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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

   
   
FORM 10-Q
  
  (Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
     
For the quarterly period ended March 31, 2005                                                                                                        
      
OR
   

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
     
  
For the transition period from ___________________________to__________________________________
  
Commission file number 0-12220
  
THE FIRST OF LONG ISLAND CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
   
NEW YORK   11-2672906
(State or Other Jurisdiction of Incorporation or Organization)   (I.R.S. Employer Identification No.)
     
10 Glen Head Road, Glen Head, New York   11545    
(Address of Principal Executive Offices)   (Zip Code)
     
Registrant’s Telephone Number, Including Area Code (516) 671-4900                                                                   
   
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.)
   

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

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

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

  
CLASS   OUTSTANDING AT MARCH 29, 2005
 
Common stock, par value 
        $.10 per share		   3,934,379
  


THE FIRST OF LONG ISLAND CORPORATION
MARCH 31, 2005
INDEX

   
        PAGE NO.  
           
 		  
PART I.   FINANCIAL INFORMATION       
           
Item 1.   Financial Statements      
           
    Consolidated Balance Sheets (Unaudited)
March 31, 2005 and December 31, 2004 		   1  
           
    Consolidated Statements Of Income (Unaudited)
Three Months Ended March 31, 2005 and 2004 		   2  
           
   

Consolidated Statements Of Changes In
Stockholders’ Equity (Unaudited)
Three Months Ended March 31, 2005 and 2004 

   3  
           
   

Consolidated Statements Of Cash Flows (Unaudited)
Three Months Ended March 31, 2005 and 2004 

   4  
           
    Notes To Unaudited Consolidated Financial Statements    5  
           
Item 2.   Management’s Discussion and Analysis Of
Financial Condition and Results Of Operations 		   8  
           
Item 3.   Quantitative and Qualitative Disclosures About
Market Risk 		   18  
           
Item 4.   Controls and Procedures    20  
           
PART II.   OTHER INFORMATION      
           
Item 1.   Legal Proceedings    22  
           
Item 2.   Issuer Purchase of Equity Securities    22  
           
Item 6.   Exhibits and Reports on Form 8-K    22  
           
SIGNATURES       24  
           


ITEM 1. - FINANCIAL STATEMENTS
    
CONSOLIDATED  BALANCE  SHEETS (UNAUDITED)
   
March 31,
2005
  December 31,
2004
 
Assets:          
   Cash and due from banks   $ 31,175,000   $ 24,286,000  
   Federal funds sold     11,000,000     —  
 
 
 
     Cash and cash equivalents     42,175,000     24,286,000  
 
 
 
               
   Investment securities:              
          Held-to-maturity, at amortized cost (fair              
             value of $218,888,000 and $209,514,000)     219,801,000     207,335,000  
          Available-for-sale, at fair value (amortized cost
             of $327,129,000 and $321,577,000)		     326,815,000     324,778,000  
 
 
 
      546,616,000     532,113,000  
 
 
 
   Loans:              
          Commercial and industrial     49,887,000     51,672,000  
          Secured by real estate     292,712,000     285,204,000  
          Consumer     6,277,000     5,566,000  
          Other     435,000     474,000  
 
 
 
      349,311,000     342,916,000  
          Net deferred loan fees     (401,000 )   (479,000 )
 
 
 
      348,910,000     342,437,000  
          Allowance for loan losses     (2,955,000 )   (2,808,000 )
 
 
 
      345,955,000     339,629,000  
 
 
 
               
   Bank premises and equipment, net     6,612,000     6,531,000  
   Prepaid income taxes     —     141,000  
   Deferred income tax benefits     62,000     —  
   Other assets     16,262,000     15,078,000  
 
 
 
    $ 957,682,000   $ 917,778,000  
 
 
 
Liabilities:              
   Deposits:              
          Checking   $ 305,168,000   $ 298,049,000  
          Savings and money market     440,918,000     427,941,000  
          Time, other     18,457,000     17,711,000  
          Time, $100,000 and over     38,935,000     27,549,000  
 
 
 
      803,478,000     771,250,000  
   Securities sold under repurchase agreements     62,547,000     49,654,000  
   Accrued expenses and other liabilities     2,292,000     5,204,000  
   Current income taxes payable     384,000     —-  
   Deferred income taxes payable     —     1,430,000  
 
 
 
      868,701,000     827,538,000  
 
 
 
Stockholders’ Equity:              
   Common stock, par value $.10 per share:
     Authorized, 20,000,000 shares;
       Issued and outstanding, 3,933,315 and 3,967,548 shares		     393,000     397,000  
   Surplus     931,000     1,135,000  
   Retained earnings     87,846,000     86,786,000  
 
 
 
      89,170,000     88,318,000  
   Accumulated other comprehensive income (loss) net of tax     (189,000 )   1,922,000  
 
 
 
      88,981,000     90,240,000  
 
 
 
    $ 957,682,000   $ 917,778,000  
 
 
 
  
See notes to unaudited consolidated financial statements

1


CONSOLIDATED  STATEMENTS  OF  INCOME (UNAUDITED)
   
Three Months Ended March 31,
   2005
2004
  
Interest income:          
    Loans   $ 4,979,000   $ 4,544,000  
    Investment securities:              
        Taxable     3,026,000     3,289,000  
        Nontaxable     1,625,000     1,590,000  
    Federal funds sold     71,000     65,000  
      9,701,000     9,488,000  
Interest expense:              
    Savings and money market deposits     712,000     725,000  
    Time deposits     202,000     92,000  
    Securities sold under repurchase agreements     321,000     106,000  
      1,235,000     923,000  
        Net interest income     8,466,000     8,565,000  
Provision for loan losses     150,000     100,000  
   Net interest income after provision for loan losses     8,316,000     8,465,000  
         
Noninterest income:              
    Investment Management Division income     472,000     356,000  
    Service charges on deposit accounts     857,000     940,000  
    Net gains (losses) on sales of available-for-sale securities     (162,000 )   93,000  
    Other     522,000     170,000  
      1,689,000     1,559,000  
Noninterest expense:              
    Salaries     2,733,000     2,636,000  
    Employee benefits     1,262,000     1,193,000  
    Occupancy and equipment expense     979,000     955,000  
    Other operating expenses     1,251,000     1,247,000  
      6,225,000     6,031,000  
         
