, the Bank’s usual practice is to lend no more than 70% to 75% of appraised value on residential mortgage loans, 65% on home equity lines and fixed rate home equity loans, and 70% to 75% on commercial mortgage loans. The lending limitations with regard to appraised value are more stringent for loans on co-ops and condominiums.

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 one year or less and advances are made as the construction progresses. The advances can require the submission of bills 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. There were no construction loans outstanding at December 31, 2011.

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, ability to repay, stability of employment and residence, and past credit history.

The Corporation’s primary sources of cash are deposit growth, maturities and amortization of loans and investment securities, operations and borrowings. The Corporation uses cash from these and other sources to fund loan growth, purchase investment securities, repay borrowings, expand and improve its physical facilities and pay cash dividends. During 2011, the Corporation’s cash and cash equivalent position increased by $11.1 million. The increase occurred primarily because cash provided by deposit growth, borrowings and operating activities exceeded cash invested in loans and securities and used to pay cash dividends.

The Bank offers checking and interest-bearing deposit products. In addition to 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, including 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 customer service, calling programs, lending relationships, referral sources, competitive pricing and advertising to attract and retain deposits. Currently, the Bank solicits deposits only from its local market area and does not have any deposits that qualify as brokered deposits under applicable Federal regulations. The flow of deposits is influenced by general economic conditions, changes in interest rates and competition.

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 the banking laws or of the impact of such laws and regulations on the Corporation and the Bank. Changes in applicable law or regulation, and in their interpretation and application by regulatory agencies, cannot be predicted, but may have a material effect on our business and results.

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.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) made extensive changes in the regulation of depository institutions and their holding companies. Certain provisions of the Dodd-Frank Act are having an impact on the Corporation and the Bank. For example, the Dodd-Frank Act created a new Consumer Financial Protection Bureau as an independent bureau of the Federal Reserve Board. The Consumer Financial Protection Bureau has assumed responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations, a function currently assigned to principal federal banking regulators, and will have authority to impose new requirements. However, institutions of less than $10 billion in assets, such as the Bank, will 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 principal federal banking regulator, although the Consumer Financial Protection Bureau will have limited back-up authority to examine institutions with less than $10 billion in assets.

As a national bank, the Bank is subject to regulation and examination by the Office of the Comptroller of the Currency (“OCC”), as well as the Federal Deposit Insurance Corporation (“FDIC”). Insured banks, such as the Bank, are subject to extensive regulation of many aspects of their business. 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) permissible activities; (v) reserve requirements; and (vi) dealings with officers, directors and affiliates.

Bank Holding Company Regulation. The BHC Act requires the prior approval of the Federal Reserve 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 has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

Payment of Dividends. The principal source of the Corporation’s liquidity is dividends from the Bank. The 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 2012 the Bank could declare dividends of approximately $28.5 million plus any 2012 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 appropriate Federal regulatory authority 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. The appropriate Federal regulatory authorities have stated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings. In addition, in the current financial and economic environment, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong.

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 codifies 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. Our Bank is subject to similar capital requirements administered by the OCC. The Federal regulatory authorities’ risk-based capital guidelines are based upon the 1988 capital accord (“Basel I”) of the Basel Committee on Banking Supervision (“Basel Committee”). The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies they apply. The requirements are intended to ensure that banking organizations have adequate capital given the risk levels of assets and off-balance sheet financial instruments. Under the requirements, banking organizations are required to maintain minimum ratios for Tier 1 capital and total capital to risk-weighted assets (including certain off-balance sheet items, such as letters of credit). For purposes of calculating the ratios, a banking organization’s assets and some of its specified off-balance sheet commitments and obligations are assigned to various risk categories.

Like other bank holding companies, the Corporation is currently required to maintain Tier 1 capital and “Total capital” (the sum of Tier 1 and Tier 2 capital) equal to at least 4.0% and 8.0%, respectively, of total risk-weighted assets (including various off-balance-sheet items, such as letters of credit). Our Bank, like other depository institutions, is required to maintain similar capital levels under capital adequacy guidelines. In addition, for a depository institution to be considered “well-capitalized” under the regulatory framework for prompt corrective action, its Tier 1 and total capital ratios must be at least 6.0% and 10.0% on a risk-adjusted basis, respectively.

Bank holding companies and banks are also required to comply with minimum leverage ratio requirements. The leverage ratio is the ratio of a banking organization’s Tier 1 capital to its total adjusted quarterly average assets (as defined for regulatory purposes). The requirements necessitate a minimum leverage ratio of 3.0% for bank holding companies and national banks that either have the highest supervisory rating or have implemented the relevant Federal regulatory authority’s risk-adjusted measure for market risk. All other bank holding companies and national banks are required to maintain a minimum leverage ratio of 4.0%, unless a different minimum is specified by a relevant regulatory authority. In addition, for a depository institution to be considered “well-capitalized” under the regulatory framework for prompt corrective action, its leverage ratio must be at least 5.0%. The Federal Reserve has not advised the Corporation, and the OCC has not advised the Bank, of any specific minimum leverage ratio applicable to either entity.

Prompt Corrective Action Regulations. The Federal Deposit Insurance Act, as amended (“FDIA”), requires among other things, the Federal banking agencies to take “prompt corrective action” in respect of depository institutions that do not meet minimum capital requirements. The FDIA sets forth the following five capital tiers: “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other factors, as established by regulation. The relevant capital measures are the total capital ratio, the Tier 1 capital ratio and the leverage ratio.

A bank will be (i) “well-capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a leverage ratio of 5.0% or greater, and is not subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure; (ii) “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 4.0% or greater, and a leverage ratio of 4.0% or greater and is not “well-capitalized”; (iii) “undercapitalized” if it has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio of less than 4.0% or a leverage ratio of less than 4.0%; (iv) “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 3.0% or a leverage ratio of less than 3.0%; and (v) “critically undercapitalized” if its tangible equity is equal to or less than 2.0% of average quarterly tangible assets. An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. A bank’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.

The FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be “undercapitalized.” “Undercapitalized” institutions are subject to growth limitations and are required to submit a capital restoration plan to the appropriate banking agencies. The agencies may not accept such a plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The bank holding company must also provide appropriate assurances of performance. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to 5.0% of the depository institution’s total assets at the time it became undercapitalized and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.”

“Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. “Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator.

The appropriate Federal banking agency may, under certain circumstances, reclassify a well-capitalized insured depository institution as adequately capitalized. The FDIA provides that an institution may be reclassified if the appropriate Federal banking agency determines (after notice and opportunity for hearing) that the institution is in an unsafe or unsound condition or deems the institution to be engaging in an unsafe or unsound practice.

Deposit Insurance. In October 2008, the FDIC temporarily increased the amount of deposit insurance available on all deposit accounts to a maximum of $250,000. Additionally, certain non-interest-bearing transaction accounts maintained with financial institutions participating in the FDIC’s Temporary Liquidity Guarantee Program (“TLG Program”) were fully insured regardless of the dollar amount until June 30, 2010. The Dodd-Frank Act made the $250,000 deposit insurance coverage permanent and extended unlimited coverage for certain noninterest-bearing transaction accounts until December 31, 2012.

