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

                                    FORM 10-Q

     (Mark One)    Quarterly Report Pursuant to Section 13 or 15(d) of
         _X_               the Securities Exchange Act of 1934

                    For the quarterly period ended September 30, 2001
                                           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 No.: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)

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

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

The registrant had 1,439,926  shares of Common Stock  outstanding as of November
9, 2001.


<PAGE>

                                    Form 10-Q
                           LONG ISLAND FINANCIAL CORP.

                                      INDEX

                                                                           Page
PART I - FINANCIAL INFORMATION                                            Number
------------------------------                                            ------

ITEM 1.  Consolidated Financial Statements - Unaudited
         Consolidated Balance Sheets at September 30, 2001
               and December 31, 2000                                         2
         Consolidated Statements of Earnings for the Three Months
               And Nine Months Ended September 30, 2001 and 2000             3
         Consolidated Statement of Changes in Stockholders' Equity
               for the Nine Months Ended September 30, 2001                  4
         Consolidated Statements of Cash Flows for the Nine Months
               Ended September 30, 2001 and 2000                             5
         Notes to Consolidated Financial Statements                          7

ITEM 2.  Management's Discussion and Analysis of Financial
               Condition and Results of Operations                           9

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk         20

PART II - OTHER INFORMATION
---------------------------

ITEM 1.  Legal Proceedings                                                  22
ITEM 2.  Changes in Securities and Use of Proceeds                          22
ITEM 3.  Defaults Upon Senior Securities                                    22
ITEM 4.  Submission of Matters to a Vote of Security Holders                22
ITEM 5.  Other Information                                                  22
ITEM 6.  Exhibits and Reports on Form 8-K                                   22
         Signatures                                                         23

================================================================================
Statements  contained in this Form 10-Q,  which are not  historical  facts,  are
forward-looking  statements,  as that term is defined in the Private  Securities
Litigation  Reform Act of 1995. Such  forward-looking  statements are subject to
risks and  uncertainties,  which could cause actual results to differ materially
from those projected.  Such risks and uncertainties include potential changes in
interest rates, competitive factors in the financial services industry,  general
economic conditions, the effect of new legislation,  and other risks detailed in
documents filed by the Company with the Securities and Exchange  Commission from
time to time.
================================================================================


                                       1
<PAGE>

PART I - FINANCIAL INFORMATION
------------------------------

Item 1.  Consolidated Financial Statements
-------  ---------------------------------
                           LONG ISLAND FINANCIAL CORP.
                           Consolidated Balance Sheets
                                   (Unaudited)
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                  September 30,    December 31,
                                                                                      2001             2000
                                                                                  ------------     ------------
<S>                                                                                 <C>              <C>
Assets:
Cash and due from banks ........................................................    $ 12,335         $ 14,652
Interest earning deposits ......................................................         258               56
Federal funds sold .............................................................       7,000            1,500
                                                                                    --------         --------
            Total cash and cash equivalents ....................................      19,593           16,208

Securities held-to-maturity (fair value of $11,026 and $4,736, respectively) ...      10,459            4,754
Securities available-for-sale, at fair value ...................................      65,781          133,562
Securities pledged for repurchase agreements, at fair value ....................      61,140           31,106
Loans, net of unearned income and deferred fees ................................     168,709          136,725
Less allowance for loan losses .................................................       1,939            1,872
                                                                                    --------         --------
            Loans, net .........................................................     166,770          134,853
Premises and equipment, net ....................................................       2,323            1,868
Accrued interest receivable ....................................................       2,108            1,911
Bank owned life insurance ......................................................       6,420            6,197
Prepaid expenses and other assets ..............................................       1,091            2,475
                                                                                    --------         --------
            Total assets ......................................................      335,685          332,934
                                                                                    ========         ========

Liabilities and Stockholders' Equity:
Deposits:
   Demand deposits .............................................................    $ 55,057           45,592
   Savings deposits ............................................................      44,449           32,849
   NOW and money market deposits ...............................................      26,479           82,003
   Time certificates issued in excess of $100,000 ..............................      38,723           35,228
   Other time deposits .........................................................      94,808           77,517
                                                                                    --------         --------
            Total deposits .....................................................     259,516          273,189

Borrowed funds .................................................................      43,000           29,000
Accrued expenses and other liabilities .........................................       3,742            3,984
                                                                                    --------         --------
            Total liabilities ..................................................     306,258          306,173
                                                                                    --------         --------

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

Stockholders' equity:
   Common stock (par value $.01 per share; 10,000,000 shares,
      authorized; 1,776,826 shares issued; 1,439,926 and 1,479,426
      outstanding, respectively) ...............................................          18               18
   Surplus .....................................................................      20,191           20,185
   Accumulated surplus .........................................................       4,973            3,839
   Accumulated other comprehensive income (loss) ...............................         923           (1,167)
   Treasury stock at cost, (336,900 shares in 2001; 296,900
      shares in 2000) ..........................................................      (4,178)          (3,614)
                                                                                    --------         --------
            Total stockholders' equity .........................................      21,927           19,261
                                                                                    --------         --------
   Total liabilities and stockholders' equity ..................................    $335,685          332,934
                                                                                    ========          =======
</TABLE>

See accompanying notes to consolidated financial statements


                                       2
<PAGE>

                           LONG ISLAND FINANCIAL CORP.
                       Consolidated Statements of Earnings
                                   (Unaudited)
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                       For the Three Months        For the Nine Months
                                                        Ended September 30,        Ended September 30,
                                                        -------------------        -------------------
                                                         2001         2000           2001         2000
                                                         ----         ----           ----         ----
<S>                                                     <C>          <C>            <C>          <C>
Interest income:
   Loans                                              $   3,343    $   3,047      $   9,565    $   8,680
   Securities                                             2,175        2,054          7,498        7,082
   Federal funds sold                                        42            4            436           19
   Earning deposits                                           5            4             11           12
                                                      ---------    ---------      ---------    ---------
         Total interest income                            5,565        5,109         17,510       15,793
                                                      ---------    ---------      ---------    ---------

