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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One) Annual Report Pursuant to Section 13 or 15(d) of
[X] the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ______ to _______

Commission file Number 0-29826

LONG ISLAND FINANCIAL CORP.
(Exact name of registrant as specified in its charter)

Delaware 11-3453684
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

One Suffolk Square, Islandia, New York 11749
(Address of Principal Executive Offices) (Zip Code)

(631) 348-0888
(Registrant's telephone number, including area code)

None
(Securities registered pursuant to Section 12(b) of the Act)

Common Stock, $.01 par value
(Securities registered pursuant to Section 12(g) of the Act)

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

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the last reported sales price of such stock
on the NASDAQ Stock Market was $20,157,179 on March 19, 2001.

The number of shares outstanding of the registrant's common stock was 1,479,426
as of March 19, 2001.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the 2000 Annual Report to Stockholders for fiscal year 2000
are incorporated herein by reference - Parts II and IV.
2. Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on April 25, 2001 are incorporated herein by
reference - Part III.



LONG ISLAND FINANCIAL CORP.
2000 FORM 10-K
TABLE OF CONTENTS

Page
PART I Number
------
Item 1. Business ....................................................... 3
Item 2. Properties ..................................................... 14
Item 3. Legal Proceedings .............................................. 14
Item 4. Submission of Matters to a Vote of Security Holders ............ 14

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ........................................... 14
Item 6. Selected Financial Data ........................................ 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 14
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ..... 14
Item 8. Financial Statements and Supplementary Data .................... 15
Item 9. Changes in and disagreements with Accountants on Accounting
and Financial Disclosure ...................................... 15

PART III

Item 10 Directors and Executive Officers of the Registrant ............. 15
Item 11 Executive Compensation ......................................... 15
Item 12 Security Ownership of Certain Beneficial Owners and
Management .................................................... 16
Item 13 Certain Relationships and Related Transactions ................. 16

PART IV

Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K .................................................. 16-53

Signatures ............................................................. 17



PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT

This Annual Report on Form 10-K contains certain forward -looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, and
may be identified by the use of such words as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential." Examples of forward looking
statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to
various factors which could cause actual results to differ materially from these
estimates. These factors include, but are not limited to, general economic
conditions, changes in interest rates, deposit flows, loan demand, real estate
values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting our
operations, pricing, products and services.

PART I

ITEM 1. BUSINESS

Long Island Financial Corp. ("the Company") is a registered bank holding
company, incorporated in Delaware in 1998, at the direction of the Directors of
Long Island Commercial Bank (the "Bank") for the purpose of becoming a holding
company to own all the outstanding common stock of the Bank. At a special
meeting on December 8, 1998, the stockholders of Long Island Commercial Bank
approved a Plan of Acquisition dated as of September 15, 1998, which
subsequently became effective January 28, 1999, and as a result of which: (i)
the Bank became a wholly-owned subsidiary of Long Island Financial Corp., a
Delaware corporation, and (ii) all of the outstanding shares of the Bank's
common stock were converted, subject to dissenter's rights, on a one-for-one
basis, into outstanding shares of the common stock of Long Island Financial
Corp. No stockholders asserted dissenters rights. This transaction is
hereinafter referred to as the "Reorganization."

The Reorganization created a bank holding company structure providing greater
operating flexibility by allowing the Company to conduct a broader range of
business activities and permits the Board of Directors of the Company to
determine whether to conduct such activities at the Bank or in separate
subsidiaries of the Company. The Reorganization also permits expansion into a
broader range of financial services and other business activities that are not
currently permitted to the Bank as a New York state-chartered commercial bank or
the Company as a bank holding Company. Such activities include, among others,
operating non-bank depository institutions or engaging in financial and
investment advisory services, securities brokerage and management consulting
activities.

In November, 2000, the Company elected to become a financial holding company as
provided for in the Financial Services Modernization Act of 1999, also known as
the Gramm-Leach-Bliley Act. That Act repealed provisions of the Glass-Steagall
Act and permits a financial holding company to engage in a statutorily provided
list of financial activities, including insurance and securities underwriting
and agency activities, merchant banking and insurance company portfolio
activities. The Act also provides for the approval for a financial holding
company to conduct other activities determined to be financial in nature or
incidental to or complementary to such financial activities.

General

The primary business of the Company is the operation of its wholly-owned
subsidiary, the Bank. The Bank is a New York state-chartered commercial bank,
founded in 1989, which is engaged in commercial banking in Islandia, New York,
and the surrounding communities in Suffolk and Nassau Counties. The Bank offers
a broad range of commercial and consumer banking services, including loans to
and deposit accounts for small and medium-sized businesses, professionals, high
net worth individuals and consumers. The Bank is an independent local bank,
emphasizing personal attention and responsiveness to the needs of its customers.
The Bank's senior management has substantial banking experience, and senior
management and the Board of Directors of the Bank have extensive commercial and
personal ties to the communities in Nassau and Suffolk Counties, New York.

The Bank conducts a full service commercial and consumer banking business, which
primarily consists of attracting deposits from the areas served by its branch
network and using those deposits to originate a variety of commercial, consumer
and real estate loans. During periods in which the demand for loans which meet
the Bank's underwriting and interest rate risk standards is less than the amount
of funds available for investment, the Bank invests excess funds in federal
funds, mortgage-backed securities, corporate debt securities issued by the U.S.
Government and agencies thereof and municipal obligations. The Bank's revenues
are derived principally from interest income on its loan and securities
portfolios. The Bank's principal expenses are interest paid on deposits,
interest paid on borrowed funds and other operating expenses. Funding sources,
other than deposits, include: secured and unsecured borrowings, available lines
of credit, sales of securities under agreements to repurchase, and cash flow
from lending and investing activities.


3


The Bank's results of operations are dependent primarily on net interest income,
which is the difference between the income earned on its loan and security
portfolios and its cost of funds, consisting of interest paid on deposits and
borrowings. Results of operations are also affected by the Bank's provision for
loan losses and other operating income. The Bank's other operating expense
principally consists of salaries and employee benefits, occupancy, premises and
equipment expense, and other expenses. Results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in interest rates, government policies and action of
regulatory authorities.

Market Area and Competition

The Company's primary customer base is established, small to medium-sized and
expanding businesses, professionals, and high net worth individuals and
consumers. The Company believes that emphasizing personal attention and
responsiveness to the needs of its customers, including providing state of the
art electronic banking services and expanded service hours, contributes to the
Company's competitiveness as a financial services provider.

The Company faces extensive competition in originating loans and in attracting
deposits. Competition among financial institutions is generally based upon
interest rates offered on deposit accounts, interest rates charged on loans,
fees assessed for services performed, the quality and scope of the services
rendered, and the convenience of banking facilities.

A significant number of financial service entities operate within the Bank's
market area. In one or more aspects of its business, the Bank competes directly
with other commercial banks, savings banks, mortgage banking companies, mortgage
brokers, and other providers of financial services. Some of these entities are
significantly larger than the Bank and have substantially greater resources and
lending limits, and may offer certain services the Bank does not provide. In
addition, many non-bank competitors are not subject to the same extensive
Federal regulations that govern financial holding companies and Federally
insured banks.

Lending Activities

The Bank offers a variety of commercial and consumer loan products to serve the
needs of its customers. The interest rates charged by the Bank on loans are
affected principally by rates offered by its competitors, the supply of money
available for lending purposes and demand for such loans. General and economic
conditions, monetary policies of the federal government including the Federal
Reserve Board, legislative tax policies and governmental budgetary matters also
affect interest rates charged by the Bank.

Loan Approval and Underwriting. In general, the Bank utilizes a committee
process to approve its loans. The President and Chief Lending Officer, are
authorized to approve loans up to $250,000. All other loans are brought before
the Loan Committee. The Loan Committee which consists of Directors Auerbach,
Duryea, Del Duca, Esposito, Kern, Manditch, Neuburger, Roberts, Romito, Tsunis
and Vizzini, meet one day each month; however, additional meetings are held as
the need arises. The Board of Directors receives a monthly report summarizing
the loan portfolio activity, and actions taken by the Loan Committee.

It is the policy of the Bank that all loans satisfy basic lending criteria with
respect to the character of the applicant, including any guarantor, the ability
to repay the loan within a completed term, the applicant's financial strength,
the adequacy of any required security and compliance with the Bank's lending
policy.

Loan Portfolio

The following table sets forth the composition of the Bank's loan portfolio at
the dates indicated:



At December 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------
(In thousands)

Commercial and industrial loans $ 39,468 $ 34,057 $30,853 $30,909 $24,952
Commercial real estate loans 93,875 84,133 53,990 31,254 18,566
Automobile loans 2,693 1,463 8,262 17,524 21,800
Consumer loans 985 1,250 1,396 1,726 860
Residential real estate loans
held-for-sale 711 1,019 1,486 -- --
--------- -------- ------- ------- -------
Gross loans 137,732 121,922 95,987 81,413 66,178
Less:
Unearned income 395 42 362 1,322 2,590
Deferred fees, net 612 569 410 306 148
Allowance for loan losses 1,872 1,475 1,071 1,026 780
--------- -------- ------- ------- -------
Loans, net $ 134,853 $119,836 $94,144 $78,759 $62,660
========= ======== ======= ======= =======



4


Commercial and Industrial Loans. The Bank offers a variety of commercial loan
services including term loans, demand loans, revolving credit, and loans
guaranteed in part by the Small Businesses Administration. A broad range of
commercial loans, both collateralized and uncollateralized, are made available
to businesses for working capital (including inventory and receivables),
business expansion, and for the purchase of machinery and equipment. The purpose
of a particular loan generally determines it's structure.

Commercial loans are typically underwritten on the basis of the borrowers
repayment capacity from cash flow and are generally collateralized by business
assets such as, but not limited to, inventory, equipment and accounts
receivable. As a result, the availability of funds for the payment of commercial
loans may be substantially dependent on the success of the business itself.
Further, the collateral underlying the loans may depreciate over time, cannot be
appraised and may fluctuate in value based upon the success of the business.
Revolving credit lines are primarily collateralized by short-term assets, while
term loans are primarily collateralized by long-term or fixed assets. Personal
guarantees are normally required for commercial loans. At December 31, 2000,
commercial and industrial loans represented 28.7% of the loan portfolio.

Commercial Real Estate Loans. The Bank originates commercial real estate loans
to businesses to finance the acquisition and holding of commercial real estate.
The security for the Bank's commercial real estate loans is generally located in
the Bank's primary market area and is underwritten on the basis of the value of
the underlying real property. Loans secured by commercial real estate generally
involve a greater degree of risk than residential real estate loans. Primary
risks associated with commercial real estate lending include the borrower's
inability to pay the debt due to unsuccessful operation or management of the
property and adverse conditions in the real estate market or economy. At
December 31, 2000, commercial real estate loans represented 68.2% of the loan
portfolio.

Automobile Loans. The Bank maintains a program of making non-recourse loans to a
local automobile leasing company, receiving an assignment of each individual
lease and a collateral interest in each automobile. The program, which continues
to further diversify the loan portfolio, is expected to continue through 2001.
At December 31, 2000 automobile loans represented 1.9% percent of the loan
portfolio.

Consumer Loans. Consumer loans made by the Bank include loans for new and used
automobiles, personal secured, personal unsecured, and loans secured by deposit
accounts. Consumer loans generally carry higher rates of interest than those
charged on other types of loans and pose additional risks of collectibility when
compared to other types of loans, such as residential real estate loans. In many
instances, the Bank must rely on the borrower's ability to repay, since the
collateral normally is of reduced value at the time of any liquidation.
Accordingly, the initial determination of the borrower's ability to repay is of
primary importance in the underwriting of consumer loans.

Residential Real Estate Loans. The Bank originates residential real estate loans
primarily in its market area of Nassau and Suffolk counties. Currently, the Bank
sells residential real estate loans together with the servicing rights to these
loans on a non-recourse basis to institutional investors. The Bank limits its
exposure to interest rate fluctuations and credit risk on these loans by
obtaining, at the point of origination, a commitment from an institutional
investor to purchase that loan from the Bank. By selling the servicing rights to
the loans, the Bank avoids the associated risks and expenses of managing and
servicing a loan portfolio. Income is generated from the premiums received on
the sale of loans and servicing rights, and fees charged and interest earned
during the period the Bank holds the loans for sale.

Maturities and Sensitivities of Loans to Changes in Interest Rates

The following table shows the approximate contractual maturities and
sensitivities to changes in interest rates of certain loans, exclusive of
non-accrual loans as of December 31, 2000.



Commercial Residential
and Commercial Real Estate
Industrial Real Estate Automobile Consumer Loans Held- Total
Loans Loans Loans Loans For-Sale Loans
----- ----- ----- ----- -------- -----
(In thousands)

Maturities:
Due within one year $24,688 $ 1,105 $ -- $ 48 $ 711 $ 26,552

Due after one but within five years 5,022 1,044 129 488 -- 6,683
Due after five but within ten years 5,683 771 1,400 417 -- 8,271
Due after ten years 3,691 90,955 1,164 -- -- 95,810
------- ------- ------ ---- ----- --------
Total Due after December 31, 2001 14,396 92,770 2,693 905 -- 110,764
------- ------- ------ ---- ----- --------

Total amount due $39,084 $93,875 $2,693 $953 $ 711 $137,316
======= ======= ====== ==== ===== ========

Rate sensitivity:
Amounts with Fixed Interest Rates $ 8,176 $10,861 $2,693 $905 $ -- $ 22,635
Amounts with Adjustable Interest Rates 6,220 81,909 -- -- -- 88,129
------- ------- ------ ---- ----- --------
Total $14,396 $92,770 $2,693 $905 $ -- $110,764
======= ======= ====== ==== ===== ========



5


Allowance for Loan Losses

The allowance for loan losses is maintained through provisions for loan losses
based on management's on-going evaluation of the risks inherent in its loan
portfolio in consideration of the trends in its loan portfolio, the national and
regional economies and the real estate market in the Bank's primary lending
area. The allowance is maintained at an amount management considers adequate to
cover estimated losses in its loan portfolio which are deemed probable and
estimable based on information currently known to management. While management
believes that, based on information currently available, the Bank's allowance is
sufficient to cover losses inherent in its loan portfolio at this time, no
assurance can be given that future adjustments to the allowance will not be
necessary if economic and other conditions differ substantially from the
economic and other conditions used by management to determine the current level
of the allowance. Management may in the future increase its level of loan loss
allowance as a percentage of total loans and non-performing loans as deemed
necessary. In addition, the Federal Deposit Insurance Corporation (AFDIC@) and
New York State Banking Department (ANYSBD@) as an integral part of their
examination process periodically review the Bank's allowance for loan losses.
Either the FDIC or the NYSBD may require the Bank to make additional provisions
for loan losses based upon judgments that may differ from those of management
thereby negatively impacting the Bank's financial condition and earnings.