The FDIC imposes an assessment against financial institutions for deposit insurance. This assessment is based on the risk category of the institution and prior to 2009, ranged from 5 to 43 basis points of the institution’s deposits. On February 27, 2009, the FDIC issued a final rule raising the deposit insurance assessment rates to a range from 12 to 45 basis points. The rule became effective as of April 1, 2009. The rule provided for certain risk adjustments to the rate that effectively made the range up to 77.5 basis points.

On May 22, 2009, the FDIC issued a final rule imposing a 5 basis point special assessment on each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009. The amount of the special assessment for any institution did not exceed 10 basis points times the institution’s assessment base for the second quarter of 2009. The Bank paid this special assessment in the amount of $647,000 on September 30, 2009.

On November 12, 2009, the FDIC issued a rule that required depository institutions to prepay on December 30, 2009 their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. At December 31, 2009, the Corporation had a prepaid FDIC assessment of $5.3 million. Beginning with the first quarter of 2010, and on a quarterly basis thereafter, the Corporation has been recording an expense for its regular FDIC assessment with an offsetting credit to the prepaid asset. This will continue until the prepaid asset has been exhausted.

On November 9, 2010, the FDIC issued a final rule, which revises its deposit insurance regulations to include noninterest-bearing transaction accounts as a new temporary deposit insurance category. As defined in the Dodd-Frank Act, noninterest-bearing accounts include only such demand deposit or checking accounts that provide for unlimited transfers and withdrawals at any time, and which are maintained by individuals, businesses, or other types of depositors. The funds maintained in such accounts are insured without limit, with such coverage being separate from coverage provided to depositors for all other accounts maintained at an insured institution. This rule became effective on December 31, 2010 and is scheduled to expire on December 31, 2012.

On December 15, 2010, the FDIC issued a final rule, which sets the insurance funds designated reserve ratio (“DRR”) at 2% of estimated insured deposits. The FDIC is required to set a DRR annually, and must consider the following factors when doing so; the risk of loss to the insurance fund, economic conditions affecting the banking industry, prevention of sharp swings in assessment rates, and such other factors deemed important. The rule became effective on January 1, 2011.

On February 7, 2011, the FDIC issued a final rule that establishes a target size for the Deposit Insurance Fund (“DIF”) at 2 percent of insured deposits as mandated by the Dodd-Frank Act. The rule also implements a lower assessment rate schedule when the DIF reaches 1.15 percent of total insured deposits. The rule also changed the assessment base from a bank’s adjusted domestic deposits to its average consolidated total assets minus average tangible equity, as addressed above. This change in methodology is the reason that the Corporation’s FDIC insurance expense declined by $805,000 when comparing 2011 to 2010.

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.

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 and 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 and 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 any of such 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 “prompt corrective action” provisions of the FDIA. See “Prompt Corrective Action Regulations” above. 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. Our 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 12 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 plus 0.2% 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. At December 31, 2011, 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 (“Treasury”) has issued and, in some cases, proposed 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 Fair and Accurate Credit Transactions Act of 2003. The Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”) includes many provisions concerning national credit reporting standards, and permits consumers to opt out of information sharing among affiliated companies for marketing purposes. The FACT Act also requires the Bank to notify its customers if it reports negative information about them to credit bureaus or if the credit that the Bank grants to them is on less favorable terms than are generally available. The Bank also must comply with guidelines established by the Federal banking regulators to help detect identity theft.

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.

The First National Bank of Long Island 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 Exchange Act are available free of charge through the Bank’s Internet 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.

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 primarily through its committees. The risks faced by the Corporation include, among others, credit risk, allowance for loan loss risk, interest rate risk, liquidity risk, market risk for its common stock, economic conditions risk, operational risk, technology risk, key personnel risk and regulatory and legislative risk.

For both investment securities and loans, there is always the risk that the Bank will be unable to collect all amounts due according to the contractual terms. Credit risk in the Bank’s securities portfolio has been addressed by adopting a board committee approved investment policy that, among other things, limits terms and types of holdings, and specifies 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, and highly rated corporate obligations. At the time of purchase, bonds of states and political subdivisions must generally be rated A or better, notes of states and political subdivisions must generally be rated MIG-2 (or equivalent) or better, commercial paper must be rated A-1 or P-1, and corporate bonds must be rated A or better. In addition, management periodically reviews issuer credit ratings for 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 will be analyzed and action will be taken if deemed appropriate.

Credit risk in the Bank’s loan portfolio has been addressed by adopting board committee approved commercial, consumer and mortgage loan policies and by maintaining independent loan review and appraisal review functions and an independent credit department. The loan policies contain 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, Fair Isaac Corporation (“FICO”) score minimums and environmental study requirements.

The credit risk within the Bank’s loan portfolio primarily stems from factors such as borrower size, geographic concentration, industry concentration, real estate values 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 New York City, and a large percentage of these loans are mortgage loans secured by properties located in those areas. At December 31, 2011, multifamily loans amounted to approximately $230 million and comprised approximately 50% of the Bank’s total commercial mortgage portfolio and approximately 25% 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. Such cash flows are dependent on the strength of the local economy. In the last few years, general economic conditions have been unfavorable as characterized by high levels of unemployment, declines in commercial and residential real estate values, and increases in commercial real estate vacancies. These conditions have caused some of the Bank’s borrowers to be unable to make the required contractual payments on their loans and could cause the Bank to be unable to realize the full carrying value of such loans through foreclosure or other collection efforts. Environmental impairment of properties securing mortgage loans is also a risk. However, at the present time, 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.

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 make all required principal and interest payments according to contractual terms. In addition, 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, 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 all probable incurred losses in the loan portfolio. The Bank’s allowance at any point in time may need to be adjusted upward 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 portfolio. Such an adjustment 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.

The Bank’s results of operations are subject to risk resulting from interest rate fluctuations in general 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 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 could adversely affect the Bank’s earnings. When interest rates are low, as they currently are, borrowers tend to refinance higher rate loans at lower rates and prepayments on mortgage securities generally increase. Under those circumstances, the Bank may not be able to reinvest the resulting cash flows in new interest-earning assets with rates as high as those on the prepaid loans or investment securities. In addition, the Bank’s loans at variable interest rates adjust to lower rates at their reset dates. The positive impact of lower interest rates on the Bank’s cost of deposits is currently constrained by the fact that many of the Bank’s deposit products are at historically low rates with little if any room for further reductions. Additionally, a significant portion of the Bank’s average interest-earning assets are funded by noninterest bearing checking deposits and capital.

In a period of rising interest rates, the Bank’s loans and investment securities generally reprice slower than its interest-bearing liabilities, which should initially have a negative effect on net interest income. Over a longer period of time, the effect on the Bank’s earnings should be positive 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 interest-earning assets funded by noninterest-bearing checking deposits and capital.

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 renewed consumer confidence in the equity markets, could cause deposit outflows, and such outflows could be significant.