        Income before income taxes     3,780,000     3,993,000  
Income tax expense     738,000     1,019,000  
        Net income   $ 3,042,000   $ 2,974,000  
Weighted average:              
    Common shares     3,946,127     4,091,153  
    Dilutive stock options     70,758     100,250  
      4,016,885     4,191,403  
Earnings per share:              
    Basic   $ .77   $ .73  
    Diluted   $ .76   $ .71  
  
See notes to unaudited consolidated financial statements

2


CONSOLIDATED  STATEMENTS  OF  CHANGES
IN STOCKHOLDERS’ EQUITY (UNAUDITED)
 
Three Months Ended March 31, 2005
   Common Stock
   Surplus    Compre-
hensive
Income 		   Retained
Earnings 		   Accumulated
Other
Compre-
hensive
Income (Loss) 		   Total   
Shares    Amount
 
 
 
 
 
 
 
Balance, January 1, 2005   3,967,548   $ 397,000   $ 1,135,000         $ 86,786,000   $ 1,922,000   $ 90,240,000  
   Net Income                   $ 3,042,000     3,042,000           3,042,000  
   Repurchase and retirement
     of common stock		   (65,501 )   (7,000 )   (3,147,000 )                     (3,154,000 )
   Exercise of stock options   31,268     3,000     819,000                       822,000  
   Tax benefit of stock options               124,000                       124,000  
   Cash dividend adjustment                           18,000           18,000  
   Unrealized losses on available-
     for-sale-securities, net of
      reclassification adjustment
       and income taxes 		                    (2,111,000 )         (2,111,000 )   (2,111,000 )
   Transfer from retained                                          
     earnings to surplus               2,000,000           (2,000,000 )         —  
                   
                   
   Comprehensive income                   $ 931,000                    
 
 
 
 
 
 
 
 
Balance, March 31, 2005   3,933,315   $ 393,000   $ 931,000         $ 87,846,000   $ (189,000 ) $ 88,981,000  
 
 
 
     
 
 
 

Three Months Ended March 31, 2004
   Common Stock
   Surplus    Compre-
hensive
Income		    Retained
Earnings		    Accumulated
Other
Compre-
hensive
Income		    Total   
Shares    Amount
 
 
 
 
 
 
 
Balance, January 1, 2004   4,083,733   $ 408,000   $ 781,000         $ 84,864,000   $ 3,238,000   $ 89,291,000  
   Net Income                   $ 2,974,000     2,974,000           2,974,000  
   Repurchase and retirement
     of common stock		   (7,264 )   (1,000 )   (357,000 )                     (358,000 )
   Exercise of stock options   20,608     2,000     410,000                       412,000  
   Tax benefit of stock options               12,000                       12,000  
   Unrealized gains on available-
     for-sale-securities, net of
     reclassification adjustment
       and income taxes 		                    1,111,000           1,111,000     1,111,000  
       
         
   Comprehensive income                   $ 4,085,000                    
 
 
 
 
 
 
 
 
Balance, March 31, 2004   4,097,077   $ 409,000   $ 846,000         $ 87,838,000   $ 4,349,000   $ 93,442,000  
 
 
 
     
 
 
      
See notes to unaudited consolidated financial statements

3


CONSOLIDATED  STATEMENTS OF CASH FLOWS (UNAUDITED)
   
   Three Months Ended March 31,
  
 
   2005 2004
 
 
 
Cash Flows From Operating Activities:        
  Net income $ 3,042,000   $ 2,974,000  
  Adjustments to reconcile net income to net cash
    provided by operating activities: 		           
     Provision for loan losses   150,000     100,000  
     Deferred income tax credit   (86,000 )   (5,000 )
     Depreciation and amortization   338,000     353,000  
     Premium amortization on investment securities, net   368,000     779,000  
     Writeoff of bank premises and equipment   21,000     —  
     Losses (gains) on sales of available-for-sale securities   162,000     (93,000 )
     Accretion of cash surrender value on bank owned life insurance   (66,000 )   —  
     Decrease in prepaid income taxes   141,000     —  
     Increase in other assets   (1,118,000 )   (782,000 )
     Decrease in accrued expenses and other liabilities   (1,228,000 )   (660,000 )
     Increase in income taxes payable   508,000     733,000  
        Net cash provided by operating activities   2,232,000     3,399,000  
             
Cash Flows From Investing Activities:            
   Proceeds from sales of available-for-sale securities   31,453,000     95,000  
   Proceeds from maturities and redemptions of investment securities:            
     Held-to-maturity   14,997,000     22,954,000  
     Available-for-sale   4,145,000     24,130,000  
   Purchase of investment securities:            
     Held-to-maturity   (27,525,000 )   (30,366,000 )
     Available-for-sale   (41,618,000 )   (8,404,000 )
   Net increase in loans to customers   (6,476,000 )   (2,665,000 )
   Purchases of bank premises and equipment   (440,000 )   (74,000 )
        Net cash provided by (used in) investing activities   (25,464,000 )   5,670,000  
             
Cash Flows From Financing Activities:            
   Net increase in total deposits   32,228,000     9,761,000  
   Net increase (decrease) in securities sold under repurchase agreements   12,893,000     (4,000,000 )
   Proceeds from exercise of stock options   822,000     412,000  
   Repurchase and retirement of common stock   (3,154,000 )   (358,000 )
   Cash dividends paid   (1,668,000 )   (1,470,000 )
        Net cash provided by financing activities   41,121,000     4,345,000  
Net increase in cash and cash equivalents   17,889,000     13,414,000  
Cash and cash equivalents, beginning of year   24,286,000     61,430,000  
Cash and cash equivalents, end of period $ 42,175,000   $ 74,844,000  
             
Supplemental Schedule of Noncash Investing Activities            
   Unrealized gains (losses) on available-for-sale securities $ (3,515,000 ) $ 1,851,000  
  
The Corporation made interest payments of $1,227,000 and $927,000 and income tax payments of $177,000
 and $292,000 during the first quarters of 2005 and 2004, respectively.
 