The following table sets forth the activity in the Bank's allowance for loan
losses for the periods indicated:




At December 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------
(Dollars in thousands)


Balance at beginning of year $1,475 $1,071 $1,026 $ 780 $ 633
Provision for loan losses 150 600 420 240 302
Charge-offs:
Commercial and industrial loans (187) (80) (203) (23) (209)
Automobile loans (54) (66) (58) (75) --
Consumer loans (99) (81) (145) (21) (35)
------ ------ ------ ------ ------
Total charge-offs (340) (227) (406) (119) (244)
Recoveries:
Commercial and industrial loans 547 26 1 125 89
Automobile loans 13 4 15 -- --
Consumer loans 27 1 15 -- --
------ ------ ------ ------ ------
Total recoveries 587 31 31 125 89
------ ------ ------ ------ ------
Net recoveries (charge-offs) 247 (196) (375) 6 (155)
------ ------ ------ ------ ------
Balance at end of year $1,872 $1,475 $1,071 $1,026 $ 780
====== ====== ====== ====== ======
Ratio of net charge-offs/average
net loans --% .19% .43% --% .31%
------ ------ ------ ------ ------


The following table sets forth the allocation of the Bank's allowance for loan
losses at the dates indicated:



At December 31,
----------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
----------------------------------------------------------------------------------------------
(Dollars in thousands)


Commercial and
industrial loans $ 723 28.7% $ 610 27.9% $ 589 32.1% $ 489 38.0% $319 37.7%
Commercial real
estate loans 939 68.2 631 69.0 330 56.2 313 38.4 186 28.1
Automobile loans 27 1.9 13 1.2 48 8.6 186 21.5 218 32.9
Consumer loans 26 .7 61 1.0 104 1.5 22 2.1 9 1.3
Residential real
estate loans held- -- .5 -- .9 -- 1.6 -- -- -- --
for-sale
Unallocated $ 157 -- $ 160 -- $ -- -- $ 16 -- $ 48 --
------ ----- ------ ----- ------ ----- ------ ----- ---- -----
Total allowance for
loan losses $1,872 100.0% $1,475 100.0% $1,071 100.0% $1,026 100.0% $780 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ==== =====



6


Non-Accrual Loans. The following table sets forth information regarding
non-accrual loans and loans delinquent 90 days or more and still accruing
interest at the dates indicated. It is the Bank's general policy to discontinue
accruing interest on all loans which are past due 90 days or when, in the
opinion of management, it is appropriate to discontinue accruing interest. When
a loan is placed on non-accrual status, the Bank ceases the accrual of interest
owed and previously accrued interest is charged against interest income. Loans
are generally returned to accrual status when principal and interest payments
are current, there is reasonable assurance that the loan will be fully
collectible and a consistent record of performance has been demonstrated.




At December 31,
---------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------
(Dollars in thousands)

Non-accrual loans:
Commercial and industrial loans $384 $ 42 $366 $230 $231
Automobile loans -- 32 37 165 174
Consumer loans 32 105 108 -- --
---- ---- ---- ---- ----
Total non-accrual loans 416 179 511 395 405

Loans contractually past due 90 days or
more, other than non-accruing (2) -- -- -- 8 43
---- ---- ---- ---- ----
Total non-performing loans $416 $179 $511 $403 $448
==== ==== ==== ==== ====

Allowance for loan losses as a
percent of total loans (1) 1.37% 1.22% 1.12% 1.29% 1.23%
Allowance for loan losses as a
percent of total non-performing loans 450.0 824.02 209.59 254.59 174.11
Non-performing loans as a percent
of total loans (1) .30 .15 .54 .51 .71


(1) Loans include loans, net of unearned income and deferred fees.

(2) Excludes $231,000 of loans at December 31, 1999, which have matured,
however, are current with respect to scheduled periodic principal and/or
interest payments. The Bank is in the process of renewing these
obligations and/or awaiting anticipated repayment.

Investment Activities

General. The Bank maintains a portfolio of securities in such instruments as
U.S. government and agency securities, mortgage-backed securities, municipal
obligations, corporate debt and equity securities. The investment policy of the
Bank, which is approved by the Board of Directors and implemented by the Bank's
Investment Committee (the "Committee") as authorized by the Board, is designed
primarily to generate acceptable yields for the Bank without compromising the
Bank's business objectives or incurring undue interest rate or credit risk, and
to provide and maintain liquidity for the Bank. In reviewing and establishing
investment strategies the Committee considers the business and growth plans of
the Bank, the economic environment, the current interest rate sensitivity
position, the types of securities held and other factors.

At December 31, 2000, the Company had $169.4 million in investment securities
consisting of U.S. Government and Agency obligations, mortgage-backed
securities, municipal obligations, corporate debt and equity securities. The
accounting treatment of the Bank's securities is addressed in Note 1 of the
Notes to the Consolidated Financial Statements in the 2000 Annual Report to
Stockholders.

U.S. Government and Agency Obligations. At December 31, 2000, the Bank's U.S.
Government and Agency obligations portfolio totaled $115.9 million, all of which
was classified as available-for-sale. Included in this total are $65.4 million
of callable securities, which generally possess higher yields than those
securities of similar contractual terms to maturity without callable features.
The remaining balance of $50.5 million represent U.S. Treasury and government
sponsored agency discount notes, which are primarily used as collateral for
seasonal municipal deposits and other short term borrowings.


7


Mortaged-Backed Securities. The Bank purchases mortgage-backed securities in
order to: (a) generate positive interest spreads with minimal administrative
expense; (b) lower its credit risk as a result of the guarantees provided by
FHLMC, FNMA, and GNMA; (c) utilize these securities as collateral for
borrowings; and (d) increase the liquidity of he Bank. At December 31, 2000,
mortgaged-backed securities totaled $42.5 million, or 12.8% of total assets, of
which all was classified as available-for-sale. At December 31, 2000, 24.5% of
the mortgage-backed securities were adjustable rate and 75.5% were fixed rate.
The mortgage-backed securities had coupon rates ranging from 5.00% to 8.83% and
had a weighted average yield of 6.90%.

Municipal Obligations. At December 31, 2000, the Banks municipal obligations
represented a $1.2 million general obligation bond. All of the municipal bonds
purchased by the Bank are required to be rated "A" or better by at least one
national rating agency. At December 31, 2000, the security had a coupon rate of
4.00% and a contractual maturity date of April 1, 2007.

Corporate Debt. The Bank's investment policy was amended in 2000 to include the
purchase of capital notes/trust preferred issued primarily by financial
institutions up to a limit of $10 million dollars. These securities represent
secondary capital and rank subordinate and junior in right of payment to all
indebtedness of the issuing company. These higher yielding securities must be
rated investment grade by at least two of the national rating agencies. At
December 31, 2000, the Company had $4.5 million of corporate debt at an average
yield of 9.50%

Equity Securities. The Bank's equity securites at December 31, 2000 was $5.3
million which represented the Bank's investment in Federal Home Loan Bank of New
York (FHLB) stock. In connection with the Bank's ability to borrow from the
FHLB, the Company is required to purchase shares of FHLB non-marketable equity
securities at par. For the year ended December 31, 2000, the dividend yield on
the FHLB stock was 6.96%.

The following table sets forth information regarding the amortized cost (book
value) and fair value of the Bank's securities portfolio at the dates indicated:



At December 31,
-------------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value Cost Value
-------------------------------------------------------------------------------

Held-to-maturity:
Mortgage-backed securities:
CMO $ 263 $ 254 $ 341 $ 338 $ 664 $ 665
Corporate debt 4,491 4,482 -- -- -- --
-------- -------- -------- -------- -------- --------
Total securities
held-to-maturity $ 4,754 $ 4,736 $ 341 $ 338 $ 664 $ 665
-------- -------- -------- -------- -------- --------
Available-for-sale:
U.S. Government and
Agency obligations $117,364 $115,945 $122,423 $118,907 $ 78,994 $ 78,980
Mortgage-backed securities:
GNMA 36,559 35,963 41,136 39,580 39,864 39,771
FHLMC 969 982 1,350 1,369 2,453 2,487
FNMA 5,279 5,303 3,599 3,571 6,060 6,097
Municipal obligations 1,167 1,149 1,166 1,143 12,855 13,002
Other debt securities -- -- 92 91 199 199
-------- -------- -------- -------- -------- --------
Total debt securities 161,338 159,342 169,766 164,661 140,425 140,536
Equity securities - FHLB stock 5,326 5,326 5,147 5,147 4,619 4,619
-------- -------- -------- -------- -------- --------
Total securities
available-for-sale $166,664 $164,668 $174,913 $169,808 $145,044 $145,155
-------- -------- -------- -------- -------- --------




The following table sets forth certain information regarding the amortized cost,
weighted average yields and contractual maturities of the Bank's securities
portfolio as of December 31, 2000.



- ------------------------------------------------------------------------------------------------------------------------------------
More Than More Than
One Year One Year to Five Years More Than
or Less Five Years to Ten Years Ten Years Total
Weighted Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)

Available-for-sale:
Debt securities:
US Government and
Agency obligations $50,345 6.32% $35,020 6.00% $31,999 6.07% $ -- --% $117,364 6.16%
Mortgage-backed securities:
GNMA -- -- -- -- -- -- 36,559 6.79 36,559 6.79
FHLMC 116 11.42 42 7.43 -- -- 811 8.22 969 8.57
FNMA -- -- 1,637 6.99 -- -- 3,642 7.58 5,279 7.40
Municipal obligations(1) -- -- -- -- 1,167 5.83 -- -- 1,167 5.83
------- ----- ------- ---- ------- ---- ------- ---- -------- ----
Total debt securities 50,461 6.33 36,699 6.05 33,166 6.00 41,012 6.89 161,338 6.36
------- ----- ------- ---- ------- ---- ------- ---- -------- ----
Equity securities:
FHLB stock 5,326 6.96 -- -- -- -- -- -- 5,326 6.96
------- ----- ------- ---- ------- ---- ------- ---- -------- ----
Total equity securities 5,326 6.96 -- -- -- -- -- -- 5,326 6.96%
------- ----- ------- ---- ------- ---- ------- ---- -------- ----
Total debt and equity
securities, available-for-sale $55,787 6.39% $36,699 6.05% $33,166 6.00% $41,012 6.89% $166,664 6.36%
------- ----- ------- ---- ------- ---- ------- ---- -------- ----
Held-to-maturity:
Mortgage-backed securities:
CMO $ -- --% $ -- --% $ -- --% $ 263 6.62% $ 263 6.62%
------- ----- ------- ---- ------- ---- ------- ---- -------- ----
Corporate debt $ -- --% $ -- --% $ 1,017 9.60% $ 3,474 9.47% $ 4,491 9.50%
------- ----- ------- ---- ------- ---- ------- ---- -------- ----
Total securities, held-to-
maturity $ -- --% $ -- --% $ 1,017 9.60% $ 3,737 9.27% $ 4,754 9.34%
======== ===== ======== ==== ======== ==== ======== ==== ======== ====


(1) Yields are presented on a fully taxable equivalent basis.

Deposits

The Bank offers a variety of deposit accounts with a range of interest rates and
terms. The Bank's deposit accounts consist of checking, savings, NOW accounts,
money market accounts and certificates of deposit. The Bank offers certificates
of deposit with balances in excess of $100,000 at premium rates and also offers
Individual Retirement Accounts and other qualified plan accounts. The Bank
solicits deposit accounts from small businesses, professional firms, households,
and governmental institutions located throughout its market area. The Bank does
not use brokers to obtain deposits. All deposit accounts are insured under the
Bank Insurance Fund of the Federal Deposit Insurance Corporation up to the
maximum limits permitted by law.

The following table shows the distribution of the Bank's average deposit
accounts in each category of deposits presented for the periods indicated:



For the Years Ended December 31,
----------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
----------------------------------------------------------------
(dollars in thousands)

Non-interest bearing accounts $ 40,842 --% $ 33,791 --% $ 25,811 --%
Savings accounts 31,507 3.71 22,747 3.42 9,030 3.42
NOW and money market deposits 43,865 2.31 49,413 1.99 35,852 2.38
Certificates issued in excess of $100,000 25,576 5.97 24,470 5.06 24,695 5.31
Other time deposits 80,503 6.15 79,126 5.66 81,046 6.05
-------- -------- --------
Total average deposits $222,293 $209,547 $176,434
======== ======== ========



9


At December 31, 2000, the Bank had outstanding approximately $35.2 million in
certificates of deposit accounts in amounts of $100,000 or more, maturing as
follows:

(In thousands)

3 months or less $23,159
Over three through six months 8,097
Over six through 12 months 3,469
Over 12 months 503
-------
Total $35,228
=======

Borrowings

The Bank utilizes borrowings to leverage the Bank's capital and provide
liquidity when necessary. Borrowed funds at December 31, 2000 primarily
consisted of $29.0 million of convertible advances from the Federal Home Loan
Bank of New York (AFHLB@) secured by various callable U.S. agency securities and
mortgage-backed securities. In addition to FHLB advances, at certain times the
Bank will use sales of securities sold under agreements to repurchase as a lower
cost alternative to its other sources of funds. There were no securities sold
under agreements to repurchase at December 31, 2000. At December 31, 2000 the
Bank had available a 12-month commitment for overnight and one month lines of
credit with the FHLB totaling $26.0 million dollars. Both lines of credit are
priced at the federal funds rate plus 10.0 basis points and reprice daily. There
were no overnight line of credit balance outstanding at December 31, 2000. The
Company has a $500,000 secured line of credit with another financial institution
permitting borrowing at that institution's prime rate. At December 31, 2000
there was no balance outstanding under this line of credit agreement. In
addition, the Bank has available $5.5 million in lines of credit with
unaffiliated institutions which enable it to borrow funds on an unsecured basis,
of which there was no balance outstanding at December 31, 2000. The following
table sets forth certain information regarding the Bank's borrowed funds for the
years indicated:



For the Years Ended December 31,
---------------------------------
2000 1999 1998
---------------------------------
(Dollars in thousands)

FHLB Advances:
Maximum amount outstanding at any month-end
during the year $39,000 $39,000 $24,000
Average balance outstanding 36,760 38,178 14,449
Balance outstanding at end of year 29,000 39,000 24,000
Weighted average interest rate during the year 4.94% 4.90% 5.36%
Weighted average interest rate at the end of the year 5.02% 4.90% 5.04%

Repurchase Agreements:
Maximum amount outstanding at any month-end
during the year $29,850 $ -- $10,238
Average balance outstanding 4,719 530 853
Balance outstanding at end of year -- -- --
Weighted average interest rate during the year 5.94% 5.09% 5.46%
Weighted average interest rate at the end of the year -- -- --

Federal Funds Purchased:
Maximum amount outstanding at any month-end
during the year $16,650 $ 6,500 $ 5,000
Average balance outstanding 5,729 1,810 545
Balance outstanding at end of year -- -- --
Weighted average interest rate during the year 6.40% 5.41% 5.21%
Weighted average interest rate at the end of the year -- -- --

Line of Credit:
Maximum amount outstanding at any month-end
during the year $ 500 $ 500 $ --
Average balance outstanding 244 139 --
Balance outstanding at end of year -- 500 --
Weighted average interest rate during the year 9.14% 7.91% --%
Weighted average interest rate at the end of the year --% 8.50% --



10


Subsidiary Activities

The Company has two wholly-owned subsidiaries, Long Island Commercial Bank, and
LIF Statutory Trust I. On September 7, 2000, LIF Statutory Trust issued $7.5
million aggregate liquidation amount of 10.60% Capital Securities due September
7, 2030, referred to as Capital Securities. The Company has fully and
unconditionally guaranteed the Capital Securities along with all obligations of
LIF Statutory Trust I under the trust agreement. LIF Statutory Trust I was
formed for the exclusive purpose of issuing the Capital Securities and common
securities and using the proceeds to acquire an aggregate principal amount of
$7.7 million of the Company's 10.60% Junior Subordinated Debentures due
September 7, 2030, referred to as the Company's Junior Subordinated Debentures.
The Junior Subordinated Debentures are prepayable, in whole or in part, at the
Company's option on or after September 7, 2010 at declining premiums to
maturity. Proceeds totaling approximately $7.2 million are being used for
general corporate purposes, including the repurchase of common stock.

Long Island Commercial Bank currently has one subsidiary, Long Island Commercial
Capital Corporation. Long Island Commercial Capital Corporation was organized
for the purpose of investing in mortgage related assets as a real estate
investment trust. The Bank transferred $48.3 million in commercial real estate
loans to Long Island Commercial Capital Corporation which included certain
associated assets and liabilities. In return, the Bank received shares of common
and preferred stock of Long Island Commercial Capital Corporation.

Personnel

At December 31, 2000, the Bank employed 77 employees, 7 of which are part-time.
No employees are covered by a collective bargaining agreement and the Bank
believes its employee relations are good.

Federal and State Taxation

General. The Company, the Bank and its subsidiary report their income using the
accrual method of accounting and are subject to federal and state income
taxation in the same manner as other corporations. The following discussion of
tax matters is intended only as a summary and does not purport to be a
comprehensive description of the tax rules applicable to the Company, the Bank
or its subsidiary. The Company, the Bank and its subsidiary have not been
audited by the Internal Revenue Service during the last five years.