The Bank’s primary internal sources of liquidity are its overnight investments, investment securities designated as available-for-sale, maturities and monthly payments on its investment securities and loan portfolios and operations. In addition to customer deposits, the Bank’s primary external sources of liquidity are secured borrowings from the Federal Reserve Bank of New York and Federal Home Loan Bank of New York, repurchase agreements with a number of brokerage firms and commercial banks and overnight federal funds purchased under its existing lines with several commercial banks. However, these external sources of liquidity 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.

The Corporation’s common stock is included in the Russell 3000 and Russell 2000 Indexes, which were reconstituted in June 2011. Upon reconstitution, the average market capitalization of companies in the Russell 2000 Index was $1.2 billion, the median market capitalization was $563 million, the capitalization of the largest company in the index was $3.0 billion and the capitalization of the smallest company in the index was $130 million. The Corporation’s market capitalization on December 31, 2011 was approximately $231 million.

National and local economic conditions remain unfavorable. This poses significant risks to both the Corporation’s business and the banking industry as a whole. Specific risks include reduced loan demand from quality borrowers; increased loan loss provisions resulting from deterioration in loan quality caused by, among other things, depressed real estate values and high levels of unemployment; interest rate volatility; price competition for deposits due to liquidity concerns or otherwise; and volatile equity markets.

The Corporation relies on its system of internal controls 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 may prove to be ineffective or employees 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 delivery of financial products and services has become increasingly technology-driven. The Bank’s ability to meet the needs of its customers competitively, and 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.

In addition, the Bank outsources certain of its data processing to third-party providers. If third-party providers 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 various other vendors and their personnel. The Bank’s website has been the target of cyber attacks in the past. While the Bank’s third party provider successfully blocked the attempts to infiltrate our systems, there is no guarantee that such attempts will be unsuccessful in the future.

The Bank has established board committee approved policies to prevent or limit the impact of systems failures, interruptions and security breaches and relies 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, transaction limits, firewalls, antivirus software, intrusion protection monitoring and vulnerability scans. Systems failures or interruptions are addressed in a disaster recovery and contingency plan. In addition, for all third-party providers of data processing services, the Bank obtains and reviews 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 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 could have an adverse effect on the Bank’s business, operating results and financial condition because their skills, knowledge of the Bank’s market and years of industry experience may be difficult to replace.

The Corporation and the Bank are subject to regulation, supervision and examination by, among others, the Federal Reserve Board, OCC and FDIC, which 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 for, among other things, the protection of depositors. Regulatory requirements affect virtually all aspects of the Corporation’s and the Bank’s business including 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, imposing deposit insurance premiums and other assessments, setting required levels for the allowance for loan losses and capital, and imposing restrictions on the ability to pay cash dividends. 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 controls 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.

In the ordinary course of business, the Corporation is party to various legal actions which are believed to be 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.

The Corporation’s common stock trades on the NASDAQ Capital Market tier of the NASDAQ Stock Market under the symbol “FLIC.” At December 31, 2011, there were 534 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 following table sets forth high and low sales prices and dividends declared, by quarter, for the years ended December 31, 2011 and 2010.

There are various legal limitations with respect to the Bank’s ability to pay dividends to the Corporation and the Corporation’s ability to pay dividends to its shareholders. Under the New York Business Corporation Law, the Corporation may pay dividends on its outstanding shares except when the Corporation is insolvent or would be made insolvent by the dividend. See Item 1, “Business – Supervision and Regulation - Payment of Dividends,” for a discussion of the limitations on the ability of the Bank and the Corporation under federal banking laws and regulations to pay dividends.

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 generally intended to comply with the manner, timing, price and volume conditions set forth in SEC Rule 10b-18. Under a plan approved by the Board of Directors in 2008, the Corporation can purchase 76,568 shares in the future. 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. The Corporation refrained from open market share repurchases in 2011 and 2010 in order to preserve and build capital in an uncertain economic climate.

	2011		2010		2009		2008		2007
	(dollars in thousands, except per share data)
INCOME STATEMENT DATA:
Interest Income	$76,312		$72,403		$66,286		$59,686		$53,023
Interest Expense	17,567		16,774		18,334		16,743		16,269
Net Interest Income	58,745		55,629		47,952		42,943		36,754
Provision for Loan Losses	4,061		3,973		4,285		1,945		575
Net Income	19,457		18,392		13,463		12,962		11,482

PER SHARE DATA:
Basic Earnings	$2.22		$2.33		$1.87		$1.79		$1.52
Diluted Earnings	2.20		2.30		1.84		1.78		1.51
Cash Dividends Declared	.90		.84		.76		.66		.58
Dividend Payout Ratio	40.91	%	36.52	%	41.30	%	37.08	%	38.41	%
Stock Splits/Dividends Declared	-		-		-		-		2-for-1
Book Value	$21.53		$17.99		$16.15		$14.25		$13.73
Tangible Book Value	21.51		17.97		16.12		14.22		13.71

BALANCE SHEET DATA AT YEAR END:
Total Assets	$2,022,407		$1,711,023		$1,675,169		$1,261,609		$1,069,019
Loans	985,859		902,959		827,666		658,134		525,539
Allowance for Loan Losses	16,572		14,014		10,346		6,076		4,453
Deposits	1,502,868		1,292,938		1,277,550		900,337		869,038
Borrowed Funds	309,727		253,590		273,407		251,122		92,110
Stockholders' Equity	189,347		156,694		116,462		102,532		102,384

AVERAGE BALANCE SHEET DATA:
Total Assets	$1,852,611		$1,657,396		$1,413,632		$1,181,655		$1,003,240
Loans	947,309		864,163		716,569		572,356		480,166
Allowance for Loan Losses	15,013		11,954		6,357		4,947		4,167
Deposits	1,439,647		1,310,507		1,101,828		919,490		868,421
Borrowed Funds	226,382		193,823		194,129		157,275		32,705
Stockholders' Equity	174,458		142,140		110,767		100,710		98,402

FINANCIAL RATIOS:
Return on Average Assets (ROA)	1.05	%	1.11	%	0.95	%	1.10	%	1.14	%
Return on Average Stockholders' Equity (ROE)	11.15	%	12.94	%	12.15	%	12.87	%	11.67	%
Average Equity to Average Assets	9.42	%	8.58	%	7.84	%	8.52	%	9.81	%

2011 Versus 2010. The Corporation earned $19.5 million, or $2.20 per share, for 2011 versus $18.4 million, or $2.30 per share, for 2010. Returns on average assets and average equity were 1.05% and 11.15%, respectively, for 2011 versus 1.11% and 12.94%, respectively, for 2010. Gains on sales of securities were $138,000 in 2011 versus $1.7 million in 2010. Excluding the gains from each year, net income is up $2.0 million, or 11.6%, versus the reported increase of $1.1 million, or 5.8%. Earnings per share for 2011 includes the dilutive effect of 1.4 million shares of common stock sold in July 2010, while 2010 earnings per share only include the dilutive effect of this sale from the date of sale through the close of the year. Net income for the fourth quarter of 2011 was $4.7 million, or $.53 per share, as compared to $5.3 million, or $.60 per share, for the preceding quarter and $4.1 million, or $.46 per share, for the same quarter last year.