See notes to unaudited consolidated financial statements

4


THE FIRST OF LONG ISLAND CORPORATION AND SUBSIDIARY
MARCH 31, 2005
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

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

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

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

2. Stock-based Compensation

        At March 31, 2005, the Corporation had two stock option and appreciation rights plans. The Corporation accounts for those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. Except upon modification, no stock-based employee compensation cost is recorded for stock options as all options granted have an exercise price equal to the market value of the underlying common stock on the date of grant. If there had been any stock appreciation rights outstanding, compensation costs would have been recorded based on the quoted market price of the Corporation’s stock at the end of the period.

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


5


Three Months Ended
3/31/05 3/31/04
(in thousands)
  
Net income, as reported   $ 3,042   $ 2,974  
Deduct: Total cost of stock-based employee
   compensation expense determined under
     fair value based method for all awards,
          net of related tax effects 		    (759 )   (86 )
Pro forma net income   $ 2,283   $ 2,888  
               
Earnings per share:              
   Basic - as reported   $ 0.77   $ 0.73  
   Basic - pro forma   $ 0.58   $ 0.71  
   Diluted - as reported   $ 0.76   $ 0.71  
   Diluted - pro forma   $ 0.57   $ 0.69  
  

         When comparing the first quarter of 2005 to the same quarter last year, the increase in pro forma stock-based compensation expense is primarily attributable to the fact that the options granted in January 2005 have a 90 day vesting period rather than the three year vesting period as has been used in the recent past and the vesting of a number of outstanding stock options was accelerated in January and February 2005 (for more information on the acceleration of vesting of outstanding stock options see Note J to the Corporations 2004 Consolidated Financial Statements).

        Options to purchase 32,815 shares of common stock at $47.89 per share were outstanding at March 31, 2005 and for the quarterly period then ended but were not included in the computation of diluted earnings per share for the first quarter of 2005 because the options’ exercise price was greater than the average market price of the common shares. These antidilutive options were issued on January 20, 2004 and expire ten years from their date of grant. There were no antidilutive options outstanding at or for the quarterly period ended March 31, 2004.

3. Stockholders’ Equity

         The line captioned repurchase and retirement of common stock in the Consolidated Statement of Changes in Stockholders’ Equity includes shares of common stock tendered upon the exercise of stock options. For the three months ended March 31, 2005, 6,842 shares of common stock with a value of $338,000 were tendered and for the same period in 2004, 5,604 shares with a value of $277,000 were tendered.

6


4. Defined Benefit Pension Plan
  
        The following table sets forth the components of net periodic pension cost for accounting purposes.
  
Three Months Ended
March 31,
 
 
2005 2004
 
 
 
(in thousands)
Service cost, net of plan participant contributions     $ 190   $ 168  
Interest cost       173     157  
Expected return on plan assets       (210 )   (176 )
Net amortization and deferral       20     18  
Net pension cost     $ 173   $ 167  
  

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

7


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

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

Overview

        In the first quarter of 2005 the Corporation earned $.76 per share, an increase of 7% over the $.71 earned for the same quarter last year. Earnings for the first quarter of 2005 include net securities losses of $162,000, and earnings for the same quarter last year include net securities gains of $93,000.

        Earnings per share grew 7% for the quarter, while net income grew by 2%. The larger earnings per share growth is primarily attributable to the Corporation’s share repurchase program. When compared to same quarter last year, earnings per share for the current quarter were positively impacted by the large volume of shares purchased during the fourth quarter of 2004 and thus far this year. Purchases during these periods amounted to 140,659 and 58,659 shares, respectively.

        The largest contributors to the increase in first quarter 2005 net income were a real estate tax recovery of $283,000, the impact of tax planning strategies, and a reduction of income taxes accrued with respect to the Corporation’s investment subsidiary.

        While both earnings per share and net income increased for the first quarter of 2005, net interest income from the Corporation’s core banking business declined by $99,000. One reason for the decline was that the Corporation reduced the average maturity of its investment portfolio in the latter half of 2004 to better position the Corporation for increases in intermediate and longer-term interest rates. Another reason for the decline is that short-term interest rates increased during the latter half of 2004 and thus far this year and caused the Corporation’s cost of deposits and borrowings to increase. Also impacting net interest income was the fact that average money-market-type deposit balances were lower in the first quarter of 2005 than the same quarter last year. Positively impacting net interest income for the current quarter was 4% growth in the average balance of checking deposits.

      The Corporation finds itself in a more challenging environment than the last fiscal year. The current interest rate environment and increased competition have put more pressure on the Corporation’s ability to grow deposits. In addition, if short-term interest rates continue to increase, so could the Corporation’s cost of deposits and borrowings. If intermediate and longer-term interest rates remain at their currently low levels or move lower, the Bank may have limited opportunity to reinvest cash flows from loans and securities at equivalent or higher yields. The shifting back from intermediate to shorter-

8


term investment instruments during the latter half of 2004 should continue to negatively impact portfolio earnings in the near term. As a partial offset, management could now increase the average maturity of the Bank’s securities portfolio and may decide to do so based on its view of the current and future interest rate environment.

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

Net Interest Income

        Average Balance Sheet; Interest Rates and Interest Differential.  The following table sets forth the average daily balances for each major category of assets, liabilities and stockholders’ equity as well as the amounts and average rates earned or paid on each major category of interest-earning assets and interest-bearing liabilities.
 