Federal Income Taxation. In general, banks are subject to federal income tax in
the same manner as other corporations. However, gains and losses realized by
banks from the sale or exchange of portfolio debt instruments are generally
treated as ordinary, rather than capital, gains and losses, and a "small bank"
(ie. one with assets having a tax basis of no more than $500 million), such as
the Bank, is permitted to calculate its deductions for bad debts under a reserve
method that is based upon actual charge-offs for the current and preceding five
years or a "grand-fathered" base year reserve, if larger. A bank maintaining a
bad debt reserve may be subject to additional tax if it makes distributions to
shareholders in excess of its current and accumulated earnings and profits, as
calculated for federal income tax purposes, or in redemption of its stock or in
partial or complete liquidation.

Corporate Alternative Minimum Tax. In addition to the regular income tax, the
Code imposes an alternative minimum tax (AMT) in an amount equal to 20% of
alternative minimum taxable income (AMTI) to the extent that the AMT exceeds the
regular tax. AMTI is regular taxable income as modified by certain adjustments
and tax preference items. AMTI includes an amount equal to 75% of the excess of
adjusted current earnings over AMTI (determined without regard to this
adjustment and prior to reduction for net operating losses). Only 90% of AMTI
can be offset by net operating loss carry forwards. The AMT is available as a
credit against future regular income tax. The AMT credit can be carried forward
indefinitely. The Bank does not expect to be subject to the AMT.

Dividends Received Deduction and Other Matters. The Company may exclude from its
income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. A 70% dividends received deduction generally
applies with respect to dividends received from corporations that are not
members of such affiliated group, except that an 80% dividends received
deduction applies if the Company and the Bank own more than 20% of the stock of
a corporation distributing a dividend.

New York State Taxation. The Bank is subject to the New York State Franchise Tax
on Banking Corporations in an amount equal to the greater of ( i ) 8.5% of the
Bank's "entire net income" allocable to New York State during the taxable year,
or ( ii ) the applicable alternative minimum tax. The alternative minimum tax is
generally the greatest of (a) .01% of the value of the taxable assets allocable
to New York State (b) 3% of alternative entire net income allocated to New York
or (c) $250. Entire net income is similar to federal taxable income subject to
certain modifications. A bank maintaining such a bad debt reserve may be subject
to additional New York tax if it makes certain distributions to its
shareholders. In addition, net-operating losses cannot be carried back or
carried forward and alternative entire net income is equal to entire net income
without certain adjustments. The Bank is also subject to the 17% Metropolitan
Commuter Transportation District Surcharge on its New York Sate Franchise Tax.
The Company and the Bank file a combined return.


11


Delaware Taxation. The Company, as a Delaware financial holding company not
earning income in Delaware, is exempted from the corporate income tax. However,
the Company is required to file an annual report with and pay an annual
franchise tax based on authorized shares to the State of Delaware.

Supervision and Regulation

Holding Company Regulation. As a registered financial holding company, the
Company is subject to examination, regulation, and periodic reporting under the
Bank Holding Company Act, as administered by the Board of Governors of the
Federal Reserve System (the AFRB@). The Company is required to obtain the prior
approval of the FRB to acquire all, or substantially all, of the assets of any
bank or bank holding company or merge with another bank holding company. Prior
FRB approval will also be required for the Company to acquire direct or indirect
ownership or control of any voting securities of any bank or bank holding
company if, after giving effect to such acquisition, the Company would, directly
or indirectly, own or control more than 5% of any class of voting shares of such
bank or bank holding company. In evaluating such transactions, the FRB considers
such matters as the financial and managerial resources of and future prospects
of the companies involved, competitive factors and the convenience and needs of
the communities to be served. Bank holding companies may acquire additional
banks in any state, subject to certain restrictions such as deposit
concentration limits. In addition to the approval of the FRB, before any bank
acquisition can be completed, prior approval may also be required to be obtained
from other agencies having supervisory jurisdiction over banks to be acquired.
The FRB has adopted capital adequacy guidelines for bank holding companies (on a
consolidated basis). The Company's total and Tier 1 capital exceeds the
requirements established by the FRB.

A bank holding company is generally required to give the FRB prior written
notice of any purchase or redemption of its outstanding equity securities if the
gross consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of the Company's consolidated net worth. The FRB
may disapprove such a purchase or redemption if it determines that the proposal
would constitute an unsafe and unsound practice, or would violate any law,
regulation, FRB order or directive, or any condition imposed by, or written
agreement with, the FRB. There is an exception to this approval requirement for
well-capitalized bank holding companies that meet certain other conditions.

The FRB has issued a policy statement regarding the payment of dividends by bank
holding companies. In general, the FRB's policies provide that dividends should
be paid only out of current earnings and only if the prospective rate of
earnings retention by the bank holding company appears consistent with the
organization's capital needs, asset quality, and overall financial condition.
The FRB's policies also require that a bank holding company serve as a source of
financial strength to its subsidiary bank or banks by standing ready to use
available resources to provide adequate capital funds to those banks during
periods of financial stress or adversity and by maintaining the financial
flexibility and capital-raising capacity to obtain additional resources for
assisting its subsidiary bank or banks where necessary. These regulatory
policies could affect the ability of the Company to pay dividends or otherwise
engage in capital distributions.

Gramm-Leach-Bliley. On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999 (also known as the Financial Services
Modernization Act). The Financial Services Modernization Act repealed provisions
of the Glass-Steagall Act which restricted the affiliation of banks with firms
engaged principally in specified securities activities, and provided for
regulation of a new form of bank holding company, known as a financial holding
company under the Bank Holding Company Act. Financial holding companies, such as
the Company, can engage in a statutorily provided list of financial activities,
including insurance and securities underwriting and agency activities, merchant
banking and insurance company portfolio activities.

The general effect of the Financial Services Modernization Act is to establish a
comprehensive framework to permit affiliations among commercial banks, insurance
companies, securities firms and other financial service providers. In addition,
activities that the Federal Reserve, in consultation with the Secretary of the
Treasury, determines to be financial in nature, incidental to such financial
activities, or complementary activities that do not pose a substantial risk to
the safety and soundness of depository institutions or the financial system
generally are authorized.

In addition to repealing historical restrictions on, and eliminating federal and
state law barriers to affiliations among banks, securities firms, insurance
companies, and other financial service providers, the Financial Services
Modernization Act provides a uniform framework for the functional regulation of
the activities of banks, savings institutions and their holding companies;
provides an enhanced framework for protecting the privacy of consumer
information; modifies the laws governing the implementation of the Community
Reinvestment Act; and addresses a variety of other legal and regulatory issues
affecting both the day-to-day operations and the long-term activities of
financial institutions.

In order for the Company to take advantage of the ability to affiliate with
other financial services providers without obtaining prior approval, the Company
filed a declaration with the Federal Reserve Board, electing to engage in
activities permissible for financial holding companies and certifying that it is
eligible to do so because the Bank is well-capitalized and well-managed. In
addition, the Federal Reserve determined that the Bank and the Company have at
least a satisfactory CRA rating. The Company met those requirements and
qualifies as a financial holding company.


12


The Company does not believe that the Financial Services Modernization Act will
have a material adverse effect on its operations in the near-term. However, to
the extent that it permits banks, securities firms, and insurance companies to
affiliate, the financial services industry may experience further consolidation.
The Financial Services Modernization Act is intended to grant to community banks
certain powers as a matter of right that larger institutions have accumulated on
an ad hoc basis. Nevertheless, that Act may have the result of increasing the
amount of competition that the Company and the Bank face from larger
institutions and other types of companies offering financial products, many of
which may have substantially more financial resources than the Company or the
Bank.

From time to time, various federal and state legislation is proposed that could
result in additional regulation of, and restrictions on, the business of the
Company and the Bank. We cannot predict whether any such legislation will be
enacted or, if enacted, how the legislation would affect the business of the
Company and the Bank. As a consequence of the extensive regulation of commercial
banking activities in the United States, the Company's and the Bank's business
is particularly susceptible to being affected by federal legislation and
regulations that may increase the cost of doing business. Except as specifically
described above, management does not believe that the Financial Services
Modernization Act will have a material effect on the liquidity, capital
resources or results of operations of the Company.

Management is not aware of any other current specific recommendations by
regulatory authorities or proposed legislation, which if they were implemented,
would have a material adverse effect upon the liquidity, capital resources, or
results of operations, although the general cost of compliance with numerous and
multiple federal and state laws and regulations does have, and in the future may
have, a negative impact on the corporation's results of operations.

Further, the business of the Corporation is also affected by the state of the
financial services industry in general. As a result of legal and industry
changes, management believes that the industry will continue to experience and
increase in consolidations and mergers as the financial services industry
strives for greater cost efficiencies and market share. Management also expects
increased diversification of financial products and services offered by the Bank
and its competitors. Management believes that such consolidations and mergers,
and diversification of products and services may enhance the Bank's competitive
position.

New York State and FDIC

The Bank is organized under the New York Banking Law ("Banking Law"), and its
deposits are insured by the Bank Insurance Fund (the ABIF@) of the FDIC to the
extent permitted by law. As a New York bank, the Bank is subject to regular
examination and supervision by the NYSBD. As a depository institution, the
deposits of which are insured by the FDIC, the Bank also is subject to
regulation and supervision by the FDIC. While the Bank is not a member of the
Federal Reserve System, it is subject to certain regulations of the Federal
Reserve Board. In addition to banking laws, regulations and regulatory agencies,
the Bank is subject to various other laws, regulations and regulatory agencies,
all of which directly or indirectly affect the Bank's operations.

Federal Securities Laws

The status of the Company as a registered bank holding company under the BHCA
does not exempt it from certain Federal and state laws and regulations
applicable to corporations generally, including, without limitation, certain
provisions of the Federal securities laws. The Company is subject to the
periodic reporting, proxy solicitation, tender offer, insider trading
restrictions and other requirements under the Securities and Exchange Act of
1934, as amended, or Exchange Act.

Delaware Corporation Law

The Company is incorporated under the laws of the State of Delaware. Thus, we
are subject to the regulation by the State of Delaware and the rights of our
shareholders are governed by the Delaware General Corporation Law.


13


ITEM 2. PROPERTIES

The Bank conducts its business from its main office located at One Suffolk
Square, Islandia, New York, and five branch offices located in Babylon,
Smithtown, Westbury, Jericho and Shirley, New York. The following table sets
forth information relating to each of the Bank's offices at December 31, 2000.



Lease Net
Expiration Book Value
Date Including at
Location Leased Leased Options Dec. 31, 2000
- -------------------------------------------------------------------------------------------------------------
(Dollars in thousands)

Main Office:
One Suffolk Square, Islandia, LI, New York 11749 Leased 1987 2005 $133

Branch Offices:
400 West Main Street, Babylon, LI, New York 11702 Leased 1995 2005 19
50 Route 111, Smithtown, LI, New York 11787 Leased 1997 2002 15
900 Merchants Concourse, Westbury, LI, New York 11590 Leased 1997 2003 30
390 North Broadway, Jericho, LI, New York 11753 Leased 1997 2008 36
861 Montauk Highway, Shirley, LI, New York 11967 Leased 1998 2002 41
----
$274
====


ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

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

The above captioned information regarding the market for the Company's common
equity and related stockholder matters appears in the 2000 Annual Report to
Stockholders under the caption "Capital Stock" and is incorporated herein by
this reference.

ITEM 6. SELECTED FINANCIAL DATA

Information regarding selected financial data appears on pages 4 and 5 of the
2000 Annual Report to Stockholders under the caption "Selected Financial Data"
and is incorporated herein by this reference.

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

Management's discussion and analysis of financial condition and results of
operations appears on pages 8 through 16 of the 2000 Annual Report to
Stockholders under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and is incorporated herein by
this reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information contained in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Management of
Interest Rate Risk" in the 2000 Annual Report to Stockholders is incorporated
herein by this reference.


14


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of Long Island Financial Corp. and the
Independent Auditors' Report appear on pages 17 through 30 of the 2000 Annual
Report to Stockholders and are incorporated herein by this reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information contained on pages 3 through 6 of the Proxy Statement for the
Annual Meeting of Stockholders to be held April 25, 2001 under the caption
"Election of Directors" is incorporated herein by reference.

The following table sets forth certain information regarding the executive
officers of the Company. Officers are re-elected by the Board of Directors
annually.

Name Age Position(s) Held with the Company
---- --- ---------------------------------
Perry B. Duryea, Jr. 79 Chairman of the Board
Roy M. Kern, Sr. 67 Vice Chairman of the Board
Douglas C. Manditch 53 President and Chief Executive Officer
Thomas Buonaiuto 35 Vice President and Treasurer
Carmelo C. Vizzini 55 Vice President and Secretary

Biographical Information

Positions held by a director or officer have been held for at least the past
five years unless stated otherwise.

Perry B. Duryea, Jr. serves as Chairman of the Board of the Company and of the
Bank; He is Chairman of Perry B. Duryea & Son, Inc., a seafood business located
in Montauk, New York. Mr. Duryea was Speaker of the New York Assembly and also
served as its Minority Leader.

Roy M. Kern, Sr. serves as Vice Chairman of the Board of the Company and of the
Bank. He was formerly President of Bragg Medical Group, Inc., a firm, which
provides billing and financial services to the medical community and is located
in Kings Park, New York.

Douglas C. Manditch is President and Chief Executive Officer of the Company and
of the Bank. He joined Long Island Commercial Bank in 1987, then in formation.

Thomas Buonaiuto serves as Vice President and Treasurer of the Company and
Executive Vice President and Chief Financial Officer of the Bank. Mr.
Buonaiuto's responsibilities include oversight of all areas of operations of the
Bank excluding lending.

Carmelo C. Vizzini serves as Vice President and Secretary of the Company and
Executive Vice President and Chief Lending Officer of the Bank. Mr. Vizzini's
responsibilities include oversight of all areas of lending within the Bank, as
well as loan operations and compliance with the Community Reinvestment Act
("CRA").

ITEM 11. EXECUTIVE COMPENSATION

The information contained on pages 7 through 12 of the Proxy Statement for the
Annual Meeting of Stockholders to be held on April 25, 2001 under the captions
"Executive Compensation" and "Directors Compensation" is incorporated herein by
reference.


15


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained on page 4 through 6 of the Proxy Statement for the
Annual Meeting of Stockholders to be held April 25, 2001 under the caption
"Information with Respect to the Nominees, Continuing Directors and Executive
Officers" is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained on page 16 of the Proxy Statement for the Annual
Meeting of Stockholders to be held April 25, 2001 under the caption
"Transactions with Certain Related Persons" is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A) 1. Financial Statements

The following financial statements of the Bank are included in the Company's
Annual Report to Stockholders for the year ended December 31, 2000 and are
incorporated by this reference:

_ Consolidated Balance Sheets at December 31, 2000 and 1999

_ Consolidated Statements of Earnings for the Years Ended December 31, 2000,
1999 and 1998

_ Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 2000, 1999 and 1998

_ Consolidated Statements of Cash Flows for the Years Ended December 31 ,
2000, 1999 and 1998

_ Notes to Consolidated Financial Statements

_ Independent Auditors' Report

The remaining information appearing in the 2000 Annual Report to Stockholders is
not deemed to be filed as part of this report, except as expressly provided
herein.

(A) 2. Financial Statement Schedules

Financial Statement Schedules have been omitted because they are not applicable
or the required information is shown in the Financial Statements or Notes
thereto.

(B) Reports on Form 8-K Filed During the Last Quarter of 2000.

None

(C) Exhibits Required by Securities and Exchange Commission Regulation S-K

Exhibit Number
- --------------

2.0 Plan of Acquisition between Long Island Financial Corp. and Long Island
Commercial Bank dated as of September 15, 1998.*

3.1 Certificate of Incorporation of Long Island Financial Corp., dated
September 10, 1998.*

3.2 By-Laws of Long Island Financial Corp., effective as of September 10,
1998.*

10.0 Long Island Financial Corp. 1998 Stock Option Plan.*

11.0 Statement re computation of per share earnings

13.0 2000 Annual Report to Stockholders

23.0 Consent of experts and counsel

================
* Incorporated herein by reference in this document to the S-4 Registration
Statement initially filed on September 22, 1998, Registration No.
333-63971


16


SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

LONG ISLAND FINANCIAL CORP.