The increase in net income for 2011 is primarily attributable to an increase in net interest income of $3.1 million and a reduction in income tax expense of $427,000. Income tax expense declined primarily because of an increase of $2.0 million, or 20.4%, in tax-exempt income on municipal securities. Partially offsetting the positive impact of the aforementioned items was the $1.6 million decrease in gains on sales of securities and an increase in occupancy and equipment expense of $662,000, or 10.2%.

The increase in net interest income for the year is primarily attributable to growth in the average balances of all categories of interest-earning assets as partially offset by an eighteen basis point decline in net interest margin. On an overall basis, total average interest-earning assets grew by $195.6 million, or 12.3%. Loans and municipal securities, the Bank’s two highest yielding asset categories, grew by $83.1 million or 9.6%, and $61.8 million, or 25.5%, respectively, while taxable securities and interest-bearing bank balances, the Bank’s two lowest yielding asset categories, grew by $45.8 million, or 9.7%, and $4.9 million, or 33.4%, respectively. Funding this growth were increases in noninterest-bearing checking deposits of $47.5 million, or 12.7%, capital of $32.3 million, or 22.7%, savings, NOW and money market deposits of $94.4 million, or 14.5%, and long-term debt of $34.6 million, or 21.0%. From the standpoint of net interest income, checking deposits and capital are the most desirable funding sources because neither has an associated interest cost. The 2011 decrease in net interest margin occurred primarily because the negative impact of market driven declines in yield on the Bank’s securities and loan portfolios far outweighed the positive impact of management’s successful efforts to lower the Bank’s overall funding cost. The funding cost reduction would have been greater had management not engaged in a liability extension strategy involving additional long-term borrowings and extending the duration of the Bank’s time deposits. This strategy results in paying more for funding today in exchange for possibly reducing the negative impact that future increases in interest rates could have on the Corporation’s earnings.

Occupancy and equipment expense increased when comparing the current to the prior year largely because of the cost of opening six new branches since the beginning of 2010. Despite the cost of personnel needed to staff the new branches and the impact of normal annual salary increases, salaries expense for 2011 was only 2.1% higher than 2010 and employee benefits expense declined by $237,000, or 4.5%. Salaries expense was contained by partially staffing the new branches with experienced personnel from existing branches and staff reductions through attrition. As a result of these efficiency measures, which management believes were executed without compromising internal controls or service quality, the number of full-time-equivalent employees was virtually unchanged when comparing year-end 2011 to 2010. A significant portion of the decrease in employee benefits expense is attributable to a decrease in retirement plan expense.

The increase in net income for the fourth quarter of 2011 versus the same quarter last year was primarily attributable to an increase in net interest income of $921,000 and an increase in noninterest income, before gains on sales of securities, of $276,000. The positive impact of these items was partially offset by an increase in noninterest expense of $517,000. Net interest income is up for the same reasons discussed with respect to the full year. Noninterest income is up largely because the fourth quarter of 2010 included a $300,000 charge to establish a valuation allowance on one loan held for sale. The increase in noninterest expense occurred largely because the fourth quarter of this year included charges for litigation and real estate taxes paid by the Bank to protect its interest in problem loans.

The decline in net income for the fourth quarter of 2011 versus the preceding quarter is primarily attributable to an increase in the provision for loan losses of $670,000 and the aforementioned charges for litigation and problem loan expense. The fourth quarter 2011 provision for loan losses resulted from a combination of loan growth, $335,000 in net chargeoffs, an increase of $172,000 in reserves allocated to loans individually deemed to be impaired and an increase in collective impairment reserves on pools of loans primarily due to management’s current assessment of national and local economic conditions.

The Bank’s allowance for loan losses to gross loans (“reserve coverage ratio”) grew by 13 basis points in 2011 from 1.55% at the beginning of the year to 1.68% by year-end. This compares to 30 basis points of growth during 2010 from 1.25% at the beginning of the year to 1.55% by year-end. The $4.1 million provision for loan losses for 2011 is primarily attributable to loan growth, the impact of $1.5 million in net chargeoffs and the 13 basis point increase in the reserve coverage ratio. Net chargeoffs for 2011 are largely comprised of a $1.3 million chargeoff on one loan that was transferred to the held for sale category and subsequently sold. The $4.0 million provision for 2010 was primarily attributable to loan growth, the impact of $305,000 of net chargeoffs, an increase of $852,000 in specific reserves allocated to problem loans and the 30 basis point increase in the reserve coverage ratio. The increase in the reserve coverage ratio during each year was largely driven by management’s assessment of a variety of qualitative factors including national and local economic conditions. The credit quality of the Bank’s loan portfolio remains excellent, with delinquent and nonaccrual loans amounting to only $4.0 million, or .4% of total loans, at December 31, 2011. Such loans are comprised of loans past due 30 to 89 days of $740,000 and nonaccrual loans of $3.2 million. In addition, although troubled debt restructurings increased by $2.8 million during the current year, they remain relatively low at $5.4 million. Of these loans, $3.6 million are performing in accordance with their modified terms and $1.8 million are delinquent. 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, and almost all of these securities are full faith and credit obligations of the U.S. government. The remainder of the Bank’s securities portfolio consists principally of municipal securities rated AA or better by major rating agencies.

The Corporation is faced with a number of challenges as it moves forward into 2012. Among other things, interest rates are currently very low and there is significant price competition for loans in the Bank’s marketplace. The persistence of these factors will likely result in a decline in net interest margin. If that were to occur, and management is unable to offset the impact by increasing the volume of interest-earning assets, expense savings or other measures, the Bank’s profitability could decline. Additionally, commercial and residential real estate values have been negatively impacted by persistently high levels of unemployment, foreclosures and commercial vacancies. These factors present threats to the Bank’s maintenance of loan quality. Finally, from a regulatory perspective, the banking industry is dealing with an ever-increasing number of new and complex requirements which are putting downward pressure on revenues and upward pressure on the cost of doing business.

2010 Versus 2009. The Corporation earned $18.4 million in 2010, an increase of 36.6% over 2009 earnings of $13.5 million. On a per share basis, earnings for 2010 were $2.30. This represents is $.46 increase over $1.84 per share earned in 2009. Returns on average assets and average equity were 1.11% and 12.94%, respectively, for 2010 compared to .95% and 12.15%, respectively, for 2009. Cash dividends per share grew by 8 cents, or 10.5%, from 76 cents per share in 2009 to 84 cents in 2010. In July 2010, the Corporation bolstered its capital position through the sale of 1.4 million shares of common stock at a price of $24 per share. The resulting net proceeds of the offering after underwriting discount and expenses was $32.4 million.

The large drivers of earnings per share growth in 2010 were growth in the average balances of loans and tax-exempt municipal securities and decreases in the rates paid on various categories of deposits. The positive impact of these items was partially offset by decreases in overall yield on the Bank’s loan and taxable securities portfolios, expense increases attributable to the Bank’s branch growth initiative and general inflation in the cost of goods and services, and the dilutive impact of the 2010 common stock offering, which is estimated to be approximately $.16 per share.

