The following is management's discussion and analysis of certain significant factors that have affected the Corporation's financial condition and operating results during the periods included in the accompanying consolidated financial statements, and should be read in conjunction with such financial statements. The Corporation's financial condition and operating results principally reflect those of its wholly-owned subsidiary, The First National Bank of Long Island, and subsidiaries wholly-owned by the Bank, either directly or indirectly, The First of Long Island Agency, Inc., FNY Service Corp., and The First of Long Island REIT, Inc. The consolidated entity is referred to as the "Corporation" and the Bank and its subsidiaries are collectively referred to as the "Bank." The Bank's primary service area is Nassau and Suffolk Counties, Long Island, although the Bank has three commercial banking branches in Manhattan and may open additional Manhattan branches in the future.

Overview

The Corporation's earnings for the first quarter of 2009 were $.54 per share, an increase of 15 cents, or 38%, over the same quarter last year. Net income increased by $1,071,000, or 37%, from $2,857,000 for the first quarter of 2008 to $3,928,000 for the current quarter.

Returns on average assets ("ROA") and equity ("ROE") were 1.27% and 15.16%, respectively, for the current quarter as compared to 1.05% and 11.42% for the same quarter last year.

The increase in earnings thus far in 2009 is largely attributable to loan growth. On an average balance basis, total loans grew by $127.7 million, or 23.9%, when comparing the first quarter of 2009 to the same period last year. The growth, which occurred in commercial mortgages, residential mortgages and home equity loans, resulted from management's continued efforts to improve the Bank's current and future earnings prospects by making loans a larger portion of the overall balance sheet. The loan growth was primarily funded with low cost overnight borrowings and, to a lesser extent, deposit growth.

A decline in interest rates in 2008 is another important factor that contributed to the increase in earnings. Earnings increased because the Bank's interest-bearing deposits and borrowings are shorter in duration than its interest-earning assets and therefore repriced faster in a changing rate environment.

Also contributing to the increase in earnings was a borrowing and investing strategy undertaken in the latter part of 2007 and continued in 2008. This strategy, which accounts for $127 million of the Bank's long-term debt at March 31, 2009, is largely responsible for an increase in average taxable investment securities of $67.2 million when comparing the first quarter of 2009 to the same period last year. The borrowings were undertaken to increase current earnings and, for those borrowings with embedded interest rate caps, protect the Bank's future earnings in the event of an increase in interest rates.

The positive factors described above were partially offset by a $923,000 increase in noninterest expense. More than half of the increase results from a $255,000 increase in retirement plan expense and a $252,000 increase in FDIC insurance expense. Retirement plan expense increased primarily because of a significant decline during 2008 in the value

of pension plan assets. FDIC insurance expense increased as a result of recent bank failures.

Total deposits increased by $71.1 million in the first quarter. The increase is attributable to the promotion of several deposit products coupled with the increased desirability of such products due to the volatility and poor performance of the equity markets. In addition, management believes that the Bank's financial strength relative to other financial institutions in its market area also played a role.

The credit quality of the Bank's loan portfolio continues to be excellent as evidenced by the low level of nonperforming loans. The Bank has not originated nor does it hold any subprime mortgages in its loan portfolio. In addition, all of the Bank's mortgage securities are backed by mortgages underwritten on conventional terms. The U.S. government guarantees the timely payment of principal and interest on most of the securities and underlying mortgages.

In early 2009, the Bank opened a commercial banking office in Port Jefferson Station, Long Island. During the remainder of 2009, the Bank expects to open a branch in Bayville, Long Island and convert its Valley Stream commercial banking office to a full service branch. Continued branch expansion in key markets on Long Island and in Manhattan remains a key strategic initiative.

Net Interest Income

     Average Balance Sheet; Interest Rates and Interest Differential. The
following table sets forth the average daily balances for each major category of
assets, liabilities and stockholders' equity as well as the amounts and average
rates earned or paid on each major category of interest-earning assets and
interest-bearing liabilities.