By: /s/ Douglas C. Manditch Date: March 30, 2001
-------------------------------------
Douglas C. Manditch
President and Chief Executive Officer

By: /s/ Thomas Buonaiuto Date: March 30, 2001
-------------------------------------
Thomas Buonaiuto
Vice President and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 30, 2001 by the following persons on behalf of
the Registrant and in the capacities indicated.

/s/ Perry B. Duryea, Jr. /s/ Walter J. Mack, M.D.
------------------------------ -------------------------------
Perry B. Duryea, Jr. Walter J. Mack, M.D.
Chairman of the Board Director

/s/ Roy M. Kern, Sr. /s/ Douglas C. Manditch
------------------------------ -------------------------------
Roy M. Kern, Sr. Douglas C. Manditch
Vice Chairman of the Board Director, President and
Chief Executive Officer

/s/ Harvey Auerbach /s/ Werner S. Neuburger
------------------------------ -------------------------------
Harvey Auerbach Werner S. Neuburger
Director Director

/s/ John L. Ciarelli, Esq. /s/ Thomas F. Roberts, III
------------------------------ -------------------------------
John L. Ciarelli, Esq. Thomas F. Roberts, III
Director Director

/s/ Donald Del Duca /s/ Alfred Romito
------------------------------ -------------------------------
Donald Del Duca Alfred Romito
Director Director

/s/ Frank J. Esposito /s/ Sally Ann Slacke
------------------------------ -------------------------------
Frank J. Esposito Sally Ann Slacke
Director Director

/s/ Waldemar Fernandez /s/ John C. Tsunis, Esq.
------------------------------ -------------------------------
Waldemar Fernandez John C. Tsunis, Esq.
Director Director

/s/ Gordon A. Lenz
------------------------------
Gordon A. Lenz
Director


17


EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE

Year Ended
December 31, 2000
(In thousands,
except per share data)
----------------------
Net income available to common shareholders $ 1,754

Total weighted average common shares outstanding 1,596,377

Basic earnings per common share $ 1.10
==========

Total weighted average common shares outstanding 1,596,377

Dilutive effect of stock options using the treasury stock method 1,239
----------
Total average common and common equivalent shares 1,597,616

Diluted earnings per common share $ 1.10
==========


18


EXHIBIT 13. ANNUAL REPORT

CAPITAL STOCK

The common stock of Long Island Financial Corp. trades on the Nasdaq
National Market under the symbol "LICB". The following table shows the high and
low sales price of the common stock and the dividends declared during the period
indicated in 2000 and 1999.

Dividends
High Low Declared
---- --- --------
2000
1st Quarter $11.63 $10.13 $0.08
2nd Quarter $11.75 $10.13 $0.08
3rd Quarter $14.63 $11.13 $0.08
4th Quarter $13.63 $12.44 $0.08

1999
1st Quarter $12.50 $11.63 $0.08
2nd Quarter $12.13 $11.00 $0.08
3rd Quarter $12.50 $11.38 $0.08
4th Quarter $12.50 $10.00 $0.08

At December 31, 2000, there were approximately 336 shareholders of record of the
common stock.


19


SELECTED FINANCIAL DATA

The following table sets forth selected financial data for the last five years.



At or for the year ended December 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------------
(Dollars in thousands)

Selected Operating Data:
Interest income $ 20,996 $ 18,410 $ 15,285 $ 12,726 $ 8,998
Interest expense 11,143 9,482 8,229 7,303 4,786
Net interest income 9,853 8,928 7,056 5,423 4,212
Provision for loan losses 150 600 420 240 302
Other operating income 1,566 1,706 918 378 364
Other operating expenses 8,635 7,581 5,799 3,737 2,709
Income before income taxes 2,634 2,453 1,755 1,824 1,565
Income taxes 880 847 630 760 530
Net income $ 1,754 $ 1,606 $ 1,125 $ 1,064 $ 1,035
---------- ---------- ---------- ---------- --------
Basic and diluted earnings per share $ 1.10 $ .92 $ .64 $ 1.04 $ 1.18
---------- ---------- ---------- ---------- --------
---------------------------------------------------------------------
Selected Financial Condition Data:
Total assets $ 332,934 $ 331,054 $ 266,543 $ 211,956 $190,898
Loans, net 134,853 119,836 94,144 78,759 62,660
Allowance for loan losses 1,872 1,475 1,071 1,026 780
Securities 169,422 170,149 145,819 99,231 92,053
Deposits 273,189 269,740 217,867 187,626 178,314
Borrowed funds 29,000 39,500 24,000 -- --
Stockholders' equity 19,261 18,343 21,868 21,408 9,890
Book value per share $ 13.02 $ 11.14 $ 12.35 $ 12.18 $ 10.60
Stockholders' equity (1) 20,428 21,327 21,803 21,029 9,638
Book value per share (1) $ 13.81 $ 12.95 $ 12.31 $ 11.96 $ 10.33
Shares outstanding 1,479,426 1,646,326 1,771,306 1,757,709 933,181
---------------------------------------------------------------------
Average Balance Sheet Data:
Loans, net $ 129,393 $ 104,512 $ 86,647 $ 66,961 $ 49,233
Securities 145,291 145,881 109,552 94,509 60,470
Assets 293,884 273,736 216,941 172,583 122,970
Demand deposits 40,842 33,791 25,811 18,657 15,003
Savings deposits 31,507 22,747 9,030 2,784 2,361
NOW and money market deposits 43,865 49,413 35,852 24,960 24,965
Certificates of deposit 106,079 103,596 105,741 99,282 69,292
Stockholders' equity $ 18,138 $ 20,470 $ 21,717 $ 11,368 $ 8,618
---------------------------------------------------------------------
Performance Ratios:
Return on average assets 0.60% 0.59% 0.52% 0.62% 0.84%
Return on average equity 9.67 7.85 5.18 9.36 12.00
Average equity to average assets 6.17 7.48 10.01 6.59 7.01
Equity to total assets at end of year 5.79 5.54 8.20 10.10 5.18
Interest rate spread (2) 2.74 2.81 2.51 2.51 2.79
Net interest margin (3) 3.58 3.50 3.48 3.29 3.60
Ratio of interest-earning assets to
average interest-bearing liabilities 1.21 1.19 1.25 1.18 1.20
Non-interest expense to average assets 2.94 2.77 2.67 2.17 2.20
Efficiency ratio (4) 75.62 71.29 72.72 64.42 59.20
Dividend payout ratio 29.09 34.78 50.00 29.81 25.42



20


SELECTED FINANCIAL DATA (cont'd)



At or for the year ended December 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------------
(Dollars in thousands, except share data)

Asset Quality Ratios and Other Data:
Total non-performing loans $ 416 $ 179 $ 511 $ 403 $ 448
Allowance for loan losses 1,872 1,475 1,071 1,026 780
Non-performing loans as a percent of
total loans (5) (6) 0.30% 0.15% 0.54% 0.51% 0.71%
Non-performing loans as a percent of
total assets (5) 0.12 0.05 0.19 0.19 0.23
Allowance for loan losses as a percent of:
Non-performing loans (5) 450.00 824.02 209.59 254.59 174.11
Total loans (6) 1.37% 1.22% 1.12% 1.29% 1.23%
Full service offices 6 6 6 4 2
---------------------------------------------------------------------


(1) Excludes the unrealized appreciation (depreciation) in available-for-sale
securities.

(2) Interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.

(3) The net interest margin represents net interest income divided by average
interest-earning assets.

(4) The efficiency ratio represents the ratio of operating expenses divided by
the sum of net interest income and other operating income.

(5) Non-performing loans consist of all non-accrual loans and all other loans
90 days or more past due. It is the Company's policy to generally cease
accruing interest on all loans 90 days or more past due.

(6) Loans include loans, net, before allowance for loan losses.


21


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

GENERAL

Long Island Financial Corp. ("the Company") is a registered Delaware
financial holding company, organized in 1999, and the parent company of Long
Island Commercial Bank ("the Bank"). The Bank, founded in 1989, is a New York
state-chartered commercial bank, which is engaged in commercial banking in
Islandia, New York and the surrounding communities in Suffolk and Nassau
Counties. The Company's results of operations are dependent primarily on net
interest income, which is the difference between the income earned on its loan
and security portfolios and its cost of funds, consisting of interest paid on
deposits and borrowings. Results of operations are also affected by the
Company's provision for loan losses and other operating income. The Company's
other operating expense consists principally of salaries and employee benefits,
occupancy, premises and equipment expense, and other expenses. Results of
operations are also significantly affected by general economic and Competitive
conditions, particularly changes in interest rates, government policies and
action of regulatory authorities.

In 1998, the Company began originating residential real estate loans
primarily in its market area of Nassau and Suffolk Counties. Currently, the
Company sells residential real estate loans together with the servicing rights
to these loans on a non-recourse basis to institutional investors. The Company
limits its exposure to interest rate fluctuations and credit risk on these loans
by obtaining, at the point of origination, a commitment from an institutional
investor to purchase that loan from the Company. Furthermore, by selling the
servicing rights to the loans, the Company avoids the associated risks and
expenses of managing and servicing a loan portfolio. Income is generated from
the premiums received on the sale of loans with servicing rights, and fees
charged and interest earned during the period the Company holds the loans for
sale.

MANAGEMENT STRATEGY

The Company offers a broad range of commercial and consumer banking
services, including loans to and deposit accounts for small and medium-sized
businesses, professionals, high net worth individuals and consumers. The Bank is
an independent local bank, emphasizing personal attention and responsiveness to
the needs of its customers. The Company has set in place an aggressive expansion
plan, which began in the second half of 1994, which the Company intends to
continue. The key components of this plan are to (i) expand the Company's
network of branch offices, (ii) originate commercial loans, (iii) develop strong
customer relationships that generate multiple services for individual customer
relationships and repeat business, (iv) add high quality employees and (v)
leverage capital with increased deposits from branch expansion and borrowed
funds.

The establishment of the financial holding company structure in 1999
provides greater operating flexibility by allowing the Company to conduct a
broader range of business activities and permits the Board of Directors of the
Company to determine whether to conduct such activities at the Company or in
separate subsidiaries of the Company. Finally, the new structure will permit
expansion into a broader range of financial services and other business
activities that are not currently permitted to the Company as a New York
state-chartered commercial bank. Such activities include, among others,
operating non-bank depository institutions or engaging in financial and
investment advisory services, securities brokerage and management consulting
activities.

MANAGEMENT OF INTEREST RATE RISK

The principal objective of the Company's interest rate risk management is
to evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate, given the Company's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Directors approved
guidelines. Through such management, the Company seeks to reduce the
vulnerability of its operations to changes in interest rates. The Investment
Committee reviews the Company's interest rate risk position on a quarterly
basis.

Funds management is the process by which the Company seeks to maximize the
profit potential which is derived from the spread between the rates earned on
interest-earning assets and the rates paid on interest-bearing liabilities
through the management of various balance sheet components. It involves
virtually every aspect of the Company's management and decision-making process.
Accordingly, the Company's results of operations and financial condition are
largely dependent on movements in market interest rates and its ability to
manage its assets and liabilities in response to such movements.

At December 31, 2000, 82.0% of the Company's gross loans had adjustable
interest rates and its loan portfolio had an average weighted maturity of 9.4
years. At such date, $10.4 million, or 6.2%, of the Company's securities had
adjustable interest rates, and its securities portfolio had a weighted average
maturity of 9.5 years. At December 31, 2000, the Company had $60.7 million of
certificates of deposit with maturities of one year or less and $35.2 million of
deposits over $100,000, which tend to be less stable


22


sources of funding as compared to core deposits and represented 37.4% of the
Company's interest-bearing liabilities. Due to the Company's level of shorter
term certificates of deposit, the Company's cost of funds may increase at a
greater rate in a rising rate environment than if it had a greater amount of
core deposits which, in turn, may adversely affect net interest income and net
income. Accordingly, in a rising interest rate environment, the Company's
interest-bearing liabilities may adjust upwardly more rapidly than the yield on
its adjustable-rate loans, adversely affecting the Company's net interest rate
spread, net interest income and net income.

The Company's interest rate sensitivity is monitored by management through
the use of a quarterly interest rate risk analysis model which evaluates (i) the
potential change in net interest income over the succeeding four quarter period
and (ii) the potential change in the fair market value of equity of the Company
("Net Economic Value of Equity"), which would result from an instantaneous and
sustained interest rate change from a static position to plus or minus 200 basis
points, in 100 basis point increments.

At December 31, 2000, the effects of instantaneous and sustained interest
rate changes on the Company's net interest income and Net Economic Value of
Equity would be as follows:

Potential Change in Potential Change in
Change in Net Interest Income Net Economic Value of Equity
Interest Rates ----------------------- ----------------------------
in Basis Points $ Change % Change $ Change % Change
- --------------- --------- --------- ----------- ----------
(Dollars in thousands)
200 $ 57 .51% $(3,326) (15.81)%
100 (28) (.25) (928) (4.41)
Static -- -- -- --
(100) (115) (1.03) 2,848 13.54
(200) (324) (2.89) 4,417 21.00

ANALYSIS OF NET INTEREST INCOME

Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon both the volume of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.

The following table sets forth certain information relating to the
Company's average balance sheets and its statements of earnings for the years
ended December 31, 2000, 1999 and 1998, and reflects the average yield on
interest-earning assets and average cost of interest-bearing liabilities for the
periods indicated. Such yields and costs are derived by dividing income or
expense, by the average balance of interest-earning assets or interest-bearing
liabilities, respectively. Average balances are derived from average daily
balances.


23




Years Ended December 31,
---------------------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
---------------------------------------------------------------------------------------
(Dollars in thousands)

Assets:
Interest-earning assets:
Federal funds sold and
interest-earning deposits $ 1,366 $ 87 6.37% $ 6,695 $ 317 4.73% $ 11,181 $ 598 5.35%
Securities, net (1) 144,124 9,118 6.33 141,481 8,769 6.20 101,795 6,571 6.46
Municipal obligations (2) 1,167 68 5.83 4,400 260 5.91 7,757 497 6.41
Loans, net (3) 129,393 11,743 9.08 104,512 9,134 8.74 86,647 7,780 8.98
-------- -------- -------- ------- -------- -------
Total interest-earning assets 276,050 21,016 7.61 257,088 18,480 7.19 207,380 15,446 7.45
Non-interest-earning assets 17,834 16,648 9,561
-------- -------- --------
Total assets $293,884 $273,736 $216,941
-------- -------- --------
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Savings deposits $ 31,507 $ 1,168 3.71% $ 22,747 $ 777 3.42% $ 9,030 $ 309 3.42%
NOW and money
market deposits 43,865 1,013 2.31 49,413 985 1.99 35,852 854 2.38
Certificates of deposit 106,079 6,478 6.11 103,596 5,715 5.52 105,741 6,216 5.88
-------- -------- -------- ------- -------- -------
Total interest-bearing deposits 181,451 8,659 4.77 175,756 7,477 4.25 150,623 7,379 4.90
Borrowed funds 47,451 2,484 5.23 40,657 2,005 4.93 15,847 850 5.36
-------- -------- -------- ------- -------- -------
Total interest-bearing liabilities 228,902 11,143 4.87 216,413 9,482 4.38 166,470 8,229 4.94
Other non-interest bearing
liabilities 46,844 36,853 28,754
-------- -------- --------
Total liabilities 275,746 253,266 195,224
Stockholders' equity 18,138 20,470 21,717
-------- -------- --------
Total liabilities and
stockholders' equity $293,884 $273,736 $216,941
-------- -------- --------
Interest income / interest
rate spread (4) $ 9,873 2.74% $ 8,998 2.81% $ 7,217 2.51%
-------- ---- ------- ---- ------- ----
Net interest margin (5) 3.58% 3.50% 3.48%
---- ---- ----
Ratio of interest-earning assets to
interest-bearing liabilities 1.21 1.19 1.25
---- ---- ----


- ----------
(1) Securities, net, excludes municipal obligations. Unrealized
appreciation/depreciation on available-for-sale securities are recorded in
non-interest-earning assets.

