Flushing Financial Corporation Annual Report 2006

← All annual reports

FY2006 Annual Report · Flushing Financial Corporation

Loading PDF…

Flushing Financial Corporation

evolving with the times…

…while staying true to our roots.

2006 Annual Report

Flushing Financial Corporation, a Delaware corporation, was formed in May

1994 to serve as the holding company for Flushing Savings Bank, FSB, a

federally chartered, FDIC-insured savings institution organized in 1929.

The Bank is a customer-oriented, full-service community bank primarily

engaged in attracting deposits from residents and businesses in the local

communities of Queens, Nassau, Brooklyn, and Manhattan and investing

such deposits and other available funds primarily in originations of multi-

family mortgage loans, commercial real estate loans and one-to-four

family mixed-use property loans.

Flushing Financial Corporation’s common stock is publicly traded on the

Nasdaq Global Market® under the symbol “FFIC.”

Additional information on Flushing Financial Corporation may be obtained

by visiting the Company’s web site at www.flushingsavings.com.

Why Invest in
Flushing Financial Corporation?

Ability to grow Core Deposits in a vibrant
multicultural market

Generator of Higher-Yielding Loans through
niche development

Historically strong Asset Quality and Reserve
Coverage

Efficient Capital Management

Emphasis on Shareholder Value

(Dollars in thousands, except per share data)

At or for the year ended December 31,

Selected Financial Data

Total assets

Loans receivable, net

Securities available for sale

Certificate of deposit accounts

Other deposit accounts

Stockholders’ equity

Dividends paid per common share

Book value per share

Selected Operating Data

Net interest income

Net income

Basic earnings per share

Diluted earnings per share

Financial Ratios

Return on average assets

Return on average equity

Interest rate spread

Net interest margin

Efficiency ratio

Equity to total assets

Non-performing assets to total assets

Allowance for loan losses to gross loans

2006

2005

��

$ 2,836,521

$ 2,353,208
��

2,324,748

1,881,876

330,587

1,102,976

661,174

��

337,761

898,157

569,130

218,415

176,467

0.44

10.34

$ 67,704

21,639

��
$

�

�
$

0.40

9.07

68,210

23,542

1.16

1.34

1.14

����

1.31

����

0.84%

����

1.07%

11.14

2.54

2.78

55.21

7.70

0.11

0.30

14.27

3.03

3.24

48.03

7.50

0.10

0.34

260.39

����

���

�

�������������������
����������

������������
����������

����� �����

�����

���

��

�

������

����

�

���

������������������
����������

��������
����������

������

����

�

������

����

�

����

���

�

����

���

�

���

2006 Annual Report • 1

Allowance for loan losses to non-performing loans

225.72

evolving with the times…

Commercial Banking

One of the primary keys to successfully implement our Bank’s business plan is to transition from a traditional

thrift to a more “commercial-like” banking institution by focusing on the development of a comprehensive

Commercial Banking platform. At the center of this initiative is the development of a full complement of

deposit, loan, and cash management products, delivered by experienced business bankers to professionals,

business owners, emerging middle market companies and commercial real estate developers. The goal of this

shift into commercial banking is to build business relationships in order to obtain lower cost deposit relation-

ships; fee income generating cash management products; and interest income producing loan facilities. In

2006, we made a substantial investment in people and process with the launch of our Business Banking unit.

The Business Banking unit is directed by a seasoned commercial banker with over 22 years experience in

building profitable approaches to the small and mid-size business banking market. The unit is staffed with a

new team of New York area commercial bankers, who possess a wealth of experience cultivating new

prospects and developing existing customer relationships. This new Business Banking unit has already

started to experience some early success growing a diversified loan portfolio. In 2006, we posted many

success stories. We financed the property acquisition of a bus company that provides transportation to

New York City school children. In one of our more unusual deals, we provided a $1.5MM credit facility

to the renowned Oheka Castle Hotel & Estate for capital improvements including windows, doors, and

handcrafted wrought iron railings.

In 2006, our active participation in SBA lending provided many small businesses with capital, and

significantly contributed to the Bank’s overall loan growth. Flushing Savings Bank ranked in the top tier for

number and dollar amount of SBA loans approved in the New York District; produced one of the largest

loan volume percentage increases from the prior fiscal year; and outperformed some of the large money

center banks. We were very pleased to receive the coveted Silver Status Award from the SBA.

dear shareholders…

2006 presented Flushing Financial Corporation with one of the
most challenging interest rate environments in its 77 year his-
tory. For much of the year the Federal Reserve Bank continued
its focus on inflation avoidance and registered four additional
increases in overnight rates. The yield curve went from flat to
inverted as long-term interest rates stood still and short-term
rates rose. This interest rate scenario further squeezed margins
across our industry. Flushing was no exception. We continued
to evolve the mix of our loans to emphasize more commercial
business. As a result, our loan portfolio yield for the fourth
quarter of 2006 increased to 6.87%—our highest loan portfolio
yield since 2004. Deposit pricing, with some lag, continued to
follow short term rate increases upward. Our cost of funds was
3.97% for the fourth quarter of 2006, the highest cost incurred
since 2001. Our earnings declined to $1.14 per share as net
interest margin shrank to 2.78% for the year.

While the interest rate environment put a squeeze on margin,
the fundamentals of our business remained strong. Loans grew
24% to an all time high of $2,325 million. Our lenders recorded

2 • Flushing Financial Corporation

evolving with the times…

iGObanking.com™

24 hours a day, 7 days a week—the Internet has changed the way consumers do their banking. Initially,

Internet Banking was positioned as a service offered for customers to view their account balances, transfer

funds, and pay bills. Now, Internet Banking as a distribution channel offers traditional bank’s online bank-

ing divisions and internet-only banks the opportunity to obtain new customers nationwide by enabling

them to open and fund deposit accounts right from the convenience of their personal computer.

Through a combination of traditional media outlets and more specifically internet-only sources, customers

can instantly become aware of and have access to the bank’s product offering. This reality has provided

tremendous growth to internet banking operations. This success not only underscores the overall opportunity of

the online banking market, but also the consumer acceptance of internet banking. The online bank savings

market is expected to have a double-digit annual compounded growth rate over the next several years,

representing an ever-increasing share of total traditional bank deposits.

Flushing’s online banking division, iGObanking.com™, introduced in late 2006, will enable our Bank to

obtain its share of this growing market by selectively targeting regions across the country that have lower

rates. This strategic deposit gathering, as a new funding source, is highly beneficial for us as we continue

to grow our loan portfolio and prepare for what may be dramatically different customer expectations from

financial institutions.

Our approach to Internet Banking is very straightforward: No Fees, No Minimums, Easy Access, and

Great Rates—it’s reflected in the iGObanking.com™ logo, “Real Simple. Real Smart.” We are very pleased

that early results for iGObanking.com™ have exceeded our expectations.

2006 Annual Report • 3

evolving with the times…

Expanding Our Core Market

Through the acquisition of Atlantic Liberty, the new 5,000-square-foot Bayside branch and service center,
the development of a professionally-staffed, 7-day-a-week banking center in Flushing, and the building of
a new branch office in Forest Hills, we have continued to expand our core market. New branches have
enabled us to improve our service to the multi-ethnic communities which have contributed to our success.

Atlantic Liberty, with branches located on Montague Street, Brooklyn Heights and on Avenue J, Midwood,
compliments our branch presence in Brooklyn. The Montague Street branch is in the hub of the Brooklyn
business community and provides a great platform for our continued growth in Brooklyn. The Avenue J
location is in a neighborhood where we already have a significant lending presence. We are very
pleased with the added value that this acquisition has afforded us.

Our new branch location on Bell Boulevard in Bayside, further solidifies the Bank’s strong position within
Queens, while combining a 24-hour telephone and online banking service center with valued-added
branch features including several 24-hour ATMs, extended branch hours, and a professional staff offering
a full-service array of financial products for consumers and businesses.

Our new Banking Center, located on the highly-trafficked, vibrant street of Roosevelt Avenue, Flushing, is a
multilevel facility staffed with a full complement of experienced professionals including branch bankers,
small business lenders, and investment/insurance advisors. The Banking Center is staffed with representa-
tives who reside in the local area and provide excellent in-language services. It is open 7 days a week, is
equipped with several 24-hour ATMs, and offers a full spectrum of products and services.

Ideally located in the heart of Forest Hills in the bustling 71st Street & Continental Avenue market, this new
branch office is open 7 days a week, is equipped with several 24-hour ATMs, and has a staff of experi-
enced bankers. This new Forest Hills branch, along with our new Banking Center, facilitates our goal of
building trust and relationships so that customers of these multi-ethnic communities will choose Flushing
Savings as their primary bank.

a record high $636 million in loan originations as net loans
grew a total of $443 million. More significantly, growth pros-
pects looked promising as the end of 2006 showed the highest
loan pipeline in our history. Deposits, while more challenging
from a rate perspective, grew 20% to reach $1,764 million—
another all time high.

With our basic loan and deposit businesses showing strength,
we continued to make strides towards achieving our overall
business strategy: to evolve with the times to become a more
“commercial-like” bank; while maintaining our roots in the
multi-ethnic communities that have made us successful. In
2006, we invested significantly in that strategy. We increased
the number of Flushing branches from nine in the beginning of
2006 to twelve by the end of 2006 and to fourteen two months
later. We made significant investments in our efforts to become
a more “commercial-like” bank: we hired a new Chief Operating
Officer and Executive Vice President, Maria Grasso; we hired a
new Director of Business Banking and Senior Vice President,
Theresa Kelly; and we recruited a new team of business bankers
from some of the top commercial banks in the New York area.
By adding additional product offerings for our business custom-
ers, we filled gaps in our product-line so that more of our long-
standing loan customers could become future deposit customers
as well. We reorganized our Commercial Real Estate and
Residential Real Estate Departments under a Flushing Savings
Bank veteran and newly-promoted Executive Vice President,
Frank Korzekwinski to provide a basis for developing synergies
between these businesses.

Late in 2006, we concurrently rolled out our new internet bank,
iGObanking.com™, and completed work on a new, fully-functional
call center. We have seen ver y encouraging results from
this endeavor and look for ward to its success in the future
as the internet takes an ever increasing share of the nation’s
financial business.

From June through August of 2006, we completed our acquisition
of, and finished the overall systems and customer’ conversion
processes for Atlantic Liberty Savings Bank. Our favorable

4 • Flushing Financial Corporation

…while staying true to our roots.

Commercial Real Estate Lending

Flushing’s Commercial Real Estate Lending group specializes in providing financing for multi-family dwellings, commercial real estate, and new

construction projects. Multi-family dwellings typically consist of garden, elevator, walk-up, and cooperative apartment buildings; while financing

for commercial real estate properties, includes multi-tenant commercial buildings, mixed-use storefront properties, and shopping centers.

In 2006, the New York Commercial Real Estate market posted solid fundamentals: new jobs resulted in a greater demand for space and a

corresponding decrease in vacancy rates. Strong consumer spending increased the need to transport and store goods; and increased inflows of

foreign and domestic capital enhanced property values. With vacancy rates continuing to decline, and these positive factors remaining intact, we

believe the fundamentals will remain strong into the foreseeable future.

Margins in our high-end multi-family business have narrowed as a result of conduits and non-bank companies driving down loan yields. We have

been able to offset the pressure on yields by varying our mix of loan business. As a result in 2006, we emphasized small multi-family properties,

commercial real estate and construction lending.

2006 Annual Report • 5

…while staying true to our roots.

Mixed-Use Real Estate Lending

Mixed-use property contains a combination of commercial space

(typically a retail storefront), and one or more residential units that

are zoned in a commercial area. These mixed-use properties are

predominantly located in the New York City boroughs of Queens,

Manhattan, Brooklyn, and the Bronx; vibrant, higher-density

neighborhoods that typify a wide range of housing types. For over

seven years, Flushing has been an active lender in this market.

Mixed-use lending has become a staple offering for Flushing that

provides better yields than our Residential loan portfolio, while

maintaining comparable credit risk levels. Our Mixed-Use Real

Estate group is staffed by lenders who have a high level of

market expertise and experience in balancing the needs of

the broker-borrower customer, while adhering to sound credit

quality standards.

experience with Atlantic Liberty, coupled with the challenges
smaller institutions continue to face through a combination of
an unfavorable yield curve, an increasingly tougher regulatory
environment, and a heightened level of competition in the
New York Market, has all served to increase our desire to seek
out additional acquisitions.

While the interest rate environment hampered our income
growth during the year, our strategic investments have begun to
change the Bank into a more resilient company. We have less-
ened our dependence on loan categories that for either short
term competitive reasons or long term structural reasons have
become uneconomical for our community bank. We have decid-
edly, yet prudently, increased our investment in areas like small
business banking and the internet that have long term growth
potential. Wall Street treated our prospects for continued profit-
able evolution with favor as investors in our stock enjoyed an
overall return of 12% in 2006. One analyst described our invest-
ments as “smart strategic moves.” Our management will be
focused on delivering on those investments in the coming quar-
ters and years.

In May of 2006, SNL Financial once again recognized our insti-
tution’s performance and ranked us as the 14th best performing
thrift out of the top 100 nationwide.

In December of 2006, Robert Callicutt, Senior Vice President
announced his plan to retire. Bob spent eleven productive years
with Flushing Savings Bank where he was instrumental in
developing our mixed-use real estate lending business. We wish
Bob the best of luck as he moves to this new phase in his life.

We sincerely thank the Board for its support, our employees
for their hard work, and our customers for their loyalty; as
we continue to build a business with long term value for
our shareholders.

John R. Buran
President and Chief Executive Officer

Gerard P. Tully, Sr.
Chairman of the Board

6 • Flushing Financial Corporation

…while staying true to our roots.

Ethnic Banking

Flushing Savings Bank has always served the many diverse communities in the metropolitan area. We

understand and embrace the opportunity this multicultural marketplace presents. Queens County,

geographically the largest borough in the city, is the most ethnically diverse county in the United States.

As of the last census, there were over 2.2 million people residing in Queens, with ten prominent

languages spoken including Spanish, Chinese, Korean, Greek, and Russian.

Flushing Savings Bank, with an expanding branch network throughout the metropolitan area, has a high

concentration of branch offices in the Northern Queens area. Our branches that serve these multicultural

areas are staffed with professional bankers most of whom live in the communities, and are often

bilingual—speaking the languages most common in the community. At last count, our branch employees

spoke over 38 different languages. This year, the Bank increased its commitment to the multicultural

marketplace, with a particular focus on the Asian market in a unique manner. We developed an Asian

Advisory Board made up of prominent leaders of the Chinese and Korean communities. The Asian

Advisory Board represents a cross-section of occupations including local business owners, CPAs, media

executives, and attorneys. Members of the Bank’s senior management team, including an active member

of the Asian community and the Bank’s recently promoted Senior Vice President, Chris Hwang, work

closely with the Advisory Board. The Advisory Board’s role will help to broaden the Bank’s link to the

community by providing guidance on a number of future events and fostering awareness of Flushing’s

active role in the local area.

2006 Annual Report • 7

corporate information Flushing Financial Corporation

Executive Management

Gerard P. Tully, Sr.
Chairman of the Board

John R. Buran
President & Chief Executive Officer

Maria A. Grasso
Executive Vice President &
Chief Operating Officer

Francis W. Korzekwinski
Executive Vice President

Board of Directors

Gerard P. Tully, Sr.
Chairman
Real Estate Development
and Management

John R. Buran
President & Chief Executive Officer

James D. Bennett
Attorney in Nassau County, New York

Steven J. D’Iorio
Vice President of Real Estate and
Construction for Time Warner Cable

David W. Fry
Senior Vice President, Treasurer
& Chief Financial Officer

Anna M. Piacentini
Senior Vice President &
Corporate Secretary

Henry A. Braun
Senior Vice President

Louis C. Grassi
Managing Partner of
Grassi & Co., CPAs, P.C.

Michael J. Hegarty
Former President &
Chief Executive Officer

John J. McCabe
Chief Investment Strategist for
Shay Asset Management

Vincent F. Nicolosi
Attorney in Manhasset, New York

Shareholder Information Flushing Financial Corporation and Subsidiaries

Annual Meeting
The Annual Meeting of Shareholders
of Flushing Financial Corporation will
be held at 2:00 PM, May 15, 2007,
at the La Guardia Marriott located
at 102-05 Ditmars Boulevard,
East Elmhurst, New York 11369.

Stock Listing
NASDAQ Global Market SM
Symbol “FFIC”

Transfer Agent and Registrar
Computershare Trust Company NA
P.O. Box 43010
Providence, Rhode Island 02940-3010
1-800-426-5523
www.Computershare.com

Independent Certified
Public Accountants
Grant Thornton LLP
60 Broad Street
New York, New York 10004
212-422-1000

8 • Flushing Financial Corporation

Ronald M. Hartmann
Senior Vice President

Chris Y. Hwang
Senior Vice President

Jeoung Yun Jin
Senior Vice President

Theresa Kelly
Senior Vice President

Donna M. O’Brien
Healthcare Consultant

Franklin F. Regan, Jr.
Attorney in Flushing, New York

John E. Roe, Sr.
Chairman of City Underwriting
Agency, Inc. Insurance Brokers

Michael J. Russo
Consulting Engineer, President
and Director of Operations for
Northeastern Aviation Corp.

Legal Counsel
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
212-837-6000

Shareholder Relations
Van Negris & Company, Inc.
8201 Peters Road, Suite 1000
Plantation, Florida 33324
954-916-2726 212-759-0290

Broadgate Consultants, LLC
48 Wall Street
New York, New York 10005
212-493-6981

Corporate Headquarters

Flushing Savings Bank, FSB
1979 Marcus Avenue—Suite E140
Lake Success, New York 11042
718-961-5400
facsimile 516-358-4385
www.flushingsavings.com

Retail Branch Locations

Flushing
144-51 Northern Boulevard
159-18 Northern Boulevard
188-08 Hollis Court Boulevard
44-43 Kissena Boulevard
136-41 Roosevelt Avenue

Astoria
31-16 30th Avenue

Bayside
61-54 Springfield Boulevard
42-11 Bell Boulevard

Brooklyn
7102 Third Avenue
186 Montague Street
1402 Avenue J

Forest Hills
107-11 Continental Avenue

Manhattan
33 Irving Place

New Hyde Park
661 Hillside Avenue

Real Estate Lending
Flushing Savings Bank, FSB
144-51 Northern Boulevard
718-961-5400

New York Federal Division
33 Irving Place
212-477-9424

iGO Banking.com™
42-11 Bell Boulevard
888-432-5890
www.iGObanking.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
Commission file number 000-24272

FLUSHING FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

11-3209278

(I.R.S. Employer Identification No.)

1979 Marcus Avenue, Suite E140, Lake Success, New York 11042
(Address of principal executive offices)

(718) 961-5400
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: Common Stock $0.01 par value (and

associated Preferred Stock Purchase Rights).

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the

Securities Act. Yes X No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section

15(d) of the Act. Yes X No

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. X Yes No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-
accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):

Large accelerated filer ___

Accelerated filer X Non-accelerated filer ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the

Act). Yes X No

As of June 30, 2006, the last business day of the registrant’s most recently completed second fiscal
quarter, the aggregate market value of the voting stock held by non-affiliates of the registrant was
$359,005,000. This figure is based on the closing price on that date on the NASDAQ National Market for a
share of the registrant’s Common Stock, $0.01 par value, which was $17.96.

The number of shares of the registrant’s Common Stock outstanding as of February 28, 2007 was

21,151,945 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 15, 2007 are incorporated herein by reference in Part III.

TABLE OF CONTENTS

PART I

Page

Item 1. Business..................................................................................................................................... 1

GENERAL

Overview................................................................................................................................ 1
Market Area and Competition ............................................................................................... 2
Lending Activities ................................................................................................................. 3
Loan Portfolio Composition ........................................................................................ 3
Loan Maturity and Repricing ...................................................................................... 7
Multi-Family Residential Lending .............................................................................. 7
Commercial Real Estate Lending ................................................................................ 8
One-to-Four Family Mortgage Lending – Mixed-Use Properties ............................... 8
One-to-Four Family Mortgage Lending – Residential Properties ............................... 9
Construction Loans.................................................................................................... 10
Small Business Administration Lending ................................................................... 10
Commercial Business and Other Lending ................................................................. 10
Loan Approval Procedures and Authority................................................................. 11
Loan Concentrations.................................................................................................. 11
Loan Servicing........................................................................................................... 11
Asset Quality ....................................................................................................................... 11
Loan Collection ......................................................................................................... 11
Delinquent Loans and Non-performing Assets ......................................................... 12
Real Estate Owned .................................................................................................... 13
Environmental Concerns Relating to Loans .............................................................. 13
Allowance for Loan Losses ................................................................................................. 13
Investment Activities ........................................................................................................... 17
General ...................................................................................................................... 17
Mortgage-backed securities....................................................................................... 18
Sources of Funds.................................................................................................................. 21
General ...................................................................................................................... 21
Deposits ..................................................................................................................... 21
Borrowings ................................................................................................................ 24
Subsidiary Activities............................................................................................................ 25
Personnel.............................................................................................................................. 26
Omnibus Incentive Plan....................................................................................................... 26

FEDERAL, STATE AND LOCAL TAXATION

Federal Taxation .................................................................................................................. 26
General ...................................................................................................................... 26
Bad Debt Reserves .................................................................................................... 26
Distributions .............................................................................................................. 26
Corporate Alternative Minimum Tax ........................................................................ 27
State and Local Taxation ..................................................................................................... 27
New York State and New York City Taxation .......................................................... 27
Delaware State Taxation............................................................................................ 27

REGULATION

General................................................................................................................................. 27
Holding Company Regulation ............................................................................................. 28
Investment Powers............................................................................................................... 29
Real Estate Lending Standards ............................................................................................ 29
Loans-to-One Borrower Limits ........................................................................................... 29
Insurance of Accounts ......................................................................................................... 29
Qualified Thrift Lender Test................................................................................................ 30
Transactions with Affiliates................................................................................................. 31
Restrictions on Dividends and Capital Distributions........................................................... 31
Federal Home Loan Bank System ....................................................................................... 32
Assessments......................................................................................................................... 32
Branching............................................................................................................................. 32
Community Reinvestment ................................................................................................... 32
Brokered Deposits ............................................................................................................... 32
Capital Requirements........................................................................................................... 32
General ...................................................................................................................... 32
Tangible Capital Requirement................................................................................... 33
Leverage and Core Capital Requirement................................................................... 33
Risk-Based Requirement ........................................................................................... 33
Federal Reserve System....................................................................................................... 33
Financial Reporting ............................................................................................................. 34
Standards for Safety and Soundness .................................................................................... 34
Gramm-Leach-Bliley Act .................................................................................................... 34
USA Patriot Act................................................................................................................... 35
Prompt Corrective Action.................................................................................................... 35
Federal Securities Laws ....................................................................................................... 35
Available Information.......................................................................................................... 36
Item 1A. Risk Factors .......................................................................................................................... 36

Changes in Interest Rates May Significantly Impact the Company’s Financial

Condition and Results of Operations .............................................................................. 36