                                                      Three Months Ended March 31,

                                            2009                                        2008

                             Average       Interest/      Average        Average       Interest/      Average
                             Balance       Dividends       Rate          Balance       Dividends       Rate

                                                         (dollars in thousands)
Assets
Federal funds sold and
overnight investments      $       233    $         -            - %   $    42,853    $       306         2.87 %
Investment Securities:
Taxable                        387,744          4,660         4.81         320,558          3,995         5.01
Nontaxable (1)                 144,293          2,330         6.46         142,948          2,333         6.53
Loans (1) (2)                  661,417          9,331         5.72         533,680          8,328         6.28

Total interest-earning
assets                       1,193,687         16,321         5.51       1,040,039         14,962         5.78

Allowance for loan
losses                          (6,052 )                                    (4,585 )

Net interest-earning
assets                       1,187,635                                   1,035,454
Cash and due from banks         32,285                                      30,430
Premises and equipment,
net                             15,450                                      11,028
Other assets                    19,376                                      20,036

                           $ 1,254,746                                 $ 1,096,948


Liabilities and
Stockholders' Equity
Savings and money market
deposits                   $   398,200          1,108         1.13     $   317,796          1,121         1.42
Time deposits                  203,434          1,227         2.45         256,276          2,396         3.76

Total interest-bearing
deposits                       601,634          2,335         1.57         574,072          3,517         2.46
Short-term borrowings           93,266            140          .61          17,727            140         3.18
Long-term debt                 140,056          1,456         4.22          86,813            927         4.29

Total interest-bearing
liabilities                    834,956          3,931         1.91         678,612          4,584         2.72

Checking deposits              308,303                                     313,021
Other liabilities                6,435                                       4,729

                             1,149,694                                     996,362
Stockholders' equity           105,052                                     100,586

                           $ 1,254,746                                 $ 1,096,948


Net interest income (1)                   $    12,390                                 $    10,378

Net interest spread (1)                                       3.60 %                                      3.06 %

Net interest margin (1)                                       4.21 %                                      4.01 %

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

(2) For the purpose of these computations, nonaccruing loans are included in the daily average loan amounts outstanding.

Rate/Volume Analysis. The following table sets forth the effect of changes in volumes, rates, and rate/volume on tax-equivalent interest income, interest expense and net interest income.

                                                      Three Months Ended March 31,

                                                            2009 Versus 2008
                                                 Increase (decrease) due to changes in:

                                                                          Rate/           Net
                                           Volume          Rate         Volume (1)      Change

                                                             (in thousands)
Interest Income:
Federal funds sold and overnight
investments                              $     (302 )  $         (4 )  $          -    $    (306 )
Investment securities:
Taxable                                         804            (111 )           (28 )        665
Nontaxable                                       22             (25 )             -           (3 )
Loans                                         1,900            (730 )          (167 )      1,003

Total interest income                         2,424            (870 )          (195 )      1,359


Interest Expense:
Savings and money market deposits               272            (227 )           (58 )        (13 )
Time deposits                                  (500 )          (830 )           161       (1,169 )
Short-term borrowings                           592            (112 )          (480 )          -
Long-term debt                                  552             (17 )            (6 )        529

Total interest expense                          916          (1,186 )          (383 )       (653 )


Increase in net interest income          $    1,508    $        316    $        188    $   2,012

(1) Represents the change not solely attributable to change in rate or change in volume but a combination of these two factors. The rate/volume variance for federal funds sold and overnight investments has been allocated entirely to the volume variance. The rate/volume variance for the other asset and liability categories shown in the table could be allocated between the volume and rate variances shown in the table based on the absolute value of each to the total for both.

Net interest income on a tax-equivalent basis was up $2,012,000 when comparing the first quarter of 2009 to the same period last year. The most significant reason for the increase in net interest income was growth in the Bank's loan portfolio. On an average balance basis, total loans grew by $127.7 million, or 23.9%, when comparing the first quarter of 2009 to the same period last year. A majority of the growth in average loan balances was funded by an increase of $75.5 million in low cost short-term borrowings. The remainder was primarily funded by an increase in average interest-bearing deposits.

A decline in interest rates in 2008 is another important factor that contributed to the increase in net interest income. Net interest income increased because the Bank's interest-bearing deposits and borrowings are generally shorter in duration than its interest-earning assets and therefore reprice faster in a changing rate environment. When comparing the first quarter of 2009 to the same period last year, the overall yield on interest-earning assets declined by 27 basis points while the overall cost of interest-bearing liabilities decreased by 81 basis points.