(2) Interest income and yields are presented on a fully taxable equivalent
basis.

(3) Amount is net of residential real estate loans held-for-sale, deferred
loan fees and allowance for loan losses but includes non-performing loans.

(4) Interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.

(5) Net interest margin represents net interest income divided by average
interest-earning assets.

The following table represents the extent to which changes in interest
rates and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (change in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (change
in rate multiplied by prior volume) and (iii) the net change. Changes
attributable to the combined impact of volume and rate have been allocated
proportionately to separately reflect the changes due to the volume and the
changes due to rate:


24




Year Ended Year Ended
December 31, 2000 December 31, 1999
Compared to Compared to
Year Ended Year Ended
December 31, 1999 December 31, 1998

Increase/(Decrease) Due to Increase/(Decrease) Due to
-----------------------------------------------------------------
Volume Rate Net Volume Rate Net
-----------------------------------------------------------------
(Dollars in thousands)

Interest-Earning Assets:
Federal funds sold and interest
earning deposits $ (313) $ 83 $ (230) $ (219) $ (62) $ (281)
Securities, net (1) 165 184 349 2,469 (271) 2,198
Municipal obligations (188) (4) (192) (201) (36) (237)
Loans, net (2) 2,246 363 2,609 1,566 (212) 1,354
------- ----- ------- ------- ----- -------
Total interest-earning assets 1,910 626 2,536 3,615 (581) 3,034
------- ----- ------- ------- ----- -------
Interest-Bearing Liabilities:
Deposits:
Savings deposits 320 71 391 469 (1) 468
NOW and money market deposits (118) 146 28 286 (155) 131
Certificates of deposit 140 623 763 (124) (377) (501)
------- ----- ------- ------- ----- -------
Total deposits 342 840 1,182 631 (533) 98
Borrowed funds 350 129 479 1,229 (74) 1,155
------- ----- ------- ------- ----- -------
Total interest-bearing liabilities $ 692 $ 969 $ 1,661 $ 1,860 $(607) $ 1,253
------- ----- ------- ------- ----- -------


(1) Securities, net, excludes municipal obligations.

(2) Amount is net of residential real estate loans held-for-sale, deferred
loan fees and allowance for loan losses but includes non-performing loans.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2000 AND 1999

Total assets increased by $1.9 million, or 0.6%, from $331.1 million at
December 31, 1999 to $332.9 million at December 31, 2000. The increase in assets
is attributable to a $15.0 million, or 12.5%, increase in loans, net, which at
December 31, 1999 amounted to $119.8 million compared to $134.9 million at
December 31, 2000. The growth in loans resulted from increases of $5.4 million,
or 15.9%, in the commercial and industrial loan portfolio, and $9.7 million, or
11.6%, in the commercial real estate loan portfolio. Offsetting the increase in
loans was a decline in cash and cash equivalents of $11.6 million, reflecting
the timing of seasonal municipal deposits and the investment of those deposits
in short-term available-for-sale securities or federal funds sold prior to
year-end. At December 31, 2000 and 1999, seasonal municipal deposits, amounted
to $51.2 million and $75.0 million, respectively. Prepaid expenses and other
assets decreased $717,000, or 22.5%, from $3.2 million at December 31, 1999, to
$2.5 million at December 31, 2000, primarily due to the decrease in the deferred
tax asset directly related to the decrease in the unrealized loss on securities
available for sale.

Total deposits increased $3.4 million, or 1.3%, from $269.7 million at
December 31, 1999, to $273.2 million at December 31, 2000. Demand deposits
increased $9.4 million, or 26.0%, from $36.2 million at December 31, 1999 to
$45.6 million at December 31, 2000. In addition, savings deposits increased by
$4.4 million, or 15.5%, from $28.4 million at December 31, 1999, to $32.8
million at December 31, 2000. The growths in demand and savings deposits reflect
the Company's focus on the generation of core deposits. Offsetting those deposit
increases, NOW and money market deposits decreased $21.1 million, or 20.5%, from
$103.1 million at December 31, 1999, to $82.0 million at December 31, 2000,
which reflects the decrease in seasonal municipal deposits at December 31, 2000.
Time certificates issued in excess of $100,000 were $35.2 million at December
31, 2000, an increase of $17.0 million, or 93.1%, from the prior year. The
Company utilizes time deposits issued in excess of $100,000 as an available
alternative funding source. Other time deposits decreased $6.2 million, or 7.4%,
to $77.5 million at December 31, 2000. Federal Home Loan Bank advances and other
borrowings decreased $10.5 million dollars to $29.0 million at December 31,
2000.


25


On September 7, 2000, our wholly owned finance subsidiary, LIF Statutory
Trust I, issued $7.5 million of Capital Securities, which are fully and
unconditionally guaranteed by the Company. For further discussion of the Capital
Securities, see Note 8 to Notes to Consolidated Financial Statements.

Stockholders' equity increased $918,000 to $19.3 million at December 31,
2000 compared to $18.3 million at December 31, 1999. Increases to stockholders'
equity included net income amounting to $1.8 million for the year ended December
31, 2000, and a decrease in the accumulated other comprehensive loss on
securities available-for-sale of $1.8 million. These increases were partially
offset by dividends declared of $502,000, and $2.2 million employed to
repurchase 166,900 shares of common stock.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

GENERAL

The Company reported net income of $1.8 million for the year ended
December 31, 2000, or basic and diluted earnings per share of $1.10, as compared
to net income of $1.6 million, or basic and diluted earnings per share of $.92
for 1999. The results of operations for the year ended December 31, 2000
included a loss of $154,000, from the sale of investment securities
available-for-sale compared to a gain of $88,000, from the sale of such
securities in 1999.

Core earnings per share represents net income per share adjusted for gains
or losses on sales of securities and other non-recurring items. For the year
ended December 31, 2000, the Company produced a 31.8% increase in core earnings
per share to $1.16 per share compared with core earnings per share of $.88 per
share for the year ended December 31, 1999. Contingent upon market conditions,
the Company periodically evaluates repositioning the securities portfolio to
improve future core earnings per share and net income.

INTEREST INCOME

Interest income, on a fully taxable equivalent basis, increased $2.5
million, or 13.7%, to $21.0 million for the year ended December 31, 2000, from
$18.5 million for the year ended December 31, 1999. The increase was primarily
the result of an increase in the average balance of interest-earning assets of
$19.0 million, or 7.4%, to $276.1 million for the year ended December 31, 2000
from $257.1 million for 1999. The average balance of securities, net, (exclusive
of municipal obligations) increased by $2.6 million, or 1.9%, and returned a 13
basis point increase in average yield to 6.33% for the year ended December 31,
2000, compared to 6.20% for 1999. The $3.2 million decline in the average
balance of municipal obligations for the year ended December 31, 2000, from $4.4
million for the prior year resulted from the sale of approximately $11.8 million
in municipal obligations during the second quarter of 1999. The proceeds from
that sale were reinvested in higher earning assets, primarily bank owned life
insurance and available for sale securities. The average yield on loans, net,
increased 34 basis points from 8.74% for the 1999 period to 9.08% for the year
ended December 31, 2000. The average yield on interest earning assets increased
42 basis points, from 7.19% for the year ended December 31, 1999, to 7.61% for
the year ended December 31, 2000, as a result of increased interest rates
available in the market.

INTEREST EXPENSE

Total interest expense increased $1.7 million, or 17.5%, for the year
ended December 31, 2000, to $11.1 million compared to $9.5 million for the year
ended December 31, 1999. The increase reflects both an increase in the average
balance of interest bearing liabilities of $12.5 million, or 5.8%, and an
increase in the average rate paid on interest bearing liabilities of 49 basis
points. The average balance of savings deposits increased by $8.8 million, or
38.5% and the average balance of NOW and money market deposits decreased $5.5
million, or 11.2% from year to year. The average balance of certificates of
deposit increased $2.5 million, or 2.4%, to $106.1 million at December 31, 2000
coupled with an increase of 59 basis points in the average rate paid reflecting
increased market interest rates. In addition, the higher interest rate
environment increased the average cost of borrowed funds 30 basis points from
4.93% for the 1999 period, to 5.23% for the year ended December 31, 2000.

NET INTEREST INCOME

Net interest income, on a fully taxable equivalent basis, increased by
$875,000 from $9.0 million for the year ended December 31, 1999, to $9.9 million
for the year ended December 31, 2000. The average cost of total interest-bearing
liabilities for the period increased 49 basis points from 4.38% in 1999 to 4.87%
in 2000. The average yield on interest earning assets for the year increased 42
basis points from 7.19% in 1999 period to 7.61% in 2000. The net interest rate
spread decreased by 7 basis points from 2.81% in 1999 to 2.74% in 2000.


26


PROVISION FOR LOAN LOSSES

The Company's provision for loan losses for the year ended December 31,
2000 decreased $450,000, or 75.0% from $600,000 for the year ended December 31,
1999 to $150,000 for the year ended December 31, 2000. The decreased provision
for loan losses reflects management's qualitative and quantitative assessment of
the loan portfolio, net charge-offs and collection of delinquent loans. At
December 31, 2000 and December 31, 1999, the allowance for loan losses amounted
to $1.9 million and $1.5 million, respectively. The reduced provision in the
allowance for loan losses for the year ended December 31, 2000 was primarily
attributable to the Company recovering $397,000 on a commercial and industrial
loan previously charged off. The allowance for loan losses as a percentage of
total loans was 1.37% at December 31, 2000 and 1.22% at December 31, 1999.

The determination of the amount of the allowance for loan losses is based
on an analysis of the loan portfolio and reflects an amount, which, in
management's judgement is adequate to provide for probable loan losses in the
existing portfolio. This analysis considers, among other things, present and
known inherent risks in the portfolio, adverse situations which may affect the
borrower's ability to repay, overall portfolio quality, and current and
prospective economic conditions. While management uses available information to
provide for loan losses, future additions to the allowance may be necessary
based on changes in economic conditions. In addition, various regulatory
agencies, as an integral part of the examination process, periodically review
the Company's allowance for loan losses. Such agencies may require the Company
to recognize additions to the allowance based upon their judgment of information
available to them at the time of their examination.

OTHER OPERATING INCOME

Other operating income decreased by $140,000, or 8.2%, to $1.6 million for
the year ended December 31, 2000, compared to $1.7 million for the year ended
December 31, 1999. The decrease is primarily attributable to a decrease of
$277,000, or 52.3%, in net gain on sale of residential loans as a result of
rising market interest rates throughout 2000. In addition, the Company engaged
in a securities transaction, which resulted in a loss of $154,000. Offsetting
these events, in part were, increases of $247,000, or 38.1%, in service charges
on deposit accounts reflecting the growth in the Company's depositor base and an
overall increase in the Company's fee schedule. Other operating income also
increased as the Company recognized a full year of dividends earned on bank
owned life insurance.

OTHER OPERATING EXPENSE

Other operating expense increased $1.1 million, or 13.9%, to $8.6 million
for the year ended December 31, 2000, compared to $7.6 million for the year
ended December 31, 1999. Other operating expense includes salaries and employee
benefits, occupancy expense, premises and equipment expense, and the increases
are attributable to the Company's overall growth. In addition, other operating
expense includes $258,000 of expense related to the issuance of $7.5 million of
Capital Securities.

INCOME TAXES

Income taxes increased $33,000, or 3.9%, from $847,000 for the year ended
December 31, 1999 to $880,000 for the year ended December 31, 2000 as a result
of the increase in income before income taxes. The effective tax rate for the
year ended December 31, 2000 was 33.4% compared to 34.5% for the year ended
December 31, 1999.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

GENERAL

Net income for the year ended December 31, 1999 increased by $481,000, or
42.8%, from $1.1 million for the year ended December 31, 1998 to $1.6 million
for 1999. The increase was primarily due to an increase in net interest income
after the provision for loan losses of $1.7 million, or 25.5%, and other
operating income of $788,000, or 85.8%, which was offset by a $1.8 million, or
30.7% increase in other operating expenses.


27


INTEREST INCOME

Total interest income, on a fully taxable equivalent basis, increased $3.0
million, or 19.6%, to $18.5 million for the year ended December 31, 1999, from
$15.4 million for the corresponding period in 1998. The increase was primarily
the result of an increase in the average balance of interest-earning assets of
24.0%, from $207.4 million during the year ended December 31, 1998, to $257.1
million during the year ended December 31, 1999. The average balance of
securities, net, (exclusive of municipal obligations) increased by $39.7
million, or 39.0%, to $141.5 million in the 1999 period, from $101.8 million in
the 1998 period, with a decrease in the average yield from 6.46% in 1998 to
6.20% in 1999. The average balance of loans, net increased by $17.9 million, or
20.6%, to $104.5 million in the 1999 period from $86.6 million in the 1998
period. The average yield on loans, net decreased 24 basis points to 8.74% in
1999 from 8.98% for the comparable period in 1998. That decrease reflects lower
market interest rates resulting from increasingly competitive pricing in 1999 in
commercial real estate lending.

INTEREST EXPENSE

Total interest expense increased $1.3 million, or 15.2%, for the year
ended December 31, 1999, to $9.5 million compared to $8.2 million for the year
ended December 31, 1998. The increase reflects both an increase in the average
balance of interest bearing liabilities of $49.9 million, or 30.0%, which was
offset, in part, by a decrease of 56 basis points in the average rate paid on
interest bearing liabilities. Although, the average balance of borrowed funds
increased $24.8 million, or 156.6%, from 1998 to 1999, the average rate paid on
borrowed funds decreased 43 basis points to 4.93% in 1999. This method of
funding has been used in conjunction with the Company's leveraging of the
balance sheet. The average balance of savings deposits increased by $13.7
million, or 151.9%, with no change in the average rate paid. The average balance
of NOW and money market deposits increased $13.6 million, or 37.8%, with a
decrease of 39 basis points in the average rate paid. The increases in the
average balances of savings, NOW and money market deposits reflects the
Company's branch network expansion and successful implementation of a sales
focus throughout the Company. The $2.1 million, or 2.0% decrease in the average
balance of certificates of deposits, from 1998 to 1999, reflects the Company's
emphasis on lower cost core deposits. In 1999, the average cost of certificates
of deposits decreased by 36 basis points to 5.52%.

NET INTEREST INCOME

Net interest income for the year ended December 31, 1999 was $9.0 million,
on a taxable equivalent basis, compared to $7.2 million for the year ended
December 31, 1998. The increase resulted from an increase of 24.0% in the
average balance of interest-earning assets from $207.4 million during the year
ended December 31, 1998, to $257.1 million during the year ended December 31,
1999. Despite the interest rate increases by the Federal Reserve Bank totaling
75 basis points in 1999, the Company's average interest rate spread on a tax
equivalent basis increased 30 basis points from 2.51% for the 1998 period to
2.81% for the 1999 period.

PROVISION FOR LOAN LOSSES

The Company increased the provision for loan losses by $180,000, or 42.9%,
from $420,000 for the year ended December 31, 1998, to $600,000 for the year
ended December 31, 1999. This increased provision was made to reflect the growth
within the loan portfolio, the average balance of which increased by $17.9
million, or 20.6%, to $104.5 million for the year ended December 31, 1999.

OTHER OPERATING INCOME

Other operating income increased $788,000, or 85.8%, to $1.7 million for
the year ended December 31, 1999, compared to $918,000 for the year ended
December 31, 1998. The increase is primarily attributable to the net gain of
$530,000 associated with the origination and sale of residential mortgages for
the year ended December 31, 1999, following the establishment of the Company's
residential mortgage department in May 1998. In addition, service charges on
deposit accounts increased by $232,000, or 55.6 %, reflecting the growth in the
Company's depositor base and an overall increase in the Company's fee schedule.
Dividends earned on bank owned life insurance accounted for $244,000 of the
increase in other operating income.