Interest expense:
     Savings deposits                                       296          294            859          839
     NOW and money market deposits                          111          174            823          824
     Time certificates issued in excess of $100,000         372          485          1,566        1,042
     Other time deposits                                  1,302        1,214          3,916        3,670
     Borrowed funds                                         557          548          1,658        2,031
                                                      ---------    ---------      ---------    ---------
         Total interest expense                           2,638        2,715          8,822        8,406
                                                      ---------    ---------      ---------    ---------

         Net interest income                              2,927        2,394          8,688        7,387
                                                      ---------    ---------      ---------    ---------

Provision for loan losses                                    75           --             75          150
                                                      ---------    ---------      ---------    ---------

         Net interest income after provision
            for loan losses                               2,852        2,394          8,613        7,237
                                                      ---------    ---------      ---------    ---------

Other operating income:
     Service charges on deposit accounts                    258          218            789          639
     Net (gain)/loss on sale of securities                   15            -           (38)            -
     Net gain on sale of residential loans                  123           84            278          183
     Earnings on bank owned life insurance                   89           81            268          244
     Other                                                   85           60            209          184
                                                      ---------    ---------      ---------    ---------
         Total other operating income                       570          443          1,506        1,250
                                                      ---------    ---------      ---------    ---------

Other operating expenses:
     Salaries and employee benefits                       1,310          998          3,708        3,084
     Occupancy expense                                      192          168            565          444
     Premises and equipment expense                         263          210            711          602
     Capital securities                                     202           54            601           54
     Other                                                  794          695          2,279        2,085
                                                      ---------    ---------      ---------    ---------
         Total other operating expenses                   2,761        2,125          7,864        6,269
                                                      ---------    ---------      ---------    ---------

         Income before income taxes                         661          712          2,255        2,218
                                                      ---------    ---------      ---------    ---------

Income taxes                                                226          237            773          742
                                                      ---------    ---------      ---------    ---------

         Net income                                   $     435    $     475      $   1,482    $   1,476
                                                      =========    =========      =========    =========
Basic Earnings Per Share                              $     .30    $     .30      $    1.02    $     .91
                                                      =========    =========      =========    =========
Diluted Earnings Per Share                            $     .29    $     .30      $    1.00    $     .91
                                                      =========    =========      =========    =========
Weighted average shares outstanding                   1,439,676    1,596,201      1,457,258    1,627,160
                                                      =========    =========      =========    =========
Diluted weighted average shares outstanding           1,474,878    1,596,201      1,480,125    1,627,160
                                                      =========    =========      =========    =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

                           LONG ISLAND FINANCIAL CORP.
            Consolidated Statement of Changes in Stockholders' Equity
                  For the Nine Months Ended September 30, 2001
                                   (Unaudited)
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                   Accumulated
                                                                                      Other
                                                 Common             Accumulated   Comprehensive   Treasury
                                                  Stock   Surplus     Surplus     (Loss)/Income     Stock    Total
                                                 -----------------------------------------------------------------
<S>                 <C> <C>                        <C>     <C>         <C>           <C>          <C>       <C>
Balance at December 31, 2000                       $18     20,185      3,839         (1,167)      (3,614)   19,261

Comprehensive income:
   Net income                                       --         --      1,482             --           --     1,482
      Other comprehensive income,
         net of tax:
      Unrealized appreciation in available-
         for-sale securities, net of
         reclassification adjustment                --         --         --          2,090           --     2,090
                                                                                                             -----

Total comprehensive income                          --         --         --             --           --     3,572

Exercise of stock options (500 shares)              --          6          --            --           --         6

Dividends declared on common stock
   ($.24 per common share)                          --         --       (348)            --           --      (348)

Common stock repurchased (40,000 shares)            --         --         --             --         (564)     (564)
                                                 -----------------------------------------------------------------

Balance at September 30, 2001                      $18     20,191      4,973            923       (4,178)   21,927
                                                 =================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       4
<PAGE>

                           LONG ISLAND FINANCIAL CORP.
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                    For the Nine Months
                                                                    Ended September 30,
                                                                    -------------------
                                                                     2001         2000
                                                                     ----         ----
<S>                                                               <C>          <C>
Cash flows from operating activities:
   Net income                                                     $   1,482    $   1,476
   Adjustments to reconcile net income to net cash
      provided by operating activities:
         Provision for loan losses                                       75          150
         Depreciation and amortization                                  528          452
         Amortization of premiums, net of discount accretion           (460)        (831)
         Net loss on sale of securities                                  38           --
         Loans originated for sale, net of proceeds
            from sales                                                 (183)         583
         Net deferred loan origination fees                              27           39
         Earnings on bank owned life insurance                         (268)        (244)
         Deferred income taxes                                          (65)         (49)
         Changes in other assets and liabilities:
            Accrued interest receivable                                (197)        (391)
            Prepaid expenses and other assets                           139         (746)
            Accrued expenses and other liabilities                     (242)          35
                                                                  ---------    ---------
      Net cash provided by operating activities                         874          474
                                                                  ---------    ---------

Cash flows from investing activities:
   Purchases of securities held-to-maturity, available-for-sale    (836,369)    (347,070)
   Proceeds from the sale of securities available-for-sale           32,481           --
   Proceeds from maturities of securities                           817,006      389,600
   Principal repayments on securities                                22,791        4,786
   Loan originations net of principal repayments                    (31,836)     (13,894)
   Purchase of premises and equipment                                  (983)        (230)
                                                                  ---------    ---------
      Net cash provided by investing activities                       3,090       33,192
                                                                  ---------    ---------

Cash flows from financing activities:
   Net decrease in demand deposit, savings, NOW,
      and money market accounts                                     (34,459)     (61,657)
   Net increase in certificates of deposit                           20,786        6,630
   Net increase in borrowed funds                                    14,000         (500)
   Payments for cash dividends                                         (348)        (383)
   Purchase of common stock                                            (564)      (1,219)
   Proceeds from exercise of stock options                                6           --
   Capital securities                                                    --        7,500
                                                                  ---------    ---------
      Net cash used in financing activities                            (579)     (49,629)
                                                                  ---------    ---------