On an average balance basis, loans grew by $147.6 million, or 20.6% when comparing 2010 to 2009. Almost all of the growth occurred in commercial and residential mortgages, the average balances of which were up $92.4 million, or 29.2%, and $66.3 million, or 29.5%, respectively. A significant portion of the growth in the average balance of residential mortgages was attributable to loans originated during 2010, with the remainder attributable to loans originated in 2009. By contrast, almost all of the growth in the average balance of commercial mortgages was attributable to loans originated in 2009, with the remainder attributable to loans originated in 2010. The large reduction in commercial mortgage originations in 2010 was the result of a variety of factors including, but not limited to, a deliberate reduction in originations during the first half of 2010 in order to build the Bank’s Tier 1 leverage capital ratio, a softening in loan demand during the latter half of 2010 and a reduction in multifamily loan originations throughout 2010 in an effort to diversify the Bank’s commercial mortgage portfolio.

The overall yield earned on the Bank’s loan portfolio declined by 26 basis points in 2010 and the overall yield on the Bank’s taxable securities portfolio declined by 70 basis points. The decline in yield on the loan portfolio was primarily attributable to a decline in general interest rates and competitive conditions in the local marketplace. The decline in yield on the taxable securities portfolio was also attributable to a decline in general interest rates and, additionally, a significant increase in the size of the short-term mortgage securities portfolio relative to the total taxable securities portfolio. Short-term mortgage securities, which the Bank generally defines as those having an estimated average life of 2.5 years or less at the date of purchase, represented 38.8% of the average balance of the total taxable securities portfolio in 2010 as compared to 18.2% in 2009. Management grew this segment of the taxable securities portfolio as a hedge against potential future increases in interest rates, to balance the duration of the overall securities portfolio in light of the increased size of the longer-term municipal securities portfolio, and because the incremental yield that could be earned on longer average life mortgage securities was relatively small. In addition, management temporarily invested a significant portion of the proceeds of the 2010 common stock offering in short-term mortgage securities with the intention of reinvesting the monthly pay downs on such securities in better yielding loans.

Earnings for the fourth quarter of 2010 were $.46 per share, representing an increase of $.16 per share, or 53.3% over $.30 per share earned in the same quarter of 2009. The improvement was primarily due to the fact that the provision for loan losses was $2.1 million higher in the fourth quarter of 2009, which impacted earnings by approximately $.17 per share. When comparing fourth quarter to third quarter 2010 results, earnings are down $.09 per share, or 16.4%, primarily as a result of an increase in the provision for loan losses of $725,000, the establishment of a $300,000 valuation allowance on one loan held for sale and the full quarter dilutive impact of the common stock offering. The increase in the provision for loan losses was driven by the establishment of an impairment reserve of $870,000 on one nonaccrual loan.

The credit quality of the Bank’s loan portfolio remained excellent at December 31, 2010, as evidenced by, among other things, low levels of past due, nonaccrual and impaired loans. In an attempt to maintain credit quality, management continued to focus its loan portfolio growth efforts on what it considers lower risk loan categories (i.e., owner occupied commercial mortgages, multifamily loans, and first lien residential mortgages having terms generally between ten and twenty years) and continued to avoid growing what it considers higher risk loan categories (i.e., construction loans and unsecured loans to individuals). The credit quality of the Bank’s securities portfolio also remained excellent at December 31, 2010. All of the Bank’s mortgage securities were backed by mortgages underwritten on conventional terms, and almost all of these securities were full faith and credit obligations of the U.S. government. The remainder of the Bank’s securities portfolio consisted principally of municipal securities rated AA or better by major rating agencies.

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 under the Bank’s independent loan review function. In addition, and in consultation with the Bank’s Chief Financial Officer and Chief Risk 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 reviewed and ratified by the Board Loan Committee on a quarterly basis and is subject to periodic examination by the OCC, the Bank’s primary federal banking regulator, whose safety and soundness examination includes a determination as to its adequacy 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 measure impairment losses based on either the fair value of collateral or the discounted value of expected future cash flows. 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 payments when due according to the contractual terms of the loan agreement. Loans that experience insignificant payment delays and payment shortfalls are not generally 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 and also makes qualitative judgments based on, among other things, its knowledge of the local real estate market and analyses of current economic conditions and trends. 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, future losses could vary significantly from those experienced in the past and 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, delinquencies, economic conditions, 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 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.

The allowance for loan losses is comprised of impairment losses on the loans specifically reviewed and estimated losses on the 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.

	2011								2010								2009
	Average Balance			Interest/ Dividends		Average Rate			Average Balance			Interest/ Dividends		Average Rate			Average Balance			Interest/ Dividends		Average Rate
Assets:	(dollars in thousands)
Interest-bearing bank balances	$	19,398		$	47		.24	%	$	14,536		$	34		.23	%	$	6,876		$	12		0.17	%
Investment securities:
Taxable		517,856			16,615		3.21			472,039			16,845		3.57			443,559			18,926		4.27
Nontaxable (1)		304,647			17,989		5.90			242,830			14,945		6.15			181,084			11,508		6.36
Loans (1) (2)		947,309			47,806		5.05			864,163			45,683		5.29			716,569			39,780		5.55
Total interest-earning assets (1)		1,789,210			82,457		4.61			1,593,568			77,507		4.86			1,348,088			70,226		5.21
Allowance for loan losses		(15,013	)							(11,954	)							(6,357	)
Net interest-earning assets		1,774,197								1,581,614								1,341,731
Cash and due from banks		26,346								26,008								36,460
Premises and equipment, net		21,410								20,442								16,937
Other assets		30,658								29,332								18,504
	$	1,852,611							$	1,657,396							$	1,413,632

Liabilities and Stockholders' Equity:
Savings, NOW and money market deposits	$	745,916			4,035		.54		$	651,506			4,049		.62		$	501,125			5,287		1.06
Time deposits		272,458			6,052		2.22			285,213			5,977		2.10			266,216			6,485		2.44
Total interest-bearing deposits		1,018,374			10,087		.99			936,719			10,026		1.07			767,341			11,772		1.53
Short-term borrowings		26,798			93		.35			28,864			108		.37			40,663			221		.54
Long-term debt		199,584			7,387		3.70			164,959			6,640		4.03			153,466			6,341		4.13
Total interest-bearing liabilities		1,244,756			17,567		1.41			1,130,542			16,774		1.48			961,470			18,334		1.91
Checking deposits		421,273								373,788								334,487
Other liabilities		12,124								10,926								6,908
		1,678,153								1,515,256								1,302,865
Stockholders' equity		174,458								142,140								110,767
	$	1,852,611							$	1,657,396							$	1,413,632
Net interest income (1)				$	64,890							$	60,733							$	51,892
Net interest spread (1)							3.20	%							3.38	%							3.30	%
Net interest margin (1)							3.63	%							3.81	%							3.85	%

(1)

Tax-equivalent basis. Interest income on a tax-equivalent basis includes the additional amount of interest income that would have been earned if the Corporation's investment in tax-exempt loans and investment securities had been made in loans and investment securities subject to Federal income taxes yielding the same after-tax income. The tax-equivalent amount of $1.00 of nontaxable income was $1.52 in each period presented, based on a Federal income tax rate of 34%.