OTHER OPERATING EXPENSE

Other operating expense increased $1.8 million, or 30.7%, to $7.6 million
for the year ended December 31, 1999, compared to $5.8 million incurred for the
year ended December 31, 1998. This increase was primarily attributable to an
increase in salaries and benefits expense of $1.1 million, or 37.8%, from $2.8
million in 1998 to $3.9 million in 1999, reflecting a moderate increase


28


in staff in connection with the Company's branch expansion, establishment of the
residential mortgage department and continued internal growth. Although the
number of full time equivalent employees increased from 69 at December 31, 1998
to 73 at December 31, 1999, 38% of the full time equivalent employee growth in
1998 occurred in the second half of 1998. The branch expansion also contributed
significantly to the growth in expenses in the other categories of other
operating expenses.

INCOME TAXES

Income taxes provides for Federal and New York State income taxes. The
1999 income tax expense was $847,000, compared to $630,000 in 1998. The income
tax expense increase is primarily due to increased levels of taxable income. The
effective tax rate for 1999 was 34.5% compared to 35.9% in 1998.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity management for the Company requires that funds be available to
pay all deposit withdrawals and maturing financial obligations and to meet
credit-funding requirements promptly and fully in accordance with their terms.
Over a very short time frame, maturing assets provide only a limited portion of
the funds required to pay maturing liabilities. The balance of the funds
required is provided by liquid assets and the acquisition of additional
liabilities, making liability management integral to liquidity management in the
short term.

The primary investing activities of the Company are the purchase of
securities available-for-sale and the originations of loans. During the years
ended December 31, 2000 and 1999, the Company's purchases of securities were all
classified available-for-sale and totaled $401.4 million and $276.1 million,
respectively. Loan originations and principal repayments on loans, net totaled
$15.5 million and $26.9 million, for the years ended December 31, 2000 and 1999,
respectively. These activities were funded primarily by deposit growth,
principal repayments on loans, borrowings and principal repayments on
securities.

The Company maintains levels of liquidity that it considers adequate to
meet its current needs. The Company's principal sources of cash include incoming
deposits, the repayment of loans and conversion of securities. When cash
requirements increase faster than cash is generated, either through increased
loan demand or withdrawal of deposited funds, the Company can arrange for the
sale of loans and liquidate available-for-sale securities and access its lines
of credit, totaling $5.5 million, with unaffiliated financial institutions which
enables it to borrow funds on an unsecured basis. In addition, the Company has
available lines of credit with the Federal Home Loan Bank of New York ("FHLB")
equal to 7.8% of the Company's assets, which enables it to borrow funds on a
secured basis. In addition, the Company could engage in other borrowings,
including FHLB advances and reverse repurchase agreements on a secured basis. At
December 31, 2000 and 1999, FHLB advances amounted to $29.0 million and $39.0
million, respectively.

Management of the Company has set minimum liquidity level of 10% as a
target. The Company's average liquid assets (cash and due from banks, federal
funds sold, interest-earning deposits with other financial institutions and
securities available-for-sale, less securities pledged as collateral) as a
percentage of average assets of the Company during the year ended December 31,
2000 was 31.0%.

IMPACT OF INFLATION AND CHANGING PRICES

The Financial Statements and Notes thereto presented herein have been
prepared in accordance with generally accepted accounting principles ("GAAP"),
which require the measurement of financial position and operating results in
terms of historical dollar amounts without considering the changes in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations. Unlike
industrial companies, nearly all of the assets and liabilities of the Company
are monetary in nature. As a result, interest rates have a greater impact on the
Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.

IMPACT OF NEW ACCOUNTING STANDARDS

Statement of Financial Accounting Standards (SFAS) 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS 137,
Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133 and SFAS 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, is effective for


29


the Company as of January 1, 2001. SFAS 133 requires that an entity recognize
all derivatives as either assets or liabilities measured at fair value. The
accounting for changes in the fair value of a derivative depends on the use of
the derivative.

The Company had no freestanding derivative instruments in place and had no
material amounts of embedded derivative instruments. The Company adopted SFAS
133 on January 1, 2001. Based upon the Company's application of SFAS No. 133,
its adoption had no materially adverse effect on the Company's consolidated
financial statements.

In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities," or SFAS No. 140. SFAS No. 140 supercedes and
replaces the guidance in SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities", and rescinds SFAS No.
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125." SFAS No. 140 provides accounting and reporting standards for
securitization transactions involving financial assets, sales of financial
assets such as receivables, loans and securities, factoring transactions, wash
sales, servicing assets and liabilities, collateralized borrowing arrangements,
securities lending transactions, repurchase agreements, loan participations, and
extinguishment of liabilities. Certain provisions of this Statement including
relevant disclosures are effective for fiscal years ending after December 15,
2000. The remaining provisions are effective prospectively for transfer
transactions entered into after March 31, 2001. SFAS No. 140 does not require
restatement of prior periods. We believe the implementation of SFAS No. 140 will
not have a material impact on our financial condition or results of operations.


30


CONSOLIDATED BALANCE SHEETS

(In thousands, except share data) December 31,
-----------------------
2000 1999
-----------------------
Assets:
Cash and due from banks $ 14,652 $ 9,301
Interest earning deposits 56 204
Federal funds sold 1,500 18,300
--------- ---------
Total cash and cash equivalents 16,208 27,805

Securities held-to-maturity
(fair value of $4,736 and $338,
respectively) 4,754 341
Securities available-for-sale, at fair value 133,562 129,086
Securities pledged for repurchase agreements,
at fair value 31,106 40,722
Loans, net of unearned income and deferred fees 136,725 121,311
Less allowance for loan losses 1,872 1,475
--------- ---------
Loans, net 134,853 119,836
Premises and equipment, net 1,868 2,089
Accrued interest receivable 1,911 2,062
Bank owned life insurance 6,197 5,921
Prepaid expenses and other assets 2,475 3,192
--------- ---------
Total assets $ 332,934 $ 331,054
========= =========

Liabilities and Stockholders' Equity:

Deposits:
Demand deposits $ 45,592 $ 36,191
Savings deposits 32,849 28,444
NOW and money market deposits 82,003 103,126
Time certificates issued in excess
of $100,000 35,228 18,242
Other time deposits 77,517 83,737
--------- ---------
Total deposits 273,189 269,740

Borrowed funds 29,000 39,500
Accrued expenses and other liabilities 3,984 3,471
--------- ---------
Total liabilities 306,173 312,711
--------- ---------

Guaranteed preferred beneficial interest
in junior subordinated debentures 7,500 --

Stockholders' equity:
Common stock (par value $.01 per share;
10,000,000 shares, authorized;
1,776,326 shares issued; 1,479,426
and 1,646,326 outstanding in 2000
and 1999, respectively) 18 18
Surplus 20,185 20,185
Accumulated surplus 3,839 2,587
Accumulated other comprehensive loss (1,167) (2,984)
Treasury stock at cost, (296,900 shares
in 2000; 130,000 shares in 1999) (3,614) (1,463)
--------- ---------
Total stockholders' equity 19,261 18,343
--------- ---------
Total liabilities and stockholders' equity $ 332,934 $ 331,054
========= =========

- ----------
See accompanying notes to consolidated financial statements


31


CONSOLIDATED STATEMENTS OF EARNINGS

For the year ended
(In thousands, except share data) December 31,
----------------------------------
2000 1999 1998
----------------------------------
Interest income:
Loans $ 11,743 $ 9,134 $ 7,780
Securities 9,166 8,959 6,907
Federal funds sold 73 304 578
Earning deposits 14 13 20
---------- ---------- ----------
Total interest income 20,996 18,410 15,285
---------- ---------- ----------
Interest expense:
Savings deposits 1,168 777 309
NOW and money market deposits 1,013 985 854
Time certificates issued in excess
of $100,000 1,523 1,239 1,310
Other time deposits 4,955 4,476 4,906
Borrowed funds 2,484 2,005 850
---------- ---------- ----------
Total interest expense 11,143 9,482 8,229
---------- ---------- ----------
Net interest income 9,853 8,928 7,056

Provision for loan losses 150 600 420
---------- ---------- ----------
Net interest income after
provision for loan losses 9,703 8,328 6,636
---------- ---------- ----------
Other operating income:
Service charges on deposit accounts 896 649 417
Net (loss) gain on sale of securities (154) 88 13
Net gain on sale of residential loans 253 530 274
Earnings on bank owned life insurance 325 244 --
Other 246 195 214
---------- ---------- ----------
Total other operating income 1,566 1,706 918
---------- ---------- ----------
Other operating expenses:
Salaries and employee benefits 4,098 3,910 2,838
Occupancy expense 615 534 456
Premises and equipment expense 812 735 524
Capital securities 258 -- --
Other 2,852 2,402 1,981
---------- ---------- ----------
Total other operating expenses 8,635 7,581 5,799
---------- ---------- ----------
Income before income taxes 2,634 2,453 1,755

Income taxes 880 847 630
---------- ---------- ----------
Net income $ 1,754 $ 1,606 $ 1,125
========== ========== ==========
Basic and diluted earnings per share $ 1.10 $ .92 $ .64
========== ========== ==========
Weighted average shares outstanding $1,596,377 $1,751,407 $1,766,154
========== ========== ==========

- ----------
See accompanying notes to consolidated financial statements


32


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


Accumulated
other
Common Accumulated comprehensive Treasury
(In thousands, except share data) stock Surplus surplus income (loss) Stock Total
--------------------------------------------------------------------------

Balance at December 31, 1997 $18 $19,912 $ 1,099 $ 379 $ -- $ 21,408

Comprehensive income:
Net income -- -- 1,125 -- -- 1,125
Other comprehensive income,
net of tax:
Unrealized depreciation in
available-for-sale securities,
net of reclassification adjustment (1) -- -- -- (314) -- (314)
Total comprehensive income -- -- -- -- -- 811

Dividend reinvestment and stock
purchase plan, issued 13,597 shares -- 214 -- -- -- 214

Dividends declared on common
stock ($.32 per common share) -- -- (565) -- -- (565)
--------------------------------------------------------------------------
Balance at December 31, 1998 $18 $20,126 $ 1,659 $ 65 $ -- $ 21,868

Comprehensive income:
Net income -- -- 1,606 -- -- 1,606
Other comprehensive income,
net of tax:
Unrealized depreciation in
available-for-sale securities,
net of reclassification adjustment (1) -- -- -- (3,049) -- (3,049)
Total comprehensive loss -- -- -- -- -- (1,443)

Reorganization costs -- -- (115) -- -- (115)

Dividend reinvestment and stock
purchase plan, issued 5,020 shares -- 59 -- -- -- 59

Dividends declared on common
stock ($.32 per common share) -- -- (563) -- -- (563)
Common stock repurchased (130,000 shares) -- -- -- -- (1,463) (1,463)
--------------------------------------------------------------------------
Balance at December 31, 1999 $18 $20,185 $ 2,587 $(2,984) $(1,463) $ 18,343

Comprehensive income:
Net income -- -- 1,754 -- -- 1,754
Other comprehensive income,
net of tax:
Unrealized appreciation in
available-for-sale securities,
net of reclassification adjustment (1) -- -- -- 1,817 -- 1,817
Total comprehensive income -- -- -- -- -- 3,571
Dividends declared on common
stock ($.32 per common share) -- -- (502) -- -- (502)

Common stock repurchased (166,900 shares) -- -- -- -- (2,151) (2,151)
--------------------------------------------------------------------------
Balance at December 31, 2000 $18 $20,185 $ 3,839 $(1,167) $(3,614) $ 19,261
==========================================================================



33


(cont'd)

(In thousands, except share data) December 31,
----------------------------
2000 1999 1998
----------------------------
(1) Other comprehensive income (loss), before tax:
Net unrealized holding gain (loss) on
securities $(1,996) $(5,105) $ 111
Reclassification adjustment for (loss)
gains included in income (154) 88 13
----------------------------
Other comprehensive income (loss), before tax (2,150) (5,017) 124
----------------------------
Income tax benefit (expense) related to
items of other comprehensive income 3,967 1,968 (438)
----------------------------
Unrealized appreciation (depreciation) in
available-for-sale securities,
net of tax $ 1,817 $(3,049) $(314)
======= ======= =====

- ----------
See accompanying notes to consolidated financial statements


34


Consolidated Statements of Cash Flows



(In thousands) For the year ended December 31,
-------------------------------------
2000 1999 1998
-------------------------------------

Cash flows from operating activities:
Net income $ 1,754 $ 1,606 $ 1,125
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 150 600 420
Depreciation and amortization 609 579 406
Amortization of premiums, net
of discount accretion (866) (50) 176
Net (loss) gain on sale of securities 154 (88) (13)
Loans originated for sale,
net of proceeds from sales and gains 308 467 (1,486)
Net deferred loan origination fees 43 159 104
Earnings on bank owned life insurance (325) (244) --
Deferred income taxes (49) (36) 118
Change in other assets and liabilities:
Accrued interest receivable 151 (448) 36
Prepaid expenses and other assets (477) 505 (89)
Accrued expenses and other liabilities 513 709 (10)
--------- --------- ---------
Net cash provided by operating
activities 1,965 3,759 787
--------- --------- ---------
Cash flows from investing activities:
Purchases of securities held-to-maturity,
available-for-sale (401,354) (276,104) (274,109)
Proceeds from the sale of securities
available-for-sale 6,846 12,777 4,773
Proceeds from maturities of securities 392,600 220,195 199,350
Principal repayments on securities 6,456 13,724 22,699
Loan originations net of principal
repayments (15,518) (26,918) (14,423)
Purchase of premises and equipment (388) (693) (1,242)
Purchase of bank owned life insurance -- (5,715) --
--------- --------- ---------
Net cash used in investing activities (11,358) (62,734) (62,952)
--------- --------- ---------
Cash flows from financing activities:
Net (decrease) increase in demand deposit,
savings, NOW, and money market accounts (7,317) 46,991 36,320
Net increase (decrease) in certificates
of deposit 10,766 4,882 (6,079)
Net (decrease) increase in borrowed
funds (10,500) 15,500 24,000
Payments for cash dividends (502) (563) (565)
Reorganization costs -- (115) --
Purchase of common stock (2,151) (1,463) --
Capital securities 7,500 -- --
Proceeds from shares issued under the
dividend reinvestment and stock
purchase plan -- 59 214
--------- --------- ---------
Net cash (used in) provided by
financing activities (2,204) 65,291 53,890
--------- --------- ---------
Net (decrease) increase in cash
and cash equivalents (11,597) 6,316 (8,275)
Cash and cash equivalents at beginning of year 27,805 21,489 29,764
--------- --------- ---------
Cash and cash equivalents at end of year $ 16,208 $ 27,805 $ 21,489
========= ========= =========

Supplemental disclosure of cash
flow information
Cash paid during the period for:
Interest $ 10,794 $ 9,527 $ 8,085
========= ========= =========
Income taxes $ 1,403 $ 467 $ 744
========= ========= =========


- ----------
See accompanying notes to consolidated financial statements.


35


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Long Island Financial Corp. ("the Company") is a registered Delaware
financial holding company, organized in 1999 (see Note 15), and the parent
company of Long Island Commercial Bank ("the Bank"). The Bank, founded in 1989,
is a New York state-chartered bank, which is engaged in commercial banking in
Islandia, New York and the surrounding communities in Suffolk and Nassau
Counties.

The consolidated financial information included herein combines the
results of operations, the assets, liabilities and stockholders' equity of the
Company and its wholly owned subsidiaries, LIF Statutory Trust I and the Bank,
and the Bank's subsidiary, Long Island Commercial Capital Corporation for all
periods presented. All significant intercompany balances and transactions are
eliminated in consolidation. A description of significant accounting policies is
presented below.

a. Basis of Financial Presentation

The consolidated financial statements have been prepared in accordance
with Generally Accepted Accounting Principles. In preparing the financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the financial statements and the
reported amounts of revenues and expenses for the period. Actual results could
differ from those estimates.

b. Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include
cash, Federal funds sold and other short-term investments, all of which have
initial maturities of less than ninety days.

c. Securities

Management determines the appropriate classification of debt and equity
securities at the time of purchase. Securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are stated at amortized
cost. Debt securities not classified as held-to-maturity and marketable equity
securities are classified as available-for-sale. Available-for-sale securities
are stated at fair value, with the unrealized gains and losses, net of tax,
excluded from earnings and reported as a separate component of accumulated other
comprehensive income, in stockholders' equity.