      Net increase (decrease) in cash and cash equivalents            3,385      (15,963)
                                                                  ---------    ---------

Cash and cash equivalents at beginning of period                     16,208       27,805
                                                                  ---------    ---------
Cash and cash equivalents at end of period                        $  19,593    $  11,842
                                                                  =========    =========
</TABLE>

                                                                     (Continued)


                                       5
<PAGE>

                           LONG ISLAND FINANCIAL CORP.
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
                                 (In thousands)

                                                        For the Nine Months
                                                        Ended September 30,
                                                        -------------------
                                                         2001         2000
                                                         ----         ----
Supplemental disclosure of cash flow information

Cash paid during the period for:

   Interest                                             $8,694       $8,252
                                                        ======       ======

   Income taxes                                         $  814       $1,395
                                                        ======       ======


See accompanying notes to consolidated financial statements.


                                       6
<PAGE>

                           LONG ISLAND FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    BASIS OF PRESENTATION

The  accompanying   unaudited  consolidated  financial  statements  include  the
accounts of Long Island  Financial Corp.  (the  "Company") and its  wholly-owned
subsidiaries,  LIF  Statutory  Trust I, Long Island  Financial  Client  Services
Corp., Long Island  Commercial  Services Corp., Long Island Commercial Bank (the
"Bank"),  and its subsidiary,  Long Island Commercial Capital  Corporation.  All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.

The accompanying  unaudited  consolidated  financial  statements included herein
reflect  all  normal  recurring   adjustments  which  are,  in  the  opinion  of
management,  necessary  for a fair  presentation  of the results for the interim
periods  presented.  The results of  operations  for the nine month period ended
September 30, 2001 are not  necessarily  indicative of the results of operations
that may be expected for the entire fiscal year.  Certain  information  and note
disclosures  normally  included in financial  statements  prepared in accordance
with accounting  principles  generally  accepted in the United States of America
have been  condensed  or omitted  pursuant to the rules and  regulations  of the
Securities and Exchange Commission.  Certain reclassifications have been made to
prior year amounts to conform to the current year presentation.

These unaudited  consolidated financial statements should be read in conjunction
with the audited consolidated  financial statements and notes thereto,  included
in the Company's 2000 Annual Report on Form 10-K.

2.    REORGANIZATION

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  stockholder   asserted   dissenter's   rights.  This  transaction  is
hereinafter referred to as the "Reorganization."

The  Reorganization  created a bank holding  company  structure  which  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  in the  Bank  or in  separate
subsidiaries of the Company.  Finally,  the reorganization will permit 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. Such  activities  include,  among others,  operating  non-bank  depository
institutions  or  engaging  in  financial  and  investment   advisory  services,
securities brokerage and management consulting activities.


                                       7
<PAGE>

3.    SECURITIES

The following table sets forth certain information  regarding amortized cost and
estimated fair values of the securities  held-to-maturity and available-for-sale
as of the dates indicated:

                                         September 30, 2001    December 31, 2000
                                         ------------------    -----------------
                                          Amortized   Fair    Amortized   Fair
                                           Cost       Value     Cost      Value
                                          ---------  -------  ---------  -------
                                                     (In thousands)

Held-to-maturity:
Mortgage-backed securities:
   CMO                                   $       6         6       263       254
Corporate debt                              10,453    11,020     4,491     4,482
                                           -------   -------   -------   -------
   Total held-to-maturity                $  10,459    11,026     4,754     4,736
                                           =======   =======   =======   =======

Available-for-sale:
U.S. Government and Agency Obligations   $  30,475    30,788   117,364   115,945
Mortgage-backed securities:
   GNMA                                     80,797    81,819    36,559    35,963
   FNMA                                      7,793     7,892     5,279     5,303
   FHLMC                                       346       352       969       982
Corporate debt                               2,035     2,014        --        --
Municipal obligations                        1,168     1,198     1,167     1,149
                                           -------   -------   -------   -------
   Total debt securities                   122,614   124,063   161,338   159,342

Equity securities - FHLB stock               2,858     2,858     5,326     5,326
                                           -------   -------   -------   -------
   Total available-for-sale              $ 125,472   126,921   166,664   164,668
                                           =======   =======   =======   =======


4.    LOANS, NET

Loans, net, are summarized as follows:
<TABLE>
<CAPTION>

                                                 September 30, 2001   December 31, 2000
                                                 ------------------   -----------------
                                                          (Dollars in thousands)

<S>                                              <C>         <C>      <C>         <C>
   Commercial and industrial loans               $ 42,876    25.0%    $ 39,139    28.4%
   Commercial real estate loans                   110,321    64.4       93,875    68.2
   Automobile loans                                15,777     9.2        2,693     1.9
   Consumer loans                                   1,553     0.9        1,314     1.0
   Residential real estate loans held-for-sale        894     0.5          711     0.5
                                                 --------   -----     --------   -----
                                                  171,421   100.0      137,732   100.0
                                                 --------   -----     --------   -----
   Less:
      Unearned income                               2,073                  395
      Deferred fees, net                              639                  612
      Allowance for loan losses                     1,939                1,872
                                                 --------             --------
                                                 $166,770             $134,853
                                                 ========             ========
</TABLE>



                                       8
<PAGE>

5.    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 can repay, 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, 2001. 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."

6.    RECENT DEVELOPMENTS

On August 28, 2001 the Board of  Directors  of the Company  declared a quarterly
dividend  of eight cents  ($0.08) per common  share.  The  dividend  was paid on
October 1, 2001, to shareholders of record as of September 21, 2001.

On May 24, 2001,  the Company  announced  an  extension of the stock  repurchase
program which  enables the Company to repurchase an additional  75,000 shares of
it's outstanding common stock.  Repurchases will continue to be made in the open
market,  from  time to time,  depending  on market  conditions  and  subject  to
compliance with applicable  securities  laws. As of September 30, 2001,  336,900
shares had been repurchased by the Company at an aggregate cost of $4.2 million.