The Bank’s Lending Activities Involve Risks that May Be Exacerbated Depending

on the Mix of Loan Types .............................................................................................. 36
The Markets in Which the Bank Operates Are Highly Competitive ................................... 37
The Company’s Results of Operations May Be Adversely Affected by Changes in

National and/or Local Economic Conditions.................................................................. 37
Changes in Laws and Regulations Could Adversely Affect Our Business.......................... 37
Certain Anti-Takeover Provisions May Increase the Costs to or Discourage an

Acquiror.......................................................................................................................... 38

The Bank May Not Be Able To Successfully Implement Its New Commercial

Business Banking Initiative ............................................................................................ 38
Item 1B. Unresolved Staff Comments ................................................................................................. 38
Item 2. Properties................................................................................................................................. 39
Item 3. Legal Proceedings ................................................................................................................... 40
Item 4. Submission of Matters to a Vote of Security Holders ............................................................. 40

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters

and Issuer Purchases of Equity Securities ........................................................................... 40
Item 6. Selected Financial Data ........................................................................................................... 42
Item 7. Management’s Discussion and Analysis of Financial Condition and Results

of Operations ....................................................................................................................... 44
General................................................................................................................................. 44
Overview.............................................................................................................................. 44
Interest Rate Sensitivity Analysis ........................................................................................ 48
Interests Rate Risk ............................................................................................................... 50
Analysis of Net Interest Income .......................................................................................... 50
Rate/Volume Analysis ......................................................................................................... 52
Comparison of Operating Results for the Years Ended December 31, 2006 and 2005 ....... 52
Comparison of Operating Results for the Years Ended December 31, 2005 and 2004 ....... 54
Liquidity, Regulatory Capital and Capital Resources.......................................................... 56
Critical Accounting Policies ................................................................................................ 57
Contractual Obligations ....................................................................................................... 58
Impact of New Accounting Standards ................................................................................. 59
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............................................. 61
Item 8. Financial Statements and Supplementary Data ....................................................................... 62
Item 9. Changes in and Disagreements with Accountants on Accounting and

Financial Disclosure .......................................................................................................... 101
Item 9A. Controls and Procedures ..................................................................................................... 102
Item 9B. Other Information ............................................................................................................... 102

PART III

Item 10. Directors, Executive Officers and Corporate Governance .................................................. 103
Item 11. Executive Compensation ..................................................................................................... 103
Item 12. Security Ownership of Certain Beneficial Owners and Management and

Related Stockholder Matters.............................................................................................. 103
Item 13. Certain Relationships and Related Transactions, and Director Independence .................... 104
Item 14. Principal Accounting Fees and Services.............................................................................. 104

PART IV

Item 15. Exhibits, Financial Statement Schedules ............................................................................. 104
(a) 1. Financial Statements........................................................................................................ 104
(a) 2. Financial Statement Schedules........................................................................................ 104
(a) 3. Exhibits Required by Securities and Exchange Commission Regulation S-K............. 105

SIGNATURES

POWER OF ATTORNEY

iii

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Statements contained in this Annual Report on Form 10-K (this “Annual Report”) relating to plans, strategies,
economic performance and trends, projections of results of specific activities or investments and other statements that are
not descriptions of historical facts may be forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is
inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated
due to a number of factors, which include, but are not limited to, factors discussed under the captions “Business —
General — Allowance for Loan Losses” and “Business — General — Market Area and Competition” in Item 1 below,
“Risk Factors” in Item 1A below, in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Overview” in Item 7 below, and elsewhere in this Annual Report and in other documents filed by the
Company with the Securities and Exchange Commission from time to time. Forward-looking statements may be
identified by terms such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”,
“estimates”, “predicts”, “forecasts”, “potential” or “continue” or similar terms or the negative of these terms. Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. The Company has no obligation to update these forward-
looking statements.

Item 1. Business.

Overview

PART I

GENERAL

Flushing Financial Corporation (the “Holding Company”) is a Delaware corporation organized in May 1994 at
the direction of Flushing Savings Bank, FSB (the “Bank”). The Bank was organized in 1929 as a New York State
chartered mutual savings bank. In 1994, the Bank converted to a federally chartered mutual savings bank and changed its
name from Flushing Savings Bank to Flushing Savings Bank, FSB. The Bank converted from a federally chartered
mutual savings bank to a federally chartered stock savings bank on November 21, 1995, at which time the Holding
Company acquired all of the stock of the Bank. The primary business of the Holding Company at this time is the
operation of its wholly owned subsidiary, the Bank. The Bank owns three subsidiaries: Flushing Preferred Funding
Corporation, Flushing Service Corporation, and FSB Properties Inc. The Bank has also filed an application with the New
York State Banking Department to form a limited purpose commercial bank, “Flushing Commercial Bank”, for the
purpose of accepting municipal deposits and state funds, including certain court ordered funds from New York State
courts. This application was approved March 1, 2007. In November, 2006, the Bank launched an internet branch,
iGObanking.comTM. The activities of the Holding Company are primarily funded by dividends, if any, received from the
Bank. Flushing Financial Corporation’s common stock is traded on the NASDAQ National Market under the symbol
“FFIC.”

The Holding Company also owns Flushing Financial Capital Trust I (the “Trust”), a special purpose business
trust formed to issue capital securities. The Trust used the proceeds from the issuance of these capital securities, and the
proceeds from the issuance of its common stock, to purchase junior subordinated debentures from the Holding Company.
Prior to 2004, the Trust was included in the consolidated financial statements of the Company. Effective January 1, 2004,
in accordance with the requirements of FASB Interpretation No. 46R, the Trust was deconsolidated.

Unless otherwise disclosed, the information presented in this Annual Report reflects the financial condition and
results of operations of the Holding Company, the Bank and the Bank’s subsidiaries on a consolidated basis
(collectively, the “Company”). At December 31, 2006, the Company had total assets of $2.8 billion, deposits of
$1.8 billion and stockholders’ equity of $218.4 million.

The Bank’s principal business is attracting retail deposits from the general public and investing those deposits
together with funds generated from ongoing operations and borrowings, primarily in (1) originations and purchases of
one-to-four family (focusing on mixed-use properties – properties that contain both residential dwelling units and
commercial units), multi-family residential and commercial real estate mortgage loans; (2) construction loans, primarily
for multi-family residential properties; (3) Small Business Administration (“SBA”) loans and other small business loans;
(4) mortgage loan surrogates such as mortgage-backed securities; and (5) U.S. government securities, corporate fixed-
income securities and other marketable securities. The Bank also originates certain other consumer loans. The Bank’s
revenues are derived principally from interest on its mortgage and other loans and mortgage-backed securities portfolio,

and interest and dividends on other investments in its securities portfolio. The Bank’s primary sources of funds are
deposits, Federal Home Loan Bank of New York (“FHLB-NY”) borrowings, repurchase agreements, principal and
interest payments on loans, mortgage-backed and other securities, proceeds from sales of securities and, to a lesser
extent, proceeds from sales of loans. As a federal savings bank, the Bank’s primary regulator is the Office of Thrift
Supervision (“OTS”). The Bank’s deposits are insured to the maximum allowable amount by the Federal Deposit
Insurance Corporation (“FDIC”). Additionally, the Bank is a member of the Federal Home Loan Bank (“FHLB”)
system.

In addition to operating the Bank, the Holding Company invests primarily in U.S. government securities,
mortgage-backed securities, and corporate securities. The Holding Company also holds a note evidencing a loan that it
made to an employee benefit trust established by the Holding Company for the purpose of holding shares for allocation
or distribution under certain employee benefit plans of the Holding Company and the Bank (the “Employee Benefit
Trust”). The funds provided by this loan enabled the Employee Benefit Trust to acquire 2,328,750 shares, or 8% of the
common stock issued in our initial public offering.

On June 30, 2006, the Company acquired all of the outstanding common stock of Atlantic Liberty Financial
Corporation (“Atlantic Liberty”), the parent holding company for Atlantic Liberty Savings, F.A., based in Brooklyn,
New York. The aggregate purchase price was $41.2 million, which consisted of $14.7 million of cash and common stock
valued at $26.6 million. Under the terms of the Agreement and Plan of Merger, dated December 20, 2005, Atlantic
Liberty's shareholders received $24.00 in cash, 1.43 Holding Company shares per Atlantic Liberty share owned, or a
combination thereof, subject to aggregate allocation to all Atlantic Liberty's shareholders of 65% stock / 35% cash. In
connection with the merger, the Company issued 1.6 million shares of common stock, the value of which was
determined based on the closing price of the Company’s common stock on the announcement date of December 21,
2005, and two days prior to and after the announcement date. The Company acquired $185.6 million in assets, $116.2
million in net loans and assumed $106.8 million in deposits. This acquisition provided the Bank a presence on Montague
Street and on Avenue J in Brooklyn, two highly attractive markets.

During 2006, the Bank established a business banking unit. The Bank’s business plan includes a transition from
a traditional thrift to a more ‘commercial like’ banking institution by focusing on the development of a full complement
of commercial business deposit, loan and cash management products.

On November 27, 2006, the Bank launched an internet branch, iGObanking.com™, as a new division which
provides the Bank access to markets outside its geographic locations. Accounts can be opened online at
www.iGObanking.com or by mail.

The Bank has filed an application to form a new wholly owned subsidiary, Flushing Commercial Bank, a New
York State chartered commercial bank, for the limited purpose of accepting municipal deposits and state funds, including
certain court ordered funds from New York State Courts, in the State of New York. The Commercial Bank was formed
in response to a New York State Finance Law that requires that municipal deposits and state funds must be deposited
into a bank or trust company designated by the New York State Comptroller. The Bank is not considered a bank or trust
company for this purpose. The commercial bank will offer a full range of deposit products to municipalities and New
York State, similar to the products currently being offered by the Bank, but will not make loans. The application was
approved on March 1, 2007.

Market Area and Competition

The Bank is a community oriented savings institution offering a wide variety of financial services to meet the
needs of the communities it serves. The Bank’s main office is in Flushing, New York, located in the Borough of
Queens. At December 31, 2006, the Bank operated out of its main office and eleven branch offices, located in the New
York City Boroughs of Queens, Brooklyn, and Manhattan, and in Nassau County, New York. The Bank opened two new
branches in the Borough of Queens in the first quarter of 2007. The Bank maintains its executive offices in Lake Success
in Nassau County, New York. Substantially all of the Bank’s mortgage loans are secured by properties located in the
New York City metropolitan area. During the last three years, real estate values in the New York City metropolitan area
have been stable or increasing, which has favorably impacted the Bank’s asset quality. See “— Asset Quality” and “Risk
Factors – Local Economic Conditions” included in Item 1A of this Annual Report. There can be no assurance that the
stability of these economic factors will continue.

competition exists for deposits and in all of the lending activities emphasized by the Bank. The internet banking arena,
which the Bank entered in November 2006, also has many larger financial institutions which have greater financial
resources, name recognition and market presence than the Bank. The future earnings prospects of the Bank will be
affected by the Bank’s ability to compete effectively with other financial institutions and to implement its business
strategies. See “Risk Factors – Competition” included in Item 1A of this Annual Report.

For a discussion of the Company’s business strategies, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Overview — Management Strategy” included in Item 7 of this Annual
Report.

Lending Activities

Loan Portfolio Composition. The Bank’s loan portfolio consists primarily of mortgage loans secured by multi-
family residential, commercial real estate, one-to-four family mixed-use property, one-to-four family residential
property, and construction loans. In addition, the Bank also offers SBA loans, other small business loans and consumer
loans. Substantially all the Bank’s mortgage loans are secured by properties located within the Bank’s market area. At
December 31, 2006, the Bank had gross loans outstanding of $2,321.4 million (before the allowance for loan losses and
net deferred costs).

Beginning in late 2001, the Bank shifted its focus from originating one-to-four family residential property
mortgage loans to the origination of multi-family residential, commercial real estate and one-to-four family mixed-use
property mortgage loans. These loans generally have higher yields than one-to-four family residential properties, and
include prepayment penalties that the Bank collects if the loans pay in full prior to the contractual maturity. From
December 31, 2001 to December 31, 2006, multi-family residential mortgage loans increased $501.3 million, or 135.6%,
commercial real estate mortgage loans increased $305.1 million, or 142.3%, one-to-four family mixed-use property
mortgage loans increased $478.3 million, or 435.6%, while one-to-four family residential property mortgage loans
decreased $190.1 million, or 54.1%. The Bank expects to continue this emphasis through marketing and by maintaining
competitive interest rates and origination fees. The Bank’s marketing efforts include frequent contacts with mortgage
brokers and other professionals who serve as referral sources. From time-to-time, the Bank may purchase loans from
mortgage bankers and other financial institutions. Loans purchased comply with the Bank’s underwriting standards.

Fully underwritten one-to-four family residential mortgage loans generally are considered by the banking
industry to have less risk than other types of loans. Multi-family residential, commercial real estate and one-to-four
family mixed-use property mortgage loans generally have higher yields than one-to-four family residential property
mortgage loans and shorter terms to maturity, but typically involve higher principal amounts and generally expose the
lender to a greater risk of credit loss than one-to-four family residential property mortgage loans. The Bank’s increased
emphasis on multi-family residential, commercial real estate and one-to-four family mixed-use property mortgage loans
has increased the overall level of credit risk inherent in the Bank’s loan portfolio. The greater risk associated with multi-
family residential, commercial real estate and one-to-four family mixed-use property mortgage loans could require the
Bank to increase its provision for loan losses and to maintain an allowance for loan losses as a percentage of total loans
in excess of the allowance currently maintained by the Bank. To date, the Bank has not experienced significant losses in
its multi-family residential, commercial real estate and one-to-four family mixed-use property mortgage loan portfolios,
and has determined that, at this time, additional provisions are not required.

The Bank’s mortgage loan portfolio consists of adjustable rate mortgage (“ARM”) loans and fixed-rate
mortgage loans. Interest rates charged by the Bank on loans are affected primarily by the demand for such loans, the
supply of money available for lending purposes, the rate offered by the Bank’s competitors and the creditworthiness of
the borrower. Many of those factors are, in turn, affected by regional and national economic conditions, and the fiscal,
monetary and tax policies of the federal government.

In general, consumers show a preference for ARM loans in periods of high interest rates and for fixed-rate loans
when interest rates are low. In periods of declining interest rates, the Bank may experience refinancing activity in ARM
loans, as borrowers show a preference to lock-in the lower rates available on fixed-rate loans. In the case of ARM loans
originated by the Bank, volume and adjustment periods are affected by the interest rates and other market factors as
discussed above as well as consumer preferences. The Bank has not in the past, nor does it currently, originate ARM
loans that provide for negative amortization.

In recent years, the Bank has grown its construction loan portfolio. The Bank obtains a first lien position on the
underlying collateral, and generally obtains personal guarantees on construction loans. These loans generally have a term

of two years or less. Construction loans involve a greater degree of risk than other loans because, among other things, the
underwriting of such loans is based on an estimated value of the developed property, which can be difficult to ascertain
in light of uncertainties inherent in such estimations. In addition, construction lending entails the risk that the project
may not be completed due to cost overruns or changes in market conditions. The greater risk associated with
construction loans could require the Bank to increase its provision for loan losses, and to maintain an allowance for loan
losses as a percentage of total loans in excess of the allowance currently maintained by the Bank. To date, the Bank has
not incurred significant losses in its construction loan portfolio.

The business banking unit was formed in 2006 to focus on loans to businesses located within the Bank’s market
area. These loans are generally personally guaranteed by the owners, and may be secured by the assets of the business.
The interest rate on these loans is generally an adjustable rate based on a published index, usually the prime rate. These
loans, while providing a higher rate of return to the Bank, also present a higher level of risk. The greater risk associated
with business loans could require the Bank to increase its provision for loan losses, and to maintain an allowance for loan
losses as a percentage of total loans in excess of the allowance currently maintained by the Bank. To date, the Bank has
not incurred significant losses in its business loan portfolio.

The Bank’s lending activities are subject to federal and state laws and regulations. See “— Regulation.”

t
n
e
c
r
e
P

l
a
t
o
T
f
o

t
n
u
o
m
A

2
0
0
2

t
n
e
c
r
e
P

l
a
t
o
T
f
o

t
n
u
o
m
A

3
0
0
2

,
1
3

r
e
b
m
e
c
e
D

4
0
0
2

t
n
e
c
r
e
P

l
a
t
o
T
f
o

t
n
u
o
m
A

)
s
d
n
a
s
u
o
h
t

n
i

s
r
a
l
l
o
D

(

t
n
e
c
r
e
P

l
a
t
o
T
f
o

t
n
u
o
m
A

5
0
0
2

t
n
e
c
r
e
P

l
a
t
o
T
f
o

t
n
u
o
m
A

6
0
0
2

4
5
.
8
3

8
8
.
1
2

3
6
6
,
2
5
4

4
5
0
,
7
5
2

3
5
.
2
4

9
7
.
2
2

7
3
8
,
1
4
5

2
3
3
,
0
9
2

1
6
.
2
4

0
0
.
2
2

2
2
9
,
6
4
6

8
4
0
,
4
3
3

2
9
.
1
4

3
2
.
1
2

1
7
0
,
8
8
7

1
8
0
,
9
9
3

2
5
.
7
3

8
3
.
2
2

2
1
9
,
0
7
8

2
5
5
,
9
1
5

1
5
.
4
1

9
9
4
,
0
7
1

6
7
.
7
1

5
2
2
,
6
2
2

2
9
.
1
2

5
0
8
,
2
3
3

2
4
.
5
2

5
7
7
,
7
7
4

3
3
.
5
2

2
9
0
,
8
8
5

8
3
.
2
2

4
4
.
0

2
5
.
1

7
2
.
9
9

4
4
9
,
2
6
2

5
0
2
,
5

7
2
8
,
7
1

2
9
1
,
6
6
1
,
1

1
0
.
4
1

9
2
.
0

5
8
.
1

3
2
.
9
9

4
7
4
,
8
7
1

9
2
7
,
3

2
2
6
,
3
2

9
1
2
,
4
6
2
,
1

0
0
.
0
1

1
2
.
0

7
0
.
2

1
8
.
8
9

7
3
7
,
1
5
1

2
3
1
,
3

0
6
4
,
1
3

4
0
1
,
0
0
5
,
1

7
1
.
7

1
1
.
0

3
6
.
2

8
4
.
8
9

1
4
6
,
4
3
1

1
6
1
,
2

2
2
5
,
9
4

1
5
2
,
1
5
8
,
1

8
9
.
6

5
3
.
0

0
5
.
4

6
0
.
7
9

9
5
0
,
8

9
8
8
,
1
6
1

8
8
4
,
4
0
1

2
9
9
,
2
5
2
,
2

7
3
.
0

1
0
3
,
4

9
3
.
0

1
3
9
,
4

7
3
.
0

3
3
6
,
5

9
4
.
0

9
3
2
,
9

5
7
.
0

1
2
5
,
7
1

6
3
.
0

5
8
1
,
4

8
3
.
0

4
9
8
,
4

2
8
.
0

5
0
5
,
2
1

3
0
.
1

2
6
3
,
9
1

9
1
.
2

9
9
8
,
0
5

0
0
.
0
0
1

8
7
6
,
4
7
1
,
1

0
0
.
0
0
1

4
4
0
,
4
7
2
,
1

0
0
.
0
0
1

2
4
2
,
8
1
5
,
1

0
0
.
0
0
1

2
5
8
,
9
7
8
,
1

0
0
.
0
0
1

2
1
4
,
1
2
3
,
2

3
6
4
,
1

)
1
8
5
,
6
(

0
3
0
,
2

)
3
5
5
,
6
(

8
9
7
,
4

)
3
3
5
,
6
(

9
0
4
,
8

)
5
8
3
,
6
(

3
9
3
,
0
1

)
7
5
0
,
7
(

l
a
i
t
n
e
d
i
s
e
r
y
l
i

m
a
f
-
i
t
l
u
M

e
t
a
t
s
e

l
a
e
r

l
a
i
c
r
e
m
m
o
C

-
y
l
i

m
a
f

r
u
o
f
-
o
t
-
e
n
O

y
t
r
e
p
o
r
p
e
s
u
-
d
e
x
i
m

-
y
l
i

m
a
f

r
u
o
f
-
o
t
-
e
n
O

)
1
(

l
a
i
t
n
e
d
i
s
e
r

)
2
(

t
n
e
m

t
r
a
p
a

e
v
i
t
a
r
e
p
o
-
o
C

n
o
i
t
c
u
r
t
s
n
o
C

s
n
a
o
l

e
g
a
g
t
r
o
m
s
s
o
r
G

:
s
n
a
o
L
e
g
a
g
t
r
o
M

n
o
i
t
a
r
t
s
i
n
i
m
d
A
s
s
e
n
i
s
u
B

l
l
a
m
S

s
n
a
o
l

r
e
h
t
o

d
n
a

s
s
e
n
i
s
u
b
l
a
i
c
r
e
m
m
o
C

s
n
a
o
l

s
s
o
r
G

s
n
a
o
l

d
e
r
r
e
f
e
d

d
n
a

s
e
e
f
n
a
o
l

d
e
n
r
a
e
n
U

t
e
n

,
s
t
s
o
c

s
e
s
s
o
l
n
a
o
l

r
o
f

e
c
n
a
w
o
l
l

:
s
s
e
L

0
6
5
,
9
6
1
,
1

1
2
5
,
9
6
2
,
1

7
0
5
,
6
1
5
,
1

6
7
8
,
1
8
8
,
1

8
4
7
,
4
2
3
,
2

t
e
n

,
s
n
a
o
L

.
d
e
t
a
c
i
d
n
i

s
e
t
a
d

e
h
t

t
a

o
i
l
o
f
t
r
o
p

n
a
o
l

s
’
k
n
a
B
e
h
t

f
o
n
o
i
t
i
s
o
p
m
o
c

e
h
t
h
t
r
o
f

s
t
e
s

e
l
b
a
t
g
n
i
w
o
l
l
o
f

e
h
T

s
n
a
o
l

m
u
i
n
i
m
o
d
n
o
c

d
n
a

n
o
i
l
l
i

m
6
.
5
1
$

d
e
l
a
t
o
t

s
n
a
o
l

y
t
i
u
q
e

e
m
o
h

s
s
o
r
g
,
6
0
0
2
,
1
3

r
e
b
m
e
c
e
D

.
s
n
a
o
l

m
u
i
n
i
m
o
d
n
o
c

d
n
a
y
t
i
u
q
e

e
m
o
h

e
d
u
l
c
n
i

o
s
l
a

s
n
a
o
l

e
g
a
g
t
r
o
m

l
a
i
t
n
e
d
i
s
e
r

y
l
i

m
a
f

r
u
o
f
-
o
t
-
e
n
O

.
d
e
i
p
u
c
c
o
r
e
n
w
o
y
l
l
a
r
e
n
e
g
e
r
a

t
a
h
t

s
t
i
n
u
e
v
i
t
a
r
e
p
o
-
o
c

l
a
u
d
i
v
i
d
n
i
n
i

s
t
s
e
r
e
t
n
i
g
n
i
t
n
e
s
e
r
p
e
r

s
e
r
a
h
s
y
b

d
e
r
u
c
e
s

s
n
a
o
l

f
o

s
t
s
i
s
n
o
C

.
n
o
i
l
l
i

m
1
.
0
1
$
d
e
l
a
t
o
t

)
1
(

)
2
(

The following table sets forth the Bank’s loan originations (including the net effect of refinancings) and the

changes in the Bank’s portfolio of loans, including purchases, sales and principal reductions for the years indicated:

(In thousands)

Mortgage Loans

At beginning of year

Mortgage loans originated:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartment
Construction

Total mortgage loans originated

Mortgage loans purchased:
Multi-family residential
Commercial real estate
Construction

Acquisition of Atlantic Liberty loans:

Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartment
Construction

Total mortgage loans purchased/acquired

Less:

Principal reductions
Mortgage loan sales
Mortgage loan foreclosures

At end of year

SBA, Commercial Business & Other Loans

At beginning of year

Loans originated:
SBA loans
Small business loans (1)
Other loans

Total other loans originated

Less:

Sales
Repayments (1)
Charge-offs

At end of year

For the years ended December 31,
2005

2004

2006

1,851,251

1,500,104

1,264,219

166,744
150,804
154,456
13,786
125
73,107
559,022

-
3,087
1,980

16,299
31,914
9,333
51,033
6,665
13,781
134,092

270,416
20,957
-

222,065
103,090
186,700
13,186
-
46,414
571,455

1,009
-
-

-
-
-
-
-
-
1,009

203,741
92,526
136,804
17,699
302
25,923
476,995

-
-
-

-
-
-
-
-
-
-

217,199
4,118
-

233,327
7,783
-

2,252,992

1,851,251

1,500,104

28,601

18,138

9,825

19,914
49,909
1,671
71,494

7,477
24,116
82

12,249
12,410
1,537
26,196

6,630
8,940
163

4,781
11,642
2,172
18,595

2,472
7,794
16

68,420

28,601

18,138

1) 2006 includes an $11.5 million loan to Atlantic Liberty prior to the merger.