Premiums and discounts on debt and mortgage-backed securities are
amortized to expense and accreted to income using a method which approximates
the level-yield method over the remaining period to contract maturity, adjusted
for anticipated prepayments. Dividend and interest income are recognized when
earned. Realized gains and losses on the sale of securities are included in net
gain on sale of securities. The cost of securities sold is based on the specific
identification method.

d. Loans, Net

Loans are carried at the principal amount outstanding net of unearned
income and fees. Residential real estate loans held-for-sale are carried at the
aggregate lower of cost or market value as determined by outstanding commitments
from investors. Interest on loans is recognized on the accrual basis. The
accrual of income on loans is discontinued when, in management's judgment,
collection of principal or interest is uncertain or payments of principal or
interest become contractually ninety days past due. Loans on which the accrual
of income has been discontinued are designated as non-accrual loans and income
is recognized subsequently only in the period collected. Any accrued but
uncollected interest previously recorded on such loans is reversed against
interest income of the current period.

Loan origination fees, less certain direct origination costs, are deferred
and recognized as an adjustment of the loan yield over the life of the loan by
the interest method, which results in a constant rate of return.


36


e. Allowance For Loan Losses

The determination of the amount of the allowance for loan losses is based
on an analysis of the loan portfolio and reflects an amount, which, in
management's judgment, is adequate to provide for probable loan losses in the
existing portfolio. This analysis considers, among other things, present and
known and inherent risks in the portfolio, adverse situations, which may affect
the borrower's ability to repay, overall portfolio quality, and current and
prospective economic conditions. While management uses available information to
provide for loan losses, future additions to the allowance may be necessary
based on changes in economic conditions. In addition, various regulatory
agencies, as an integral part of the examination process, periodically review
the Company's allowance for loan losses. Such agencies may require the Company
to recognize additions to the allowance based on their judgment of information
available to them at the time of their examination.

Management considers a loan to be impaired if, based on current
information, it is probable that the Company will be unable to collect all
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. When a loan is considered to be
impaired, the amount of the impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of collateral if the loan is collateral dependent. Management excludes
large groups of smaller balance homogeneous loans, which are collectively
evaluated. Impairment losses are included in the allowance for loan losses
through a charge to the provision for loan losses.

f. Premises and Equipment, Net

Premises and equipment are stated at cost, less accumulated depreciation
computed using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the estimated useful lives of
the improvements or terms of the related lease, whichever is shorter.

g. Income Taxes

Income taxes are based upon results reported for financial statement
purposes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

h. Earnings Per Share

Basic earnings per share is calculated by dividing net income available to
common stockholders by the weighted average number of shares outstanding during
the year. Diluted earnings per share is calculated by dividing net income
available to common stockholders by the weighted average number of shares
outstanding during the year plus the maximum dilutive effect of stock issuable
upon conversion of stock options.

i. Treasury Stock

The cost of treasury stock is shown on the consolidated balance sheet as a
separate component of stockholders' equity and is a reduction to total
stockholders' equity.

j. Segment Reporting

As a community oriented financial institution, substantially all of the
Company's operations involve the delivery of loan and deposit products to
customers. Management makes operating decisions and assesses performance based
on an ongoing review of these community-banking operations, which constitute the
Company's only operating segment for financial reporting purposes.


37


k. Comprehensive Income

Comprehensive income represents net income plus the net change in
unrealized gains or losses on securities available for sale for the period and
is presented in the consolidated statements of changes in stockholders' equity.
Accumulated other comprehensive income represents the net unrealized gains or
losses on securities available-for-sale as of the balance sheet dates.

l. 401(k) Plan

The Company adopted a 401(k) Profit Sharing Plan ("401(k) Plan") for all
qualified employees. The terms of the 401(k) Plan provide for employee
contributions on a pre-tax basis up to the maximum dollar limit set by law in a
taxable year. A discretionary matching contribution will be determined each year
by the Company. During 2000, 1999 and 1998, the Company's matching contribution
was $110,902, $81,671 and $59,533, respectively.

m. Dividend Reinvestment and Stock Purchase Plan

The Company has a dividend reinvestment and stock purchase plan ("Plan").
The Plan provides shareholders of common stock with a means of automatically
reinvesting cash dividends in shares of common stock. The Plan also provides
certain investors with a systematic and convenient method to purchase shares of
common stock through optional cash payments. Since the Bank's common stock is
currently listed on the NASDAQ National Market, the purchase price on each
investment date will be equal to the average price of all shares of common stock
purchased on the investment date by the Plan Administrator on behalf of the
Plan, including the cost of brokerage commissions, if any.

n. Reclassifications

Certain reclassifications have been made to prior period amounts to
conform to current year presentation.

(2) SECURITIES

The amortized cost, gross unrealized gains, gross unrealized losses and
fair value of securities held-to-maturity and available-for-sale at December 31,
2000 and 1999 are as follows:

December 31, 2000
-------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
(In thousands) cost gains losses value
-------------------------------------------
Held-to-maturity:
Mortgage-backed securities:
CMO $ 263 $-- $ (9) $ 254
Corporate debt 4,491 19 (28) 4,482
-------- --- ------- --------
Total held-to-maturity 4,754 19 (37) 4,736
Available-for-sale:
U.S. Government and
Agency obligations $117,364 $ 1 $(1,420) $115,945
Mortgage-backed securities:
GNMA 36,559 19 (615) 35,963
FHLMC 969 16 (3) 982
FNMA 5,279 31 (7) 5,303
Municipal obligations 1,167 -- (18) 1,149
-------- --- ------- --------
Total debt securities 161,338 67 (2,063) 159,342
Equity securities - FHLB stock 5,326 -- -- 5,326
-------- --- ------- --------
Total securities
available-for-sale $166,664 $67 $(2,063) $164,668
-------- --- ------- --------


38


December 31, 1999
-------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
(In thousands) cost gains losses value
-------------------------------------------
Held-to-maturity:
Mortgage-backed securities:
CMO $ 341 $-- $ (3) $ 338
-------- --- ------- --------
Available-for-sale:
U.S. Government and
Agency obligations $122,423 $ 2 $(3,518) $118,907
Mortgage-backed securities:
GNMA 41,136 60 (1,616) 39,580
FHLMC 1,350 21 (2) 1,369
FNMA 3,599 5 (33) 3.571
Municipal obligations 1,166 -- (23) 1,143
Other debt securities 92 -- (1) 91
-------- --- ------- --------
Total debt securities 169,766 88 (5,193) 164,661
Equity securities - FHLB stock 5,147 -- -- 5,147
-------- --- ------- --------
Total securities
available-for-sale $174,913 $88 $(5,193) $169,808
-------- --- ------- --------

In connection with the Company's ability to borrow from the Federal Home
Loan Bank of New York ("FHLB"), the Company is required to purchase shares of
FHLB non-marketable equity securities at par.

The amortized cost and estimated fair value of debt securities at December
31, 2000, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties.

December 31, 2000

Held-to-Maturity Available-for-Sale
----------------------------------------
Amortized Fair Amortized Fair
(In thousands) cost value cost value
----------------------------------------
Due in one year or less $ -- $ -- $ 50,461 $ 50,461
Due after one year through five years -- -- 36,699 36,189
Due after five years through ten years 1,017 1,002 33,166 32,237
Due after ten years 3,737 3,734 41,012 40,455
------ ------ -------- --------
$4,754 $4,736 $161,338 $159,342
====== ====== ======== ========

Proceeds from the sale of securities available-for-sale totaled
approximately $6.8 million, $12.8 million and $4.8 million during the years
ended December 31, 2000, 1999 and 1998, respectively. Gains from the sale of
these securities totaled approximately $104,000 and $13,000 for the years ended
December 31, 1999 and 1998, respectively. Losses from the sale of these
securities totaled approximately $154,000 and $16,000 for the years ended
December 31, 2000 and 1999, respectively. There were no losses from the sale of
securities in 1998.


39


Securities classified as available-for-sale of approximately $31.1 million
and $40.7 million were pledged as collateral for FHLB advances at December 31,
2000 and 1999, respectively. In addition, $122.2 million and $121.4 million of
available-for-sale securities were pledged for deposits and other purposes as
required by law at December 31, 2000 and 1999, respectively.

(3) LOANS, NET

Loans, net are summarized as follows:

December 31,
-----------------------------------------------
(dollars in thousands) 2000 1999
-----------------------------------------------
Commercial and
industrial loans $ 39,468 28.7% $ 34,057 27.9%
Commercial real estate loans 93,875 68.2 84,133 69.0
Automobile loans 2,693 1.9 1,463 1.2
Consumer loans 985 .7 1,250 1.0
Residential real estate
loans held-for-sale 711 .5 1,019 0.9
-------- ----- -------- -----
137,732 100.0 121,922 100.0
Less:
Unearned income 395 42
Deferred fees, net 612 569
Allowance for
loan losses 1,872 1,475
-------- --------
$134,853 $119,836
======== ========

The Company grants commercial and industrial loans as well as commercial
mortgages and consumer loans in Nassau and Suffolk County, New York. A portion
of the Company's loan portfolio is concentrated in commercial loans and business
revolving lines of credit, which are secured or partially secured by accounts
receivable, inventory and other assets. These loans comprise approximately 28.7%
and 27.9% of the portfolio at December 31, 2000 and 1999, respectively. The
Company's commercial loan borrowers are generally small local businesses whose
cash flow and ability to service debt are susceptible to changes in economic
conditions. Accordingly, the deterioration of local economic conditions could
increase the credit risk associated with this segment of the portfolio.

At December 31, 2000, 1999, and 1998, there were 6, 15 and 20 loans,
respectively, with a remaining balance of approximately $416,000, $179,000, and
$511,000, respectively, on which the accrual of interest had been discontinued.
The impact of such non-accrual loans on the Company's interest income for years
ended December 31, 2000, 1999, and 1998 is not material.

The Company recorded investment in loans that are considered impaired
totaling $680,000, $764,000 and $1.1 million at December 31, 2000, 1999 and
1998, respectively, which required no corresponding impairment reserve. The
average recorded investment in impaired loans was $746,000, $939,500 and
$557,500 in 2000, 1999 and 1998, respectively. Interest on all impaired loans
remains current under the extended terms. The impact of such impaired loans on
the Company's interest income for the years ended December 31, 2000, 1999, and
1998 is not material.

Loans to related parties include loans to directors of the Company and
their related companies. Such loans are made in the ordinary course of business
on substantially the same terms as loans to other individuals and businesses of
comparable risks. The following analysis shows the activity of related party
loans:


40


For the year ended
December 31,
--------------------------
(In thousands) 2000 1999
--------------------------
Balance at beginning of year $ 3,037 $ 2,185
New loan and
additional disbursements 3,495 2,426
Repayments (3,488) (1,574)
------- -------
Balance at end of year $ 3,044 $ 3,037
======= =======

(4) ALLOWANCE FOR LOAN LOSSES

An analysis of the changes in the allowance for loan losses account is as
follows:

For the year ended December 31,
---------------------------------
(In thousands) 2000 1999 1998
---------------------------------
Balance at beginning of year $ 1,475 $ 1,071 $ 1,026
Provision for loan losses 150 600 420
Charge-offs:
Commercial and industrial loans (187) (80) (203)
Automobile loans (54) (66) (58)
Consumer loans (99) (81) (145)
------- ------- -------
Total charge-offs (340) (227) (406)
------- ------- -------
Recoveries:
Commercial and industrial loans 547 26 1
Automobile loans 13 4 15
Consumer loans 27 1 15
Total recoveries 587 31 31
------- ------- -------
Net recoveries (charge-offs) 247 (196) (375)
------- ------- -------
Balance at end of year $ 1,872 $ 1,475 $ 1,071
======= ======= =======

(5) PREMISES AND EQUIPMENT

A summary of premises and equipment at cost, less accumulated depreciation
and amortization are as follows:

December 31,
-----------------------
(In thousands) 2000 1999
-----------------------
Leasehold improvements $ 703 $ 703
Furniture, fixtures
and equipment 3,647 3,259
------- ------
4,350 3,962
Less accumulated depreciation
and amortization (2,482) 1,873
------- ------
$ 1,868 $2,089
======= ======

Depreciation and amortization charged to operations for the years ended
December 31, 2000, 1999 and 1998 amounted to approximately $609,000, $579,000,
and $406,000, respectively.


41


(6) DEPOSITS

Included in NOW and money market deposits, at December 31, 2000 and 1999,
were approximately $51.2 million and $75.0 million, respectively, of seasonal
municipal deposits.

(7) BORROWED FUNDS

The Company enters into sales of securities under agreements to repurchase
(reverse-repurchase agreements). These are fixed coupon agreements, which are
treated as financing transactions, and the obligations to repurchase are
reflected as a liability in the balance sheet. The dollar amount of securities
underlying the agreements remains in the asset account. During the period of the
agreement, the securities are delivered to either a third-party, or directly to
the broker, who holds the collateral until maturity. There were no outstanding
reverse-repurchase agreements at December 31, 2000 and 1999.

Reverse-repurchase agreements averaged approximately $4.7 million, $.5
million, $.9 million for the years ended December 31, 2000, 1999 and 1998,
respectively. The maximum amount outstanding at the end of any month was $29.9
million and $10.2 million, respectively, for the years ended December 31, 2000
and 1998. There were no reverse repurchase agreements outstanding at the end of
any month during 1999.

There were no federal funds purchased at December 31, 2000 and 1999.
Federal funds purchased averaged approximately $5.7 million, $1.8 million and
$.5 million for the years ended December 31, 2000, 1999 and 1998, respectively.
The maximum amount outstanding at the end of any month was $16.7 million, $6.5
million and $5.0 million, respectively, for the years ended December 31, 2000,
1999 and 1998.

The Company has a $500,000 line of credit agreement with another financial
institution permitting borrowing at that institution's prime rate. At December
31, 2000, there was no balance outstanding under this line of credit agreement.

The Bank has available lines of credit with the FHLB, which enable it to
borrow funds on a secured basis. At December 31, 2000, the Bank's borrowings
consisted of $14.0 million and $15.0 million of convertible advances from the
FHLB. These 10 year advances, bear interest at 5.49% and 4.59% respectively, and
have contractual maturity dates of February 19, 2008 and January 21, 2009,
respectively. The convertible feature of these advances allow the FHLB, as of
February 19, 2003 and January 21, 2002, respectively, and quarterly thereafter,
to convert these advances into replacement funding for the same or lesser
principal amount, based on any advance then offered by the FHLB, at then current
market rates. If the FHLB elects to convert these advances, the Bank may repay
any portion of the advances without penalty. These convertible advances are
secured by various mortgage-backed and callable agency securities.

(8) GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES

On September 7, 2000, LIF Statutory Trust I, a wholly-owned finance
subsidiary of the Company, issued $7.5 million aggregate liquidation amount of
10.60% Capital Securities due September 7, 2030, referred to as Capital
Securities. The Company has fully and unconditionally guaranteed the Capital
Securities along with all obligations of LIF Statutory Trust I under the trust
agreement. LIF Statutory Trust I was formed for the exclusive purpose of issuing
the Capital Securities and common securities and using the proceeds to acquire
an aggregate principal amount of $7.7 million of the Company's 10.60% Junior
Subordinated Debentures due September 7, 2030, referred to as the Company's
Junior Subordinated Debentures. The Junior Subordinated Debentures are
prepayable, in whole or in part, at the Company's option on or after September
7, 2010 at declining premiums to maturity. Proceeds totaling approximately $7.2
million are being used for general corporate purposes, including the repurchase
of common stock.

The balance outstanding on the Capital Securities was $7.5 million at
September 30, 2000. The costs associated with the Capital Securities issuance
have been capitalized and are being amortized using the interest method over a
period of thirty years. Distributions on the Capital Securities are payable
semi-annually beginning March 7, 2001 and are reflected in the Consolidated
Statements of Earnings as a component of non-interest expense under the caption
"Capital securities."