Three Months Ended March 31,
2005 2004
  Average
Balance		 Interest   Average
Rate		   Average
Balance		 Interest   Average
Rate		  
 
 
 
 
 
   (dollars in thousands)
Assets                
Federal funds sold $ 12,124 $ 71   2.37 % $ 27,427 $ 65   0.95 %
Investment Securities:                
  Taxable 368,785 3,026   3.33 364,712 3,289   3.63
  Nontaxable (1) 157,237 2,462   6.26 151,014 2,409   6.38
Loans (1)(2) 345,398 4,981   5.85 325,507 4,546   5.62
 
 
 
 
 
 
 
Total interest-earning assets 883,544 10,540   4.82 868,660 10,309   4.77
     
 
     
 
 
Allowance for loan losses (2,871 )     (2,499 )    
 
         
         
Net interest-earning assets 880,673     866,161    
Cash and due from banks 36,987     35,903    
Premises and equipment, net 6,548     6,646    
Other assets 14,587     6,654    
 
         
         
$ 938,795     $ 915,364    
 
         
         
                          
Liabilities and
  Stockholders’ Equity		                
Savings and money market deposits $ 431,957 712   .67 $ 445,475 725   .65
Time deposits 48,378 202   1.69 34,588 92   1.07
Securities sold under
  repurchase agreements		 58,516 321   2.22 46,029 106   .93
 
 
 
 
 
 
 
Total interest-bearing liabilities 538,851 1,235   .93 526,092 923   .71
     
 
     
 
 
Checking deposits (2) 305,823     292,999    
Other liabilities 4,624     5,591    
 
         
         
849,298     824,682    
Stockholders’ equity 89,497     90,682    
 
         
         
$ 938,795     $ 915,364    
 
         
         
                          
Net interest income (1)     $ 9,305       $ 9,386  
     
         
     
Net interest spread (1)         3.89 %         4.06 %
         
         
 
Net interest margin (1)         4.27 %         4.35 %
         
         
 
     
(1)
Tax-equivalent basis. Interest income on a tax-equivalent basis includes the additional amount of interest income that would have been earned if the Corporation’s investment in tax-exempt loans and investment securities had been made in loans and investment securities subject to Federal income taxes yielding the same after-tax income. The tax-equivalent amount of $1.00 of nontaxable income was $1.52 in each period presented, based on a Federal income tax rate of 34%.
   
(2) Includes official check and treasury tax and loan balances.

9


        Rate/Volume Analysis.  The following table sets forth the effect of changes in volumes, rates, and rate/volume on tax-equivalent interest income, interest expense and net interest income.
  
Three Months Ended March 31,  
 
 
2005 Versus 2004
Increase (decrease) due to changes in:		  
 
 
Volume   Rate   Rate/
Volume (2)		   Net
Change		  
(in thousands)  
Interest Income:                  
Federal funds sold   $ (37 ) $ 96   $ (53 ) $ 6  
Investment securities:                          
  Taxable     9     (269 )   (3 )   (263 )
  Nontaxable (1)     99     (44 )   (2 )   53  
Loans (1)     238     185     12     435  
Total interest income     309     (32 )   (46 )   231  
Interest Expense:                          
Savings and money market deposits     (28 )   15     —     (13 )
Time deposits     35     53     22     110  
Securities sold under repurchase agreements     28     147     40     215  
Total interest expense     35     215     62     312  
Increase (decrease) in net
  interest income		   $ 274   $ (247 ) $ (108 ) $ (81 )
   
       
(1) Tax-equivalent basis.
   
(2)
Represents the change not solely attributable to change in rate or change in volume but a combination of these two factors. The rate/volume variance could be allocated between the volume and rate variances shown in the table based on the absolute value of each to the total for both.
 

      Net interest income on a tax-equivalent basis decreased by $81,000, or 1%, from $9,386,000 for the first quarter of 2004 to $9,305,000 for the current quarter. As can be seen from the above rate/volume analysis, the decrease is comprised of a positive volume variance of $274,000 as offset by negative rate and rate/volume variances of $247,000 and $108,000, respectively.

        Volume Variance. When comparing the first quarter of 2005 to the same quarter last year, the Bank experienced an increase of 4.4% in the average balance of checking deposits. Checking growth was used to fund a combination of loan growth and growth in the Bank’s securities portfolio. Although checking deposit growth contributed to the positive volume variance shown in the table above, the contribution was more modest than in recent prior years when checking growth was consistently higher. When comparing the first quarters of 2004, 2003, and 2002 to the comparable quarters of the prior years, average checking balances grew by 15.7%, 12.5%, and 19.5%, respectively. The recent increase in short-term interest rates may cause depositors to keep smaller balances in noninterest-bearing checking accounts and thereby put pressure on the Bank’s ability to continue to grow these balances, particularly at a rate similar to that experienced in recent prior years. In addition, increased competition in the Bank’s market area may have a similar impact.

        Also contributing to the positive volume variance was a deliberate move by management to reduce the Bank’s overnight federal funds sold position with an offsetting increase in higher yielding securities and loans. The Bank’s average federal funds sold position declined by $15.3 million from $27.4 million for the first quarter of 2004 to $12.1 million for the current quarter.

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

        The loan growth experienced by the Bank when comparing the first quarter of 2005 to the same quarter last year occurred primarily in residential and commercial mortgages and home equity products. On a combined basis, the average balance of residential mortgages and home equity products grew by 9.2% and commercial mortgages grew by 5.4%. The residential mortgage growth resulted primarily from growth that occurred during the second and third quarters of 2004. Residential mortgage balances were relatively flat during the fourth quarter of 2004 and actually declined slightly during the first quarter of 2005. Management believes that the reduction in mortgage refinance activity is one of the significant factors that accounts for the flattening and subsequent reduction in residential mortgage balances. The commercial mortgage growth, on the other hand, occurred largely because of one large loan made during the third quarter of 2004 along with continued growth during the first quarter of 2005.

        Rate Variance. Short-term interest rates increased during the latter half of 2004 and the first quarter of 2005 as evidenced by a 175 basis point (1.75%) increase in the federal funds target rate. The Bank’s prime lending rate also increased by 175 basis points during the same time period. As a result, the Bank’s earnings on its federal funds sold position increased as did its earnings on those interest-earning assets that reprice with changes in short-term interest rates or the Bank’s prime lending rate. In addition, the Bank’s earnings also increased to the extent that it was able to reinvest cash flows from loans and securities at higher rates. In addition to federal funds sold, the Bank’s interest-earning assets that reprice with changes in short-term interest rates or the Bank’s prime lending rate include a majority of its commercial loans, home equity lines, and certain adjustable rate commercial and residential mortgages.

