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.

<PAGE>

                           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

<PAGE>

         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
<PAGE>

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:

<TABLE>
<CAPTION>
                                                                 At December 31,
                                         --------------------------------------------------------------
                                             2000         1999          1998         1997         1996
                                         --------------------------------------------------------------
                                                                     (In thousands)
<S>                                      <C>           <C>          <C>          <C>          <C>
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
                                         =========     ========       =======      =======      =======
</TABLE>


                                       4
<PAGE>

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.

<TABLE>
<CAPTION>
                                            Commercial                                           Residential
                                                and       Commercial                             Real Estate
                                            Industrial    Real Estate   Automobile   Consumer    Loans Held-     Total
                                               Loans         Loans         Loans       Loans      For-Sale       Loans
                                               -----         -----         -----       -----      --------       -----
                                                                           (In thousands)
<S>                                         <C>           <C>           <C>          <C>          <C>         <C>
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
                                             =======       =======       ======        ====         =====      ========
</TABLE>


                                       5
<PAGE>

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:


<TABLE>
<CAPTION>
                                                                     At December 31,
                                        ------------------------------------------------------------------------
                                          2000             1999            1998             1997           1996
                                        ------------------------------------------------------------------------
                                                                  (Dollars in thousands)

<S>                                     <C>             <C>              <C>             <C>              <C>
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%
                                         ------          ------           ------          ------          ------
</TABLE>

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

<TABLE>
<CAPTION>
                                                                  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)

<S>                      <C>        <C>    <C>          <C>      <C>         <C>     <C>        <C>      <C>      <C>
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%
                         ======   =====    ======      =====     ======     =====    ======    =====     ====    =====
</TABLE>


                                       6
<PAGE>

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.


<TABLE>
<CAPTION>
                                                                  At December 31,
                                            ---------------------------------------------------------
                                              2000         1999         1998        1997         1996
                                            ---------------------------------------------------------
                                                               (Dollars in thousands)
<S>                                           <C>          <C>          <C>          <C>         <C>
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
</TABLE>

(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
<PAGE>

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:

<TABLE>
<CAPTION>
                                                                           At December 31,
                                       -------------------------------------------------------------------------------
                                                  2000                         1999                       1998
                                       -------------------------------------------------------------------------------
                                        Amortized       Fair         Amortized       Fair         Amortized     Fair
(In thousands)                            Cost          Value           Cost         Value          Cost        Value
                                       -------------------------------------------------------------------------------
<S>                                    <C>           <C>             <C>           <C>           <C>          <C>
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
                                        --------      --------       --------       --------     --------     --------
</TABLE>

<PAGE>

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.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                            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)
<S>                             <C>        <C>       <C>        <C>      <C>        <C>      <C>         <C>      <C>         <C>
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%
                                ========   =====     ========   ====     ========   ====     ========    ====     ========    ====
</TABLE>

(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:

<TABLE>
<CAPTION>
                                                              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)
<S>                                          <C>           <C>      <C>          <C>      <C>          <C>
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
                                             ========               ========              ========
</TABLE>


                                       9
<PAGE>

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:

<TABLE>
<CAPTION>
                                                             For the Years Ended December 31,
                                                            ---------------------------------
                                                              2000         1999        1998
                                                            ---------------------------------
                                                                 (Dollars in thousands)
<S>                                                         <C>          <C>         <C>
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%         --
</TABLE>


                                       10
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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.

<TABLE>
<CAPTION>
                                                                                 Lease         Net
                                                                               Expiration   Book Value
                                                                     Date      Including       at
Location                                                  Leased    Leased      Options    Dec. 31, 2000
-------------------------------------------------------------------------------------------------------------
                                                                                       (Dollars in thousands)
<S>                                                       <C>        <C>          <C>         <C>
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
                                                                                              ====
</TABLE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

SELECTED FINANCIAL DATA

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

<TABLE>
<CAPTION>
                                                                               At or for the year ended December 31,
                                                               ---------------------------------------------------------------------
                                                                  2000           1999           1998           1997          1996
                                                               ---------------------------------------------------------------------
                                                                                      (Dollars in thousands)
<S>                                                            <C>            <C>            <C>            <C>            <C>
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
</TABLE>


                                       20
<PAGE>

SELECTED FINANCIAL DATA (cont'd)

<TABLE>
<CAPTION>
                                                                               At or for the year ended December 31,
                                                               ---------------------------------------------------------------------
                                                                  2000           1999           1998           1997          1996
                                                               ---------------------------------------------------------------------
                                                                              (Dollars in thousands, except share data)
<S>                                                            <C>            <C>            <C>            <C>            <C>
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
                                                               ---------------------------------------------------------------------
</TABLE>

(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
<PAGE>

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
<PAGE>

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
<PAGE>

<TABLE>
<CAPTION>
                                                                         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)
<S>                                      <C>        <C>        <C>      <C>        <C>       <C>     <C>        <C>       <C>
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
                                                               ----                          ----                         ----
</TABLE>

----------
(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
<PAGE>

<TABLE>
<CAPTION>
                                                         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)
<S>                                            <C>         <C>       <C>         <C>         <C>       <C>
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
                                               -------     -----     -------     -------     -----     -------
</TABLE>

(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
<PAGE>

      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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

                          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
<PAGE>

                      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
<PAGE>

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                            Accumulated
                                                                                               other
                                                          Common               Accumulated  comprehensive    Treasury
(In thousands, except share data)                         stock     Surplus      surplus    income (loss)      Stock        Total
                                                          --------------------------------------------------------------------------
<S>                                                        <C>      <C>          <C>           <C>            <C>          <C>
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
                                                          ==========================================================================
</TABLE>


                                       33
<PAGE>

(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
<PAGE>

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
(In thousands)                                        For the year ended December 31,
                                                  -------------------------------------
                                                     2000          1999         1998
                                                  -------------------------------------
<S>                                               <C>           <C>           <C>
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
                                                  =========     =========     =========
</TABLE>

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


                                       35
<PAGE>

                   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
<PAGE>

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
<PAGE>

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
<PAGE>

                                                  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
<PAGE>

      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
<PAGE>

                                                          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
<PAGE>

(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
<PAGE>

                                                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
<PAGE>

(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
<PAGE>

(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
<PAGE>

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
<PAGE>

      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
<PAGE>

                                         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
<PAGE>

                            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
<PAGE>

(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
<PAGE>

                      QUARTERLY FINANCIAL DATA (UNAUDITED)

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

<TABLE>
<CAPTION>
                                                 2000                                           1999
                            ----------------------------------------------------------------------------------------------
                              1st          2nd          3rd         4th         1st        2nd          3rd         4th
                            Quarter      Quarter      Quarter     Quarter     Quarter    Quarter      Quarter     Quarter
                            ----------------------------------------------------------------------------------------------
                                                            (In thousands, except share data)
<S>                         <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
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
</TABLE>


                                       51
<PAGE>

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


                                       52