Also contributing to the increase in net interest income was a borrowing and investing strategy undertaken in the latter part of 2007 and continued in 2008. This strategy, which accounts for $127 million of the long-term debt at March 31, 2009 and all of the long-term debt at March 31, 2008, is largely responsible for the increase in average taxable investment securities of $67.2 million when comparing the first quarter of 2009 to the

same period last year. Of the total borrowings under this strategy, $75 million have embedded interest rate caps with a notional amount of $120 million. The borrowings without caps were undertaken to increase current earnings by taking advantage of the spread between borrowing and investing rates for similar duration instruments. The borrowings with caps also added to earnings, but to a lesser extent because they include the cost of the caps, and were primarily undertaken to protect the Bank's future earnings in the event of an increase in interest rates.

Although net interest spread increased by 54 basis points when comparing the first quarter of 2009 to the same period last year, net interest margin only increased by 20 basis points. This occurred largely because the return on noninterest-bearing checking balances and capital decreased due to the lower yield on interest-earning assets. Also negatively impacting net interest margin, but to a lesser extent, is the fact that the average interest-earning assets and liabilities comprising the borrowing and investing strategy increased by approximately $40 million when comparing the first quarter of 2009 to the same period last year. The margin on this strategy is less than the margin on the balance of the Bank's interest-earning assets and interest-bearing liabilities. In addition, the Bank took advantage of the currently low interest rate environment and refinanced $25 million of overnight FHLB advances for a term of five years. While this transaction reduces the Bank's exposure to rising interest rates, the immediate impact on both net interest spread and margin is negative.

Application of Critical Accounting Policies

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported asset and liability balances and revenue and expense amounts. Our determination of the allowance for loan losses is a critical accounting estimate because it is based on our subjective evaluation of a variety of factors at a specific point in time and involves difficult and complex judgments about matters that are inherently uncertain. In the event that management's estimate needs to be adjusted based on, among other things, additional information that comes to light after the estimate is made or changes in circumstances, such adjustment could result in the need for a significantly different allowance for loan losses and thereby materially impact, either positively or negatively, the Bank's results of operations.

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

The first step in determining the allowance for loan losses is to identify loans in the Bank's portfolio that are individually deemed to be impaired. In doing so, subjective judgments need to be made regarding whether or not it is probable that a borrower will be unable to pay all principal and interest due according to contractual terms. Once a loan is identified as being impaired, management uses the fair value of the underlying collateral and/or the discounted value of expected future cash flows to determine the amount of the

impairment loss, if any, that needs to be included in the overall allowance for loan losses. In estimating the fair value of real estate collateral management utilizes appraisals and also makes qualitative judgments based on, among other things, its knowledge of the local real estate market and analyses of current economic conditions and trends. Estimating the fair value of collateral other than real estate is also subjective in nature and sometimes requires difficult and complex judgments. Determining expected future cash flows can be more subjective than determining fair values. Expected future cash flows could differ significantly, both in timing and amount, from the cash flows actually received over the loan's remaining life.

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

Although the allowance for loan losses has two separate components, one for impairment losses on individual loans and one for collective impairment losses on pools of loans, the entire allowance for loan losses is available to absorb realized losses as they occur whether they relate to individual loans or pools of loans.

Asset Quality

The Corporation has identified certain assets as risk elements. These assets include nonaccruing loans, foreclosed real estate, loans that are contractually past due 90 days or more as to principal or interest payments and still accruing and troubled debt restructurings. These assets present more than the normal risk that the Corporation will be unable to eventually collect or realize their full carrying value. The Corporation's risk elements at March 31, 2009 and December 31, 2008 are as follows:

                                         March 31,      December 31,
                                            2009            2008

                                           (dollars in thousands)
Nonaccrual loans                        $        112    $         112
Loans past due 90 days or more and
still accruing                                     -               42
Foreclosed real estate                             -                -

Total nonperforming assets                       112              154
Troubled debt restructurings                       -                -

Total risk elements                     $        112    $         154


Nonaccrual loans as a percentage of
total loans                                      .02 %            .02 %

Nonperforming assets as a percentage
of total loans and foreclosed real
estate                                           .02 %            .02 %

Risk elements as a percentage of
total loans and foreclosed real
estate                                           .02 %            .02 %

Allowance and Provision for Loan Losses

The allowance for loan losses decreased by $162,000 during the first quarter of 2009, amounting to $5,914,000, or .89% of total loans at March 31, 2009, as compared to $6,076,000, or .92% of total loans at December 31, 2008. During the first quarter of 2009 the Bank had no loan chargeoffs, loan recoveries of $6,000, and recorded a credit provision for loan losses of $168,000. The provision for loan losses decreased by $332,000 when comparing the first quarter of 2009 to the same period last year primarily as a result of the reversal of $300,000 of impairment reserves on two commercial loans. One of the loans was repaid in full, while the other loan has been more than adequately collateralized by the borrower with commercial real estate.