        The negative rate variance in the preceding table resulted from the fact that the better earnings realized on interest-earning assets that repriced with increases in short-term interest rates or the Bank’s prime lending rate together with the better earnings realized on loan and security cash flows reinvested at higher rates were more than offset by the increased cost of deposits and borrowings caused by higher short-term interest rates and decreased investment portfolio earnings brought about by shortening the duration of the securities portfolio. Management is currently employing a variety of strategies to minimize the impact of increases in interest rates on the Bank’s cost of deposits while at the same time allowing the Bank to remain competitive. With respect to shortening the duration of the Bank’s securities portfolio, management deliberately moved in this direction during the latter half of 2004 to better position the Bank for an increase in intermediate and longer-term interest rates. The shorter duration was maintained during the first quarter of 2005. Whether it will be maintained for the balance of 2005 will be based on, among other things, management’s ongoing view as to how much and when intermediate and longer-term interest rates will increase.

Application of Critical Accounting Policies

        In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported asset and liability balances and revenue and expense amounts. Our determination of the allowance for loan losses is a critical accounting estimate because it is based on our subjective evaluation of a variety of factors


11


at a specific point in time and involves difficult and complex judgments about matters that are inherently uncertain. In the event that management’s estimate needs to be adjusted based on, among other things, additional information that comes to light after the estimate is made or changes in circumstances, such adjustment could result in the need for a significantly different allowance for loan losses and thereby materially impact, either positively or negatively, the Bank’s results of operations.

        The Bank’s Reserve Committee, which is chaired by the Senior Lending Officer, meets on a quarterly basis and is responsible for determining the allowance for loan losses after considering, among other things, the results of credit reviews performed by the Bank’s independent loan review officer. In addition, and in consultation with the Bank’s Chief Financial Officer, the Reserve Committee is responsible for implementing and maintaining policies and procedures surrounding the calculation of the required allowance. The Bank’s allowance for loan losses is subject to periodic examination by the Office of the Comptroller of the Currency, the Bank’s primary federal banking regulator, whose safety and soundness examination includes a determination as to its adequacy to absorb probable losses.

        The first step in determining the allowance for loan losses is to identify loans in the Bank’s portfolio that are individually deemed to be impaired. In doing so, subjective judgments need to be made regarding whether or not it is probable that a borrower will be unable to pay all principal and interest due according to contractual terms. Once a loan is identified as being impaired, management uses the fair value of the underlying collateral and/or the discounted value of expected future cash flows to determine the amount of the impairment loss, if any, that needs to be included in the overall allowance for loan losses. In estimating the fair value of real estate collateral management utilizes appraisals and also makes qualitative judgments based on its knowledge of the local real estate market, analyses of current economic conditions, and expectations with regard to conditions that may prevail in the future. Estimating the fair value of collateral other than real estate is also subjective in nature and sometimes requires difficult and complex judgments. Determining expected future cash flows can be more subjective than determining fair values. Expected future cash flows could differ significantly, both in timing and amount, from the cash flows actually received over the loan’s remaining life.

        In addition to estimating losses for loans individually deemed to be impaired, management also estimates collective impairment losses for pools of loans that are not specifically reviewed. Statistical information regarding the Bank’s historical loss experience over a period of time is the starting point in making such estimates. However, future losses could vary significantly from those experienced in the past and accordingly management periodically adjusts its historical loss experience to reflect current conditions. In doing so, management considers a variety of general qualitative factors and then subjectively determines the weight to assign to each in estimating losses. The factors include, among others, national and local economic conditions, environmental risks, trends in volume and terms of loans, concentrations of credit, changes in lending policies and procedures, and experience, ability, and depth of the Bank’s lending staff. Because of the nature of the factors and the difficulty in assessing their impact, management’s resulting estimate of losses may not accurately reflect actual losses in the portfolio.

        Although the allowance for loan losses has two separate components, one for impairment losses on individual loans and one for collective impairment losses on pools


12


of loans, the entire allowance for loan losses is available to absorb realized losses as they occur whether they relate to individual loans or pools of loans.

Asset Quality

        The Corporation has identified certain assets as risk elements. These assets include nonaccruing loans, foreclosed real estate, loans that are contractually past due 90 days or more as to principal or interest payments and still accruing and troubled debt restructurings. These assets present more than the normal risk that the Corporation will be unable to eventually collect or realize their full carrying value. The Corporation’s risk elements at March 31, 2005 and December 31, 2004 are as follows:
   
March 31,
2005		   December 31,
2004		  
(dollars in thousands)  
               
Nonaccruing loans   $ 147   $ —  
Loans past due 90 days or more as to
  principal or interest payments and still accruing		     16     18  
Foreclosed real estate     —     —  
  Total nonperforming assets     163     18  
Troubled debt restructurings     —     —  
  Total risk elements   $ 163   $ 18  
         
Nonaccruing loans as a percentage of total loans     .04 %   .00 %
Nonperforming assets as a percentage of total loans
  and foreclosed real estate		     .05 %   .01 %
Risk elements as a percentage of total loans and
  foreclosed real estate 		    .05 %   .01 %
    

Allowance and Provision For Loan Losses

        The allowance for loan losses grew by $147,000 during the first quarter of 2005, amounting to $2,955,000 at March 31, 2005 as compared to $2,808,000 at December 31, 2004. The allowance represented approximately .8% of total loans at each date. During the first quarter of 2005, the Bank had loan chargeoffs and recoveries of $4,000 and $1,000, respectively, and recorded a $150,000 provision for loan losses. The provision for loan losses increased by $50,000 when compared to the same quarter last year primarily because of an increase in estimated impairment losses on certain pools of loans. Management increased its estimate of such losses after considering, among other things, recent trends in the volume and terms of loans, changes in lending policies and procedures, and national and local economic conditions.

        The allowance for loan losses is an amount that management currently believes will be adequate to absorb probable losses inherent in the Bank’s loan portfolio. In determining the allowance for loan losses, there is not an exact amount but rather a range for what constitutes an appropriate allowance. As more fully discussed in the “Application of Critical Accounting Policies” section of this discussion and analysis of financial condition and results of operations, the process for estimating credit losses and determining the allowance for loan losses as of any balance sheet date is subjective in nature and requires material estimates. Actual results could differ significantly from these estimates.