Item 2.  Management's Discussion and Analysis
         of Financial Condition and Results of Operations

General

The principal business of Long Island Financial Corp.  currently consists of the
operation of a wholly-  owned  subsidiary,  Long Island  Commercial  Bank.  Long
Island Commercial 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 of 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.


                                       9
<PAGE>

Financial Condition

The  Company's  total  assets  were $335.7  million as of  September  30,  2001,
compared to $332.9  million at December 31, 2000.  The increase in cash and cash
equivalents  of $3.4  million,  or 20.9%,  was  attributable  to the increase in
federal funds sold of $5.5  million,  from a balance of $1.5 million at December
31, 2000 to $7.0 million at September  30, 2001.  Loans,  net,  increased  $31.9
million,  or 23.7%,  from $134.9 million at December 31, 2000, to $166.8 million
at  September  30,  2001,  reflecting  increases  in  the  automobile  loan  and
commercial real estate loan portfolios. Securities  available-for-sale decreased
an aggregate of $37.7  million or 22.9% as a portion of the proceeds of maturing
short-term  U.S.  Government and agency  obligations  purchased in December 2000
were used to pay maturing  seasonal  municipal  deposits.  Prepaid  expenses and
other assets decreased $1.4 million, or 55.9%, from $2.5 million at December 31,
2000,  to $1.1 million at September  30, 2001,  primarily due to the decrease in
the deferred  tax asset  directly  related to the decrease in the  comprehensive
loss on securities available-for-sale.

Total deposits decreased $13.7 million, or 5.0%, from $273.2 million at December
31,  2000 to $259.5  million at  September  30,  2001,  primarily  reflecting  a
decrease in NOW and money market deposits.  The decrease in NOW and money market
deposits of $55.5 million,  or 67.7%, from $82.0 million at December 31, 2000 to
$26.5 million at September 30, 2001, is  attributable  to the timing of seasonal
municipal  deposits which were not on deposit at September 30, 2001. The effects
of those declines were offset in part by a $17.3  million,  or 22.3% increase in
other time deposits.  In addition,  savings deposits increased $11.6 million, or
35.3%, from $32.8 million at December 31, 2000 to $44.4 million at September 30,
2001 and demand  deposits  increased $9.5 million from $45.6 million at December
31, 2000 to $55.1 million at September 30, 2001.

Total stockholders' equity increased $2.7 million from $19.3 million at December
31, 2000, to $21.9 million at September 30, 2001 primarily due to a $2.1 million
decrease   in    accumulated    other    comprehensive    loss   on   securities
available-for-sale  and net income of $1.5  million  for the nine  months  ended
September 30, 2001.  Offsetting these events were dividends declared of $348,000
and $564,000 employed to repurchase 40,000 shares of common stock.

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 the volume of interest-earning assets and interest-bearing  liabilities and
the interest rates earned or paid on them.

The  following  tables set forth certain  information  relating to the Company's
consolidated average balance sheets and its consolidated  statements of earnings
for the three months and nine months ended  September  30, 2001,  and 2000,  and
reflect  the  average  yield on  interest-earning  assets  and  average  cost of
interest-bearing  liabilities  for the periods  indicated.  Dividing  annualized
income  or  expense,  by the  average  balance  of  interest-earning  assets  or
interest-bearing  liabilities,  respectively,  derives  such  yields  and costs.
Average  balances are derived from average daily balances.  Average balances and
yields include non-accrual loans although they are not material.


                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                              Three Months Ended September 30,
                                                              --------------------------------
                                           ------------2001--------------   ------------2000------------
                                                                  Average                        Average
                                           Average                Yield/    Average               Yield/
                                           Balance    Interest     Cost     Balance   Interest    Cost
                                           -------    --------     ----     -------   --------    ----
<S>                                        <C>         <C>         <C>     <C>         <C>        <C>
Interest earning assets:                                        (Dollars in thousands)
   Federal funds sold and
      interest-earning deposits            $  5,189    $   47      3.62%   $    582    $    8     5.50%
   Securities, net (1)                      136,537     2,163      6.34     127,083     2,042     6.43
   Municipal obligations (2)                  1,168        17      5.82       1,167        17     5.83
   Loans, net (3)                           158,061     3,343      8.46     132,247     3,047     9.22
                                           --------    ------      ----    --------    ------     ----
      Total interest-earning assets         300,955     5,570      7.40     261,079     5,114     7.84
Non-interest-earning assets                  23,924                          16,649
                                           --------                        --------
Total assets                               $324,879                        $277,728
                                           ========                        ========

Interest-bearing liabilities:
   Savings deposits                        $ 41,887    $  296      2.83    $ 31,741    $  294     3.70
   NOW and money market deposits             26,850       111      1.65      29,821       174     2.33
   Certificates of deposit                  127,851     1,674      5.24     107,807     1,699     6.30
                                           --------    ------      ----    --------    ------     ----
      Total interest-bearing deposits       196,588     2,081      4.23     169,369     2,167     5.12
   Borrowed funds                            43,806       557      5.09      42,760       548     5.13
                                           --------    ------      ----    --------    ------     ----
      Total interest-bearing liabilities    240,394     2,638      4.39     212,129     2,715     5.12
Other non-interest bearing liabilities       63,609                          47,209
                                           --------                        --------
Total liabilities                           304,003                         259,338
Stockholders' Equity                         20,876                          18,390
                                           --------                        --------
Total liabilities and
   stockholders' equity                    $324,879                        $277,728
                                           ========                        ========

Net interest income/
   interest rate spread (4)                            $2,932      3.01%               $2,399     2.72%
                                                       ======     =====                ======    =====

Net interest margin (5)                                            3.90%                          3.68%
                                                                  =====                          =====

Ratio of interest-earning assets to
   interest-bearing liabilities                                   1.25x                          1.23x
                                                                  =====                          =====
</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.