	2011 versus 2010												2010 versus 2009
	Increase (decrease) due to changes in:												Increase (decrease) due to changes in:
	Volume			Rate			Rate/ Volume (1)			Net Change			Volume			Rate			Rate/ Volume (1)			Net Change
	(in thousands)
Interest Income:
Interest-bearing bank balances	$	11		$	1		$	1		$	13		$	13		$	4		$	5		$	22
Investment securities:
Taxable		1,635			(1,700	)		(165	)		(230	)		1,215			(3,097	)		(199	)		(2,081	)
Nontaxable		3,805			(606	)		(155	)		3,044			3,924			(363	)		(124	)		3,437
Loans		4,395			(2,073	)		(199	)		2,123			8,194			(1,899	)		(392	)		5,903
Total interest income		9,846			(4,378	)		(518	)		4,950			13,346			(5,355	)		(710	)		7,281

Interest Expense:
Savings, NOW and money market deposits		587			(525	)		(76	)		(14	)		1,587			(2,173	)		(652	)		(1,238	)
Time deposits		(267	)		358			(16	)		75			463			(906	)		(65	)		(508	)
Short-term borrowings		(8	)		(8	)		1			(15	)		(64	)		(69	)		20			(113	)
Long-term debt		1,394			(535	)		(112	)		747			475			(164	)		(12	)		299
Total interest expense		1,706			(710	)		(203	)		793			2,461			(3,312	)		(709	)		(1,560	)

Increase (decrease) in net interest income	$	8,140		$	(3,668	)	$	(315	)	$	4,157		$	10,885		$	(2,043	)	$	(1	)	$	8,841

Net interest income on a tax-equivalent basis was $64.9 million in 2011, an increase of $4.2 million from $60.7 million in 2010. The increase resulted from growth in the average balances of loans and taxable and nontaxable securities, which in the aggregate grew $190.8 million, or 12.1%. The growth in average balances was partially offset by market driven declines in yield on both the Bank’s securities and loan portfolios. Funding the interest-earning asset growth was a combination of increases in total deposits, capital and long-term debt. Total deposit growth was the most significant contributor increasing on average $129.1 million, or 9.9%, during 2011.

Net interest margin decreased by 18 basis points when comparing 2011 to 2010. This decrease occurred primarily because the negative impact of market driven declines in yield on the Bank’s securities and loan portfolios and the Bank’s liability extension strategy more than offset the positive impact of growth in noninterest-bearing funding sources and management’s lowering of savings, NOW and money market deposit rates throughout 2010 and 2011. Net interest spread, or the difference between the overall yield on interest-earning assets and the overall cost of interest-bearing liabilities, also declined by 18 basis points for largely the same reasons as the decline in net interest margin.

Net interest income on a tax-equivalent basis increased by $8.8 million, or from $51.9 million in 2009 to $60.7 million in 2010. The most significant reasons for the increase in net interest income were growth in the Bank’s loan and nontaxable securities portfolios and decreases in the rates paid on various categories of deposits. On an average balance basis, loans grew by $147.6 million, or 20.6%, and tax-exempt securities grew by $61.7 million, or 34.1%. Growth in these asset categories was funded by an increase in interest-bearing deposits, which on an average balance basis grew by $169.4 million, or 22.1%, and an increase in checking deposits, which on an average balance basis grew by $39.3 million, or 11.7%. The positive impact of loan and securities growth and decreases in deposit rates was partially offset by decreases in the overall yield on the Bank’s loan and taxable securities portfolios.

Net interest spread, or the difference between the overall yield on interest-earning assets and the overall cost of interest-bearing liabilities, increased by 8 basis points in 2010. This occurred primarily because management, through a steady reduction in the Bank’s deposit rates throughout 2010, was able to lower the Bank’s cost of deposits by 46 basis points while at the same time the overall yield on the Bank’s interest-earning assets declined by only 32 basis points. The spread increase, when applied to those interest-earning assets funded by interest-bearing liabilities, positively impacted both net interest income and net interest margin. On the other hand, for those interest-earning assets funded by noninterest-bearing checking deposits and capital, the 32 basis point decline in asset yield had a more than offsetting negative impact on net interest income and net interest margin and thereby caused net interest margin to decline. The 32 basis point decline in overall asset yield was primarily attributable to a decline in general interest rates, competitive loan pricing in the Bank’s marketplace, and a significant increase, for reasons previously discussed, in the Bank’s short-term mortgage securities portfolio.

Noninterest income includes service charges on deposit accounts, Investment Management Division income, gains or losses on sales of securities, and all other items of income, other than interest, resulting from the business activities of the Corporation. Noninterest income decreased $1.5 million, or 19.0%, when comparing 2011 to 2010. The decrease is principally due to a $1.6 million decrease in net gains on sales of available-for-sale securities and a $321,000 decrease in overdraft charges, offset by a $275,000 reduction in losses on loans held for sale. Overdraft charges declined because of, among other things: (1) regulatory changes that accelerated the timeframe for check clearing and limited overdrafts caused by debit card transactions; and (2) reduced tolerance by management of commercial accounts with repeat overdraft activity.

Noninterest income was $8.0 million in 2010 compared to $7.8 million in 2009, an increase $179,000, or 2.3%. The increase in noninterest income in 2010 was almost entirely due to a $291,000 increase in net gains on sales of available-for-sale securities, as partially offset by small decreases in the other categories of noninterest income. The gains on sales of securities resulted from the sale of approximately $77 million of available-for-sale securities. The proceeds of the sales were used to limit the growth of the balance sheet by paying down short-term borrowings and thereby preserving the Bank’s Tier I leverage capital ratio.

Noninterest expense is comprised of salaries, employee benefits, occupancy and equipment expense and other operating expenses incurred in supporting the various business activities of the Corporation. Noninterest expense increased $883,000, or 2.5%, to $36.7 million in 2011 from $35.8 million in 2010. The increase is comprised of increases in occupancy and equipment expense of $662,000, or 10.2%, salaries of $327,000, or 2.1%, and other operating expenses of $131,000, or 1.5%, as partially offset by a decrease in employee benefits of $237,000, or 4.5%. The decrease in employee benefits expense is attributable to a decrease in retirement plan expense. Contributing to the decline in retirement plan expense were pension plan design changes effective February 28, 2011. The increase in occupancy and equipment expense is primarily due to branch expansion and maintenance of facilities. The increase in salaries expense is primarily due to normal annual salary adjustments and branch expansion, as partially offset by staffing efficiencies. Other operating expenses grew due to increases in professional fees of $376,000, computer expense of $163,000, problem loan expense of $153,000 other losses of $159,000 and a number of other small increases, partially offset by a decrease in FDIC insurance expense of $805,000. The increase in professional fees resulted from enhancements to the Bank’s internal audit and regulatory compliance functions, and the decrease in FDIC insurance expense resulted from changes in the FDIC’s deposit insurance assessment system.