        The amount of future chargeoffs and provisions for loan losses will be affected by, among other things, economic conditions on Long Island. Such conditions could affect the financial strength of the Bank’s borrowers and do affect the value of real estate


13


collateral securing the Bank’s mortgage loans. Loans secured by real estate represent approximately 84% of the Bank’s total loans outstanding at March 31, 2005. Most of these loans were made to borrowers domiciled on Long Island and are secured by Long Island properties. In recent years, economic conditions on Long Island have been good and residential real estate values have grown to unprecedented highs. Such conditions and values could deteriorate in the future, and such deterioration could be substantial. If this were to occur, some of the Bank’s borrowers may be unable to make the required contractual payments on their loans, and the Bank may be unable to realize the full carrying value of such loans through foreclosure. However, management believes that the Bank’s underwriting policies are relatively conservative and, as a result, the Bank should be less affected than the overall market.

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

Noninterest Income, Noninterest Expense, and Income Taxes

        Noninterest income includes service charges on deposit accounts, Investment Management Division income, gains or losses on sales of available-for-sale securities, and all other items of income, other than interest, resulting from the business activities of the Corporation. Excluding net gains and losses on sales of available-for-sale securities, noninterest income increased by $385,000, or 26.3%, when comparing the first quarter of 2005 to the same quarter last year. The increase is comprised of an increase in Investment Management Division income of $116,000 and an increase in other income of $352,000, as offset by a decrease in service charge income of $83,000. The increase in Investment Management Division income is attributable to a change in the mix of business from nonmanaged to managed assets and the receipt of a final executor’s commission of $72,000 on one estate. The increase in other income is primarily due to a $283,000 recovery of real estate taxes previously paid and a $66,000 increase in the cash surrender value of bank owned life insurance. Service charge income decreased primarily as a result of a reduction in return check charges and maintenance and activity charges.

        Noninterest expense is comprised of salaries, employee benefits, occupancy and equipment expense and other operating expenses incurred in supporting the various business activities of the Corporation. Noninterest expense increased by $194,000, or 3.2%, from $6,031,000 for the first quarter of 2004 to $6,225,000 for the current quarter. The increase is primarily comprised of an increase in salaries of $97,000, or 3.7%, and an increase in employee benefits expense of $69,000, or 5.8%. The increase in salaries is primarily attributable to normal annual salary increases.

        Income tax expense as a percentage of book income (“effective tax rate”) was 19.5% for the first quarter of 2005 as compared to 25.5% for the same quarter last year. The benefit of tax-exempt interest on municipal securities results in an effective tax rate that is considerably lower than the statutory Federal income tax rate of 34% despite state income taxes. The reduction in the effective tax rate is primarily attributable to tax


14


planning strategies and a reduction of taxes accrued with respect to the Bank’s investment subsidiary.

Capital

        The Corporation’s capital management policy is designed to build and maintain capital levels that exceed regulatory standards. Under current regulatory capital standards, banks are classified as well capitalized, adequately capitalized or undercapitalized. Under such standards, a well capitalized bank is one that has a total risk-based capital ratio equal to or greater than 10%, a Tier 1 risk-based capital ratio equal to or greater than 6%, and a Tier 1 leverage capital ratio equal to or greater than 5%. The Corporation’s total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage capital ratios of 25.73%, 24.90% and 9.50%, respectively, at March 31, 2005 substantially exceed the requirements for a well-capitalized bank.

        Total stockholders’ equity decreased by $1,259,000, or from $90,240,000 at December 31, 2004 to $88,981,000 at March 31, 2005. The decrease is primarily attributable to $3,154,000 spent for share repurchases and unrealized losses on available-for-sale securities of $2,111,000, as partially offset by net income of $3,042,000. The unrealized losses on available-for-sale securities are primarily attributable to an increase in interest rates during the quarter.

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

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

        The Corporation periodically reevaluates whether it wants to continue purchasing shares of its own common stock in open market transactions under Rule 10b-18 or otherwise. Because the trading volume in the Corporation’s common stock is limited, the Corporation believes that a reduction or discontinuance of its share repurchase program could adversely impact market liquidity for its common stock, the price of its common stock, or both. The publicly reported trading volume in the Corporation’s common stock for the year ended March 31, 2005 was 1,053,686 shares, 12% of which resulted from purchases by the Corporation under its share repurchase program.

         Russell 3000® and 2000® Indices. Frank Russell Company (“Russell”) currently maintains 21 U.S. common stock indices. The Indices are reconstituted each July 1st using objective criteria, primarily market capitalization, and do not reflect subjective opinions. All Indices are subsets of the Russell 3000® Index which represents most of the investable U. S. equity market.


15


        The broad market Russell 3000® Index includes the largest 3,000 companies in terms of market capitalization and the small cap Russell 2000® Index is comprised of the smallest 2,000 companies in the Russell 3000® Index.

        The Corporation’s common stock is included in the Russell 3000® and 2000® Indices. The Corporation believes that inclusion in the Russell indices positively impacts the price of its common stock and increases the stock’s trading volume and liquidity. Conversely, if the Corporation’s market capitalization falls below the minimum necessary to be included in the Indices at any future annual reconstitution date, the Corporation believes that this could adversely affect the price, volume and liquidity of its common stock.

Cash Flows and Liquidity

        Cash Flows.  The Corporation’s primary sources of cash are deposit growth, maturities and amortization of loans and investment securities, operations, and borrowing. The Corporation uses cash from these and other sources to first fund loan growth. Any remaining cash is used primarily to purchase a combination of short, intermediate, and longer-term investment securities, pay cash dividends, and repurchase common stock under the Corporation’s share repurchase program. During the first quarter of 2005, the Corporation’s cash and cash equivalent position increased by $17,889,000. The increase occurred primarily because cash provided by deposit growth and additional borrowings under repurchase agreements exceeded the cash needed to grow loans and used to increase the size of the Bank’s investment securities portfolio.

        Liquidity.   The Corporation has both internal and external sources of near-term liquidity that can be used to fund loan growth and accommodate deposit outflows. The primary internal sources of liquidity are its overnight position in federal funds sold; its short-term investment securities portfolio which generally consists of securities purchased to mature within two years and securities with average lives of approximately two years; maturities and monthly payments on the balance of the investment securities portfolio and the loan portfolio; and intermediate and longer-term investment securities designated as available-for-sale. At March 31, 2005, the Corporation had an overnight federal funds sold position of $11,000,000, a short-term securities portfolio not subject to pledge agreements of $113,056,000, and intermediate and longer-term available-for-sale securities not subject to pledge agreements of $150,912,000. While maturities of shorter-term securities in the Corporation’s portfolio provide a significant source of near term liquidity, the intermediate and longer-term securities provide higher current returns and their maturities will provide a significant source of liquidity in the future.