                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                              Nine Months Ended September 30,
                                                              -------------------------------
                                           ------------2001--------------   ------------2000------------
                                                                  Average                        Average
                                           Average                Yield/    Average               Yield/
                                           Balance    Interest     Cost     Balance   Interest    Cost
                                           -------    --------     ----     -------   --------    ----
<S>                                        <C>         <C>         <C>     <C>         <C>        <C>
Interest earning assets:                                        (Dollars in thousands)
   Federal funds sold and
      interest-earning deposits            $ 12,263   $   447      4.86%   $    679   $    31     6.09%
   Securities, net (1)                      159,185     7,462      6.25     149,471     7,046     6.29
   Municipal obligations (2)                  1,168        51      5.82       1,167        51     5.83
   Loans, net (3)                           147,867     9,565      8.62     128,165     8,680     9.03
                                           --------   -------      ----    --------   -------     ----
         Total interest-earning assets      320,483    17,525      7.29     279,482    15,808     7.54
Non-interest-earning assets                  23,966                          17,438
                                           --------                        --------
Total assets                               $344,449                        $296,920
                                           ========                        ========

Interest-bearing liabilities:
   Savings deposits                        $ 37,690   $   859      3.04    $ 30,434   $   839     3.68
   NOW and money market deposits             54,667       823      2.01      47,824       824     2.30
   Certificates of deposit                  128,347     5,482      5.69     104,983     4,712     5.98
                                           --------   -------      ----    --------   -------     ----
      Total interest-bearing deposits       220,704     7,164      4.33     183,241     6,375     4.64
   Borrowed funds                            43,705     1,658      5.06      51,891     2,031     5.22
                                           --------    ------      ----    --------    ------     ----
      Total interest-bearing liabilities    264,409     8,822      4.45     235,132     8,406     4.77
Other non-interest bearing liabilities       59,776                          43,704
                                           --------                        --------
Total liabilities                           324,185                         278,836
Stockholders' Equity                         20,264                          18,084
                                           --------                        --------
Total liabilities and
   stockholders' equity                    $344,449                        $296,920
                                           ========                        ========

Net interest income/
   interest rate spread (4)                           $ 8,703      2.84%              $ 7,402     2.77%
                                                      =======     =====               =======    =====

Net interest margin (5)                                            3.62%                          3.53%
                                                                  =====                          =====

Ratio of interest-earning assets to
   interest-bearing liabilities                                   1.21x                          1.19x
                                                                  =====                          =====
</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.


                                       12
<PAGE>

Comparison  of Operating  Results for the Three Months Ended  September 30, 2001
and 2000

General

The Company  reported net income of $435,000,  or diluted  earnings per share of
$.29 for the quarter ended September 30, 2001, compared to $475,000,  or diluted
earnings  per share of $.30 for the prior year  period.  The decrease in diluted
earnings per share was primarily  attributable  to increases in other  operating
expenses  of  $636,000,  or 29.9% for the  quarter  ended  September  30,  2001.
Offsetting  these  increases in expenses was an increase in net interest  income
after provision for loan losses of $458,000,  or 19.1%, and an increase in other
operating income of $127,000, or 28.7%.

Interest Income

Interest income, on a fully taxable equivalent basis, increased $456,000, or 8.9
%, from $5.1  million for the three  months ended  September  30, 2000,  to $5.6
million  for the three  months  ended  September  30,  2001.  The  increase  was
attributable  to an increase in the  average  balance of total  interest-earning
assets of $39.9  million,  or 15.3%,  from $261.1  million for the three  months
ended September 30, 2000, to $301.0 million for the three months ended September
30,  2001.  The  average  balance of federal  funds  sold and  interest  earning
deposits  increased  from  $582,000 at September  30,  2000,  to $5.2 million at
September  30, 2001.  The average  balance of  securities,  net,  (exclusive  of
municipal  obligations)  increased  $9.5 million,  or 7.4%, as the average yield
decreased 9 basis points to 6.34% for the three months ended September 30, 2001,
compared to 6.43% for the 2000 period as a result of declining  market  interest
rates. The average balance of loans, net, increased $25.9 million, or 19.5% from
$132.2 million for the three months ended  September 30, 2000, to $158.1 million
for the 2001 period.  The average yield on loans net,  decreased 76 basis points
from 9.22% for the 2000 period,  to 8.46% for the three  months ended  September
30, 2001 as a result of the lower interest rate environment.

Interest Expense

Interest  expense  decreased  $77,000,  or 2.8%, from $2.7 million for the three
months  ended  September  30,  2000,  to $2.6 million for the three months ended
September  30,  2001,  primarily  as a result  of the  reduction  of short  term
interest rates by the Federal Open Market Committee during 2001. Notwithstanding
the decline in interest  rates paid on deposits,  the Bank  experienced  a $28.3
million or 13.3%  increase  in the  average  balance  of total  interest-bearing
liabilities  from $212.1  million for the 2000 period to $240.4  million for the
three months ended September 30, 2001. The average rate paid on interest bearing
deposits  decreased 89 basis points from 5.12% paid for the 2000 period to 4.23%
paid for the three months ended  September  30, 2001. Of the increase in average
deposits, the average balance of savings deposits increased by $10.1 million, or
32.0%,  and the average  balance of NOW and money market  deposits  decreased by
$3.0  million,   or  10.0%  from  period  to  period.  The  average  balance  of
certificates of deposit increased $20.1 million from $107.8 million at September
30, 2000 to $127.9  million at September 30, 2001.  The average cost of borrowed
funds decreased 4 basis points from 5.13% for the 2000 period,  to 5.09% for the
three months ended September 30, 2001.