Loan Maturity and Repricing. The following table shows the maturity of the Bank’s commercial mortgage loan,
construction loan and non-mortgage loan portfolios at December 31, 2006. Scheduled repayments are shown in the
maturity category in which the payments become due.

(In thousands)

Amounts due within one year
Amounts due after one year:

One to two years
Two to three years
Three to five years
Over five years

Total due after one year

Total amounts due

Sensitivity of loans to changes in
interest rates - loans due
after one year:

Fixed rate loans
Adjustable rate loans
Total loans due after one year

Commercial
Mortgage
Loans

Construction

SBA

Commercial
Business and
Other

Total

25,481

96,812

5,540

25,423

153,256

21,363
20,045
36,405
416,258
494,071
519,552

7,676
-
-
-
7,676
104,488

1,485
1,416
2,390
6,690
11,981
17,521

14,250
7,349
1,788
2,089
25,476
50,899

44,774
28,810
40,583
425,037
539,204
692,460

7,676
-
7,676

44
11,937
11,981

21,043
4,433
25,476

145,746
393,458
539,204

116,983
377,088
494,071

Multi-Family Residential Lending. Loans secured by multi-family residential properties were $870.9 million, or
37.52% of gross loans, at December 31, 2006. The Bank’s multi-family residential mortgage loans had an average
principal balance of $477,000 at December 31, 2006, and the largest multi-family residential mortgage loan held in the
Bank’s portfolio had a principal balance of $8.5 million. The Bank offers both fixed-rate and adjustable rate multi-
family residential mortgage loans, with maturities up to 30 years.

In underwriting multi-family residential mortgage loans, the Bank reviews the expected net operating income
generated by the real estate collateral securing the loan, the age and condition of the collateral, the financial resources
and income level of the borrower and the borrower’s experience in owning or managing similar properties. The Bank
typically requires debt service coverage of at least 125% of the monthly loan payment. Multi-family residential
mortgage loans can be made up to 80% of the appraised value or the purchase price of the property, whichever is less.
The Bank generally originates these loans up to only 75% of the appraised value or the purchase price of the property,
whichever is less. The Bank generally relies on the income generated by the property as the primary means by which the
loan is repaid. However, personal guarantees may be obtained for additional security from these borrowers. The Bank
typically orders an environmental report on its multifamily and commercial real estate loans.

Loans secured by multi-family residential property generally involve a greater degree of risk than residential
mortgage loans and carry larger loan balances. The increased credit risk is a result of several factors, including the
concentration of principal in a smaller number of loans and borrowers, the effects of general economic conditions on
income producing properties and the increased difficulty in evaluating and monitoring these types of loans. Furthermore,
the repayment of loans secured by multi-family residential property is typically dependent upon the successful operation
of the related property. If the cash flow from the property is reduced, the borrower’s ability to repay the loan may be
impaired. Loans secured by multi-family residential property also may involve a greater degree of environmental risk.
The Bank seeks to protect against this risk through obtaining an environmental report. See “—Asset Quality — REO.”

The Bank’s fixed-rate multi-family mortgage loans are originated for terms up to 15 years and are competitively
priced based on market conditions and the Bank’s cost of funds. The Bank originated and purchased $47.0 million, $44.3
million and $23.9 million of fixed-rate multi-family mortgage loans in 2006, 2005 and 2004, respectively. At December
31, 2006, $208.8 million, or 24.0%, of the Bank’s multi-family mortgage loans consisted of fixed rate loans.

The Bank offers ARM loans with adjustment periods typically of five years and for terms of up to 30 years.
Interest rates on ARM loans currently offered by the Bank are adjusted at the beginning of each adjustment period based
upon a fixed spread above the FHLB-NY corresponding Regular Advance Rate. From time to time, the Bank may

originate ARM loans at an initial rate lower than the index as a result of a discount on the spread for the initial
adjustment period. Multi-family adjustable-rate mortgage loans generally are not subject to limitations on interest rate
increases either on an adjustment period or aggregate basis over the life of the loan. The Bank originated and purchased
multi-family ARM loans totaling $119.8 million, $178.8 million and $179.8 million during 2006, 2005 and 2004,
respectively. At December 31, 2006, $662.1 million, or 76.0%, of the Bank’s multi-family mortgage loans consisted of
ARM loans.

Commercial Real Estate Lending. Loans secured by commercial real estate were $519.6 million, or 22.38% of
the Bank’s gross loans, at December 31, 2006. The Bank’s commercial real estate mortgage loans are secured by
improved properties such as office buildings, hotels/motels, nursing homes, small business facilities, strip shopping
centers, warehouses, and, to a lesser extent, religious facilities. At December 31, 2006, the Bank’s commercial real estate
mortgage loans had an average principal balance of $728,000, and the largest of such loans, which was secured by a
multi-tenant shopping center, had a principal balance of $11.7 million. Commercial real estate mortgage loans are
generally originated in a range of $100,000 to $6.0 million. Commercial real estate mortgage loans are generally offered
at adjustable rates tied to a market index for terms of five to 15 years, with adjustment periods from one to five years.
Commercial real estate mortgage loans are also made at fixed interest rates for terms of seven, 10 or 15 years.

In underwriting commercial real estate mortgage loans, the Bank employs the same underwriting standards and

procedures as are employed in underwriting multi-family residential mortgage loans.

Commercial real estate mortgage loans generally carry larger loan balances than one-to-four family residential

mortgage loans and involve a greater degree of credit risk for the same reasons applicable to multi-family loans.

The Bank’s fixed-rate commercial mortgage loans are originated for terms up to 20 years and are competitively
priced based on market conditions and the Bank’s cost of funds. The Bank originated and purchased $20.5 million, $17.7
million and $22.1 million of fixed-rate commercial mortgage loans in 2006, 2005 and 2004, respectively. At December
31, 2006, $132.7 million, or 25.5%, of the Bank’s commercial mortgage loans consisted of fixed rate loans.

The Bank offers ARM loans with adjustment periods of one to five years and for terms of up to 15 years.
Interest rates on ARM loans currently offered by the Bank are adjusted at the beginning of each adjustment period based
upon a fixed spread above the FHLB-NY corresponding Regular Advance Rate. From time to time, the Bank may
originate ARM loans at an initial rate lower than the index as a result of a discount on the spread for the initial
adjustment period. Commercial adjustable-rate mortgage loans generally are not subject to limitations on interest rate
increases either on an adjustment period or aggregate basis over the life of the loan. The Bank originated and purchased
commercial ARM loans totaling $133.4 million, $85.4 million and $70.5 million during 2006, 2005 and 2004,
respectively. At December 31, 2006, $386.8 million, or 74.5%, of the Bank’s commercial mortgage loans consisted of
ARM loans.

One-to-Four Family Mortgage Lending – Mixed-Use Properties. The Bank offers mortgage loans secured by
one-to-four family mixed-use properties. These properties contain up to four residential dwelling units and a commercial
unit. The Bank offers both fixed-rate and adjustable-rate one-to-four family mixed-use property mortgage loans with
maturities of up to 30 years and a general maximum loan amount of $750,000. Loan originations primarily result from
applications received from mortgage brokers and mortgage bankers, existing or past customers, and persons who respond
to Bank marketing efforts and referrals. One-to-four family mixed-use property mortgage loans were $588.1 million, or
25.33% of gross loans, at December 31, 2006.

During the three-year period ended December 31, 2006, the Bank focused its origination efforts with respect to
one-to-four family mortgage loans on mixed-use properties. The primary income-producing units of these properties are
the residential dwelling units. One-to-four family mixed-use property mortgage loans generally have a higher interest
rate than residential mortgage loans. One-to-four family mixed-use property mortgage loans also have a higher degree of
risk than residential mortgage loans, as repayment of the loan is usually dependent on the income produced from renting
the residential units and the commercial unit. At December 31, 2006, one-to-four family mixed-use property mortgage
loans amounted to $588.1 million, as compared to $477.8 million at December 31, 2005, $332.8 million at December 31,
2004 and $226.2 million at December 31, 2003, representing an increase of $361.9 million during the three-year period.

In underwriting one-to-four family mixed-use property mortgage loans, the Bank employs the same

underwriting standards as are employed in underwriting multi-family residential mortgage loans.

The Bank’s fixed-rate one-to-four family mixed-use property mortgage loans are originated for a term of 30
years and are competitively priced based on market conditions and the Bank’s cost of funds. The Bank originated and
purchased $30.8 million, $39.4 million and $22.4 million of fixed-rate one-to-four family mixed-use property mortgage

loans in 2006, 2005 and 2004, respectively. At December 31, 2006, $151.6 million, or 25.8%, of the Bank’s one-to-four
family mixed-use property mortgage loans consisted of fixed rate loans.

The Bank offers adjustable-rate one-to-four family mixed-use property mortgage loans with adjustment periods
typically of five years and for terms of up to 30 years. Interest rates on ARM loans currently offered by the Bank are
adjusted at the beginning of each adjustment period based upon a fixed spread above the FHLB-NY corresponding
Regular Advance Rate. From time to time, the Bank may originate ARM loans at an initial rate lower than the index as a
result of a discount on the spread for the initial adjustment period. One-to-four family mixed-use property adjustable-rate
mortgage loans generally are not subject to limitations on interest rate increases either on an adjustment period or
aggregate basis over the life of the loan. The Bank originated and purchased one-to-four family mixed-use property
ARM loans totaling $123.7 million, $147.3 million and $114.4 million during 2006, 2005 and 2004, respectively. At
December 31, 2006, $436.5 million, or 74.2%, of the Bank’s one-to-four family mixed-use property mortgage loans
consisted of ARM loans.

One-to-Four Family Mortgage Lending – Residential Properties. The Bank offers mortgage loans secured by
one-to-four family residential properties, including townhouses and condominium units. For purposes of the description
contained in this section, one-to-four family residential mortgage loans, co-operative apartment loans and home equity
loans are collectively referred to herein as “residential mortgage loans.” The Bank offers both fixed-rate and adjustable-
rate residential mortgage loans with maturities of up to 30 years and a general maximum loan amount of $750,000. Loan
originations generally result from applications received from mortgage brokers and mortgage bankers, existing or past
customers, and referrals. Residential mortgage loans were $169.9 million, or 7.33% of gross loans, at December 31,
2006.

During the three-year period ended December 31, 2006, interest rates on residential mortgage loans declined,
and, at times, were at their lowest levels in over 40 years. As a result of the low interest rates available, the Bank’s
existing borrowers have been refinancing their higher costing residential mortgage loans at the current lower rates. The
Bank did not actively pursue this refinancing market, but instead focused on higher-yielding mortgage loan products. As
a result, the Bank’s portfolio of residential mortgage loans has declined over the three-year period.

The Bank generally originates residential mortgage loans in amounts up to 70% of the appraised value or the
sale price, whichever is less. The Bank may make residential mortgage loans with loan-to-value ratios of up to 90% of
the appraised value of the mortgaged property; however, private mortgage insurance is required whenever loan-to-value
ratios exceed 80% of the appraised value of the property securing the loan.

The Bank originates residential mortgage loans to self-employed individuals within the Bank’s local community
without verification of the borrower’s level of income, provided that the borrower’s stated income is considered
reasonable for the borrower’s type of business. These loans involve a higher degree of risk as compared to the Bank’s
other fully underwritten residential mortgage loans as there is a greater opportunity for self-employed borrowers to
falsify or overstate their level of income and ability to service indebtedness. This risk is mitigated by the Bank’s policy
to limit the amount of one-to-four family residential mortgage loans to 80% of the appraised value of the property or the
sale price, whichever is less. The Bank believes that its willingness to make such loans is an aspect of its commitment to
be a community-oriented bank. The Bank originated $0.9 million and $2.1 million of these loans on 2006 and 2004,
respectively. The Bank did not originate any of these loans during 2005.

The Bank’s fixed-rate residential mortgage loans typically are originated for terms of 15 and 30 years and are
competitively priced based on market conditions and the Bank’s cost of funds. The Bank originated and purchased $0.4
million, $0.1 million and $3.6 million of 15-year fixed-rate residential mortgage loans in 2006, 2005 and 2004,
respectively. The Bank also originated and purchased $0.1 million of 30-year fixed rate residential mortgage loans in
2004. The Bank did not originate or purchase any 30-year fixed rate residential mortgages in 2006 and 2005. These loans
have been retained to provide flexibility in the management of the Company’s interest rate sensitivity position. At
December 31, 2006, $86.2 million, or 50.7%, of the Bank’s residential mortgage loans consisted of fixed rate loans.

The Bank offers ARM loans with adjustment periods of one, three, five, seven or ten years. Interest rates on
ARM loans currently offered by the Bank are adjusted at the beginning of each adjustment period based upon a fixed
spread above the average yield on United States treasury securities, adjusted to the U.S. Treasury constant maturity index
as published weekly by the Federal Reserve Board. From time to time, the Bank may originate ARM loans at an initial
rate lower than the U.S. Treasury constant maturity index as a result of a discount on the spread for the initial adjustment
period. ARM loans generally are subject to limitations on interest rate increases of 2% per adjustment period and an
aggregate adjustment of 6% over the life of the loan. The Bank originated and purchased adjustable rate residential
mortgage loans totaling $13.5 million, $13.1 million and $14.4 million during 2006, 2005 and 2004, respectively. At
December 31, 2006, $83.8 million, or 49.3%, of the Bank’s residential mortgage loans consisted of ARM loans.

The retention of ARM loans in the Bank’s portfolio helps reduce the Bank’s exposure to interest rate risks.
However, in an environment of rapidly increasing interest rates, it is possible for the interest rate increase to exceed the
maximum aggregate adjustment on one-to-four family residential ARM loans and negatively affect the spread between
the Bank’s interest income and its cost of funds.

ARM loans generally involve credit risks different from those inherent in fixed-rate loans, primarily because if
interest rates rise, the underlying payments of the borrower rise, thereby increasing the potential for default. However,
this potential risk is lessened by the Bank’s policy of originating one-to-four family residential ARM loans with annual
and lifetime interest rate caps that limit the increase of a borrower’s monthly payment.

Home equity loans are included in the Bank’s portfolio of residential mortgage loans. These loans are offered as
adjustable-rate “home equity lines of credit” on which interest only is due for an initial term of 10 years and thereafter
principal and interest payments sufficient to liquidate the loan are required for the remaining term, not to exceed 30
years. These loans also may be offered as fully amortizing closed-end fixed-rate loans for terms up to 15 years. All
home equity loans are made on one-to-four family residential and condominium units, which are owner-occupied, and
one-to-our family mixed-use properties, and are subject to an 80% loan-to-value ratio computed on the basis of the
aggregate of the first mortgage loan amount outstanding and the proposed home equity loan. They are generally granted
in amounts from $25,000 to $300,000. The Loan Committee approves loans in excess of $300,000. The underwriting
standards for home equity loans are substantially the same as those for residential mortgage loans. At December 31,
2006, home equity loans totaled $15.6 million, or 0.67%, of gross loans.

Construction Loans. The Bank’s construction loans primarily have been made to finance the construction of
one-to-four family residential properties, multi-family residential properties and residential condominiums. The Bank
also, to a limited extent, finances the construction of commercial real estate. The Bank’s policies provide that
construction loans may be made in amounts up to 70% of the estimated value of the developed property and only if the
Bank obtains a first lien position on the underlying real estate. In addition, the Bank generally requires personal
guarantees on all construction loans. Construction loans are generally made with terms of two years or less. Advances
are made as construction progresses and inspection warrants, subject to continued title searches to ensure that the Bank
maintains a first lien position. The Bank made advances on construction loans of $75.1 million, $46.4 million and $25.9
million during 2006, 2005 and 2004, respectively. Construction loans outstanding at December 31, 2006 totaled $104.5
million, or 4.50%, of gross loans.

Construction loans involve a greater degree of risk than other loans because, among other things, the
underwriting of such loans is based on an estimated value of the developed property, which can be difficult to ascertain
in light of uncertainties inherent in such estimations. In addition, construction lending entails the risk that the project
may not be completed due to cost overruns or changes in market conditions.

Small Business Administration Lending. These loans are extended to small businesses and are guaranteed by
the SBA up to a maximum of 85% of the loan balance for loans with balances of $150,000 or less, and to a maximum of
75% of the loan balance for loans with balances greater than $150,000. The maximum amount the SBA can guarantee is
$1,500,000. All SBA loans are underwritten in accordance with SBA Standard Operating Procedures and the Bank
generally obtains personal guarantees and collateral, where applicable, from SBA borrowers. Typically, SBA loans are
originated at a range of $50,000 to $1.5 million with terms ranging from three to 25 years. SBA loans are generally
offered at adjustable rates tied to the prime rate (as published in the Wall Street Journal) with adjustment periods of one
to three months. The Bank generally sells the guaranteed portion of the SBA loan in the secondary market and retains
the servicing rights on these loans, collecting a servicing fee of approximately 1%. The Bank originated $19.9 million,
$12.2 million, and $4.8 million of SBA loans during 2006, 2005, and 2004, respectively. At December 31, 2006, SBA
loans totaled $17.5 million, representing 0.75% of gross loans.

Commercial Business and Other Lending.The Bank originates other loans for business, personal, or household
purposes. Total commercial business and other loans outstanding at December 31, 2006 amounted to $50.9 million, or
2.19% of gross loans. Business loans are personally guaranteed by the owners, and may also be secured by additional
collateral, including equipment and inventory. The maximum loan size for a business loan is $2,000,000, with a
maximum term of 25 years. Consumer loans generally consist of passbook loans and overdraft lines of credit. The Bank
originated $49.9 million, $12.4 million, and $11.6 million of commercial business loans during 2006, 2005, and 2004
respectively. Generally, unsecured consumer loans are limited to amounts of $5,000 or less for terms of up to five years.
The Bank offers credit cards to its customers through a third party financial institution and receives an origination fee
and transactional fees for processing such accounts, but does not underwrite or finance any portion of the credit card
receivables. At December 31, 2006, commercial business and other loans totaled $50.9 million, representing 2.19% of
gross loans.

The underwriting standards employed by the Bank for consumer and other loans include a determination of the
applicant’s payment history on other debts and assessment of the applicant’s ability to meet payments on all of his or her
obligations. In addition to the creditworthiness of the applicant, the underwriting process also includes a comparison of
the value of the collateral, if any, to the proposed loan amount. Unsecured loans tend to have higher risk, and therefore
command a higher interest rate.

Loan Approval Procedures and Authority. The Bank’s Board-approved lending policies establish loan approval
requirements for its various types of loan products. The Bank’s Residential Mortgage Lending Policy (which applies to
all one-to-four family mortgage loans, including residential and mixed-use property) establishes authorized levels of
approval. One-to-four family mortgage loans that do not exceed $750,000 require two signatures for approval, one of
which must be from the President, Executive Vice President or a Senior Vice President (collectively, “Authorized
Officers”) and the other from a Senior Underwriter, Manager, Underwriter or Junior Underwriter in the Residential
Mortgage Loan Department (collectively, “Loan Officers”). For one-to-four family mortgage loans from $750,000 to
$1,000,000, three signatures are required for approval, at least two of which must be from the Authorized Officers, and
the other one may be a Loan Officer. The Loan Committee, the Executive Committee or the full Board of Directors also
must approve one-to-four family mortgage loans in excess of $1,000,000. Pursuant to the Bank’s Commercial Real
Estate Lending Policy, all loans secured by commercial real estate and multi-family residential properties, must be
approved by the President or the Executive Vice President upon the recommendation of the Commercial Loan
Department Officer. Such loans in excess of $1,000,000 also require Loan or Executive Committee or Board approval.
In accordance with the Bank’s Business Loan Policy, all business loans up to $500,000, SBA loans up to $1,000,000,
taxi medallion loans up to $650,000 and commercial and industrial loans up to $1,000,000 must be approved by the
Business Loan Committee, and ratified by the Management Loan Committee. Business loans in excess of $500,000 up to
$1,000,000, and SBA loans in excess of $1,000,000 up to $2,000,000, must be approved by the Management Loan
Committee and ratified by the Loan Committee of the Bank’s Board of Directors. Commercial business and other loans
require two signatures for approval, one of which must be from an Authorized Officer. The Bank’s Construction Loan
Policy requires that the Loan Committee or the Board of Directors of the Bank must approve all construction loans. Any
loan, regardless of type, that deviates from the Bank’s written loan policies must be approved by the Loan Committee or
the Bank’s Board of Directors.

For all loans originated by the Bank, upon receipt of a completed loan application, a credit report is ordered and
certain other financial information is obtained. An appraisal of the real estate intended to secure the proposed loan is
required. An independent appraiser designated and approved by the Bank currently performs such appraisals. The
Bank’s staff appraiser reviews the appraisals. The Bank’s Board of Directors annually approves the independent
appraisers used by the Bank and approves the Bank’s appraisal policy. It is the Bank’s policy to require borrowers to
obtain title insurance and hazard insurance on all real estate first mortgage loans prior to closing. Borrowers generally
are required to advance funds on a monthly basis together with each payment of principal and interest to a mortgage
escrow account from which the Bank makes disbursements for items such as real estate taxes and, in some cases, hazard
insurance premiums.