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


16


other things, the amount and quality of the Bank’s eligible collateral and the financial condition of the Bank.

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

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

Legislation

        Commercial checking deposits currently account for approximately 29% of the Bank’s total deposits. Congress is considering legislation that would allow corporate customers to cover checks by sweeping funds from interest-bearing deposit accounts each business day and repeal the prohibition of the payment of interest on corporate checking deposits in the future. Although management currently believes that the Bank’s earnings could be more severely impacted by permitting the payment of interest on corporate checking deposits than the daily sweeping of funds from interest-bearing accounts to cover checks, either could have a material adverse impact on the Bank’s future results of operations.

Adoption of New Accounting Pronouncements

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

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

17


        In March 2005, the Financial Accounting Standards Board issued FASB Interpretation No. 47 “Accounting for Conditional Asset Retirement Obligations” as an interpretation of Statement of Financial Accounting Standards No. 143 “Accounting for Asset Retirement Obligations” (“SFAS No. 143”). This Interpretation, which serves to clarify the term conditional asset retirement obligation as used in SFAS No. 143, is not expected to materially impact the Corporation’s financial statements.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

        Conversely, a decrease in interest rates uniformly across the yield curve should initially have a positive impact on the Bank’s net interest income. However, if the Bank does not or cannot decrease the rates paid on its savings and money market accounts as quickly or in the same amount as market decreases in the overnight federal funds rate or the prime lending rate, the magnitude of the positive impact will decline. If the Bank does not decrease its savings and money market rates at all, the impact should be negative.

        If interest rates decline, or have declined, and are sustained at the lower levels and, as a result, the Bank purchases securities at lower yields and loans are originated or repriced at lower yields, the impact on net interest income should be negative because 39% of the Bank’s average interest-earning assets are funded by noninterest-bearing checking deposits and capital.

        The Bank monitors and controls interest rate risk through a variety of techniques including the use of interest rate sensitivity models and traditional interest rate sensitivity


18


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

        Traditional gap analysis involves arranging the Bank’s interest-earning assets and interest-bearing liabilities by repricing periods and then computing the difference, or interest-rate sensitivity gap, between the assets and liabilities which are estimated to reprice during each time period and cumulatively through the end of each time period.

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

        Gap analysis requires estimates as to when individual categories of interest-sensitive assets and liabilities will reprice and assumes that assets and liabilities assigned to the same repricing period will reprice at the same time and in the same amount. Like sensitivity modeling, gap analysis does not fully take into account the fact that the repricing of some assets and liabilities is discretionary and subject to competitive and other pressures.

        Changes in the estimates and assumptions made for interest rate sensitivity modeling and gap analysis could have a significant impact on projected results and conclusions. Therefore, these techniques may not accurately reflect the actual impact of changes in the interest rate environment on the Bank’s net interest income or net portfolio value.

        The table that follows is provided pursuant to the market risk disclosure rules set forth in Item 305 of Regulation S-K of the Securities and Exchange Commission. The information provided in the following table is based on significant estimates and assumptions and constitutes, like certain other statements included herein, a forward-looking statement. The base case information in the table shows (1) an estimate of the Corporation’s net portfolio value at March 31, 2005 arrived at by discounting estimated future cash flows at current market rates and (2) an estimate of net interest income for the year ending March 31, 2006 assuming that maturing assets or liabilities are replaced with new balances of the same type, in the same amount, and at current rate levels and repricing balances are adjusted to current rate levels. The rate change information in the table shows estimates of net portfolio value at March 31, 2005 and net interest income for the year ending March 31, 2006 assuming rate changes of plus 100 and 200 basis points and minus 100 and 200 basis points. The changes in net portfolio value from the base case have not been tax affected. In addition, rate changes are assumed to be shock or immediate changes and occur uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. In projecting future net interest income under the indicated rate change scenarios, activity is simulated by replacing maturing balances with new balances of the same type, in the same amount, but at the assumed rate level and adjusting repricing balances to the assumed rate level.

        Based on the foregoing assumptions and as depicted in the table that follows, an immediate increase in interest rates of 100 or 200 basis points would have a negative effect on net interest income over a one-year time period. This is principally because the Bank’s interest-bearing deposit accounts reprice faster than its loans and investment


19


securities.  However, if the Bank does not increase the rates paid on its savings and money market accounts as quickly or in the same amount as market increases in the overnight federal funds rate or the prime lending rate, the magnitude of the negative impact will decline. If the Bank does not increase its savings and money market rates at all, the impact should be positive. Over a longer period of time, and assuming that interest rates remain stable after the initial rate increase and the Bank purchases securities and originates loans at yields higher than those maturing and reprices loans at higher yields, the impact of an increase in interest rates should be positive. This occurs primarily because with the passage of time more loans and investment securities will reprice at the higher rates and there will be no offsetting increase in interest expense for those loans and investment securities funded by noninterest-bearing checking deposits and capital. Generally, the reverse should be true of an immediate decrease in interest rates of 100 or 200 basis points. However, deposit rates are currently very low as indicated by the Bank’s overall cost of funds of 93 basis points for the first quarter of 2005. Therefore, while rates on many of the Bank’s interest earning assets could drop by 100 or 200 basis points, rates on many of its deposit products could not. It is for this reason that in rates down 100 and 200 basis points the projected increases in net interest income as compared to the base case is less than the projected decreases in rates up 100 and 200 basis points.
    
Net Portfolio Value (NPV)
at March 31, 2005		   Net Interest Income
Year Ended
March 31, 2006		  
 
 
 
Rate Change Scenario Amount   Percent
Change
From
Base Case		   Amount   Percent
Change
From
Base Case		  
 
 
 
 
 
   (dollars in thousands)   
        
+ 200 basis point rate shock     $ 47,053   (46.9 )% $ 28,187   (19.6 )%
+ 100 basis point rate shock       67,275   (24.0 )   31,618   (9.8 )
   Base case (no rate change)       88,569   —     35,049   —  
- 100 basis point rate shock       111,011   25.3     36,855   5.2  
- 200 basis point rate shock       134,932   52.3     36,571   4.3  
   

Forward Looking Statements

         “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures About Market Risk” contain various forward-looking statements with respect to financial performance and business matters. Such statements are generally contained in sentences including the words “expect” or “could” or “should” or “would” or “believe”. The Corporation cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, and therefore actual results could differ materially from those contemplated by the forward-looking statements. In addition, the Corporation assumes no duty to update forward-looking statements.