                                       13
<PAGE>

Net Interest Income

Net interest income on a fully taxable  equivalent  basis increased by $533,000,
or 22.2%,  from $2.4 million for the three months ended  September  30, 2000, to
$2.9 million for the three months ended  September 30, 2001. The average cost of
total interest-bearing liabilities for the period decreased 73 basis points from
5.12% in the 2000 period to 4.39% in the 2001 period. The average yield on total
interest-earning  assets for the period  decreased 44 basis points from 7.84% in
the 2000  period  to 7.40% in the 2001  period.  The net  interest  rate  spread
increased by 29 basis points from 2.72% in the 2000 period, to 3.01% in the 2001
period.

Provision for Loan Losses

The  Company's  provision for loan losses was $75,000 for the three months ended
September  30, 2001,  compared to no  provision  made for the three months ended
September 30, 2000. The decision to make a provision quarterly and the amount of
the provision reflects management's  qualitative and quantitative  assessment of
the loan  portfolio,  net charge-offs  and collection of delinquent  loans.  The
allowance  for loan losses  amounted to $1.9 million at both  September 30, 2001
and December 31, 2000.  The  allowance  for loan losses as a percentage of loans
was 1.15% and 1.37% at September 30, 2001 and December 31, 2000, respectively.

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 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.

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 Company's general policy to discontinue accruing interest on all loans
which are past-due more than 90 days or when, in the opinion of management, such
suspension  is  warranted.  When a loan is placed  on  non-accrual  status,  the
Company 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  collectable and a consistent  record of performance
has been demonstrated.


                                       14
<PAGE>

                                          September 30, 2001   December 31, 2000
                                          ------------------   -----------------
                                                     (In thousands)

Non-accrual loans:
   Commercial and industrial loans               $153                $384
   Consumer loans                                  25                  32
                                                 ----                ----
      Total non-accrual loans                     178                 416

   Loans contractually past due 90 days
   or more, other than non-accruing                --                  --
                                                 ----                ----

      Total non-performing loans                 $178                 416
                                                 ----                 ---

Allowance for loan losses as a percentage
   of loans (1)                                  1.15%               1.37%
Allowance for loan losses as a percentage
   of total non-performing loans              1089.33%              450.0%
Non-performing loans as a percentage
   of loans (1)                                   .11%                .30%


(1)   Loans include loans, net, excluding the allowance for loan losses.

Other Operating Income

Other operating income increased  $127,000,  or 28.7%, to $570,000 for the three
months ended September 30, 2001.  Service charges on deposit accounts  increased
$40,000,  or 18.3%,  reflecting  overall  growth in the depositor  base, and the
introduction of new and electronic banking services. Included in other operating
income  was a $39,000,  or 46.4%,  increase  in net gain on sale of  residential
loans  as  a  result  of  an  overall  increase  in  residential  mortgage  loan
production.

Other Operating Expense

Other operating expense increased $636,000,  or 29.9%, from $2.1 million for the
three months  ended  September  30,  2000,  to $2.8 million for the three months
ended September 30, 2001. Increases in salaries and employee benefits,  premises
and equipment  expense,  and other expense for the three months ended  September
30,  2001 are a result of the  Bank's  branch  expansion  plan and  included  an
additional $148,000 of expense related to the $7.5 million of Capital securities
issued in September of 2000.

Income Taxes

Income taxes  decreased  $11,000,  or 4.6%,  from  $237,000 for the three months
ended  September 30, 2000, to $226,000 for the three months ended  September 30,
2001, as a result of the decrease in income  before income taxes.  The effective
tax rate for the three months  ended  September  30, 2001 was 34.2%  compared to
33.3% for the three months ended September 30, 2000.


                                       15
<PAGE>

Comparison of Operating Results for the Nine Months Ended September 30, 2001 and
2000

General

The Company  reported net income of $1.5 million,  or diluted earnings per share
of $1.00 for the nine months ended September 30, 2001, compared to $1.5 million,
or diluted earnings of $.91 per share for the prior year period. The increase in
diluted earnings per share was primarily attributable to a 9.0% reduction in the
diluted weighted average number of shares outstanding.

Interest Income

Interest income, on a fully taxable equivalent basis, increased $1.7 million, or
10.9%, from $15.8 million for the nine months ended September 30, 2000, to $17.5
million  for the  nine  months  ended  September  30,  2001.  The  increase  was
attributable  to an increase in the  average  balance of total  interest-earning
assets of $41.0 million, or 14.7%, from $279.5 million for the nine months ended
September  30, 2000, to $320.5  million for the nine months ended  September 30,
2001.  The  average  balance  of  securities,   net,   (exclusive  of  municipal
obligations)  increased  $9.7  million,  or 6.5%,  and  returned a 4 basis point
decrease in the average  yield to 6.25% for the nine months ended  September 30,
2001,  compared  from 6.29% for the 2000 period.  The average  balance of loans,
net,  increased $19.7 million,  or 15.4% from $128.2 million for the nine months
ended  September  30, 2000, to $147.9  million for the 2001 period.  The average
yield on loans  receivable,  net,  decreased  41 basis points from 9.03% for the
2000 period,  to 8.62% for the nine months ended September 30, 2001. The average
yield on interest-earning  assets decreased from 7.54% for the nine months ended
September 30, 2000,  to 7.29% for the nine months ended  September 30, 2001 as a
result of decreased market interest rates.

Interest Expense

Interest  expense  increased  $416,000,  or 4.9%, from $8.4 million for the nine
months  ended  September  30,  2000,  to $8.8  million for the nine months ended
September 30, 2000,  primarily as a result of a $29.3 million or 12.5%  increase
in the average balance of total interest-bearing liabilities from $235.1 million
for the 2000 period to $264.4  million for the nine months ended  September  30,
2001. The increased interest expense resulted from an increase of $37.5 million,
or 20.4% in the average balance of interest-bearing  deposits.  The average rate
paid on interest-bearing  deposits decreased 31 basis points from 4.64% paid for
the 2000  period to 4.33% paid for the nine month  period  ended  September  30,
2001.  The average  balance of savings  deposits  increased by $7.3 million,  or
23.8%,  and the average  balance of NOW and money market  deposits  increased by
$6.8  million,   or  14.3%  from  period  to  period.  The  average  balance  of
certificates of deposit  increased  $23.4 million.  The average cost of borrowed
funds decreased 16 basis points from 5.22% for the 2000 period, to 5.06% for the
nine months ended September 30, 2001, due to lower market interest rates.