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

The amount of future chargeoffs and provisions for loan losses will be affected by, among other things, economic conditions on Long Island and in New York City. Such conditions could affect the financial strength of the Bank's borrowers and will affect the value of real estate collateral securing the Bank's mortgage loans. Loans secured by real estate represent approximately 92% of the Bank's total loans outstanding at March 31, 2009. Most of these loans were made to borrowers domiciled on Long Island and in New

York City. Although local economic conditions had been good and real estate values had grown considerably over a number of years, over the last year or so residential real estate values on Long Island declined and economic conditions deteriorated. In addition, in more recent months, commercial real estate values also began to decline. The decline in values and the deterioration in economic conditions could continue. This could cause some of the Bank's borrowers to be unable to make the required contractual payments on their loans and the Bank to be unable to realize the full carrying value of such loans through foreclosure. However, management believes that the Bank's underwriting policies are relatively conservative and, as a result, the Bank should be less affected than the overall market.

Future provisions and chargeoffs could also be affected by environmental impairment of properties securing the Bank's mortgage loans. At the present time, management is not aware of any environmental pollution originating on or near properties securing the Bank's loans that would materially affect the carrying value of such loans.

Noninterest Income, Noninterest Expense, and Income Taxes

Noninterest income includes service charges on deposit accounts, Investment Management Division income, gains or losses on sales of securities, and all other items of income, other than interest, resulting from the business activities of the Corporation. Noninterest income increased by $48,000, or 3.1%, when comparing the first quarter of 2009 to the same quarter last year. The increase is principally due to a $143,000 increase in service charge income, as partially offset by a $91,000 decrease in net gains on sales of available-for-sale securities. Service charge income increased primarily as a result of an increase in returned check charges.

Noninterest expense is comprised of salaries, employee benefits, occupancy and equipment expense and other operating expenses incurred in supporting the various business activities of the Corporation. Noninterest expense increased by $923,000, or 12.6%, from $7,336,000 for the first quarter of 2008 to $8,259,000 for the current quarter. The increase is primarily comprised of increases in other operating expenses of $367,000, or 26.0%, occupancy and equipment expense of $318,000, or 26.6%, and employee benefits expense of $201,000, or 17.1%.

The increase in other operating expenses is largely attributable to a $252,000 increase in FDIC deposit insurance expense and an increase in the costs of data communications. The increase in deposit insurance expense is due to recent bank failures and the resulting increase in the FDIC's base assessment rates for 2009. In addition, the FDIC recently adopted an interim rule providing for an emergency special assessment of 20 basis points on deposits as of June 30, 2009. Subsequent to the adoption of the interim rule, the Chairman of the FDIC publicly stated that if the FDIC is successful in increasing its borrowing line with the U.S. Treasury Department, it would have flexibility in reducing the size of the special assessment. Certain trade organizations representing the banking industry believe that the special assessment could be reduced to 10 basis points. Each basis point of special assessment will cost the Bank approximately $100,000. Occupancy and equipment expense increased primarily due to branch openings, branch expansion, and equipment upgrades. The increase in employee benefits expense is largely the result of the increase in retirement plan expense for reasons previously discussed. Salaries expense was relatively flat when comparing the first quarter of 2009 to the same quarter last year because normal annual salary adjustments were largely offset by staff reductions accomplished through attrition.

Income tax expense as a percentage of pre-tax income ("effective tax rate") was 22.6% for the first quarter of 2009 as compared to 20.7% for the same quarter last year. The increase in the effective tax rate is primarily a result of tax-exempt income being a smaller portion of pre-tax income in 2009 than 2008. The increase in the effective tax rate would have been larger had the Corporation not recognized a $129,000 reduction in taxes previously accrued.

Capital

The Corporation's capital management policy is designed to build and maintain capital levels that exceed regulatory standards. Under current regulatory capital standards, banks are classified as well capitalized, adequately capitalized or undercapitalized. Under such standards, a well-capitalized bank is one that has a total risk-based capital ratio equal to or greater than 10%, a Tier 1 risk-based capital ratio equal to or greater than 6%, and a Tier 1 leverage capital ratio equal to or greater than 5%. The Bank's total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage capital ratios of 17.33%, 16.39% and 8.32%, respectively, at March 31, 2009 substantially exceed the requirements for a well-capitalized bank. The . . .