Loan Concentrations. The maximum amount of credit that the Bank can extend to any single borrower or
related group of borrowers generally is limited to 15% of the Bank’s unimpaired capital and surplus. Applicable law and
regulations permit an additional amount of credit to be extended, equal to 10% of unimpaired capital and surplus, if the
loan is secured by readily marketable collateral, which generally does not include real estate. See “Regulation.”
However, it is currently the Bank’s policy not to extend such additional credit. At December 31, 2006, the Bank had no
loans in excess of the maximum dollar amount of loans to one borrower that the Bank was authorized to make. At that
date, the three largest concentrations of loans to one borrower consisted of loans secured by a combination of
commercial real estate and multi-family income producing properties with an aggregate principal balance of $29.1
million, $23.3 million and $18.6 million for each of the three borrowers, respectively.

Loan Servicing. At December 31, 2006, the Bank was servicing $16.9 million of mortgage loans and $17.5
million of SBA loans for others. The Bank’s policy is to retain the servicing rights to the mortgage and SBA loans that it
sells in the secondary market. In order to increase revenue, management intends to continue this policy.

Asset Quality

Loan Collection. When a borrower fails to make a required payment on a loan, the Bank takes a number of

steps to induce the borrower to cure the delinquency and restore the loan to current status.

In the case of mortgage loans, personal contact is made with the borrower after the loan becomes 30 days
delinquent. At that time, the Bank attempts to make arrangements with the borrower to either bring the loan to current
status or begin making payments according to an agreed upon schedule. For the majority of delinquent loans, the

borrower is able to bring the loan current within a reasonable time. When the borrower has indicated that he/she will be
unable to bring the loan current, or due to other circumstances which, in management’s opinion, indicate the borrower
will be unable to bring the loan current within a reasonable time, or if the collateral value is deemed to have been
impaired, the loan is classified as non-performing. All loans classified as non-performing, which includes all loans past
due ninety days or more, are classified as non-accrual unless there is, in management’s opinion, compelling evidence the
borrower will bring the loan current in the immediate future. At December 31, 2006, there were no loans past due 90
days or more and still accruing interest.

Each non-performing loan is reviewed on an individual basis. Upon classifying a loan as non-performing,
management reviews available information and conditions that relate to the status of the loan, including the estimated
value of the loan’s collateral and any legal considerations that may affect the borrower’s ability to continue to make
payments to the Bank. Based upon the available information, management will consider the sale of the loan or retention
of the loan. If the loan is retained, the Bank may continue to work with the borrower to collect the amounts due or start
foreclosure proceedings. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced
before the foreclosure sale, the real property securing the loan generally is sold at foreclosure or by the Bank as soon
thereafter as practicable.

Once the decision to sell a loan is made, management determines what would be considered adequate
consideration to be obtained when that loan is sold, based on the facts and circumstances related to that loan. Investors
and brokers are then contacted to seek interest in purchasing the loan. The Bank has been successful in finding buyers for
its non-performing loans offered for sale that are willing to pay what it considers to be adequate consideration. Terms of
the sale include cash due upon closing of the sale, no contingencies or recourse to the Bank, servicing is released to the
buyer and time is of the essence. These sales usually close within a reasonably short time period.

This strategy of selling non-performing loans was implemented during 2003. This has allowed the Bank to
optimize its return by quickly converting its non-performing loans to cash, which can then be reinvested in earning
assets. This strategy also allows the Bank to avoid lengthy and costly legal proceedings that may occur with non-
performing loans. The Bank sold thirty-five delinquent mortgage loans totaling $12.2 million, eleven delinquent
mortgage loans totaling $3.1 million, and eleven delinquent mortgage loans totaling $4.3 million during the years ended
December 31, 2006, 2005 and 2004, respectively. The Bank did not record any charges to the allowance for loan losses
for the non-performing loans which were sold. The Bank realized gross gains of $169,000 and gross losses of $14,000 on
the sale of these mortgage loans for the year ended December 31, 2006. The Bank did not realize any gross gains or
losses on the sale of these mortgage loans for the years ending December 31, 2005 and 2004. There can be no assurances
that the Bank will continue this strategy in future periods, or if continued, it will be able to find buyers to pay adequate
consideration.

On mortgage loans or loan participations purchased by the Bank, for which the seller retains the servicing
rights, the Bank receives monthly reports with which it monitors the loan portfolio. Based upon servicing agreements
with the servicers of the loans, the Bank relies upon the servicer to contact delinquent borrowers, collect delinquent
amounts and initiate foreclosure proceedings, when necessary, all in accordance with applicable laws, regulations and the
terms of the servicing agreements between the Bank and its servicing agents. At December 31, 2006, the Bank held
$12.7 million of loans that were serviced by others.

In the case of commercial business or other loans, the Bank generally sends the borrower a written notice of
non-payment when the loan is first past due. In the event payment is not then received, additional letters and phone calls
generally are made in order to encourage the borrower to meet with a representative of the Bank to discuss the
delinquency. If the loan still is not brought current and it becomes necessary for the Bank to take legal action, which
typically occurs after a loan is delinquent 90 days or more, the Bank may attempt to repossess personal or business
property that secures an SBA loan, commercial business loan or consumer loan.

Delinquent Loans and Non-performing Assets. The Bank generally discontinues accruing interest on delinquent
loans when a loan is 90 days past due or foreclosure proceedings have been commenced, whichever first occurs. At that
time, previously accrued but uncollected interest is reversed from income. Loans in default 90 days or more as to their
maturity date but not their payments, however, continue to accrue interest as long as the borrower continues to remit
monthly payments.

The following table sets forth information regarding all non-accrual loans and loans which are past due 90 days
or more and still accruing, at the dates indicated. During the years ended December 31, 2006, 2005 and 2004, the
amounts of additional interest income that would have been recorded on non-accrual loans, had they been current, totaled
$144,000, $103,000 and $50,000, respectively. These amounts were not included in the Bank’s interest income for the
respective periods.

(Dollars in thousands)

Non-accrual loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartment
Construction

Total non-accrual mortgage loans

Other non-accrual loans

Total non-accrual loans
Loans 90 days or more delinquent

and still accruing

Total non-performing loans

Foreclosed real estate
Investment securities

2006

2005

At December 31,
2004

2003

2002

1,957
349
-
608
-
-
2,914
212
3,126

861
-
-
960
-
-
1,821
101
1,922

-
$
-
-
659
-
-
659
252
911

-
$
-
-
525
-
-
525
157
682

$
-
2,537
-
816
20
-
3,373
219
3,592

-
3,126
-
-
3,126

530
2,452
-
-
2,452

-
911
-
-
911

-
682
-
-
682

-
3,592
-
700
4,292

Total non-performing assets

Troubled debt restructurings

$
-

Non-performing loans to gross loans
Non-performing assets to total assets

0.13%
0.11%

0.13%
0.10%

0.06%
0.04%

0.05%
0.04%

0.31%
0.26%

Real Estate Owned (REO). The Bank aggressively markets any REO properties, when and if, they are acquired

through foreclosure. At December 31, 2006, 2005 and 2004, the Bank did not own any such properties.

Environmental Concerns Relating to Loans. The Bank currently obtains environmental reports in connection
with the underwriting of commercial real estate loans, and typically obtains environmental reports in connection with the
underwriting of multi-family loans. For all other loans, the Bank obtains environmental reports only if the nature of the
current or, to the extent known to the Bank, prior use of the property securing the loan indicates a potential
environmental risk. However, the Bank may not be aware of such uses or risks in any particular case, and, accordingly,
there is no assurance that real estate acquired by the Bank in foreclosure is free from environmental contamination or
that, if any such contamination or other violation exists, the Bank will not have any liability therefor.

Allowance for Loan Losses

The Bank has established and maintains on its books an allowance for loan losses that is designed to provide a
reserve against estimated losses inherent in the Bank's overall loan portfolio. The allowance is established through a
provision for loan losses based on management's evaluation of the risk inherent in the various components of its loan
portfolio and other factors, including historical loan loss experience (which is updated at least annually), changes in the
composition and volume of the portfolio, collection policies and experience, trends in the volume of non-accrual loans
and regional and national economic conditions. The determination of the amount of the allowance for loan losses
includes estimates that are susceptible to significant changes due to changes in appraisal values of collateral, national and
regional economic conditions and other factors. Management reviews the Bank’s loan portfolio by separate categories
with similar risk and collateral characteristics. Impaired loans are segregated and reviewed separately. All non-
performing loans are classified impaired. Impaired loans secured by collateral are reviewed based on their collateral and
the estimated time to recover the Bank’s investment in the loan, and the estimate of the recovery anticipated. Specific
reserves allocated to impaired loans were $316,000 and $231,000 at December 31, 2006 and 2005, respectively. For non-
collateralized impaired loans, management estimates any recoveries that are anticipated for each loan. Specific reserves
are allocated to impaired loans based on this review. In connection with the determination of the allowance, the market
value of collateral ordinarily is evaluated by the Bank's staff appraiser; however, the Bank may from time to time obtain
independent appraisals for significant properties. Current year charge-offs, charge-off trends, new loan production and

current balance by particular loan categories are also taken into account in determining the appropriate amount of
allowance. The loans acquired in the acquisition of Atlantic Liberty, along with the increase in the allowance due to the
acquisition, were included in management’s analysis of the adequacy of the allowance for loan losses as of December 31,
2006. The Board of Directors reviews and approves the adequacy of the allowance for loan losses on a quarterly basis.

In assessing the adequacy of the allowance, management also reviews the Bank’s loan portfolio by separate
categories which have similar risk and collateral characteristics; e.g. multi-family residential, commercial real estate,
one-to-four family mixed-use property, one-to-four family residential, co-operative apartment, construction, SBA,
commercial business and consumer loans. General provisions are established against performing loans in the Bank’s
portfolio in amounts deemed prudent from time to time based on the Bank’s qualitative analysis of the factors, including
the historical loss experience and regional economic conditions. During the five-year period ended December 31, 2006,
the Bank incurred total net charge-offs of $281,000. This reflects a significant improvement over the loss experience of
the 1990s. In addition, the regional economy has improved since 2001, including significant increases in real estate
values. The Bank’s underwriting standards generally require a loan-to-value ratio of 75% at a time the loan is originated.
Since real estate values have increased significantly since 2001, the loan-to-value ratios for loans originated in prior
years have declined below the original 75% level. The rate at which mortgagors have been defaulting on their loans has
declined, as the mortgagor’s equity in the property has increased. As a result, the Bank has not incurred losses on
mortgage loans in recent years. As a result of these improvements, and despite the increase in the loan portfolio and shift
to loans with greater risk, the Bank has not considered it necessary to provide a provision for loan losses during any of
the years in the five-year period ended December 31, 2006. Management has concluded, and the Board of Directors has
concurred, that, during this time period, the allowance was sufficient to absorb losses inherent in the loan portfolio.

The Bank’s determination as to the classification of its assets and the amount of its valuation allowances is
subject to review by the OTS and the FDIC, which can require the establishment of additional general allowances or
specific loss allowances or require charge-offs. Such authorities may require the Bank to make additional provisions to
the allowance based on their judgments about information available to them at the time of their examination. An OTS
policy statement provides guidance for OTS examiners in determining whether the levels of general valuation
allowances for savings institutions are adequate. The policy statement requires that if a savings institution’s general
valuation allowance policies and procedures are deemed to be inadequate, recommendations for correcting deficiencies,
including any examiner concerns regarding the level of the allowance, should be noted in the report of examination.
Additional supervisory action may also be taken based on the magnitude of the observed shortcomings in the allowance
process, including the materially of any error in the reported amount of the allowance.

Management of the Bank believes that the current allowance for loan losses is adequate in light of current
economic conditions, the composition of its loan portfolio and other available information and the Board of Directors
concurs in this belief. Due to the acquisition of Atlantic Liberty, the allowance for loan losses was increased by Atlantic
Liberty’s allowance of $753,000. The Bank however did not record any additional provision for loan losses for the years
ended December 31, 2006, 2005 and 2004. At December 31, 2006, the total allowance for loan losses was $7.1 million,
representing 225.72% of each of non-performing loans and non-performing assets, compared to 260.39% for both of
these ratios at December 31, 2005. The Bank continues to monitor and, as necessary, modify the level of its allowance
for loan losses in order to maintain the allowance at a level which management considers adequate to provide for
probable loan losses based on available information.

Many factors may require additions to the allowance for loan losses in future periods beyond those currently
revealed. These factors include future adverse changes in economic conditions, changes in interest rates and changes in
the financial capacity of individual borrowers (any of which may affect the ability of borrowers to make repayments on
loans), changes in the real estate market within the Bank’s lending area and the value of collateral, or a review and
evaluation of the Bank’s loan portfolio in the future. The determination of the amount of the allowance for loan losses
includes estimates that are susceptible to significant changes due to changes in appraised values of collateral, national
and regional economic conditions, interest rates and other factors. In addition, the Bank’s increased emphasis on multi-
family residential, commercial real estate and one-to-four family mixed-use property mortgage loans can be expected to
increase the overall level of credit risk inherent in the Bank’s loan portfolio. The greater risk associated with these loans,
as well as construction loans and business loans, could require the Bank to increase its provisions for loan losses and to
maintain an allowance for loan losses as a percentage of total loans that is in excess of the allowance currently
maintained by the Bank. Provisions for loan losses are charged against net income. See “—Lending Activities” and “—
Asset Quality.”

The following table sets forth changes in, and the balance of, the Bank’s allowance for loan losses.

(Dollars in thousands)

Balance at beginning of year

Acquisition of Atlantic Liberty

Provision for loan losses

Loans charged-off:

Multi-family residential
Commercial real estate
One-to-four family mixed-use property
-four family residential
One-to
Co-
Co
SBA
Com

operative apartment
nstruction

mercial business and other loans
Total loans charged-off

Recover
Mor
SBA

ies:
tgage loans
, commercial business and other loans
Total recoveries

Net charge-offs

Balance

at end of year

Ratio of
to av
Ratio of
gros
Ratio of
non-
Ratio of
non-

net charge-offs during the year
erage loans outstanding during the year
allowance for loan losses to
s loans at end of the year
allowance for loan losses to
performing loans at the end of the year
allowance for loan losses to
performing assets at the end of the year

At and for the years ended December 31,

2006

2005

2004

2003

2002

6,385

6,533

6,553

6,581

6,585

753

-
-
-
-
-
-
(57)
(36)
(93)

2
10
12

-
-
-
-
-
-
(144)
(20)
(164)

3
13
16

-
-
-
-
-
-
(28)
-
(28)

3
5
8

(81)

(148)

(20)

-
-
-
-
-
-
(111)
(44)
(155)

125
2
127

(28)

-
-
-
-
-
-

(8)
(4)
(12)

3
5
8

(4)

7,057

6,385

6,533

6,553

6,581

0.00%

0.01%

0.00%

0.30%

0.34%

0.43%

0.51%

0.56%

225.72%

260.39%

717.29%

960.86%

183.23%

225.72%

260.39%

717.29%

960.86%

153.34%

e
h
t

t
a

d
e
t
s
i
l

s
e
i
r
o
g
e
t
a
c

e
h
t

f
o

h
c
a
e

n
i

s
n
a
o
l

f
o

t
n
u
o
m
a

l
a
t
o
t

e
h
t

o
t

s
e
s
s
o
l

n
a
o
l

r
o
f

e
c
n
a
w
o
l
l
a

s
t
i

f
o

n
o
i
t
a
c
o
l
l
a

s
’
k
n
a
B
e
h
t

h
t
r
o
f

s
t
e
s

e
l
b
a
t

g
n
i
w
o
l
l
o
f

e
h
T

s
r
e
b
m
u
n

e
h
T

.
y
r
o
g
e
t
a
c

n
a
o
l

r
a
l
u
c
i
t
r
a
p

h
c
a
e

r
o
f

d
e
t
a
c
o
l
l
a

s
e
s
s
o
l

n
a
o
l

r
o
f

e
c
n
a
w
o
l
l
a

e
h
t

e
t
a
c
i
d
n
i

n
m
u
l
o
c

”
t
n
u
o
m
A
“

e
h
t

n
i

d
e
n
i
a
t
n
o
c

s
r
e
b
m
u
n

e
h
T

.
d
e
t
a
c
i
d
n
i

s
e
t
a
d

e
g
a
t
n
e
c
r
e
p

s
a

y
r
o
g
e
t
a
c

r
a
l
u
c
i
t
r
a
p

h
c
a
e

n
i

s
n
a
o
l

f
o

t
n
u
o
m
a

l
a
t
o
t

e
h
t

e
t
a
c
i
d
n
i

”
s
n
a
o
L

l
a
t
o
T
o
t

y
r
o
g
e
t
a
C
n
i

s
n
a
o
L
f
o

e
g
a
t
n
e
c
r
e
P
“

d
e
l
t
i
t
n
e

n
m
u
l
o
c

e
h
t

n
i

d
e
n
i
a
t
n
o
c

.
o
i
l
o
f
t
r
o
p

n
a
o
l

s
’
k
n
a
B
e
h
t

f
o

t
n
e
c
r
e
P

n
i

s
n
a
o
L
f
o

o
t
y
r
o
g
e
t
a
C

s
n
a
o
l

l
a
t
o
T

2
0
0
2

t
n
u
o
m
A

t
n
e
c
r
e
P

n
i

s
n
a
o
L
f
o

o
t
y
r
o
g
e
t
a
C

s
n
a
o
l

l
a
t
o
T

3
0
0
2

t
n
u
o
m
A

1
3

r
e
b
m
e
c
e
D

4
0
0
2

t
n
e
c
r
e
P

n
i

s
n
a
o
L
f
o

o
t
y
r
o
g
e
t
a
C

s
n
a
o
l

l
a
t
o
T

t
n
u
o
m
A

)
s
d
n
a
s
u
o
h
t
n
i

s
r
a
l
l
o
D

(

t
n
e
c
r
e
P

n
i

s
n
a
o
L
f
o

o
t
y
r
o
g
e
t
a
C

s
n
a
o
l

l
a
t
o
T

5
0
0
2

t
n
u
o
m
A

t
n
e
c
r
e
P

n
i

s
n
a
o
L
f
o

o
t
y
r
o
g
e
t
a
C

s
n
a
o
l

l
a
t
o
T

6
0
0
2

t
n
u
o
m
A

y
r
o
g
e
t
a
C
n
a
o
L

:
s
n
a
o
L
e
g
a
g
t
r
o
M

4
5
.
8
3

6
8
2
,
1

3
5
.
2
4

1
5
2
,
1

1
6
.
2
4

0
1
0

2
9

1
4

6
1
2

2
5

7
3

2
2
1
,
1

l
a
i
t
n
e
d
i
s
e
r
y
l
i

m
a
f
-
i
t
l
u
M

8
8
.
1
2

7
0
8
,
2

9
7
.
2
2

0
4
7
,
2

0
0
.
2
2

5
1
7

3
2

1
2

2
7
2

8
3

2
2

1
5
.
4
1

8
3
.
2
2

4
4
.
0

2
5
.
1

7
2
.
9
9

7
3
.
0

6
3
.
0

0
5
5

5
6
9

9
1
1

2
5

9
7
7
,
5

9
9
4

3
0
3

6
7
.
7
1

1
0
.
4
1

9
2
.
0

5
8
.
1

3
2
.
9
9

9
3
.
0

8
3
.
0

3
0
8

4
8
6

7
2
1

6
5

1
6
6
,
5

3
5
5

9
3
3

2
9
.
1
2

4
9
4

2
4

5
2

4
4
5

3
3

5
2

0
0
.
0
1

1
2
.

7
0
.
2

1
8
.
8
9

7
3
.

2
8
.

8
1
7

7
0
2

5
5

7
1

1
1

3
6

4
2
5

1
6
1

4
6

8
9

5
3

0
5

9
9
1

8
4

8
9

1
8
7

6
0

7
9

3
6
6

1
7
6

9
4

3
0

4
6
9

0
4
6

5
7

9
1

8
6
6

1
6
6

0
8

0
1

1
5
8

2
9
3
,
3

5
9
8
,
1

0
7
7
,
1

e
t
a
t
s
e

l
a
e
r

l
a
i
c
r
e
m
m
o
C

y
t
r
e
p
o
r
p
e
s
u
-
d
e
x
i
m

y
l
i

m
a
f

r
u
o
f
-
o
t
-
e
n
O

y
l
i

m
a
f

r
u
o
f
-
o
t
-
e
n
O

l
a
i
t
n
e
d
i
s
e
r

t
n
e
m

t
r
a
p
a

e
v
i
t
a
r
e
p
o
-
o
C

n
o
i
t
c
u
r
t
s
n
o
C

s
n
a
o
l

e
g
a
g
t
r
o
m

s
s
o
r
G

n
o
i
t
a
r
t
s
i
n
i
m
d
A
s
s
e
n
i
s
u
B

l
l
a
m
S

s
n
a
o
l

r
e
h
t
o
d
n
a

s
s
e
n
i
s
u
b

l
a
i
c
r
e
m
m
o
C

s
n
a
o
l

0
0
.
0
0
1

1
8
5
,
6

0
0
.
0
0
1

3
5
5
,
6

0
0
.

0
0
1

3
3
5

0
0

0
0
1

5
8
3

0
0

0
0
1

7
5
0
,
7

s
n
a
o
l

l
a
t
o
T

6
1

Investment Activities

General. The investment policy of the Company, which is approved by the Board of Directors, is designed
primarily to manage the interest rate sensitivity of its overall assets and liabilities, to generate a favorable return without
incurring undue interest rate and credit risk, to complement the Bank’s lending activities and to provide and maintain
liquidity. In establishing its investment strategies, the Company considers its business and growth strategies, the
economic environment, its interest rate risk exposure, its interest rate sensitivity “gap” position, the types of securities to
be held, and other factors. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Overview—Management Strategy” in Item 7 of this Annual Report.

Federally chartered savings institutions have authority to invest in various types of assets, including U.S.
government obligations, securities of various federal agencies, mortgage-backed and mortgage-related securities, certain
certificates of deposit of insured banks and savings institutions, certain bankers acceptances, reverse repurchase
agreements, loans of federal funds, and, subject to certain limits, corporate securities, commercial paper and mutual
funds. The Company primarily invests in mortgage-backed securities, U. S. government obligations, and mutual funds
which purchase these same instruments.

The Investment Committee of the Bank and the Company meets quarterly to monitor investment transactions
and to establish investment strategy. The Board of Directors reviews the investment policy on an annual basis and
investment activity on a monthly basis.

The Company classifies its investment securities as available for sale. Unrealized gains and losses (other than
unrealized losses considered other than temporary) for available-for-sale securities are excluded from earnings and
included in Accumulated Other Comprehensive Income (a separate component of equity), net of taxes. At December 31,
2006, the Company had $330.6 million in securities available for sale which represented 11.7% of total assets. These
securities had an aggregate market value at December 31, 2006 that was approximately 1.5 times the amount of the
Company’s equity at that date. The cumulative balance of unrealized net losses on securities available for sale was
$4.7 million, net of taxes, at December 31, 2006. As a result of the magnitude of the Company’s holdings of securities
available for sale, changes in interest rates could produce significant changes in the value of such securities and could
produce significant fluctuations in the equity of the Company. See Note 5 of Notes to Consolidated Financial Statements,
included in Item 8 of this Annual Report. The Company may from time to time sell securities and realize a loss if the
proceeds of such sale may be reinvested in loans or other assets offering more attractive yields.