                                       16
<PAGE>

Net Interest Income

Net  interest  income on a fully  taxable  equivalent  basis  increased  by $1.3
million,  or 17.6%,  from $7.4 million for the nine months ended  September  30,
2000, to $8.7 million for the nine months ended  September 30, 2001. The average
cost of total  interest-bearing  liabilities  for the period  decreased 32 basis
points  from 4.77% in the 2000 period to 4.45% in the 2001  period.  The average
yield on  interest-earning  assets for the period decreased 25 basis points from
7.54% in the 2000  period to 7.29% in the 2000  period.  The net  interest  rate
spread  increased by 7 basis  points from 2.77% in the 2000 period,  to 2.84% in
the 2001 period.

Provision for Loan Losses

The  Company's  provision  for loan losses was $75,000 for the nine months ended
September  30, 2001 as compared to $150,000 for the nine months ended  September
30,  2000.  The  provision  for loan  losses  is based on  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.

Other Operating Income

Other operating  income  increased  $256,000,  or 20.5%, to $1.5 million for the
nine month period ended September 30, 2001.  Service charges on deposit accounts
increased  $150,000,  or 23.5%,  reflecting  an overall  increase  in the Bank's
deposit fee structure, growth in the depositor base, and the introduction of new
and electronic banking services. Net gain on sale of residential loans increased
$95,000 or 51.9% as a result of overall  increase in  residential  mortgage loan
production.  Lower market interest rates have resulted in increased  residential
lending volume. Offsetting these increases in other operating income in part was
a loss of $38,000 sustained in securities  transactions.  Contingent upon market
conditions,  the Company  periodically  evaluates  repositioning  the securities
portfolio to improve future net interest income and net income.

Other Operating Expense

Other operating expenses increased $1.6 million, or 25.4%, from $6.3 million for
the nine months ended  September  30,  2000,  to $7.9 million in the nine months
ended September 30, 2001. Increases in salaries and employee benefits,  premises
and equipment expense, and other expense for the nine months ended September 30,
2001 are a result of the Bank's branch  expansion plan and included  $601,000 of
expense related to the $7.5 million of Capital  Securities  issued  September of
2000.

Income Taxes

Income taxes increased $31,000, or 4.2%, from $742,000 for the nine months ended
September  30, 2000,  to $773,000 for the nine months ended  September 30, 2001.
The increase is attributable to the increase in income before income taxes.  The
effective  tax rate for the nine  months  ended  September  30,  2001 was 34.3%,
compared to 33.5% for the nine months ended September 30, 2000.


                                       17
<PAGE>

Recent Accounting Pronouncements

In June 2000, the Financial  Accounting  Standards Board (FASB) issued Statement
of  Financial  Accounting  Standards  (SFAS) No.  138,  "Accounting  for Certain
Derivative  Instruments  and Certain  Hedging  Activities - an amendment of FASB
Statement  No.  133,   "Accounting   for  Derivative   Instruments  and  Hedging
Activities." This statement supersedes and amends certain paragraphs of SFAS No.
133. The  effective  date for SFAS No. 138 is for fiscal years  beginning  after
June 15, 2000.  SFAS Nos. 138 and 133 apply to  quarterly  and annual  financial
statements.  There was no impact on the Company's financial condition or results
of operations upon adoption of SFAS Nos. 138 and 133.

In September  2000, the FASB issued SFAS No. 140,  "Accounting for Transfers and
Servicing  of  Financial  Assets  and   Extinguishments  of  Liabilities."  This
Statement  supersedes and replaces 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,  collateralized  borrowing arrangements,  securities
lending   transactions,   repurchase   agreements,   loan  participations,   and
extinguishments of liabilities.  Certain provisions of this Statement  including
relevant  disclosures  are effective for fiscal years ending after  December 31,
2000.  The  remaining  provisions  were  effective  for  transfer   transactions
occurring  after March 31, 2001.  SFAS No. 140 does not require  restatement  of
prior periods.  In July 2001, FASB Technical Bulletin No. 01-1,  "Effective Date
For Certain  Financial  Institutions  of Certain  Provisions  of  Statement  140
related to the  Isolation of  Transferred  Financial  Assets",  was issued which
delays the effective date for the isolation standards and related guidance under
SFAS No. 140 to transfers of financial assets occurring after December 31, 2001,
instead of March 31, 2001. The  implementation  of SFAS No. 140 provisions  does
not have an  impact  on our  financial  statements.  The  implementation  of the
remaining provisions,  subsequent to December 31, 2001 is not expected to have a
material impact on our financial statements.

In July 2001, the FASB issued SFAS No. 141,  "Business  Combinations,"  and SFAS
No. 142,  "Goodwill and Other  Intangible  Assets." These Statements will change
the accounting for business  combinations and goodwill in two ways.  First, SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations  initiated  after June 30, 2001.  Second,  SFAS No. 142 changes the
accounting  for  goodwill,  including  goodwill  recorded  in the past  business
combinations.  The previous accounting  principles  governing goodwill generated
from a business  combination  will  cease upon  adoption  of SFAS No.  142.  The
adoption  of SFAS Nos.  141 and 142 will not  materially  effect  the  Company's
statements of financial  condition and results of operations.  SFAS Nos. 141 and
142 will become effective on July 1, 2001 and January 1, 2002, respectively, for
the Company.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," that replaces SFAS No. 121,  "Accounting for the
Impairment  of Long Lived Assets and for  Long-Lived  Assets to Be Disposed Of."
The provisions of SFAS No.144 are effective for financial  statements issued for
fiscal years beginning after December 15, 2001 and, generally, are to be applied
prospectively.  The Company  does not believe  that the adoption of SFAS No. 144
will materially impact our financial condition or results of operations.