(9) INCOME TAXES

Income tax expenses are summarized as follows:


42


For the year ended December 31,
----------------------------------
(In thousands) 2000 1999 1998
----------------------------------
Current
Federal $838 $618 $369
State 91 265 143
---- ---- ----
929 883 512
Deferred
Federal (44) (25) 90
State (5) (11) 28
---- ---- ----
(49) (36) 118
---- ---- ----
Income tax expense $880 $847 $630
==== ==== ====

The effective income tax rates for the years ended December 31, 2000, 1999
and 1998 were 33%, 35% and 36%, respectively. The reconciliation between the
statutory Federal income tax rate and the effective tax rate is as follows:

For the year ended
December 31,
----------------------------
2000 1999 1998
----------------------------
Tax on income at statutory rate 34% 34% 34%
Tax effects of:
State income tax, net of federal
income tax benefit 2 7 7
Tax exempt income -- (5) (6)
Bank owned life insurance (4) (3) --
Other, net 1 2 1
-- -- --
Tax at effective rate 33% 35% 36%
== == ==

The Company is required to establish deferred tax assets and liabilities
for the temporary differences between the financial reporting and tax bases of
its assets and liabilities. The Company did not have a valuation allowance for
its deferred tax asset as of December 31, 2000 and 1999. The Company will
continue to review the recognition criteria as set forth in SFAS No. 109,
"Accounting for Income Taxes," on a quarterly basis and determine the need for a
valuation allowance accordingly.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:

December 31,
------------------------
(In thousands) 2000 1999
------------------------
Deferred tax assets:
Allowance for loan losses $ 680 $ 397
Accrued expenses 60 75
Unrealized depreciation in
available-for-sale securities 725 2,121
Other 80 56
------- -------
Gross deferred tax assets 1,545 2,649
------- -------

Deferred tax liabilities:
Other (2) (6)
------- -------
Gross deferred tax liabilities (2) (6)
------- -------
Net deferred tax asset $ 1,543 $ 2,643
======= =======


43


(10) REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital
requirements by Federal banking agencies. The risk based capital guidelines are
designed to make regulatory capital requirements more sensitive to differences
in risk profiles to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Under these guidelines, assets and
off-balance sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk weighted assets and off-balance sheet items. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary actions by regulators, that, if undertaken, could have
a direct material effect on the Company's financial statements. As of December
31, 1999, the most recent notification from the federal banking regulators
categorized the Company as well capitalized under the regulatory framework for
prompt corrective action. Under the capital adequacy guidelines, a well
capitalized institution must maintain a minimum total risk based capital to
total risk weighted assets ratio of at least 10%, a minimum Tier 1 capital to
total risk weighted assets ratio of at least 6%, a minimum leverage ratio of at
least 5% and is not subject to any written order, agreement or directive. There
are no conditions or events since such notification that management believes
have changed this classification.

The following tables set forth the regulatory capital at December 31, 2000
and 1999, under the rules applicable at such dates. At such dates, management
believes that the Company and the Bank meet all capital adequacy requirements to
which they are subject.

December 31, 2000

Actual Regulatory Minimum
----------------------------------------
(Dollars in thousands) Amount Ratio Amount Ratio
----------------------------------------
Tier 1 Capital (to Average
Adjusted Assets)
The Company $27,237 9.56% $11,394 4.00%
The Bank 22,549 7.92 11,382 4.00

Tier 1 Capital (to Risk
Weighted Assets)
The Company 27,237 14.97 7,277 4.00
The Bank 22,549 12.42 7,265 4.00

Total Risk Based Capital
(to Risk Weighted Assets)
The Company 29,800 16.38 14,554 8.00
The Bank 29,421 13.45 14,530 8.00

December 31, 1999

Actual Regulatory Minimum
----------------------------------------
(Dollars in thousands) Amount Ratio Amount Ratio
----------------------------------------

Tier 1 Capital (to Average
Adjusted Assets)
The Company $21,327 8.13% $10,489 4.00%
The Bank 21,880 8.34 10,489 4.00

Tier 1 Capital (to Risk
Weighted Assets)
The Company 21,327 13.08 6,522 4.00
The Bank 21,880 13.42 6,522 4.00

Total Risk Based Capital
(to Risk Weighted Assets)
The Company 22,802 13.98 13,045 8.00
The Bank 23,355 14.32 13,045 8.00



44


(11) LEASE COMMITMENTS

The Company has obligations under a number of non-cancelable leases on
properties used for banking purposes. Rental expense for the years ended
December 31, 2000, 1999, and 1998 was approximately $559,000, $468,000, and
416,000, respectively. Minimum annual rentals, exclusive of taxes and other
charges, under operating leases are summarized as follows:

(In thousands) Minimum rentals
------------------------------------------------
Years ending December 31,
2001 $ 610
2002 555
2003 521
2004 515
2005 501
Thereafter 406
------
Total $3,108
======

(12) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosure about Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its financial
instruments. Fair value estimates, methods, and assumptions are set forth as
follows:

December 31, 2000 December 31, 1999
--------------------------------------------
Carrying Estimated Carrying Estimated
(In thousands) Value Fair Value Value Fair Value
--------------------------------------------
Cash and due from banks $ 14,652 14,652 $ 9,301 9,301
Interest earning deposits 56 56 204 204
Federal funds sold 1,500 1,500 18,300 18,300
Securities held-to-maturity 4,754 4,736 341 338
Securities available-for-sale 164,668 164,668 169,808 169,808
Loans, net of
unearned income
and deferred fees 136,725 137,160 121,311 121,225

Deposits:
Demand, savings, NOW and
money market deposits 160,444 160,444 167,761 167,761
Time certificates and
other time deposits 112,745 112,962 101,979 102,041
Borrowings 29,000 28,367 39,500 39,192

Cash and Due from Banks, Interest Earning Deposits, Federal Funds Sold, and
Securities

The carrying amounts for cash and due from banks approximate fair value as
they mature in 90 days or less and do not present unanticipated credit concerns.
Interest earning deposits are subject to rate changes at any time and therefore
are considered to be carried at their estimated fair value. The fair values of
federal funds sold, held-to-maturity securities and available-for-sale
securities are estimated based on bid quotations received from securities
dealers or from prices obtained from firms specializing in providing securities
pricing services.


45


Loans

The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit risks. For potential problem loans, which include non-performing
loans, the present value result is separately discounted consistent with
management's assumptions in evaluating the adequacy of the allowance for loan
losses.

Deposits

All deposits, except certificates of deposit, are subject to rate changes
at any time, and therefore are considered to be carried at estimated fair value.
The fair value of certificates of deposit was estimated by computing the present
value of contractual future cash flows for each certificate. The present value
rate utilized was the rate offered by the Company at the date of estimation on
certificates with an initial maturity equal to the remaining term to maturity of
the existing certificates.

Borrowings

The estimated fair values of borrowings are valued using estimated
discounted cash flow analysis based on the current incremental borrowing rates
for similar types of borrowing arrangements.

Commitments

The fair value of commitments is estimated using the fees charged at the
date of estimation to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counter parties. For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates.

The commitments existing at December 31, 2000 and 1999 would be offered at
substantially the same rates and under substantially the same terms that would
be offered by the Company at December 31, 2000 and 1999 to the counter parties,
therefore, the carrying value of existing commitments is considered to be
equivalent to the estimated fair value.

Limitations

SFAS No. 107 requires disclosures of the estimated fair value of financial
instruments. Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates do
not reflect any premium or discount that could result from offering for sale at
one time the Company's entire holdings of a particular financial instrument nor
the resultant tax ramifications or transaction costs. Because no market exists
for a significant portion of the Company's financial instruments, fair value
estimates are based on judgments regarding current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets of the Company that are not
considered financial assets include premises and equipment and deferred tax
assets. In addition, the tax ramifications related to the unrealized gains and
losses can have a significant effect on fair value estimates and have not been
considered.

(13) OTHER COMMITMENTS AND CONTINGENT LIABILITIES

a. Off-Balance Sheet Risks

The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
unused lines of credit. Such financial instruments are reflected in the
Company's financial statements when and if proceeds associated with the
commitments are disbursed.


46


The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
unused lines of credit is represented by the contractual notional amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
financial instruments.

Contract or notional amounts

December 31, 2000 December 31, 1999
----------------------------------------
(in thousands) Fixed Variable Fixed Variable
----------------------------------------
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ -- $10,948 $ -- $ 5,667
Unused lines of credit -- 14,835 -- 17,039
Standby letters of credit 1,945 -- 585 --
------- ------- ------- -------
$ 1,945 $25,783 $ 585 $22,706
======= ======= ======= =======

Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on
management's credit evaluation of the counter party. Collateral held varies but
may include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.

b. Other Matters

The Company is required to maintain balances with the Federal Reserve Bank
of New York for reserve and clearing requirements. During the years ended
December 31, 2000, 1999 and 1998, these balances averaged $6.9 million, $6.0
million and $4.5 million, respectively.

The Company is subject to certain pending and threatened legal actions,
which arise out of the normal course of business. Management believes that the
resolution of any pending or threatened litigation will not have a material
effect on the Company's financial statements.

(14) STOCK OPTION PLAN

At a special meeting on December 8, 1998, the stockholders ratified the
Long Island Financial Corp. 1998 Stock Option Plan (the Stock Option Plan.) The
Stock Option Plan authorizes the granting of options to purchase 175,000 shares
of common stock of the Company. All officers and other employees of the Company
and directors who are not also serving as employees of the Company are eligible
to receive awards under the Stock Option Plan. Options under this plan are
either non-statutory stock options or incentive stock options. Each option
entitles the holder to purchase one share of the Common Stock at an exercise
price equal to the fair market value on the date of grant.

The Company applies APB Opinion No. 25 in accounting for stock based
compensation, and accordingly, no compensation cost has been recognized for
stock options in the accompanying consolidated financial statements. Had the
Company determined compensation cost based on the fair value of its stock
options at the date of grant under SFAS No. 123, the Company's net income and
earnings per share would have been reduced to proforma amounts indicated in the
following table:


47


Number of Shares of
------------------------------------------------
Non Non Weighted
Incentive Statutory Qualified Average
Stock Stock Option to Exercise
Options Options Directors Price
------------------------------------------------
Balance outstanding at
December 31, 1998 -- -- -- $ --
Granted 40,250 -- 73,500 12.50
Forfeited 500 -- -- 12.50
Exercised -- -- -- --
------ ------ ------ ------
Balance outstanding at
December 31, 1999 39,750 -- 73,500 12.50
Granted 9,000 -- 10,500 10.88
Forfeited 1,000 -- -- 11.96
Exercised -- -- -- --
------ ------ ------ ------
Balance Outstanding at
December 31, 2000 47,750 -- 84,000 12.27

Shares exercisable at
December 31, 2000 39,250 -- 75,600 $12.44

December 31,
----------------------
(Dollars in thousands, except per share data) 2000 1999
----------------------
Net Income As Reported $1,754 $1,606
Pro forma 1,659 1,014

Net Income per Common Share:
Basic As Reported 1.10 .92
Pro forma 1.04 .58
Diluted As Reported 1.10 .92
Pro forma $ 1.04 $ .58

The fair value of the share grants were estimated on the date of grant
using the Black-Scholes option-pricing model using the following assumptions in
fiscal 2000 and 1999; dividend yield of 2.71% and 2.73%, expected volatility of
45.55% and 45.11%; and risk-free interest rates of 6.62% and 4.73%,
respectively. The expected option lives were 7 years.

Life insurance benefits are provided to certain executive officers and
Directors of the Company. In connection with these benefits, the Company
purchased $5.7 million in bank owned life insurance in 1999, which is carried at
its cash surrender value as an asset in the consolidated balance sheets.
Increases in the cash surrender value of the insurance are reflected as other
operating income, and the related mortality expense is recognized as salaries
and employee benefits in the consolidated statements of earnings.

(15) CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

The earnings of the Bank are recognized by the Company using the equity
method of accounting. Accordingly, undistributed earnings of the Bank are
recorded as increases in the Company's investment in the Bank. The following are
the condensed financial statements of the Company as of and for the year ended
December 31, 2000 and 1999.


48


CONDENSED BALANCE SHEETS
- --------------------------------------------------------------------------------

(in thousands) December 31,
2000 1999
Assets:
Cash and cash equivalent $ 5,452 $ 284
Investment in subsidiaries 21,535 18,892
Other assets 398 5
------- -------
Total assets 27,385 19,181

Liabilities and Stockholders' Equity:
Borrowed funds -- 500
Other liabilities 392 338
Junior subordinated debentures 7,732 --
Stockholders' equity 19,261 18,343
------- -------
Total liabilities and stockholders' equity $27,385 $19,181
------- -------

CONDENSED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------

(in thousands) For the year ended
December 31,
2000 1999

Dividends received from subsidiaries $ 1,322 $ 1,601
Interest income 85 1
------- -------
Total income 1,407 1,602

Interest expense - line of credit 22 12
Capital securities 266 --
Other operating expense 41 3
------- -------
Total expense 329 15

Income before income taxes
and equity in undistributed
earnings of subsidiaries 1,078 1,587
Income tax benefit 82 5
------- -------
Income before equity in undistributed
earnings of the Bank 1,160 1,592
Equity in undistributed earnings of Bank 594 14
------- -------
Net income $ 1,754 $ 1,606
------- -------

CONDENSED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

(in thousands) For the year ended
December 31,
2000 1999

Cash Flows From Operating Activities:
Net income $ 1,754 $ 1,606
Adjustments to reconcile net income
to net cash provided
by operating activities:
Equity in the undistributed
earnings of subsidiaries (594) (14)
Change in other assets and liabilities
Increase in other assets (393) (5)
Increase in other liabilities (54) 338
------- -------


49


(cont'd)

Net cash provided by operating
activities 821 1,925

Cash Flows From Investing Activities:
Investment in LIF Statutory Trust I (232) --
------- -------
Net cash used in
investing activities (232) --

Cash Flows From Financing Activities:
Net (decrease) increase in borrowed funds (500) 500
Payments for cash dividends (502) (563)
Corporate reorganization costs -- (115)
Issuance of junior subordinated debt 7,732 --
Purchase of common stock (2,151) (1,463)
------- -------
Net cash provided
by (used in)
financing activities 4,579 (1,641)

Net increase in cash
and cash equivalents 5,168 284
Cash and cash equivalents at beginning of year 284 --
------- -------
Cash and cash equivalents at the end of the year $ 5,452 $ 284
------- -------


50


QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of financial data by quarter end for the years ended
December 31, 2000 and 1999:



2000 1999
----------------------------------------------------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------------------
(In thousands, except share data)

Selected Operating Data:
Interest income $ 5,430 $ 5,251 $ 5,109 $ 5,203 $ 4,551 $ 4,622 $ 4,582 $ 4,655
Interest expense 2,955 2,736 2,715 2,737 2,374 2,391 2,321 2,396
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income 2,475 2,515 2,394 2,466 2,177 2,231 2,261 2,259
Provision for loan losses 150 -- -- -- 150 150 150 150
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses 2,325 2,515 2,394 2,466 2,027 2,081 2,111 2,109
Other operating income 379 428 443 316 317 596 415 378
Other operating expenses 2,029 2,112 2,125 2,366 1,822 1,916 1,925 1,918
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes 675 831 712 416 522 761 601 569
Income taxes 223 282 237 138 190 262 220 175
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 452 $ 549 $ 475 $ 278 $ 332 $ 499 $ 381 $ 394
========== ========== ========== ========== ========== ========== ========== ==========
Basic and diluted
earnings per share $ .27 $ .33 $ .30 $ .18 $ .19 $ .28 $ .22 $ .23
========== ========== ========== ========== ========== ========== ========== ==========
Weighted average
shares outstanding 1,646,326 1,639,293 1,596,201 1,504,698 1,775,991 1,776,326 1,758,364 1,696,949



51


INDEPENDENT AUDITORS' REPORT

To The Stockholders And Board of Directors of Long Island Financial Corp.:

We have audited the accompanying consolidated balance sheets of Long
Island Financial Corp. and subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of earnings, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Long Island
Financial Corp. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.

/s/ KPMG, LLP

KPMG, LLP
Melville, New York
January 18, 2001


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