At December 31, 2006, there are no issuer’s securities, excluding government agencies, that either alone, or
together with any investments in the securities of any affiliate(s) of such issuer, exceeded 10% of the Company’s equity.

The table below sets forth certain information regarding the amortized cost and market values of the Company’s
securities portfolio, interest bearing deposits and federal funds sold, at the dates indicated. Securities available for sale
are recorded at market value. See Note 5 of Notes to Consolidated Financial Statements, included in Item 8 of this
Annual Report.

Securities available for sale
Bonds and other debt securities:

U.S. government and agencies
Corporate debentures

Total bonds and other debt securities

Mutual funds

Equity securities:

Common stock
Preferred stock

Total equity securities

Mortgage-backed securities:

FNMA
REMIC and CMO
FHLMC
GNMA

Total mortgage-backed securities

2006

At December 31,
2005

2004

Amortized
Cost

Market
Value

Amortized
Cost

Market
Value

Amortized
Cost

Market
Value

(In thousands)

15,016
-
15,016

15,004
-
15,004

10,942
-
10,942

10,911
-
10,911

12,866
-
12,866

12,868
-
12,868

21,224

20,645

20,296

19,767

20,600

20,352

619
5,685
6,304

135,458
100,165
53,440
7,199
296,262

619
5,468
6,087

131,192
98,652
51,733
7,274
288,851

619
5,493
6,112

152,412
91,369
57,470
7,789
309,040

619
5,270
5,889

147,802
89,561
55,735
8,096
301,194

779
5,600
6,379

217,278
89,416
78,453
12,043
397,190

1,416
5,480
6,896

215,657
89,164
78,094
12,714
395,629

Total securities available for sale

338,806

330,587

346,390

337,761

437,035

435,745

Interest-bearing deposits and

Federal funds sold

4,670

4,396

1,186

Total

343,476

335,257

350,786

342,157

438,221

436,931

Mortgage-backed securities. At December 31, 2006, the Company had $288.9 million invested in mortgage-
backed securities, of which $17.2 million was invested in adjustable-rate mortgage-backed securities. The mortgage
loans underlying these adjustable-rate securities generally are subject to limitations on annual and lifetime interest rate
increases. The Company anticipates that investments in mortgage-backed securities may continue to be used in the future
to supplement mortgage-lending activities. Mortgage-backed securities are more liquid than individual mortgage loans
and may be used more easily to collateralize obligations of the Bank.

The following table sets forth the Company’s mortgage-backed securities purchases, sales and principal

repayments for the years indicated:

For the years ended December 31,
2005

2006

2004

Balance at beginning of year

301,194

395,629

479,393

(In thousands)

Acquired with Atlantic Liberty

Purchases of mortgage-backed securities

Amortizat
accreti

ion of unearned premium, net of
on of unearned discount

30,844

43,897

29,627

53,649

(560)

(1,219)

(1,851)

Net chang
securit

e in unrealized gains (losses) on mortgage-backed
ies available for sale

435

(6,285)

(1,716)

Sales of m

ortgage-backed securities

(36,220)

(28,643)

(15,634)

Principal r
mortg

epayments received on
age-backed securities

(50,739)

(87,915)

(118,212)

Net de

crease increase in mortgage-backed securities

(12,343)

(94,435)

(83,764)

Balance at

end of year

288,851

301,194

395,629

While mortgage-backed securities carry a reduced credit risk as compared to whole loans, such securities
remain subject to the risk that a fluctuating interest rate environment, along with other factors such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate of such mortgage loans and so affect both
the prepayment speed and value of such securities. The Company does not own any derivative instruments that are
extremely sensitive to changes in interest rates.

d
e
t
h
g
i
e

e
g
a
r
e
v
A

d
l
e
i
Y

d
e
t
a
m

i
t
s
E

r
i
a
F

e
u
l
a
V

d
e
z
i
t
r
o
m
A

t
s
o
C

e
g
a
r
e
v
A

g
n
i
n
i
a
m
e
R

o
t

s
r
a
e
Y

y
t
i
r
u
t
a

d
e
t
h
g
i
e

e
g
a
r
e
v
A

d
l
e
i
Y

)
s
d
n
a
s
u
o
h
t

n
i

s
r
a
l
l
o
D

(

d
e
z
i
t
r
o
m
A

e
g
a
r
e
v
A

d
e
z
i
t
r
o
m
A

e
g
a
r
e
v
A

d
e
z
i
t
r
o
m
A

t
s
o
C

d
l
e
i
Y

t
s
o
C

d
l
e
i
Y

t
s
o
C

d
e
t
h
g
i
e

e
g
a
r
e
v
A

d
l
e
i
Y

d
e
z
i
t
r
o
m
A

t
s
o
C

s
e
i
t
i
r
u
c
e
S
l
a
t
o
T

s
r
a
e
Y
n
e
T
n
a
h
t

e
r
o
M

s
r
a
e
Y
n
e
T
o
t

e
v
i
F

s
r
a
e
Y
e
v
i
F
o
t

e
n
O

s
s
e
L
r
o

r
a
e
y
e
n
O

e
h
t

f
o

s
e
i
t
i
r
u
t
a
m

d
n
a

s
d
l
e
i
y

e
g
a
r
e
v
a

d
e
t
h
g
i
e
w

d
e
z
i
l
a
u
n
n
a

,
e
u
l
a
v

r
i
a
f

d
e
t
a
m

i
t
s
e

,
t
s
o
c

d
e
z
i
t
r
o
m
a

e
h
t

g
n
i
d
r
a
g
e
r

n
o
i
t
a
m
r
o
f
n
i

n
i
a
t
r
e
c

h
t
r
o
f

s
t
e
s

w
o
l
e
b

e
l
b
a
t

e
h
T

y
l
e
t
a
i
d
e
m
m

s
a

n
w
o
h
s

e
r
a

s
e
i
t
i
r
u
c
e
s

y
t
i
u
q
E

.
s
e
i
t
i
r
u
t
a
m

d
e
t
a
t
s

n
o

d
e
s
a
b

s
i

s
e
c
n
a
l
a
b

f
o

n
o
i
t
a
c
i
f
i
t
a
r
t
s

e
h
T

.
6
0
0
2

,
1
3
r
e
b
m
e
c
e
D

t
a

s
e
i
t
i
r
u
c
e
s

y
t
i
u
q
e

d
n
a

t
b
e
d

s
’
y
n
a
p
m
o
C

d
n
a

s
t
n
e
m
y
a
p
e
r

r
o
f

s
n
o
i
t
p
m
u
s
s
A

.
d
e
m
e
e
d
e
r

e
b

o
t

d
e
l
u
d
e
h
c
s

e
r
a

y
e
h
t

d
o
i
r
e
p

e
h
t

n
i

n
w
o
h
s

e
r
a

h
c
i
h
w

,
s
e
t
a
d

n
o
i
t
p
m
e
d
e
r

d
e
t
a
t
s

h
t
i

s
k
c
o
t
s

d
e
r
r
e
f
e
r
p

r
o
f

t
p
e
c
x
e

g
n
i
r
u
t
a
m

.
s
t
n
e
m
e
t
a
t
s

l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c

e
h
t

n
i

e
u
l
a
v
r
i
a
f

d
e
t
a
m

i
t
s
e

r
i
e
h
t

t
a

s
t
n
e
m
t
s
e
v
n
i

e
s
e
h
t

s
e
i
r
r
a
c

y
n
a
p
m
o
C
e
h
T

.
s
e
i
t
i
r
u
c
e
s

d
e
k
c
a
b
-
e
g
a
g
t
r
o
m

r
o
f
d
e
t
c
e
l
f
e
r

t
o
n
e
r
a

s
t
n
e
m
y
a
p
e
r
p

:
s
e
i
t
i
r
u
c
e
s

t
b
e
d

r
e
h
t
o

d
n
a

s
d
n
o
B

e
l
a
s

r
o
f

e
l

b
a
l
i
a
v
a
s
e
i
t
i
r
u
c
e
S

8
9
.
4

4
0
0
,
5
1

6
1
0
,
5
1

5
9
.
4

5
4
6
,
0
2

4
2
2
,
1
2

2
0
.
9

9
1
.
6

7
4
.
6

4
9
.
4

6
9
.
4

8
5
.
4

8
0
.
6

0
9
.
4

2
9
.
4

9
1
6

8
6
4
,
5

7
8
0
,
6

2
9
1
,
1
3
1

2
5
6
,
8
9

3
3
7
,
1
5

4
7
2
,
7

1
5
8
,
8
8
2

9
1
6

5
8
6
,
5

4
0
3
,
6

8
5
4
,
5
3
1

5
6
1
,
0
0
1

0
4
4
,
3
5

9
9
1
,
7

2
6
2
,
6
9
2

0
7
6
,
4

A
N

9
9
.
4

A
N

8
1
.
6
1

8
8
.
9
1

9
3
.
4
1

1
9
.
6
2

7
3
.
7
1

2
7
.
8

1
9
.
4

1
1
.
5

9
6
.
4

8
0
.
6

7
9
.
4

0
0
8

7
0
1
,
6
2
1

9
7
2
,
5
8

2
6
8
,
2
4

9
9
1
,
7

7
4
4
,
1
6
2

5
0
.
5

3
3
7
,
9

0
8
.
5

1
1
.
4

3
9
.
5

9
4
.
4

2
5
6
,
3

6
8
8
,
4
1

6
9
5

4
3
1
,
9
1

4
0
.
5

1
0
.
4

8
3
.
4

9
9
6
,
5

2
8
9
,
9

1
8
6
,
5
1

4
8
.
4

5
9
.
4

2
0
.
9

8
7
.
5

4
1
.
6

3
8
2
,
5

4
2
2
,
1
2

9
1
6

5
8
8
,
4

4
0
5
,
5

s
e
i
t
i
r
u
c
e
s

t
b
e
d

r
e
h
t
o

d
n
a

s
d
n
o
b

l
a
t
o
T

s
e
i
c
n
e
g
a

d
n
a

t
n
e
m
n
r
e
v
o
g

S
U

s
e
i
t
i
r
u
c
e
s

d
e
k
c
a
b
-
e
g
a
g
t
r
o
m

l
a
t
o
T

s
e
i
t
i
r
u
c
e
s

y
t
i
u
q
e

l
a
t
o
T

:
s
e
i
t
i
r
u
c
e
s

d
e
k
c
a
b
-
e
g
a
g
t
r
o
M

O
M
C
d
n
a
C
M
E
R

A
M
N
F

C
M
L
H
F

A
M
N
G

k
c
o
t
s

n
o
m
m
o
C

k
c
o
t
s

d
e
r
r
e
f
e
r
P

:
s
e
i
t
i
r
u
c
e
s
y
t
i
u
q
E

s
d
n
u
f

l
a
u
t
u
M

2
9
.
4

0
7
6
,
4

s
t
i
s
o
p
e
d
g
n
i
r
a
e
b
-
t
s
e
r
e
t
n
I

4
9
.
4

7
5
2
,
5
3
3

6
7
4
,
3
4
3

8
7
.
6
1

8
9
.
4

7
4
2
,
2
6
2

8
6
.
4

7
6
8
,
8
2

8
3
.
4

1
8
6
,
5
1

1
1
.
5

1
8
6
,
6
3

s
e
i
t
i
r
u
c
e
s

l
a
t
o
T

0
2

Sources of Funds

General. Deposits, FHLB-NY borrowings, repurchase agreements, principal and interest payments on loans,
mortgage-backed and other securities, and proceeds from sales of loans and securities are the Company’s primary
sources of funds for lending, investing and other general purposes.

Deposits. The Bank offers a variety of deposit accounts having a range of interest rates and terms. The Bank’s
deposits principally consist of savings accounts, money market accounts, demand accounts, NOW accounts and
certificates of deposit. The Bank has a relatively stable retail deposit base drawn from its market area through its twelve
full service offices. The Bank seeks to retain existing depositor relationships by offering quality service and competitive
interest rates, while keeping deposit growth within reasonable limits. It is management’s intention to balance its goal to
maintain competitive interest rates on deposits while seeking to manage its cost of funds to finance its strategies.

In November, 2006, the Bank launched “iGObanking.comTM”, an internet branch, offering savings accounts and
certificates of deposit. This will allow the Bank to compete on a national scale without the geographical constraints of
physical locations. Since the number of U.S. households with accounts at Web-only banks has grown more than tenfold
in the past six years, our strategy was to join the market place by creating a branch that offers clients the simplicity and
flexibility of a virtual online bank, which is a division of a stable, traditional bank, that was established in 1929.

In December, 2006, the Bank filed an application with the New York State Banking Department to form a new
wholly owned subsidiary, Flushing Commercial Bank, a New York State chartered commercial bank, for the limited
purpose of accepting municipal deposits and state funds in the State of New York. The commercial bank will offer a full
range of deposit products to municipalities and the State of New York, similar to the products currently being offered by
the Bank. The application was approved on March 1, 2007.

The Bank’s core deposits, consisting of passbook accounts, NOW accounts, money market accounts, and non-
interest bearing demand accounts, are typically more stable and lower costing than other sources of funding. However,
the flow of deposits into a particular type of account is influenced significantly by general economic conditions, changes
in prevailing money market and other interest rates, and competition. The Bank has seen an increase in its deposits in
each of the past three years. The nation’s economy continued to expand in 2005 and 2006. Despite the improvement in
the stock market during 2006, the Bank saw an increase in it’s due to depositors during 2006 of $296.5 million. The
Federal Reserve began increasing short-term interest rates in the second half of 2004, and continued increasing short-
term rates through June 2006. The Bank has responded by increasing interest rates paid on savings, money market and
certificate of deposit accounts. While new deposits were obtained at rates that were higher than the weighted average
cost of existing deposits, the Bank believes that by extending the term of new deposits it is better protected against future
interest rate increases. The cost of deposits increased to 3.97% in the fourth quarter of 2006 from 2.95% in the fourth
quarter of 2005. While we are unable to predict the direction of future interest rate changes, if interest rates rise during
2007, the result will be continued increases in the Company’s cost of deposits, which could reduce the Company’s net
interest margin.

Included in deposits are certificates of deposit with a balance of $100,000 or more totaling $298.9 million,

$255.3 million and $165.6 million at December 31, 2006, 2005 and 2004, respectively.

The Bank utilizes brokered deposits as an additional funding source, with $144.9 million at December 31, 2006.
Brokered deposits are marketed through national brokerage firms to their customers in $1,000 increments. The Bank
maintains only one account for the total deposit amount, while the detailed records of owners are maintained by the
brokerage firms. The Depository Trust Company is used as the clearing house, maintaining each deposit under the name
of CEDE & Co. The deposits are transferable just like a stock or bond investment and the customer can open the account
with only a phone call, just like buying a stock or bond. This provides a large deposit for the Bank at a lower operating
cost since the Bank only has one account to maintain versus several accounts with multiple interest and maturity checks.
The Bank seeks to obtain brokered deposits primarily when the interest rate on these deposits is below the prevailing
interest rate in its market.

Unlike non-brokered deposits, where the deposit amount can be withdrawn with a penalty for any reason,
including increasing interest rates, a brokered deposit can only be withdrawn in the event of the death, or court declared
mental incompetence, of the depositor. This allows the Bank to better manage the maturity of its deposits. Currently, the
rates offered by the Bank for brokered deposits are comparable to that offered for retail certificates of deposit of similar
size and maturity.

d
e
t
h
g
i
e

e
g
a
r
e
v
A

l
a
n
i
m
o
N

e
t
a
R

t
n
e
c
r
e
P

l
a
t
o
T
f
o

s
t
i
s
o
p
e
D

4
0
0
2

t
n
u
o
m
A

d
e
t
h
g
i
e

e
g
a
r
e
v
A

l
a
n
i
m
o
N

e
t
a
R

t
n
e
c
r
e
P

l
a
t
o
T
f
o

s
t
i
s
o
p
e
D

,
1
3

r
e
b
m
e
c
e
D

5
0
0
2

t
n
u
o
m
A

d
e
t
h
g
i
e

e
g
a
r
e
v
A

l
a
n
i
m
o
N

e
t
a
R

t
n
e
c
r
e
P

l
a
t
o
T
f
o

s
t
i
s
o
p
e
D

6
0
0
2

t
n
u
o
m
A

n
o

s
e
t
a
r

t
s
e
r
e
t
n
i

l
a
n
i
m
o
n

e
g
a
r
e
v
a

d
e
t
h
g
i
e
w
e
h
t

d
n
a

d
e
t
a
c
i
d
n
i

s
e
t
a
d

e
h
t

t
a

s
t
n
u
o
c
c
a

t
i
s
o
p
e
d

s
’
k
n
a
B
e
h
t

f
o

n
o
i
t
u
b
i
r
t
s
i
d

e
h
t

h
t
r
o
f

s
t
e
s

e
l
b
a
t

g
n
i
w
o
l
l
o
f

e
h
T

.
d
e
t
n
e
s
e
r
p

s
t
i
s
o
p
e
d

f
o
y
r
o
g
e
t
a
c

h
c
a
e

0
5
.
0

4
2
.
0

1
4
.
0

8
8
.
1

5
7
.
0

4
2
.
1

0
6
.
2

6
3
.
3

9
8
.
4

6
9
.
4

1
5
.
3

5
7
.
3

3
8
.
3

7
2
.
1

2
6
.
5
2

8
9
.
9
1

1
4
.
0

2
7
.
2

5
1
.
4
2

1
6
.
5

6
3
.
7
1

5
1
.
4

0
4
.
4
5

3
6
4
,
8
4

0
4
5
,
9
4

3
7
4
,
6
1

8
4
2
,
1
3
3

5
3
2
,
8
5
2

2
0
3
,
5

7
4
1
,
5
3

3
7
1
,
2
1
3

9
9
4
,
2
7

1
9
4
,
4
2
2

2
0
7
,
3
5

4
1
3
,
3
0
7

7
7
.
6
1

2
7
7
,
6
1
2

5
4
.
1

0
5
.
0

1
2
.
0

7
0
.
1

7
4
.
2

4
7
.
0

0
2
.
3

0
5
.
3

1
4
.
3

2
5
.
4

5
9
.
4

0
9
.
3

7
8
.

0
0
.
4

2
3
.
1

5
8
.
6
2

4
9
.
1
1

8
1
.

6
5
.
4

1
1
.
8
2

6
0
.
4

4
9
.
9
1

6
3
.
4

1
2
.
1
6

9
2
0

2
4

8
7
6

8
5

3
2
4

9
1

3
8
8

3
9
3

7
4
2

5
7
1

4
8
6

5
6
9

6
6

7
2
5

2
1
4

3
2
6

9
5

0
8
3

2
9
2

8
7
9

3
6

7
5
1

8
9
8

)
s
d
n
a
s
u
o
h
t

n
i

s
r
a
l
l
o
D

(

6
6
.
8
1

3
5
7

3
7
2

0
7

4
4

2
2

5
1

6
0

6
6

1
9

5
6

4
7

6
6

2
9

4
6

7
6

4
5

2
1

4
2

3
2

4
2

4
1

5
1

4
4

3
0

5
2

2
7

7
8

0
2

1
3

2
5

2
6

1
8
1

7
4

1
6
0

0
8

5
5
7

9
1

7
7
9

9
0
4

7
9
1

1
5
2

4
0
7

2
2
6

6
6
1

6
1
6

1
4
4

8
9
6

5
6

0
0
0

8
6
3

6
3
3

8
5

1
9

4
1

0
8
9

2
6
2

s
t
i
s
o
p
e
d
w
o
r
c
s
e

s
r
o
g
a
g
t
r
o
M

l
a
t
o
T

s
t
n
u
o
c
c
a

s
g
n
i
v
a
S

s
t
n
u
o
c
c
a

W
O
N

s
t
n
u
o
c
c
a

d
n
a
m
e
D

s
t
n
u
o
c
c
a

t
e
k
r
a
m
y
e
n
o
M

)
2
(

s
h
t
n
o
M
8
4

n
a
h
t

s
s
e
l

)
3
(

s
h
t
n
o
M
2
7

n
a
h
t

s
s
e
l

s
h
t
n
o
M
0
3

n
a
h
t

s
s
e
l

o
t

2
1

0
3

8
4

s
h
t
n
o
M
2
1

n
a
h
t

s
s
e
l

o
t

s
h
t
n
o
M
6

n
a
h
t

s
s
e
L

e
r
o
m

r
o
s
h
t
n
o
M
2
7

s
t
n
u
o
c
c
a

t
i
s
o
p
e
d

f
o

e
t
a
c
i
f
i
t
r
e
C

:
f
o
s
e
i
r
u
t
a
m

l
a
n
i
g
i
r
o

h
t
i

9
3
.
2

0
0
.
0
0
1

7
9
7
,
2
9
2
,
1

7
9
.
2

0
0
.
0
0
1

7
8
2

7
6
4

5
7

0
0

0
0
1

0
5
1

4
6
7

)
1
(

s
t
i
s
o
p
e
d
l
a
t
o
T

.
y
l
e
v
i
t
c
e
p
s
e
r

,
4
0
0
2

d
n
a

5
0
0
2
,
6
0
0
2
,
1
3
r
e
b
m
e
c
e
D

t
a

n
o
i
l
l
i

m
9
.
2
6
1
$

d
n
a

n
o
i
l
l
i

m
9
.
0
7
1
$
,
n
o
i
l
l
i

m
0
.
7
7
1
$
g
n
i
l
a
t
o
t

s
t
i
s
o
p
e
d
h
g
o
e
K
d
n
a
A
R

e
r
a

s
e
c
n
a
l
a
b
e
v
o
b
a

e
h
t
n
i
d
e
d
u
l
c
n
I

.
y
l
e
v
i
t
c
e
p
s
e
r

,
5
0
0
2
d
n
a
6
0
0
2
,
1
3
r
e
b
m
e
c
e
D

.
y
l
e
v
i
t
c
e
p
s
e
r

,
5
0
0
2
d
n
a
6
0
0
2
,
1
3
r
e
b
m
e
c
e
D

2
2

t
a
n
o
i
l
l
i

m
5
.
1
1
$
d
n
a
n
o
i
l
l
i

m
4
.
6
4
$

t
a
n
o
i
l
l
i

m
8
.
9
1
$
d
n
a
n
o
i
l
l
i

m
5
.
8
9
$

f
o
s
t
i
s
o
p
e
d
d
e
r
e
k
o
r
b
s
e
d
u
l
c
n
I

)
1
(

)
2
(

)
3
(

6
7
9

2
0
1

s
t
n
u
o
c
c
a

t
i
s
o
p
e
d

f
o

e
t
a
c
i
f
i
t
r
e
c

l
a
t
o
T

The following table presents by various rate categories, the amount of time deposit accounts outstanding at the

dates indicated, and the years to maturity of the certificate accounts outstanding at December 31, 2006.