ITEM 4.   CONTROLS AND PROCEDURES

(a)     Evaluation of Disclosure Controls and Procedures

          The Company’s Chief Executive Officer, Michael N. Vittorio, and Chief Financial Officer, Mark D. Curtis, have evaluated the Corporation’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation,


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they have concluded that the Corporation’s disclosure controls and procedures are effective in ensuring that material information related to the Corporation is made known to them by others within the Corporation.

(b)     Changes in Internal Control Over Financial Reporting

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


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PART II.           OTHER INFORMATION

Item 1.   Legal Proceedings

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

Item 2.   Issuer Purchase of Equity Securities

    Since 1988, the Corporation has had a stock repurchase program under which it is authorized to purchase, from time to time, shares of its own common stock in market or private transactions. The details of the Corporation’s purchases under the stock repurchase program during the first quarter of 2005 are set forth in the table that follows.
  
ISSUER PURCHASES OF EQUITY SECURITIES  
         
Period Total
Number of
Shares
Purchased		   Average
Price Paid
Per Share		   Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs (1)		   Maximum Number of
of Shares that May Yet
Be Purchased Under the
Plans or Programs (1)		  
 
 
 
 
 
January 1, 2005 to January 31, 2005.   26,264   $ 47.84   26,264   51,159  
February 1, 2005 to February 28, 2005   19,870   $ 49.22   19,870   31,289  
March 1, 2005 to March 31, 2005   12,525   $ 46.41   12,525   18,764  
        
(1)
The shares purchased by the Corporation under its stock repurchase program in the first quarter of 2005 were purchased under a 100,000 share plan approved by the Corporation’s board of directors on December 14, 2004 and publicly announced on December 15, 2004. The Corporation’s share repurchase plans do not have fixed expiration dates.
    

Item 6.   Exhibits and Reports on Form 8-K

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

        b) Reports on Form 8-K

        During the quarter ended March 31, 2005 (and thereafter to the date hereof) the Corporation filed the following reports on Form 8-K with the Securities and Exchange Commission:
   
1)
The Corporation filed a Form 8-K dated January 18, 2005 to report under Item 1.01 that it had entered into an employment agreement with is President and Chief Executive Officer, Michael N.

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Vittorio.  It indicated that this agreement replaces the employment agreement between the Corporation and Mr. Vittorio dated July 1, 2004. The new employment agreement and the previous agreement were furnished as Exhibits 10.1 and 10.2, respectively, to the Form 8-K filing.
     
  2)
The Corporation filed a Form 8-K dated February 7, 2005 to report under Item 12 that it had: (1) issued a press release disclosing material non-public information regarding the Corporation’s financial condition as of December 31, 2004 and results of operations for the year and quarterly period then ended, and (2) mailed a newsletter to its stockholders disclosing similar nonpublic information regarding the Corporation’s financial condition as of December 31, 2004 and results of operations for the year then ended. The press release was furnished as Exhibit 99.1 to the Form 8-K filing and the newsletter to stockholders was furnished as Exhibit 99.2 to the Form 8-K filing.
     
  3)
The Corporation filed a Form 8-K dated February 25, 2005 to report under Item 1.01 that it had entered into employment agreements with Mark D. Curtis, Brian J. Keeney, and Richard Kick, all Executive Vice Presidents of the Bank, and had amended existing employment agreements with Arthur J. Lupinacci, Jr., Donald L. Manfredonia, and Joseph G. Perri, all Executive Vice Presidents of the Bank. The employment agreements and amendments to existing employment agreements were filed as Exhibits 10.1 through 10.6 to the Form 8-K filing.
     
  4)
The Corporation filed a Form 8-K/A dated February 25, 2005 to report under Item 1.01 that the employment agreement for Mr. Brian Keeney previously filed as exhibit 10.2 to the Form 8-K filed by the Corporation on March 3, 2005 showed a base annual salary of $184,000 rather than $184,700. A corrected employment agreement for Mr. Keeney was filed as exhibit 10.2.1 to the Form 8-K/A filing.
     
  5)
The Corporation filed a Form 8-K dated May 3, 2005 to report that it had: (1) issued a press release disclosing material non-public information regarding the Corporation’s financial condition as of March 31, 2005 and results of operations for the three month period then ended, and (2) mailed a quarterly report to shareholders disclosing substantially similar non-public information regarding the Corporation’s financial condition and results of operations. The press release was furnished as Exhibit 99.1 to the Form 8-K filing and the quarterly report to shareholders was furnished as Exhibit 99.2 to the Form 8-K filing.

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SIGNATURES

             Pursuant To The Requirements Of The Securities Exchange Act Of 1934, The Registrant Has Duly Caused This Report To Be Signed On Its Behalf By The Undersigned Thereunto Duly Authorized.
  
    THE FIRST OF LONG ISLAND CORPORATION
   
    (Registrant)
       
Date: April 29, 2005   By /s/ MICHAEL N. VITTORIO
   
    MICHAEL N. VITTORIO, PRESIDENT & CHIEF
    EXECUTIVE OFFICER
    (principal executive officer)
     
    By /s/ MARK D. CURTIS
   
    MARK D. CURTIS
   

SENIOR VICE PRESIDENT & TREASURER
    (principal financial and accounting officer)

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EXHIBIT INDEX
   
EXHIBIT   DESCRIPTION   EXHIBIT BEGINS
ON PAGE NO.		  
 
 
 
31    Certification by Chief Executive Officer and   26  
       Chief Financial Officer In Accordance With Section      
         302 Of The Sarbanes-Oxley Act of 2002      
           
32    Certification by Chief Executive Officer and    28  
       Chief Financial Officer In Accordance With Section      
         906 Of The Sarbanes-Oxley Act of 2002      

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