Noninterest expense was $35.8 million and $34.8 million in 2010 and 2009, respectively, representing an increase of $986,000, or 2.8%. The increase in noninterest expense in 2010 was comprised of increases in salaries of $589,000, or 4.0%, occupancy and equipment expense of $461,000, or 7.7%, and other operating expenses of $460,000, or 5.7%, as partially offset by a decrease in employee benefits of $524,000, or 9.0%. The increase in salaries expense was primarily due to normal annual salary adjustments and additions to staff related to the opening of four full service branches during 2010. Occupancy and equipment expense increased primarily due to branch expansion, technology upgrades and the creation of a state-of-the-art disaster recovery center for both information technology and back office functions. The increase in other operating expenses is the result of a $221,000 increase in data processing expense and a number of other small increases, as partially offset by a $279,000 decrease in FDIC deposit insurance expense from $2.2 million in 2009 to $1.9 million in 2010. The decline in deposit insurance expense occurred because 2009 included a $647,000 FDIC special assessment.

Income tax expense as a percentage of book income (“effective tax rate”) was 20.3% in 2011, 22.6% in 2010 and 18.8% in 2009. The decrease in the effective tax rate in 2011 occurred because income on tax-exempt securities became a larger percentage of pre-tax income. The effective tax rate increased in 2010 because tax-exempt income as a percentage of income before income taxes declined. Also contributing to the increase in the 2010 effective tax rate was the fact that the tax benefit derived from the Corporation’s FNY and REIT entities decreased somewhat while income before income taxes increased significantly.

The asset growth was largely funded by deposit growth resulting from, among other things, continued branching efforts. Total deposits increased for the year by $209.9 million, or 16.2%. For the year, noninterest-bearing checking deposits increased $48.7 million, or 12.6%, savings, NOW and money market deposits increased $158.0 million, or 24.8%, and time deposits $100,000 and over and other time deposits increased $3.2 million, or 1.2%. Additional funding resulted from an increase in capital of $13.5 million, or 8.6%, and an increase in short-term borrowings and long-term debt totaling $56.1 million, or 22.1%.

	2011		2010		2009
Held-to-Maturity Securities:	(in thousands)
State and municipals	$	43,091	$	49,294	$	57,875
Pass-through mortgage securities		6,851		11,025		16,882
Collateralized mortgage obligations		12,143		26,259		54,222
	$	62,085	$	86,578	$	128,979
Available-for-Sale Securities:
U.S. government agencies	$	5,113	$	5,155	$	5,008
State and municipals		313,195		215,612		154,513
Pass-through mortgage securities		73,786		80,471		126,422
Collateralized mortgage obligations		501,862		351,877		352,851
	$	893,956	$	653,115	$	638,794

	Principal Maturing (1)
	Within One Year					After One But Within Five Years					After Five But Within Ten Years					After Ten Years
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(dollars in thousands)
Held-to-Maturity Securities
State and municipals (2)	$	2,296		5.85	%	$	10,919		5.90	%	$	25,304		6.23	%	$	4,572		6.06	%
Pass-through mortgage securities		-		-			3,040		4.17			492		4.71			3,319		4.95
Collateralized mortgage obligations		-		-			-		-			-		-			12,143		5.07
	$	2,296		5.85	%	$	13,959		5.52	%	$	25,796		6.20	%	$	20,034		5.28	%

	Principal Maturing (1)
	Within					After One But					After Five But					After
	One Year					Within Five Years					Within Ten Years					Ten Years
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(dollars in thousands)
Available-for-Sale Securities
U.S. government agencies	$	-		-	%	$	-		-	%	$	5,113		4.50	%	$	-		-	%
State and municipals (2)		2,021		6.63			8,577		6.58			24,942		5.00			277,655		5.89
Pass-through mortgage securities		-		-			599		4.82			3,222		5.68			69,965		4.47
Collateralized mortgage obligations		-		-			-		-			7,656		2.53			494,206		2.60
	$	2,021		6.63	%	$	9,176		6.46	%	$	40,933		4.53	%	$	841,826		3.84	%

(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.

	December 31,
	2011			2010			2009			2008			2007
	(in thousands)
Commercial and industrial	$	42,572		$	39,055		$	48,891		$	53,555		$	61,317
Secured by real estate:
Commercial mortgages		459,875			416,946			409,681			273,097			169,621
Residential mortgages		372,477			334,768			248,888			216,654			194,926
Home equity		103,513			103,829			109,010			99,953			81,846
Construction and land development		-			-			3,050			9,175			11,751
Other		4,596			5,790			5,763			3,761			4,893
		983,033			900,388			825,283			656,195			524,354
Net deferred loan origination costs		2,826			2,571			2,383			1,939			1,185
		985,859			902,959			827,666			658,134			525,539
Allowance for loan losses		(16,572	)		(14,014	)		(10,346	)		(6,076	)		(4,453	)
	$	969,287		$	888,945		$	817,320		$	652,058		$	521,086

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. Information about the Corporation’s risk elements is as follows:

	December 31,
	2011			2010			2009			2008			2007
	(dollars in thousands)
Nonaccrual loans (1)	$	3,211		$	3,936		$	432		$	112		$	257
Loans past due 90 days or more and still accruing		-			-			-			42			95
Foreclosed real estate		-			-			-			-			-
Total nonperforming assets		3,211			3,936			432			154			352
Troubled debt restructurings (2)		3,757			2,433			200			-			-
Total risk elements	$	6,968		$	6,369		$	632		$	154		$	352

Nonaccrual loans as a percentage of total loans		.33	%		.44	%		.05	%		.02	%		.05	%
Nonperforming assets as a percentage of total loans and foreclosed real estate		.33	%		.44	%		.05	%		.02	%		.07	%
Risk elements as a percentage of total loans and foreclosed real estate		.71	%		.70	%		.08	%		.02	%		.07	%

	Year Ended December 31,
	2011		2010		2009		2008		2007
	(in thousands)
Gross interest income on nonaccrual loans and troubled debt restructurings:
Amount that would have been recorded during the year under original terms	$	369	$	332	$	24	$	10	$	13
Actual amount recorded during the year		246		300		16		-		10

Commitments for additional funds - troubled debt restructurings		-		-		-		-		-

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.

Potential Problem Loans. At December 31, 2011, impaired loans totaled $9.5 million and include all nonperforming loans plus $6.3 million of loans that are still performing according to the contractual terms of the loan agreement. In addition to impaired loans, there are $5.5 million of loans classified substandard that have a well-defined weakness or weaknesses that jeopardize their liquidation. Management believes that the Corporation could sustain some loss on these loans if the identified deficiencies are not corrected.

The allowance for loan losses increased by $2.6 million during 2011, amounting to $16.6 million, or 1.68% of total loans, at December 31, 2011, as compared to $14.0 million, or 1.55% of total loans, at December 31, 2010. During 2011, the Bank had loan chargeoffs and recoveries of $1.6 million and $131,000, respectively, and recorded a $4.1 million provision for loan losses. The provisioning in 2011 and 2010 was primarily attributable to: (1) specific reserves allocated to impaired loans; (2) net chargeoffs; and (3) increases in reserves on pools of loans based on loan growth and, to a lesser extent, higher historical losses and a variety of qualitative factors including unfavorable 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.