At December 31,
2005

2006

2004

Within
One Year
(In thousands)

At December 31, 2006
One to
Three Years

Thereafter

Total

Interest rate:
1.99% or less
2.00% to 2.99%
3.00% to 3.99%
4.00% to 4.99%
(1)
5.00% to 5.99% (2)
6.00% to 6.99%
7.00% to 7.99%
Total

49,953
9,630
114,487
382,060
542,524
302
4,020
1,102,976

70,762
20,044
336,757
379,327
83,925
3,007
4,335
898,157

121,676
62,457
297,300
118,212
42,772
35,874
25,023
703,314

43,271
4,739
38,660
192,743
342,653
302
3,388
625,756

6,682
4,714
61,215
85,651
57,683
-
632
216,577

$
-
177
14,612
103,666
142,188
-
-
260,643

49,953
9,630
114,487
382,060
542,524
302
4,020
1,102,976

(1)
(2)

Includes brokered deposits of $51.0 million and $31.3 million at December 31, 2006 and 2005, respectively.
Includes brokered deposits of $93.9 million at December 31, 2006.

The following table presents by remaining maturity categories the amount of certificate of deposit accounts with

balances of $100,000 or more at December 31, 2006 and their annualized weighted average interest rates.

Amount

Weighted
Average Rate

(Dollars in thousands)

Maturity Period:

Three months or less
Over three through six months
Over six through 12 months
Over 12 months

Total

63,667
75,271
71,158
88,834
298,930

4.95
4.90
4.86
4.63
4.82

The above table does not include brokered deposits of $144.9 million with a weighted average rate of 4.98%.

The following table presents the deposit activity, including mortgagors’ escrow deposits, of the Bank for the

periods indicated.

2006

For the year ended December 31,
2005

2004

93,916
-
-
28,972
122,888

Net deposits
Acquired with Atlantic Liberty
Amortization of premiums, net
Interest on deposits

Net increase in deposits

133,240
106,766
464
56,393
296,863

(In thousands)
$
139,833
-
-
34,657
174,490

The following table sets forth the distribution of the Bank’s average deposit accounts for the years indicated, the
percentage of total deposit portfolio, and the average interest cost of each deposit category presented. Average balances
for all years shown are derived from daily balances.

2006
Percent
of Total
Deposits

Average
Balance

Average
Cost

For the years ended December 31,
2005
Percent
of Total
Deposits
(Dollars in thousands)

Average
Cost

Average
Balance

2004
Percent
of Total
Deposits

Average
Balance

Average
Cost

Savings accounts

265,421

16.23

1.52

241,121

17.98

0.92

218,336

17.43

0.50

NOW accounts

Demand accounts

Mortgagors' escrow

deposits

Total

Money market
accounts

Certificate of deposit

43,052

60,991

2.63

3.73

29,275

1.79

398,739

24.38

235,642

14.41

accounts

1,001,438

61.21

0.47

0.22

1.08

3.74

4.37

43,133

52,017

3.22

3.88

27,337

2.04

363,608

27.12

228,818

17.06

748,747

55.82

0.50

0.21

0.69

2.27

3.60

44,103

45,093

3.52

3.60

20,482

1.64

328,014

26.19

279,952

22.36

644,328

51.45

0.50

0.24

0.42

1.83

3.49

Total deposits

1,635,819

100.00

3.48

1,341,173

100.00

2.58

1,252,294

100.00

2.31

Borrowings. Although deposits are the Bank’s primary source of funds, the Bank also uses borrowings as an alternative
and cost effective source of funds for lending, investing and other general purposes. The Bank is a member of, and is
eligible to obtain advances from, the FHLB-NY. Such advances generally are secured by a blanket lien against the
Bank’s mortgage portfolio and the Bank’s investment in the stock of the FHLB-NY. In addition, the Bank may pledge
mortgage-backed securities to obtain advances from the FHLB-NY. See “— Regulation — Federal Home Loan Bank
System.” The maximum amount that the FHLB-NY will advance for purposes other than for meeting withdrawals
fluctuates from time to time in accordance with the policies of the FHLB-NY. The Bank also enters into repurchase
agreements with broker-dealers and the FHLB-NY. These agreements are recorded as financing transactions and the
obligations to repurchase are reflected as a liability in the Company’s consolidated financial statements. In addition, the
Holding Company issued $20.6 million of junior subordinated debentures in July 2003. The average cost of borrowed
funds was 4.73%, 4.33% and 4.01% for the years ended December 31, 2006, 2005 and 2004, respectively. The average
balances of borrowed funds were $715.3 million, $683.0 million and $580.6 million for the same years, respectively.

The following table sets forth certain information regarding the Company’s borrowed funds at or for the

periods ended on the dates indicated.

2006

At or for the years ended December 31,
2005
(Dollars in thousands)

2004

Securities Sold with the Agreement to Repurchase
Average balance outstanding
Maximum amount outstanding at any month

end during the period

Balance outstanding at the end of period
Weighted average interest rate during the period
Weighted average interest rate at end of period

FHLB-NY Advances
Average balance outstanding
Maximum amount outstanding at any month

end during the period

Balance outstanding at the end of period
Weighted average interest rate during the period
Weighted average interest rate at end of period

Other Borrowings
Average balance outstanding
Maximum amount outstanding at any month

end during the period

Balance outstanding at the end of period
Weighted average interest rate during the period
Weighted average interest rate at end of period

Total Borrowings
Average balance outstanding
Maximum amount outstanding at any month

end during the period

Balance outstanding at the end of period
Weighted average interest rate during the period
Weighted average interest rate at end of period

207,955

210,174

194,610

238,900
223,900
4.70
4.91

213,900
178,900
4.25
4.43

213,900
213,900
4.23
4.22

486,750

452,246

365,321

587,894
587,894
4.56
4.63

524,198
490,191
4.23
4.40

399,240
350,217
3.82
3.90

20,619

20,619
20,619
9.00
9.02

20,619
20,619
7.21
7.80

20,619
20,619
5.13
5.72

715,324

683,039

580,550

832,413
832,413
4.73
4.81

758,717
689,710
4.33
4.51

614,749
584,736
4.01
4.08

Subsidiary Activities

At December 31, 2006, the Holding Company had two wholly owned subsidiaries: the Bank and the Trust. In
addition, the Bank had three wholly owned subsidiaries: FSB Properties, Inc. (“Properties”), Flushing Preferred Funding
Corporation (“FPFC”), and Flushing Service Corporation.

(a)

Properties was formed in 1976 under the Bank’s New York State leeway investment authority. The
original purpose of Properties was to engage in joint venture real estate equity investments. The Bank discontinued these
activities in 1986. The last joint venture in which Properties was a partner was dissolved in 1989. The last remaining
property acquired by the dissolution of these joint ventures was disposed of in 1998.

(b)

FPFC was formed in 1997 as a real estate investment trust for the purpose of acquiring, holding and
managing real estate mortgage assets. FPFC also provides an additional vehicle for access by the Company to the capital
markets for future opportunities.

(c)

Flushing Service Corporation was formed in 1998 to market insurance products and mutual funds.

Personnel

At December 31, 2006, the Bank had 260 full-time employees and 64 part-time employees. None of the Bank’s
employees are represented by a collective bargaining unit, and the Bank considers its relationship with its employees to
be good. At the present time, the Holding Company only employs certain officers of the Bank. These employees do not
receive any extra compensation as officers of the Holding Company.

Omnibus Incentive Plan

The 2005 Omnibus Incentive Plan (“Omnibus Plan”) became effective on May 17, 2005 after adoption by the
Board of Directors and approval by the stockholders. The Omnibus Plan authorizes the Compensation Committee to
grant a variety of equity compensation awards as well as long-term and annual cash incentive awards, all of which can be
structured so as to comply with Section 162(m) of the Internal Revenue Code. As of December 31, 2006, there are
129,566 shares available under the full value award plan and 632,152 shares under the non-full value plan. The
Company has applied the shares previously authorized by stockholders under the 1996 Stock Option Incentive Plan and
the 1996 Restricted Stock Incentive Plan for use under the non-full value and full value plans, respectively, for future
awards under the Omnibus Plan. All grants and awards under the 1996 Stock Option Incentive Plan and 1996 Restricted
Stock Incentive Plan prior to the effective date of the Omnibus Plan remain outstanding as issued. The Company will
continue to maintain separate pools of available shares for full value as opposed to non-full value awards, except that
shares can be moved from the non-full value pool to the full value pool on a 3-for-1 basis. The exercise price per share of
a stock option grant may not be less than the fair market value of the common stock of the Company on the date of grant,
and may not be repriced without the approval of the Company’s stockholders. Options, stock appreciation rights,
restricted stock, restricted stock units and other stock based awards granted under the Omnibus Plan are generally subject
to a minimum vesting period of three years. The Omnibus Plan increased the annual grants to each non-employee
director to 3,600 restricted stock units, while eliminating grants of stock options for non-employee directors. Prior to the
approval of the 2006 Omnibus Plan non-employee directors were annually granted 1,687 restricted stock unit awards and
14,850 stock options. This change provided an expense benefit in 2006, as we began expensing stock options grants as
required by SFAS No. 123 R, Share-Based Compensation.

For additional information concerning this plan, see “Note 9 of Notes to Consolidated Financial Statements” in

Item 8 of this Annual Report.

FEDERAL, STATE AND LOCAL TAXATION

The following discussion of tax matters is intended only as a summary and does not purport to be a

comprehensive description of the tax rules applicable to the Company.

Federal Taxation

General. The Company reports its income using a calendar year and the accrual method of accounting. The
Company is subject to the federal tax laws and regulations which apply to corporations generally, as well as, since the
enactment of the Small Business Job Protection Act of 1996 (the “Act”), those governing the Bank’s deductions for bad
debts, described below.

Bad Debt Reserves. Prior to the enactment of the Act, which was signed into law on August 20, 1996, savings
institutions which met certain definitional tests primarily relating to their assets and the nature of their business
(“qualifying thrifts”), such as the Bank, were allowed deductions for bad debts under methods more favorable than those
granted to other taxpayers. Qualifying thrifts could compute deductions for bad debts using either the specific charge off
method of Section 166 of the Internal Revenue Code (the “Code”) or the reserve method of Section 593 of the Code.
Section 1616(a) of the Act repealed the Section 593 reserve method of accounting for bad debts by qualifying thrifts,
effective for taxable years beginning after 1995. Qualifying thrifts that are treated as large banks, such as the Bank, are
required to use the specific charge off method, pursuant to which the amount of any debt may be deducted only as it
actually becomes wholly or partially worthless.

Distributions. To the extent that the Bank makes “non-dividend distributions” to stockholders that are
considered to result in distributions from its pre-1988 reserves or the supplemental reserve for losses on loans (“excess
distributions”), then an amount based on the amount distributed will be included in the Bank’s taxable income. Non-
dividend distributions include distributions in excess of the Bank’s current and post-1951 accumulated earnings and
profits, as calculated for federal income tax purposes, distributions in redemption of stock and distributions in partial or
complete liquidation. The amount of additional taxable income resulting from an excess distribution is an amount that
when reduced by the tax attributable to the income is equal to the amount of the excess distribution. Thus, slightly more
than one and one-half times the amount of the excess distribution made would be includable in gross income for federal
income tax purposes, assuming a 35% federal corporate income tax rate. See “Regulation ⎯ Restrictions on Dividends

and Capital Distributions” for limits on the payment of dividends by the Bank. The Bank does not intend to pay
dividends or make non-dividend distributions described above that would result in a recapture of any portion of its pre-
1988 bad debt reserves.

Corporate Alternative Minimum Tax. The Code imposes an alternative minimum tax on corporations equal to
the excess, if any, of 20% of alternative minimum taxable income (“AMTI”) over a corporation’s regular federal income
tax liability. AMTI is equal to taxable income with certain adjustments. Generally, only 90% of AMTI can be offset by
net operating loss carrybacks and carryforwards.

State and Local Taxation

New York State and New York City Taxation. The Company is subject to the New York State Franchise Tax on
Banking Corporations in an annual amount equal to the greater of (1) 7.5% of “entire net income” allocable to New York
State during the taxable year or (2) the applicable alternative minimum tax. The alternative minimum tax is generally the
greater of (a) 0.01% of the value of assets allocable to New York State with certain modifications, (b) 3% of “alternative
entire net income” allocable to New York State or (c) $250. Entire net income is similar to federal taxable income,
subject to certain modifications, including that net operating losses arising during any taxable year prior to January 1,
2001 cannot be carried back or carried forward, and net operating losses arising during any taxable year beginning on or
after January 1, 2001 cannot be carried back. Alternative entire net income is equal to entire net income without certain
deductions which are allowable in the calculation of entire net income. The Company also is subject to a similarly
calculated New York City tax of 9% on income allocated to New York City (although net operating losses cannot be
carried back or carried forward regardless of when they arise) and similar alternative taxes. In addition, the Company is
subject to a tax surcharge at a rate of 17% of the New York State Franchise Tax that is attributable to business activity
carried on within the Metropolitan Commuter Transportation District. This tax surcharge is assessed as if the New York
State Franchise tax is imposed at a 9% rate.

Notwithstanding the repeal of the federal income tax provisions permitting bad debt deductions under the
reserve method, New York State has enacted legislation maintaining the preferential treatment of additional loss reserves
for qualifying real property and non-qualifying loans of qualifying thrifts for both New York State and New York City
tax purposes. Calculation of the amount of additions to reserves for qualifying real property loans is limited to the larger
of the amount derived by the percentage of taxable income method or the experience method. For these purposes, the
applicable percentage to calculate the bad debt deduction under the percentage of taxable income method is 32% of
taxable income, reduced by additions to reserves for non-qualifying loans, except that the amount of the addition to the
reserve cannot exceed the amount necessary to increase the balance of the reserve for losses on qualifying real property
loans at the close of the taxable year to 6% of the balance of the qualifying real property loans outstanding at the end of
the taxable year. Under the experience method, the maximum addition to a loan reserve generally equals the amount
necessary to increase the balance of the bad debt reserve at the close of the taxable year to the greater of (1) the amount
that bears the same ratio to loans outstanding at the close of the taxable year as the total net bad debts sustained during
the current and five preceding taxable years bears to the sum of the loans outstanding at the close of those six years, or
(2) the balance of the bad debt reserve at the close of the “base year,” or, if the amount of loans outstanding has declined
since the base year, the amount which bears the same ratio to the amount of loans outstanding at the close of the taxable
year as the balance of the reserve at the close of the base year. For these purposes, the “base year” is the last taxable year
beginning before 1988. The amount of additions to reserves for non-qualifying loans is computed under the experience
method. In no event may the additions to reserves for qualifying real property loans be greater than the larger of the
amount determined under the experience method or the amount which, when added to the additions to reserves for non-
qualifying loans, equal the amount by which 12% of the total deposits or withdrawable accounts of depositors of the
Bank at the close of the taxable year exceeds the sum of the Bank’s surplus, undivided profits and reserves at the
beginning of such year.

Delaware State Taxation. As a Delaware holding company not earning income in Delaware, the Company is
exempt from Delaware corporate income tax but is required to file an annual report with and pay an annual franchise tax
to the State of Delaware.

General

REGULATION

The Holding Company is registered with the OTS as a savings and loan holding company and is subject to OTS
regulations, examinations, supervision and reporting requirements. In addition, the OTS has enforcement authority over
the Company and any non-savings institution subsidiaries it may form or acquire. Among other things, this authority
permits the OTS to restrict or prohibit activities that it determines may pose a serious risk to the Bank. As a publicly
owned company, the Company is required to file certain reports with the Securities and Exchange Commission (“SEC”)
under federal securities laws. The Bank is a member of the FHLB System. The Bank is subject to extensive regulation by
27

the OTS, as its chartering agency, and the FDIC, as the insurer of the Bank’s deposits. The Bank is also subject to certain
regulations promulgated by the other federal agencies. The Bank must file reports with the OTS and the FDIC
concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with or acquisitions of other savings institutions. The Bank is subject to periodic
examinations by the OTS and the FDIC to examine whether the Bank is in compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily to ensure the safe and sound operation of the Bank for the protection of
the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination policies, including policies with respect to
the classification of assets and the establishment of an adequate allowance for possible loan losses for regulatory
purposes. Any change in such regulation, whether by the OTS, the FDIC, other federal agencies or the United States
Congress, could have a material adverse impact on the Company, the Bank and their operations.

The activities of federal savings institutions are governed primarily by the Home Owners’ Loan Act, as
amended (“HOLA”) and, in certain respects, the Federal Deposit Insurance Act (“FDIA”). Most regulatory functions
relating to deposit insurance and to the administration of conservatorships and receiverships of insured institutions are
exercised by the FDIC. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among other
things, requires that federal banking regulators intervene promptly when a depository institution experiences financial
difficulties, mandated the establishment of a risk-based deposit insurance assessment system, and required imposition of
numerous additional safety and soundness operational standards and restrictions. FDICIA and the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) each contain provisions affecting numerous aspects of the
operations and regulations of federal savings banks, and these laws empower the OTS and the FDIC, among other
agencies, to promulgate regulations implementing their provisions.

Set forth below is a brief description of certain laws and regulations which relate to the regulation of the Bank
and the Company. The description does not purport to be a comprehensive description of applicable laws, rules and
regulations and is qualified in its entirety by reference to applicable laws, rules and regulations.

Holding Company Regulation

The Company is a unitary savings and loan holding company within the meaning of the HOLA. As such, the
Company is required to register with the OTS and is subject to OTS regulations, examinations, supervision and reporting
requirements. In addition, the OTS has enforcement authority over the Company and any non-savings institution
subsidiaries it may form or acquire. Among other things, this authority permits the OTS to restrict or prohibit activities
that it determines may pose a serious risk to the Bank. See “—Restrictions on Dividends and Capital Distributions.”

HOLA prohibits a savings and loan holding company, directly or indirectly, or through one or more
subsidiaries, from (1) acquiring another savings institution or holding company thereof, without prior written approval of
the OTS; (2) acquiring or retaining, with certain exceptions, more than 5% of a non-subsidiary savings institution, a non-
subsidiary holding company, or a non-subsidiary company engaged in activities other than those permitted by HOLA; or
(3) acquiring or retaining control of a depository institution that is not federally insured. In evaluating applications by
holding companies to acquire savings institutions, the OTS will consider the financial and managerial resources and
future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance funds,
the convenience and needs of the community, and the impact of any competitive factors that may be involved.

As a unitary savings and loan holding company, the Company currently is not restricted as to the types of
business activities in which it may engage, provided that the Bank continues to meet the qualified thrift lender (“QTL”)
test. See “—Qualified Thrift Lender Test.” Upon any non-supervisory acquisition by the Company of another savings
association or savings bank, the Company would become a multiple savings and loan holding company (if the acquired
institution is held as a separate subsidiary) and would be subject to extensive limitations on the types of business
activities in which it could engage. HOLA limits the activities of a multiple savings and loan holding company and its
non-insured institution subsidiaries primarily to activities permissible for bank holding companies under Section 4(c)(8)
of the Bank Holding Company Act, subject to the prior approval of the OTS, and activities authorized by OTS
regulation.

The OTS is prohibited from approving any acquisition that would result in a multiple savings and loan holding
company controlling savings institutions in more than one state, subject to two exceptions: (1) emergency acquisitions
authorized by the FDIC and (2) the acquisition of a savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. Under New York law, reciprocal interstate acquisitions are
authorized for savings and loan holding companies and savings institutions. Certain states do not authorize interstate
acquisitions under any circumstances; however, federal law authorizing acquisitions in supervisory cases preempts such
state law.

Federal law generally provides that no “person” acting directly or indirectly or through or in concert with one or
more other persons, may acquire “control,” as that term is defined in OTS regulations, of a federally insured savings
institution without giving at least 60 days’ written notice to the OTS and providing the OTS an opportunity to disapprove
the proposed acquisition. Such acquisitions of control may be disapproved if it is determined, among other things, that
(1) the acquisition would substantially lessen competition; (2) the financial condition of the acquiring person might
jeopardize the financial stability of the savings institution or prejudice the interests of its depositors; or (3) the
competency, experience or integrity of the acquiring person or the proposed management personnel indicates that it
would not be in the interest of the depositors or the public to permit the acquisition of control by such person.

Investment Powers

The Bank is subject to comprehensive regulation governing its investments and activities. Among other things,
the Bank may invest in (1) residential mortgage loans, mortgage-backed securities, education loans and credit card loans
in an unlimited amount, (2) non-residential real estate loans up to 400% of total capital, (3) commercial business loans
up to 20% of total assets (however, amounts over 10% of total assets must be used only for small business loans) and (4)
in general, consumer loans and highly rated commercial paper and corporate debt securities in the aggregate up to 35%
of total assets. In addition, the Bank may invest up to 3% of its total assets in service corporations, an unlimited
percentage of its assets in operating subsidiaries (which may only engage in activities permissible for the Bank itself) and
under certain conditions may invest in finance subsidiaries. Other than investments in service corporations, operating
subsidiaries, finance subsidiaries and certain government-sponsored enterprises, such as FHLMC and FNMA, the Bank
generally is not permitted to make equity investments. See “— General — Investment Activities.” A service corporation
in which the Bank may invest is permitted to engage in activities that a federal savings bank may conduct directly, other
than taking deposits, as well as certain activities pre-approved by the OTS, which include providing certain support
services for the institution; originating, investing in, selling, purchasing, servicing or otherwise dealing with specified
types of loans and participations (principally loans that the parent institution could make); specified real estate activities,
including limited real estate development; securities brokerage services; certain insurance brokerage activities; and other
specified investments and services.

Real Estate Lending Standards

FDICIA requires each federal banking agency to adopt uniform regulations prescribing standards for extensions
of credit which are either (1) secured by real estate, or (2) made for the purpose of financing the construction of
improvements on real estate. In prescribing these standards, the banking agencies must consider the risk posed to the
deposit insurance funds by real estate loans, the need for safe and sound operation of insured depository institutions and
the availability of credit. The OTS and the other federal banking agencies adopted uniform regulations, effective March
19, 1993. The OTS regulation requires each savings association to establish and maintain written internal real estate
lending standards consistent with safe and sound banking practices and appropriate to the size of the institution and the
nature and scope of its real estate lending activities. The policy must also be consistent with accompanying OTS
guidelines, which include maximum loan-to-value ratios for the following types of real estate loans: raw land (65%),
land development (75%), nonresidential construction (80%), improved property (85%) and one-to-four family residential
construction (85%). Owner-occupied one-to-four family mortgage loans and home equity loans do not have maximum
loan-to-value ratio limits, but owner-occupied one-to-four family mortgage loans with a loan-to-value ratio at origination
of 90% or greater are to be backed by private mortgage insurance or readily marketable collateral. Institutions are also
permitted to make a limited amount of loans that do not conform to the proposed loan-to-value limitations so long as
such exceptions are appropriately reviewed and justified. The guidelines also list a number of lending situations in which
exceptions to the loan-to-value standard are justified.