                                       18
<PAGE>

Liquidity

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
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 origination of loans. During each of the nine months
ended  September  30, 2001,  and 2000,  the  Company's  purchases of  securities
classified as  available-for-sale  totaled  $830.4  million and $347.1  million,
respectively.  During the nine months ended  September  30, 2001,  the Company's
purchases of  securities  classified as  held-to-maturity  totaled $6.0 million.
Loan originations,  net of principal  repayments on loans, totaled $31.8 million
and $13.9  million,  for the nine months ended  September  30,  2001,  and 2000,
respectively.  Deposits,  borrowings and principal  repayments and maturities on
securities were primarily used to fund those activities.

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 the sale of investment  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 or liquidate  available-for-sale  securities.  It can also
access its lines of credit,  totaling $6.5 million, with unaffiliated  financial
institutions  which, enable it to borrow federal funds on an unsecured basis. In
addition,  the  Company  has  available  lines  of  credit  equal to 8.4% of the
Company's  assets at September 30, 2001,  with the Federal Home Loan Bank of New
York (FHLB), which enable it to borrow funds on a secured basis. The Company can
also  engage  in  other  forms  of  borrowing,   including  reverse   repurchase
agreements.

At September 30, 2001, the Company's primary borrowings consisted of convertible
advances from the FHLB. The  convertible  feature of these  advances  allows the
FHLB,  at a  specified  call date 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.   At  September  30,  2001,
convertible advances outstanding were as follows:

                         Interest        Call         Contractual
        Amount             Rate          Date          Maturity
        ------             ----          ----          --------

      $14,000,000         5.49%       02/19/2003      02/19/2008
      $15,000,000         4.59%       01/21/2002      01/21/2009
      $14,000,000         4.97%       01/19/2004      01/19/2011

Management  of the Company has set minimum  liquidity  level of 10% as a target.
The average of the  Company's  liquid  assets (cash and due from banks,  federal
funds sold,  interest  earning  deposits with other financial  institutions  and
investment securities available-for-sale, less securities pledged as collateral)
as a percentage  of average  assets of the Company  during the nine months ended
September 30, 2001, was 24.3%.


                                       19
<PAGE>

Capital Resources

The Bank is subject to the risk based  capital  guidelines  administered  by the
banking  regulatory  agencies.  The  guidelines  currently  require all banks to
maintain  a minimum  ratio of total risk  based  capital to total risk  weighted
assets of 8%, including a minimum ratio of Tier 1 capital to total risk weighted
assets of 4% and a Tier 1 capital to average  adjusted  assets of 4%. 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 Bank's financial statements.  As of December 31,
2000,  the  most  recent   notification  from  the  federal  banking  regulators
categorized  the Bank as well  capitalized  under the  regulatory  framework for
prompt corrective action.

In  accordance  with the  requirements  of FDIC and the New York  State  Banking
Department, the Bank must meet certain measures of capital adequacy with respect
to leverage and risk-based  capital. As of September 30, 2001, the Bank exceeded
those  requirements with a leverage capital ratio,  risk-based capital ratio and
total-risk based capital ratio of 7.57%, 12.07%, and 13.02%, respectively.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

The principal objective of the Company's interest rate 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 guidelines  approved by the Board of Directors.
Through such  management, the Company seeks to reduce the  vulnerability  of its
operations to changes in interest  rates.  The Board has directed the Investment
Committee to review 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 the movements in the market interest rates and its ability
to manage its assets and liabilities in response to such movements.

At  September  30,  2001,  70.1% 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,  $27.0 million,  or 19.7%, of the Company's  securities had
adjustable  interest rates, and its securities  portfolio had a weighted average
maturity of 5.0 years.  At September 30, 2001,  the Company had $66.7 million of
certificates of deposit with maturities of one year or less and $38.7 million of
deposits over $100,000,  which tend to be less stable  sources of funding,  when
compared  to  core  deposits,  and  which  represented  42.6%  of the  Company's
interest-bearing   liabilities.  In  a  rising  interest  rate


                                       20
<PAGE>

environment the Company's interest-bearing  liabilities may adjust upwardly more
rapidly than the yield on its adjustable-rate  loans. Thus, 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.

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 the net interest  income over the  succeeding  four quarter
periods 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 of zero and plus or minus 200
basis points in 100 basis point increments.

At September 30, 2001, the effect of instantaneous  and sustained  interest rate
changes on the  Company's Net Interest  Income and Net Economic  Value of Equity
are as follows:

     Change in           Potential Change in         Potential Change in
   Interest Rates        Net Interest Income     Net Economic Value of Equity
   in Basis Points     $ Change      % Change     $ Change          % Change
   ---------------     --------      --------     --------          --------
                     (Dollars in thousands)

         200          $   (64)         (.49)%     $(5,941)           (26.14)%
         100              (46)         (.35)       (3,483)           (15.33)
      Static               --            --            --                --
       (100)           (1,302)        (9.94)          767              3.38
       (200)           (2,363)       (18.04)        2,666             11.73


                                       21
<PAGE>

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings
-------  -----------------

         Not applicable.

Item 2.  Changes in Securities and Use of Proceeds
-------  -----------------------------------------

         Not applicable.

Item 3.  Defaults Upon Senior Securities
-------  -------------------------------

         Not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders
-------  ---------------------------------------------------

         Not applicable.

Item 5.  Other Information
-------  -----------------

         Not applicable.

Item 6.  Exhibits and Reports on Form 8-K
-------  --------------------------------

         a. Exhibits
         -----------

            11.0 Statement Re: Computation of Per Share Earnings

         b. Reports on Form 8K
         ---------------------

            None


                                       22
<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized.

                                       LONG ISLAND FINANCIAL CORP.
                                       (Registrant)

Date: November 13, 2001                By: /s/ Douglas C. Manditch
                                           -------------------------------------
                                           Douglas C. Manditch
                                           President and Chief Executive Officer


Date: November 13, 2001                By: /s/ Thomas Buonaiuto
                                           -------------------------------------
                                           Thomas Buonaiuto
                                           Vice President and Treasurer


                                       23