	Year ended December 31,
	2011			2010			2009			2008			2007
	(dollars in thousands)

Balance, beginning of year	$	14,014		$	10,346		$	6,076		$	4,453		$	3,891
Loans charged off:
Commercial and industrial		-			-			162			275			-
Commercial mortgages		1,490			325			-			-			-
Residential mortgages		8			-			-			-			-
Home equity loans		100			22			-			-			-
Other		36			30			13			50			14
		1,634			377			175			325			14
Recoveries of loans charged off:
Commercial and industrial		115			46			148			-			-
Commercial mortgages		9			-			-			-			-
Residential mortgages		1			-			-			-			-
Other		6			26			12			3			1
		131			72			160			3			1
Net chargeoffs		(1,503	)		(305	)		(15	)		(322	)		(13	)
Provision for loan losses		4,061			3,973			4,285			1,945			575
Balance, end of year	$	16,572		$	14,014		$	10,346		$	6,076		$	4,453
Ratio of net chargeoffs to average loans outstanding		.16	%		.04	%		.00	%		.06	%		.00	%

	December 31,
	2011					2010					2009					2008					2007
	Amount		% 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
	(dollars in thousands)

Commercial and industrial	$	699		4.3	%	$	803		4.3	%	$	971		5.9	%	$	933		8.1	%	$	874		11.7	%
Commercial mortgages		9,069		46.7			7,680		46.2			5,932		49.5			3,011		41.5			1,785		32.3
Residential mortgages		5,228		37.9			4,059		37.1			2,242		30.1			1,227		32.9			1,026		37.1
Home equity loans		1,415		10.6			1,415		11.8			1,102		13.4			706		15.5			551		15.8
Construction loans		-		-			-		-			43		.4			100		1.4			116		2.2
Other		161		.5			57		.6			56		.7			99		.6			101		.9
	$	16,572		100.0	%	$	14,014		100.0	%	$	10,346		100.0	%	$	6,076		100.0	%	$	4,453		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 New York City. Such conditions could affect the financial strength of the Bank’s borrowers and will affect the value of real estate collateral securing the Bank’s mortgage loans. Loans secured by real estate represent approximately 95% of the Bank’s total loans outstanding at December 31, 2011. Most of these loans were made to borrowers domiciled on Long Island and in the boroughs of New York City. In the last few years, general economic conditions have been unfavorable as characterized by high levels of unemployment, declines in commercial and residential real estate values, and increases in commercial real estate vacancies. These conditions have caused some of the Bank’s borrowers to be unable to make the required contractual payments on their loans and could cause the Bank to be unable to realize the full carrying value of such loans through foreclosure or other collection efforts.

Cash Flows. The Corporation’s primary sources of cash are deposit growth, maturities and amortization of loans and investment securities, operations and borrowings. The Corporation uses cash from these and other sources to fund loan growth, purchase investment securities, repay borrowings, expand and improve its physical facilities and pay cash dividends. During 2011, the Corporation’s cash and cash equivalent position increased by $11.1 million from $18.4 million at December 31, 2010 to $29.5 million at December 31, 2011. The increase occurred primarily because the cash provided by deposit growth, Federal Home Loan Bank borrowings and operations exceeded the cash used to grow the loan and securities portfolios, repay borrowings under repurchase agreements and pay cash dividends.

The Bank has both internal and external sources of liquidity that can be used to fund loan growth and accommodate deposit outflows. The Bank’s primary internal sources of liquidity are its overnight investments, investment securities designated as available-for-sale, maturities and monthly payments on its investment securities and loan portfolios and operations. At December 31, 2011, the Bank had approximately $616 million of unencumbered available-for-sale securities.

The Bank is a member of the Federal Reserve Bank of New York (“FRB”) and the FHLB of New York, has repurchase agreements in place with a number of brokerage firms and commercial banks and has federal funds lines with several commercial banks. In addition to customer deposits, the Bank’s primary external sources of liquidity are secured borrowings from the FRB, FHLB of New York and repurchase agreement counterparties. In addition, the Bank can purchase overnight federal funds under its existing lines. However, the Bank’s FRB membership, FHLB of New York membership, repurchase agreements and federal funds lines do not represent legal commitments to extend credit to the Bank. The amount that the Bank can potentially borrow is currently dependent on, among other things, the amount of unencumbered eligible securities and loans that the Bank can use as collateral and the collateral margins required by the lenders. Based on the collateral in place at the FRB and FHLB of New York at December 31, 2011, the Bank had a total borrowing capacity of approximately $658 million.

The Corporation’s off-balance sheet arrangements and contractual obligations at December 31, 2011 are summarized in the table that follows. Unused home equity lines comprise a substantial portion of the amount shown for commitments to extend credit. 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 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 are based on the contractual maturities of such borrowings and include scheduled principal and interest payments. The interest payments do not reflect any reduction in payments that the Bank may get from interest rate caps embedded in certain repurchase agreements. Some of these repurchase agreements can be terminated by the purchaser prior to contractual maturity (see Note F to the Corporation’s 2011 consolidated financial statements for more detailed information regarding repurchase agreements). The Corporation believes that its current sources of liquidity are more than sufficient to fulfill the obligations it has at December 31, 2011 pursuant to off-balance sheet arrangements and contractual obligations.

New York		11-2672906
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

10 Glen Head Road, Glen Head, NY		11545
(Address of Principal Executive Offices)		(Zip Code)

Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, $.10 par value per share		The NASDAQ Stock Market

Large accelerated filer o	Accelerated filer x

Non-accelerated filer o	Smaller reporting company o

Class		Outstanding, February 29, 2012
Common Stock, $.10 par value		8,842,033

PART I

ITEM 1.	Business	1

ITEM 1A.	Risk Factors	8

ITEM 1B.	Unresolved Staff Comments	11

ITEM 2.	Properties	11

ITEM 3.	Legal Proceedings	11

ITEM 4.	Mine Safety Disclosures	11

PART II

ITEM 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities	11

ITEM 6.	Selected Financial Data	13

ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	26

ITEM 8.	Financial Statements and Supplementary Data	29

ITEM 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	64

ITEM 9A.	Controls and Procedures	64

ITEM 9B.	Other Information	64

PART III

ITEM 10.	Directors, Executive Officers and Corporate Governance	64

ITEM 11.	Executive Compensation	64

ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	65

ITEM 13.	Certain Relationships and Related Transactions and Director Independence	65

ITEM 14.	Principal Accountant Fees and Services	65

PART IV

ITEM 15.	Exhibits and Financial Statement Schedules	65

	Index of Exhibits	66

	Signatures	67

	2011			2010
Quarter	High	Low	Dividends Declared	High	Low	Dividends Declared
First	$29.61	$26.05	$.22	$25.97	$22.46	$.20
Second	28.00	25.35	.22	28.08	23.62	.20
Third	28.15	21.90	.23	27.00	24.01	.22
Fourth	27.95	21.55	.23	29.24	24.55	.22

	Maturity
	Within One Year		After One But Within Five Years		Total
	(in thousands)
Commercial and industrial loans:
Fixed rate	$	796	$	3,117	$	3,913
Variable rate		24,948		13,711		38,659
	$	25,744	$	16,828	$	42,572