Loans-to-One Borrower Limits

The Bank generally is subject to the same loans-to-one borrower limits that apply to national banks. With
certain exceptions, total loans and extensions of credit outstanding at one time to one borrower (including certain related
entities of the borrower) may not exceed, for loans not fully secured, 15% of the Bank’s unimpaired capital and
unimpaired surplus, plus, for loans fully secured by readily marketable collateral, an additional 10% of the Bank’s
unimpaired capital and unimpaired surplus. At December 31, 2006, the largest amount the Bank could lend to one
borrower was approximately $30.8 million, and at that date, the Bank’s largest aggregate amount of loans-to-one
borrower was $29.1 million, all of which were performing according to their terms. See “— General — Lending
Activities.”

Insurance of Accounts

The deposits of the Bank are insured up to $100,000 per depositor, excluding retirement accounts, which are
insured up to $250,000 per depositor, (as defined by federal law and regulations) by the FDIC. All of the Bank’s deposits
are presently insured by the FDIC under the Deposit Insurance Fund (“DIF”). Previously, the majority of the Bank’s
29

deposits were insured by the Bank Insurance Fund (“BIF”), and the remainder by the Savings Association Insurance
Fund (“SAIF”). As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, insured
institutions. It also may prohibit any insured institution from engaging in any activity the FDIC determines by regulation
or order to pose a serious threat to the insurance fund. The FDIC also has the authority to initiate enforcement actions
where the OTS has failed or declined to take such action after receiving a request to do so from the FDIC.

On February 8, 2006, as part of the Deficit Reduction Act of 2005, the Federal Deposit Insurance Reform Act of
2005 (“Deposit Act”) was enacted. The Deposit Act required the FDIC to merge the BIF and SAIF into a new insurance
fund, the DIF, no later than July 1, 2006. The funds were merged on March 31, 2006. The FDIC was also required to
propose regulations to implement the Deposit Act’s provisions. These regulations have been finalized and became
effective January 1, 2007. Other major provisions of the Deposit Act include: (1) maintaining basic deposit insurance
coverage at $100,000, and increasing deposit insurance coverage to $250,000 for certain retirement accounts, with
increases for inflation each five years beginning in 2011, (2) giving the FDIC flexibility to manage the insurance fund by
setting the designated reserve ratio between 1.15% and 1.50% (thereby eliminating the 1.25% trigger), (3) requiring all
banks to be assessed premiums, (4) providing a one-time assessment credit of $4.7 billion to banks and savings
institutions in existence on December 31, 1996, that capitalized the FDIC in the 1990s to offset future premiums under a
new risk-based assessment system, and (5) imposing a cap on the growth of the insurance fund by requiring a premium
dividend to institutions when certain levels of the DIF are exceeded.

The FDIC utilizes a risk-based deposit insurance assessment system. Through December 31, 2006, under this
system, the FDIC assigned each institution to one of three capital categories — “well capitalized,” “adequately
capitalized” and “undercapitalized” — which are defined in the same manner as the regulations establishing the prompt
corrective action system under Section 38 of FDIA, as discussed below. These three categories were then divided into
three subcategories which reflect varying levels of supervisory concern. The matrix so created resulted in nine
assessment risk classifications. Effective January 1, 2007, the FDIC revised their risk-based deposit insurance
assessment system. The FDIC now places institutions into four risk categories based upon supervisory and capital
evaluations. Risk Category 1 is further subdivided based upon supervisory ratings and other risk measures to
differentiate risk. At December 31, 2006, the Bank’s annual assessment rate was 0.00%. This assessment rate for 2007 is
0.05%, which is the lowest assessment rate set by the FDIC for 2007. The Bank was provided a one-time assessment
credit of $1.1 million, which may be used to offset a portion of the FDIC assessment. The Bank’s assessment rate in
effect from time to time will depend upon the risk category to which it is assigned. In addition, the FDIC is authorized to
increase federal deposit insurance assessment rates to the extent necessary to protect the fund under current law. Any
increase in deposit insurance assessment rates, as a result of a change in the category or subcategory to which the Bank is
assigned or the exercise of the FDIC’s authority to increase assessment rates generally, could have an adverse effect on
the earnings of the Bank.

Under the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that the institution has
engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. The management of the Bank does not know of
any practice, condition or violation that might lead to termination of deposit insurance.

On September 30, 1996, as part of an omnibus appropriations bill, the Deposit Insurance Funds Act of 1996 (the
“Funds Act”) was enacted. The Funds Act required BIF institutions, beginning January 1, 1997, to pay a portion of the
interest due on the Finance Corporation (“FICO”) bonds issued in connection with the savings and loan association crisis
in the late 1980s, and required BIF institutions to pay their full pro rata share of the FICO payments starting the earlier of
January 1, 2000 or the date at which no savings institution continues to exist. The Bank was required, as of January 1,
2000, to pay its full pro rata share of the FICO payments. The FICO assessment rate is subject to change. The Bank paid
$191,000, $179,000 and $178,000 for its share of the interest due on FICO bonds in 2006, 2005 and 2004, respectively.

Qualified Thrift Lender Test

Institutions regulated by the OTS are required to meet a QTL test to avoid certain restrictions on their
operations. FDICIA and applicable OTS regulations require such institutions to maintain at least 65% of their portfolio
assets (total assets less intangibles, properties used to conduct the institution’s business and liquid assets not exceeding
20% of total assets) in “qualified thrift investments” on a monthly average basis in nine of every 12 months. Qualified
thrift investments constitute primarily residential mortgage loans and related investments, including certain mortgage-
backed and mortgage-related securities. A savings institution that fails the QTL test must either convert to a bank charter
or, in general, it will be prohibited from: (1) making an investment or engaging in any new activity not permissible for a
national bank, (2) paying dividends not permissible under national bank regulations and (3) establishing any new branch
office in a location not permissible for a national bank in the institution’s home state. One year following the institution’s
failure to meet the QTL test, any holding company parent of the institution must register and be subject to supervision as
a bank holding company. In addition, beginning three years after the institution failed the QTL test, the institution would
30

be prohibited from retaining any investment or engaging in any activity not permissible for a national bank. At
December 31, 2006 the Bank had maintained more than 65% of its “portfolio assets” in qualified thrift investments in at
least nine of the preceding 12 months. Accordingly, on that date, the Bank had met the QTL test.

Under the Economic Growth and Paperwork Reduction Act of 1996 (“Regulatory Paperwork Reduction Act”),
Congress modified and expanded investment authority under the QTL test. The Regulatory Paperwork Reduction Act
amendments permit federal thrifts to invest in, sell, or otherwise deal in education and credit card loans without
limitation and raised from 10% to 20% of total assets the aggregate amount of commercial, corporate, business, or
agricultural loans or investments that may be made by a thrift, subject to a requirement that amounts in excess of 10% of
total assets be used only for small business loans. In addition, the Regulatory Paperwork Reduction Act defines
“qualified thrift investment” to include, without limit, education, small business, and credit card loans; and removes the
10% limit on personal, family, or household loans for purposes of the QTL test. The legislation also provides that a
thrift meets the QTL test if it qualifies as a domestic building and loan association under the Code.

Transactions with Affiliates

Transactions between the Bank and any related party or “affiliate” are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate is generally any company or entity which controls, is controlled by or is under common
control with the Bank, including the Company, the Trust, the Bank’s subsidiaries, and any other qualifying subsidiary of
the Bank or the Company that may be formed or acquired in the future. Generally, Sections 23A and 23B: (1) limit the
extent to which the Bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount
equal to 10% of the Bank’s capital stock and surplus, and impose an aggregate limit on all such transactions with all
affiliates to an amount equal to 20% of such capital stock and surplus, and (2) require that all such transactions be on
terms substantially the same, or at least as favorable, to the Bank or subsidiary as those provided to a non-affiliate. The
term “covered transaction” includes the making of loans, purchase of assets, issuance of a guarantee and other similar
types of transactions. Each loan or extension of credit to an affiliate by the Bank must be secured by collateral with a
market value ranging from 100% to 130% (depending on the type of collateral) of the amount of credit extended. In
addition, the Bank may not: (1) loan or otherwise extend credit to an affiliate, except to any affiliate which engages only
in activities which are permissible for bank holding companies under Section 4(c) of the Bank Company Act, or (2)
purchase or invest in any stocks, bonds, debentures, notes or similar obligations of any affiliates, except subsidiaries of
the Bank.

In addition, the Bank is subject to Regulation O promulgated under Sections 22(g) and 22(h) of the Federal
Reserve Act. Regulation O requires that loans by the Bank to a director, executive officer or to a holder of more than
10% of the Common Stock, and to certain affiliated interests of any such insider, may not, in the aggregate, exceed the
Bank’s loans-to-one borrower limit. Loans to insiders and their related interests must also be made on terms substantially
the same as offered, and follow credit underwriting procedures that are not less stringent than those applied, in
comparable transactions to other persons. Prior Board approval is required for certain loans. In addition, the aggregate
amount of extensions of credit by the Bank to all insiders cannot exceed the institution’s unimpaired capital and
unimpaired surplus. These laws place additional restrictions on loans to executive officers of the Bank.

The Bank is in compliance with these regulations.

Restrictions on Dividends and Capital Distributions

The Bank is subject to OTS limitations on capital distributions, which include cash dividends, stock
redemptions or repurchases, cash-out mergers, interest payments on certain convertible debt and some other distributions
charged to the Bank’s capital account. In general, the applicable regulation permits specified levels of capital
distributions by a savings institution that meets at least its minimum capital requirements, so long as the OTS is provided
with at least 30 days’ advance notice and has no objection to the distribution.

Under OTS capital distribution regulations, an institution is not required to file an application with, or to
provide a notice to, the OTS if neither the institution nor the proposed capital distribution meets any of the criteria for
any such application or notice as provided below. An institution will be required to file an application with the OTS if
the institution is not eligible for expedited treatment by the OTS; if the total amount of all its capital distributions for the
applicable calendar year exceeds the net income for that year to date plus the retained net income (net income less capital
distributions) for the preceding two years; if it would not be at least adequately capitalized following the distribution; or
if its proposed capital distribution would violate a prohibition contained in any applicable statute, regulation, or
agreement between the association and the OTS. By contrast, only notice to the OTS is required for an institution that is
not required to file an application as provided in the preceding sentence, if it would not be well capitalized following the
distribution; if the association’s proposed capital distribution would reduce the amount of or retire any part of its
common or preferred stock or retire any part of debt instruments such as notes or debentures included in capital under
OTS regulations; or if the association is a subsidiary of a savings and loan holding company. The Bank is a subsidiary of
31

a savings and loan holding company and, therefore, is subject to the 30-day advance notice requirement. As of
December 31, 2006, the Bank had $14.1 million in retained earnings available to distribute to the Holding Company in
the form of cash dividends.

Federal Home Loan Bank System

In connection with converting to a federal charter, the Bank became a member of the FHLB-NY, which is one
of 12 regional FHLB’s governed and regulated by the Federal Housing Finance Board. Each FHLB serves as a source of
liquidity for its members within its assigned region. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by its Board of Directors.

As a member, the Bank is mandated to purchase and maintain membership stock in the FHLB-NY based on the
asset size of the Bank. In addition, for all borrowing activity, the Bank is required to purchase shares of FHLB-NY non-
marketable capital stock at par. Pursuant to this requirement, at December 31, 2006, the Bank was required to maintain
$36.2 million of FHLB-NY stock. The Bank was in compliance with this requirement at that time.

Assessments

Savings institutions are required by OTS regulations to pay assessments to the OTS to fund the operations of the
OTS. The general assessment, paid on a semi-annual basis, as determined from time to time by the Director of the OTS,
is computed upon the savings institution’s total assets, including consolidated subsidiaries, as reported in the institution’s
latest quarterly thrift financial report. Based on the average balance of the Bank’s total assets for the year ended
December 31, 2006, the Bank’s OTS assessments were $425,000 for that period.

Branching

OTS regulations permit federally chartered savings institutions to branch nationwide to the extent allowed by
federal statute. This permits federal savings associations to geographically diversify their loan portfolios and lines of
business. The OTS authority preempts any state law purporting to regulate branching by federal savings institutions.

Community Reinvestment

Under the Community Reinvestment Act (“CRA”), as implemented by OTS regulations, the Bank has an
obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including
low and moderate income neighborhoods located in the community. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of
products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings institution, to assess the institution’s record of meeting
the credit needs of its community and to take such record into account in its evaluation of certain applications by the
institution. The methodology used by the OTS for determining an institution’s compliance with the CRA focuses on
three tests: (a) a lending test, to evaluate the institution’s record of making loans in its service areas; (b) an investment
test, to evaluate the institution’s record of investing in community development projects, affordable housing, and
programs benefiting low or moderate income individuals and businesses; and (c) a service test, to evaluate the range of
the institution’s services and the delivery of services through its branches, ATMs, and other offices. The Bank received a
CRA rating of “Satisfactory” in its most recent completed CRA examination, which was completed as of November 5,
2004. Institutions that receive less than a satisfactory rating may face difficulties in securing approval for new activities
or acquisitions. The CRA requires all institutions to make public disclosure of their CRA ratings.

Brokered Deposits

The FDIC has promulgated regulations implementing the FDICIA limitations on brokered deposits. Under the
regulations, well-capitalized institutions are not subject to brokered deposit limitations, while adequately capitalized
institutions are able to accept, renew or roll over brokered deposits only with a waiver from the FDIC and subject to
restrictions on the interest rate which can be paid on such deposits. Undercapitalized institutions are not permitted to
accept brokered deposits and may not solicit deposits by offering an effective yield that exceeds by more than 75 basis
points the prevailing effective yields on insured deposits of comparable maturity in the institution’s normal market area
or in the market area in which such deposits are being solicited. Pursuant to the regulation, the Bank, as a well-
capitalized institution, may accept brokered deposits. At December 31, 2006, the Bank had $144.9 million in brokered
deposit accounts.

Capital Requirements

General. The Bank is required to maintain minimum levels of regulatory capital. Since FIRREA, capital
requirements established by the OTS generally must be no less stringent than the capital requirements applicable to

national banks. The OTS also is authorized to impose capital requirements in excess of these standards on a case-by-case
basis.

Any institution that fails any of its applicable capital requirements is subject to possible enforcement actions by
the OTS or the FDIC. Such actions could include a capital directive, a cease and desist order, civil money penalties, the
establishment of restrictions on the institution’s operations and the appointment of a conservator or receiver. The OTS’
capital regulation provides that such actions, through enforcement proceedings or otherwise, could require one or more
of a variety of corrective actions. See “—Prompt Corrective Action.”

The OTS’ capital regulations create three capital requirements: a tangible capital requirement, a leverage and
core capital requirement and a risk-based capital requirement. At December 31, 2006, the Bank’s capital levels exceeded
applicable OTS capital requirements. The three OTS capital requirements are described below.

Tangible Capital Requirement. Under current OTS regulations, each savings institution must maintain tangible
capital equal to at least 1.50% of its adjusted total assets (as defined by regulation). Tangible capital generally includes
common stockholders’ equity and retained income, and certain non-cumulative perpetual preferred stock and related
income. In addition, all intangible assets, other than a limited amount of purchased mortgage servicing rights, must be
deducted from tangible capital. Tangible capital also excludes adjustments to accumulated other comprehensive income
recorded for postretirement benefits. At December 31, 2006, the Bank had $13.9 million in goodwill and $3.3 million in
a core deposit intangible which were classified as intangible assets, a charge of $1.5 million for postretirement benefits,
and no purchased mortgage servicing rights. At that date, the Bank’s tangible capital ratio was 6.91%.

In calculating adjusted total assets, adjustments are made to total assets to give effect to the exclusion of certain
assets from capital and to appropriately account for the investments in and assets of both includable and non-includable
subsidiaries.

Leverage and Core Capital Requirement. The current OTS requirement for leverage and core capital
(commonly referred to as core capital) ranges between 3% and 5% of adjusted total assets. Savings institutions that
receive the highest supervisory rating for safety and soundness are required to maintain a minimum core capital ratio of
3%, while the capital floor for all other savings institutions generally ranges from 4% to 5%, as determined by the OTS
on a case by case basis. Core capital includes common stockholders’ equity (including retained income), non-cumulative
perpetual preferred stock and related surplus. At December 31, 2006, the Bank’s core capital ratio was 6.91%.

OTS regulations limit the amount of servicing assets, together with purchased credit card receivables,
includable in core capital to 100% of such capital, subject to limitations on fair value. At December 31, 2006, the Bank
had $337,000 in capitalized servicing rights and no purchased credit card receivables.

Risk-Based Requirement. The risk-based capital standard adopted by the OTS requires savings institutions to
maintain a minimum ratio of total capital to risk-weighted assets of 8%. Total capital consists of core capital, defined
above, and supplementary capital but excludes the effect of recognizing deferred taxes based upon future income after
one year. Supplementary capital consists of certain capital instruments that do not qualify as core capital, and general
valuation loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets. Supplementary capital may
be used to satisfy the risk-based requirement only in an amount equal to the amount of core capital. In determining the
risk-based capital ratios, total assets, including certain off-balance sheet items, are multiplied by a risk weight based on
the risks inherent in the type of assets. The risk weights assigned by the OTS for significant categories of assets are
(1) 0% for cash and securities issued by the federal government or unconditionally backed by the full faith and credit of
the federal government; (2) 20% for securities (other than equity securities) issued by federal government sponsored
agencies and mortgage-backed securities issued by, or fully guaranteed as to principal and interest by, the FNMA or the
FHLMC, except for those classes with residual characteristics or stripped mortgage-related securities; (3) 50% for
prudently underwritten permanent one-to-four family first lien mortgage loans and certain qualifying multi-family
mortgage loans not more than 90 days delinquent and having a loan-to-value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or the FHLMC; and (4) 100% for all other loans and
investments, including consumer loans, home equity loans, commercial loans, and one-to-four family residential real
estate loans more than 90 days delinquent, and all repossessed assets or assets more than 90 days past due. At
December 31, 2006, the Bank’s risk-based capital ratio was 10.99%. Risk-based capital excludes the effect of
recognizing deferred taxes based upon future income after one year.

Federal Reserve System

The Federal Reserve Board requires all depository institutions to maintain reserves against their transaction
accounts (primarily NOW and checking accounts) and non-personal time deposits. At December 31, 2006, the Bank was
in compliance with these requirements.

The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy liquidity requirements imposed by the OTS. Because required reserves must be maintained in the form of vault
cash or a non-interest-bearing account at a Federal Reserve Bank directly or through another bank, the effect of this
reserve requirement is to reduce an institution’s earning assets. The amount of funds necessary to satisfy this requirement
has not had a material effect on the Bank’s operations.

As a creditor and financial institution, the Bank is also subject to additional regulations promulgated by the
FRB, including, without limitation, regulations implementing requirements of the Truth in Savings Act, the Expedited
Funds Availability Act, the Equal Credit Opportunity Act and the Truth in Lending Act.

Financial Reporting

The Bank is required to submit independently audited annual reports to the FDIC and the OTS. These publicly
available reports must include (a) annual financial statements prepared in accordance with generally accepted accounting
principles and such other disclosure requirements as required by the FDIC or the OTS and (b) a report, signed by the
Bank’s chief executive officer and chief financial officer which contains statements about the adequacy of internal
controls and compliance with designated laws and regulations, and attestations by independent auditors related thereto.
The Bank is required to monitor the foregoing activities through an independent audit committee.

Standards for Safety and Soundness

The FDIA, as amended by the FDICIA and the Riegle Community Development and Regulatory Improvement
Act of 1994 (the “Community Development Act”), requires each federal bank regulatory agency to establish safety and
soundness standards for institutions under its authority. On July 10, 1995, the federal banking agencies, including the
OTS, jointly released Interagency Guidelines Establishing Standards for Safety and Soundness and published a final rule
establishing deadlines for submission and review of safety and soundness compliance plans. The guidelines, among other
things, require savings institutions to maintain internal controls, information systems and internal audit systems that are
appropriate to the size, nature and scope of the institution’s business. The guidelines also establish general standards
relating to loan documentation, credit underwriting, interest rate risk exposure, asset growth, and compensation, fees and
benefits. Savings institutions are required to maintain safeguards to prevent the payment of excessive compensation to
an executive officer, employee, director or principal shareholder. The OTS may determine that a savings institution is not
in compliance with the safety and soundness guidelines and, upon doing so, may require the institution to submit an
acceptable plan to achieve compliance with the guidelines. An institution must submit an acceptable compliance plan to
the OTS within 30 days of receipt or request for such a plan. Failure to submit or implement a compliance plan may
subject the institution to regulatory actions. Management believes that the Bank currently meets the standards adopted in
the interagency guidelines.

Additionally, under FDICIA, as amended by the Community Development Act, federal banking agencies are
required to establish standards relating to asset quality and earnings that the agencies determine to be appropriate.
Effective October 1, 1998, the federal banking agencies, including the OTS, adopted guidelines relating to asset quality
and earnings which require insured institutions to maintain systems, consistent with their size and the nature and scope of
their operations, to identify problem assets and prevent deterioration in those assets as well as to evaluate and monitor
earnings and insure that earnings are sufficient to maintain adequate capital and reserves.

Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley Act (the “Modernization Act”) was signed into law on November 12, 1999. Among
other things, the Modernization Act permits qualifying bank holding companies to affiliate with securities firms and
insurance companies and engage in other activities that are financial in nature or complementary thereto, as determined
by the Federal Reserve Board. Subject to certain limitations, a national bank may, through a financial subsidiary, engage
in similar activities. The Modernization Act also prohibits the creation or acquisition of new unitary savings and loan
holding companies that are affiliated with non-banking firms, but “grandfathers” existing savings and loan holding
companies, such as the Company. Grandfathered companies retain the existing powers available to unitary savings and
loan holding companies. See “⎯ Holding Company Regulation.” Certain business combinations which were
impermissible prior to the effective date of the Modernization Act are now possible. Management believes the
Modernization Act has led to some consolidation in the financial services industry and could lead to further
consolidation, which, if completed, would likely result in an increase in the service offerings of our competitors. We
cannot assure you that the Modernization Act will not result in further changes in the competitive environment in the
Bank’s market area or otherwise impact the Bank or the Holding Company.

In addition, the Modernization Act calls for heightened privacy protection of customer information gathered by
financial institutions. The OTS has enacted regulations implementing the privacy protection provisions of the
Modernization Act. Under the regulations, each financial institution is to (1) adopt procedures to protect customers’

“non-public personal information”, (2) disclose its privacy policy, including identifying to customers others with whom
it shares “non-public personal information”, at the time of establishing the customer relationship and annually thereafter,
and (3) provide its customers with the ability to “opt-out” of having the financial institution share their personal
information with affiliated third parties. The regulations became effective on November 13, 2000, with compliance
voluntary prior to July 1, 2001. Management has reviewed and amended our privacy protection policy and believes we
are in compliance with these regulations.

USA Patriot Act

On October 26, 2001, following the September 11, 2001 attacks, President Bush signed the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT)
Act of 2001 (the “Patriot Act”) to enhance protections against money laundering and criminal laws against terrorist
activities, and give law enforcement authorities greater investigative powers. Among other things, the Patriot Act (1)
requires financial institutions that administer, maintain or manage private bank accounts or correspondent accounts for
foreign persons to establish due diligence policies; (2) prohibits correspondent accounts with foreign shell banks; (3)
permits sharing of information among financial institutions, regulators and law enforcement regarding persons engaged
in terrorist or money laundering activities; (4) requires financial institutions to verify customer identification at account
opening; (5) requires financial institutions to report suspicious activities; and (6) requires financial institutions to
establish an anti-money laundering compliance program.

Provisions under the Patriot Act became effective at varying times. The U. S. Treasury Department, the Federal
Reserve and other federal bank regulatory agencies have issued regulations implementing the provisions of the Patriot
Act. Management believes we are in compliance with these regulations.

Prompt Corrective Action

Under Section 38 of the FDIA, as added by the FDICIA, each appropriate banking agency is required to take
prompt corrective action to resolve the problems of insured depository institutions that do not meet minimum capital
ratios. Such action must be accomplished at the least possible long-term cost to the appropriate deposit insurance fund.

The federal banking agencies, including the OTS, adopted substantially similar regulations to implement
Section 38 of the FDIA. Under the regulations, an institution is deemed to be (1) “well capitalized” if it has total risk-
based capital ratio of 10% or more, has a Tier 1 risk-based capital ratio of 6% or more, has a leverage capital ratio of 5%
or more and is not subject to any order or final capital directive to meet and maintain a specific capital level for any
capital measure, (2) “adequately capitalized” if it has a total risk-based capital ratio of 8% or more, a Tier 1 risk-based
capital ratio of 4% or more and a leverage capital ratio of 4% or more (3% under certain circumstances) and does not
meet the definition of “well capitalized,” (3) “undercapitalized” if it has a total risk-based capital ratio that is less than
8%, a Tier 1 risk-based capital ratio that is less than 4% or a leverage capital ratio that is less than 4% (3% under certain
circumstances), (4) “significantly undercapitalized” if it has a total risk-based capital ratio that is less than 6%, a Tier 1
risk-based capital ratio that is less than 3% or a leverage capital ratio that is less than 3%, and (5) “critically
undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2%. Section 38 of the
FDIA and the regulations promulgated thereunder also specify circumstances under which a federal banking agency may
reclassify a well capitalized institution as adequately capitalized and may require an adequately capitalized institution or
an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the
FDIC may not reclassify a significantly undercapitalized institution as critically undercapitalized). At December 31,
2006, the Bank met the criteria to be considered a “well capitalized” institution.

Federal Securities Laws

The Company’s Common Stock is registered with the SEC under Section 12(b) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). The Company is subject to the information and reporting requirements,
regulations governing proxy solicitations, insider trading restrictions and other requirements applicable to companies
whose stock is registered under the Exchange Act.

Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 (the “2002 Act”), enacted on July 30, 2002,
aims to increase the reliability of financial information by, among other things, (1) heightening accountability of Chief
Executive Officers and Chief Financial Officers to issue accurate financial statements, (2) increasing the authority and
independence of corporate audit committees, (3) creating a new regulatory entity to oversee the activities of accountants
that audit public companies, (4) prohibiting activities and relationships that may compromise the independence of
auditors, (5) increasing required financial statement disclosures, and (6) providing tough new penalties for issuing
noncompliant financial statements and for other violations related to securities laws.

In furtherance of the 2002 Act, the SEC has issued rules. Compliance with these rules, and the related corporate
governance rules adopted by NASDAQ with the approval of the SEC, has, and will continue to, increase costs to the
35

Company, including, but not limited to, fees to our independent accountants, consultants, legal fees and Board service
fees, and may require additions to staff. To date, compliance with the 2002 Act has not had a material effect on the
Company results of operations. We cannot assure you that compliance with the 2002 Act and its regulations will not
have a material effect on the business or operations of the Company in the future.

AVAILABLE INFORMATION

We make available free of charge on or through our web site at www.flushingsavings.com our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the SEC.

Item 1A. Risk Factors.

In addition to the other information contained in this Annual Report, the following factors and other

considerations should be considered carefully in evaluating the Holding Company, the Bank and their business.

Changes in Interest Rates May Significantly Impact the Company’s Financial Condition and Results of
Operations

Like most financial institutions, the Company’s results of operations depend to a large degree on its net interest
income. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets, a significant
increase in market interest rates could adversely affect net interest income. Conversely, a significant decrease in market
interest rates could result in increased net interest income. As a general matter, the Company seeks to manage its
business to limit its overall exposure to interest rate fluctuations. However, fluctuations in market interest rates are
neither predictable nor controllable and may have a material adverse impact on the operations and financial condition of
the Company. Additionally, in a rising interest rate environment, a borrower’s ability to repay adjustable rate mortgages
can be negatively affected as payments increase at repricing dates.

Prevailing interest rates also affect the extent to which borrowers repay and refinance loans. In a declining
interest rate environment, the number of loan prepayments and loan refinancings may increase, as well as prepayments
of mortgage-backed securities. Call provisions associated with the Company’s investment in U.S. government agency
and corporate securities may also adversely affect yield in a declining interest rate environment. Such prepayments and
calls may adversely affect the yield of the Company’s loan portfolio and mortgage-backed and other securities as the
Company reinvests the prepaid funds in a lower interest rate environment. However, the Company typically receives
additional loan fees when existing loans are refinanced, which partially offset the reduced yield on the Company’s loan
portfolio resulting from prepayments. In periods of low interest rates, the Company’s level of core deposits also may
decline if depositors seek higher-yielding instruments or other investments not offered by the Company, which in turn
may increase the Company’s cost of funds and decrease its net interest margin to the extent alternative funding sources
are utilized. An increasing interest rate environment would tend to extend the average lives of lower yielding fixed rate
mortgages and mortgage-backed securities, which could adversely affect net interest income. In addition, depositors tend
to open longer term, higher costing certificate of deposit accounts which could adversely affect the Bank’s net interest
income if rates were to subsequently decline. Additionally, adjustable rate mortgage loans and mortgage-backed
securities generally contain interim and lifetime caps that limit the amount the interest rate can increase or decrease at
repricing dates. Significant increases in prevailing interest rates may significantly affect demand for loans and the value
of bank collateral. See “— Local Economic Conditions.”

The Bank’s Lending Activities Involve Risks that May Be Exacerbated Depending on the Mix of Loan Types

Multi-family residential, commercial real estate and one-to-four family mixed use property mortgage loans and
commercial business loans (the increased origination of which is part of management’s strategy), and construction loans,
are generally viewed as exposing the lender to a greater risk of loss than fully underwritten one-to-four family residential
mortgage loans and typically involve higher principal amounts per loan. Repayment of multi-family residential,
commercial real estate and one-to-four family mixed-use property mortgage loans generally is dependent, in large part,
upon sufficient income from the property to cover operating expenses and debt service. Repayment of commercial
business loans is contingent on the successful operation of the related business. Repayment of construction loans is
contingent upon the successful completion and operation of the project. Changes in local economic conditions and
government regulations, which are outside the control of the borrower or lender, also could affect the value of the
security for the loan or the future cash flow of the affected properties.

In addition, the Bank, from time-to-time, originates one-to-four family residential mortgage loans without
verifying the borrower’s level of income. These loans involve a higher degree of risk as compared to the Bank’s other
fully underwritten one-to-four family residential mortgage loans. These risks are mitigated by the Bank’s policy to limit
36

the amount of one-to-four family residential mortgage loans to 80% of the appraised value or sale price, whichever is
less, as well as charging a higher interest rate than when the borrower’s income is verified. These loans are not as
readily saleable in the secondary market as the Bank’s other fully underwritten loans, either as whole loans or when
pooled or securitized.

There can be no assurance that the Bank will be able to successfully implement its business strategies with
respect to these higher-yielding loans. In assessing the future earnings prospects of the Bank, investors should consider,
among other things, the Bank’s level of origination of one-to-four family residential mortgage loans (including loans
originated without verifying the borrowers income), the Bank’s emphasis on multi-family residential, commercial real
estate and one-to-four family mixed-use property mortgage loans, and commercial business and construction loans, and
the greater risks associated with such loans. See “Business — Lending Activities” in Item 1 of this Annual Report.

The Markets in Which the Bank Operates Are Highly Competitive

The Bank faces intense and increasing competition both in making loans and in attracting deposits. The Bank’s
market area has a high density of financial institutions, many of which have greater financial resources, name recognition
and market presence than the Bank, and all of which are competitors of the Bank to varying degrees. Particularly intense
competition exists for deposits and in all of the lending activities emphasized by the Bank. The Bank’s competition for
loans comes principally from commercial banks, other savings banks, savings and loan associations, mortgage banking
companies, insurance companies, finance companies and credit unions. Management anticipates that competition for
mortgage loans will continue to increase in the future. The Bank’s most direct competition for deposits historically has
come from other savings banks, commercial banks, savings and loan associations and credit unions. In addition, the
Bank faces competition for deposits from products offered by brokerage firms, insurance companies and other financial
intermediaries, such as money market and other mutual funds and annuities. Consolidation in the banking industry and
the lifting of interstate banking and branching restrictions have made it more difficult for smaller, community-oriented
banks, such as the Bank, to compete effectively with large, national, regional and super-regional banking institutions. In
November, 2006, the Bank launched an internet branch, “iGObanking.comTM” a division of Flushing Savings Bank, to
provide the Bank access to markets outside its geographic locations. The internet banking arena also has many larger
financial institutions which have greater financial resources, name recognition and market presence than the Bank.

Notwithstanding the intense competition, the Bank has been successful in increasing its loan portfolios and
deposit base. However, no assurances can be given that the Bank will be able to continue to increase its loan portfolios
and deposit base, as contemplated by management’s current business strategy.

The Company’s Results of Operations May Be Adversely Affected by Changes in National and/or Local
Economic Conditions

The Company’s operating results are affected by national and local economic and competitive conditions,
including changes in market interest rates, the strength of the local economy, government policies and actions of
regulatory authorities. During 2006, the nation’s economy was generally considered to be expanding. Yet world events,
particularly the “War on Terror” and the level of oil prices, continued to have an effect on the economy. These economic
conditions can result in borrowers defaulting on their loans, or withdrawing their funds on deposit at the Bank to meet
their financial obligations. While we have not seen a significant increase in delinquent loans, and have seen an increase
in deposits, we cannot predict the effect of these economic conditions on the Company’s financial condition or operating
results.

A decline in the local economy, national economy or metropolitan area real estate market could adversely affect
the financial condition and results of operations of the Company, including through decreased demand for loans or
increased competition for good loans, increased non-performing loans and loan losses and resulting additional provisions
for loan losses and for losses on real estate owned. Although management of the Bank believes that the current
allowance for loan losses is adequate in light of current economic conditions, many factors could require additions to the
allowance for loan losses in future periods above those currently maintained. These factors include: (1) adverse changes
in economic conditions and changes in interest rates that may affect the ability of borrowers to make payments on loans,
(2) changes in the financial capacity of individual borrowers, (3) changes in the local real estate market and the value of
the Bank’s loan collateral, and (4) future review and evaluation of the Bank’s loan portfolio, internally or by regulators.
The amount of the allowance for loan losses at any time represents good faith estimates that are susceptible to significant
changes due to changes in appraisal values of collateral, national and regional economic conditions, prevailing interest
rates and other factors. See “Business — General — Allowance for Loan Losses” in Item 1 of this Annual Report.

Changes in Laws and Regulations Could Adversely Affect the Company’s Business

From time to time, legislation is enacted or regulations are promulgated that have the effect of increasing the
cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks

and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of
banks and other financial institutions are frequently made in Congress, in the New York legislature and before various
bank regulatory agencies. No prediction can be made as to the likelihood of any major changes or the impact such
changes might have on the Bank or the Company. For a discussion of regulations affecting the Company, see “Business
—Regulation” and “Business—Federal, State and Local Taxation” in Item 1 of this Annual Report.

Certain Anti-Takeover Provisions May Increase the Costs to or Discourage an Acquiror

On September 5, 2006, the Board of Directors of the Holding Company renewed the Company’s Stockholder
Rights Plan, (the “Rights Plan”), which was originally adopted on and had been in place since September 17, 1996 and
had been scheduled to expire on September 30, 2006. The Rights Plan was designed to preserve long-term values and
protect stockholders against inadequate offers and other unfair tactics to acquire control of the Holding Company. Under
the Rights Plan, each stockholder of record at the close of business on September 30, 2006 received a dividend
distribution of one right to purchase from the Holding Company one one-hundredth of a share of Series A junior
participating preferred stock at a price of $65. The rights will become exercisable only if a person or group acquires
15% or more of the Holding Company’s common stock or commences a tender or exchange offer which, if
consummated, would result in that person or group owning at least 15% of the Common Stock (the “acquiring person or
group”). In such case, all stockholders other than the acquiring person or group will be entitled to purchase, by paying
the $65 exercise price, Common Stock (or a common stock equivalent) with a value of twice the exercise price. In
addition, at any time after such event, and prior to the acquisition by any person or group of 50% or more of the
Common Stock, the Board of Directors may, at its option, require each outstanding right (other than rights held by the
acquiring person or group) to be exchanged for one share of Common Stock (or one common stock equivalent). If a
person or group becomes an acquiring person and the Holding Company is acquired in a merger or other business
combination or sells more than 50% of its assets or earning power, each right will entitle all other holders to purchase, by
payment of $65 exercise price, common stock of the acquiring company with a value of twice the exercise price. The
renewed rights plan expires on September 30, 2016.

The Rights Plan, as well as certain provisions of the Holding Company’s certificate of incorporation and
bylaws, the Bank’s federal stock charter and bylaws, certain federal regulations and provisions of Delaware corporation
law, and certain provisions of remuneration plans and agreements applicable to employees and officers of the Bank may
have anti-takeover effects by discouraging potential proxy contests and other takeover attempts, particularly those which
have not been negotiated with the Board of Directors. The Rights Plan and those other provisions, as well as applicable
regulatory restrictions, may also prevent or inhibit the acquisition of a controlling position in the Common Stock and
may prevent or inhibit takeover attempts that certain stockholders may deem to be in their or other stockholders’ interest
or in the interest of the Holding Company, or in which stockholders may receive a substantial premium for their shares
over then current market prices. The Rights Plan and those other provisions may also increase the cost of, and thus
discourage, any such future acquisition or attempted acquisition, and would render the removal of the current Board of
Directors or management of the Holding Company more difficult.

The Bank May Not Be Able To Successfully Implement Its New Commercial Business Banking Initiative

The Bank’s strategy includes a transition to a more “commercial-like” banking institution. The Bank has developed a
complement of deposit, loan and cash management products to support this initiative, and intends to expand these
product offerings. A business banking unit has been established to build relationships in order to obtain lower-costing
deposits, generate fee income, and originate commercial business loans. The success of this initiative is dependent on
developing additional product offerings, and building relationships to obtain the deposits and loans. There can be no
assurance that the Bank will be able to successfully implement its business strategy with respect to this initiative.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

The Bank conducts its business through twelve full-service branch offices and its internet branch,

“iGObanking.comTM”. The Company’s executive offices are located in Lake Success, in Nassau County, NY.

Office
Corporate Headquarters

1979 Marcus Avenue, Suite E140
Lake Success, N.Y. 11042

Main Office Branch

144-51 Northern Boulevard
Flushing, N.Y. 11354

Broadway Branch

159-18 Northern Boulevard
Flushing, N.Y. 11358

Auburndale Branch

188-08 Hollis Court Boulevard
Flushing, N.Y. 11358

Springfield Branch

61-54 Springfield Boulevard
Bayside, N.Y. 11364

Bay Ridge Branch

7102 Third Avenue
Brooklyn, N.Y. 11209

Irving Place Branch
33 Irving Place
New York, N.Y. 10003

New Hyde Park Branch
661 Hillside Avenue
New Hyde Park, N.Y. 11040

Kissena Branch

44-43 Kissena Boulevard
Flushing, N.Y. 11355
Bell Boulevard Branch (1)

42-11 Bell Boulevard
Bayside, N.Y. 11361

Astoria Branch

31-16 30th Avenue
Astoria, N.Y. 11102
Montague Street Branch
186 Montague Street
Brooklyn, N.Y. 11201

Avenue J Branch

1402 Avenue J
Brooklyn, N.Y. 11230

Forest Hills Branch (2)

107-11 Continental Avenue
Forest Hills, N.Y. 11375
Rossevelt Avenue Branch (2)
136-41 Rossevelt Avenue
Flushing, N.Y. 11354
Total premises and equipment, net

(1) Includes offices of "iGObanking.com

TM"

Leased or
Owned

Date Leased
or Acquired

Lease

Net Book Value at
Expiration Date December 31, 2006

Leased

2004

3/31/2015

1,097,284

Owned

1972

Owned

1962

Owned

1991

N/A

1,991,811

733,204

696,371

Leased

1991

11/30/2016

71,146

Owned

1991

N/A

311,517

Leased

1991

11/30/2011

90,347

Leased

1971

12/31/2011

1,539,409

Leased

2000

4/30/2010

229,859

Leased

2005

11/30/2020

3,108,238

Leased

2003

10/31/2013

678,285

Owned

2006

Owned

2006

N/A

6,395,796

3,026,624

Leased

2006

9/30/2021

1,441,987

Leased

2006

5/31/2021

1,630,271
23,042,149

(2) New location under renovation at December 31, 2006 - Opened in the first quarter of 2007.

The Holding Company neither owns nor leases any property but instead uses the premises and equipment of the Bank.

Item 3. Legal Proceedings.

The Bank is involved in various legal actions arising in the ordinary course of its business which, in the
aggregate, involve amounts which are believed by management to be immaterial to the financial condition, results of
operations and cash flows of the Bank.

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

None.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.

Flushing Financial Corporation Common Stock is traded on the NASDAQ National Market® under the symbol
“FFIC”. As of December 31, 2006, the Company had approximately 855 shareholders of record, not including the
number of persons or entities holding stock in nominee or street name through various brokers and banks. The
Company’s stock closed at $17.07 on December 29, 2006. The following table shows the high and low sales price of the
Common Stock during the periods indicated. Such prices do not necessarily reflect retail markups, markdowns, or
commissions. See Note 11 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report for dividend
restrictions.

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

High

17.55
17.96
17.97
18.79

2006
Low

14.87
16.09
16.30
16.68

Dividend
$
0.11
0.11
0.11
0.11

High

20.23
18.75
19.65
17.52

2005
Low

17.17
15.55
15.87
13.95

Dividend
$
0.10
0.10
0.10
0.10

The following table sets forth information regarding the shares of common stock repurchased by the Company

during the quarter ended December 31, 2006.

Total
Number
of Shares
Purchased

Average
Price
Paid per
Share

October 1 to October 31, 2006
November 1 to November 30, 2006
December 1 to December 31, 2006
Total

40,000
17,753
-
57,753

17.51
17.61
-
17.54

Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Program

40,000
17,600
-
57,600

Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plans or
Program

417,650
400,050
400,050
400,050

During the quarter ended December 31, 2006, the Company purchased 153 common shares from employees, at

an average cost of $18.09, to satisfy tax obligations due from the employees upon vesting of restricted stock awards.

The current common stock repurchase program was approved by the Company’s Board of Directors on August
17, 2004. This repurchase program authorized the repurchase of 1,000,000 common shares. The repurchase program
does not have an expiration date or a maximum dollar amount that may be paid to repurchase the common shares. Stock
repurchases under this program will be made from time to time, on the open market or in privately negotiated
transactions, at the discretion of the management of the Company.

Stock Performance Graph

The following graph shows a comparison of cumulative total stockholder return on the Company’s common stock since
December 31, 2001 with the cumulative total returns of a broad equity market index as well as two published industry
indices. The broad equity market index chosen was the Nasdaq Composite. The published industry indices chosen were
the SNL Thrift Index and SNL Mid-Atlantic Thrift Index. The SNL Mid-Atlantic Thrift Index has been included in the
Company’s Stock Performance Graph because the Company believes it provides valuable comparative information
reflecting the Company’s geographic peer group. The SNL Thrift Index has been included in the Stock Performance
because it uses a broader group of thrifts and therefore more closely reflects the Company’s size. The Company believes
that both geographic area and size are important factors in analyzing the Company’s performance against its peers. The
graph below reflects historical performance only, which is not indicative of possible future performance of the common
stock.

Total Return Performance

Flushing Financial Corporation

NASDAQ Composite

SNL Thrift

SNL Mid-Atlantic Thrift

300

250

200

150

100

e
u
l
a
V
x
e
d
n

50
12/31/01

12/31/02

12/31/03

12/31/04

12/31/05

12/31/06

Flushing Financial Corporation
NASDAQ Composite
SNL Thrift
SNL Mid-Atlantic Thrift

Period Ending

12/31/01
100.00
100.00
100.00
100.00

12/31/02
93.93
68.76
119.29
124.43

12/31/03
160.36
103.67
168.88
196.54

12/31/04
179.31
113.16
188.16
202.50

12/31/05
142.45
115.57
194.80
197.45

12/31/06
160.30
127.58
227.07
230.25

The total return assumes $100 invested on December 31, 2001 and all dividends reinvested through the end of the
Company’s fiscal year ended December 31, 2006. The performance graph above is based upon closing prices on the
trading date specified.

Item 6. Selected Financial Data.

At or for the years ended December 31,

Selected Financial Condition Data
Total assets
Loans, net
Securities available for sale
Deposits
Borrowed funds
Stockholders' equity
Book value per share (1)(2)

Selected Operating Data
Interest and dividend income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision
for loan losses
Non-interest income:
Net gains (losses) on sales of securities
and loans
Other income
Total non-interest income
Non-interest expense
Income before income tax provision
Income tax provision
Net income

Basic earnings per share (2)(3)
Diluted earnings per share (2)(3)
Dividends declared per share (2)
Dividend payout ratio

2006

2005

2003
2004
(Dollars in thousands, except per share data)

2002

2,836,521
2,324,748
330,587
1,764,150
832,413
218,415
10.34

2,353,208
1,881,876
337,761
1,467,287
689,710
176,467
9.07

2,058,044
1,516,507
435,745
1,292,797
584,736
160,653
8.35

1,910,751
1,269,521
535,709
1,169,909
578,142
146,762
7.61

1,652,958
1,169,560
358,984
1,011,825
493,164
131,386
6.95

158,384
90,680
67,704
-

132,439
64,229
68,210
-

118,724
52,233
66,491
-

112,339
52,176
60,163
-

106,906
54,564
52,342
-

67,704

68,210

66,491

60,163

52,342

813
8,982
9,795
42,742
34,757
13,118
21,639

(45)
6,692
6,647
36,264
38,593
15,051
23,542

206
5,737
5,943
35,389
37,045
14,396
22,649

329
5,956
6,285
31,226
35,222
13,544
21,678

(4,158)
5,667
1,509
27,621
26,230
9,967
16,263

$
$
$

1.16
1.14
0.44
37.9%

$
$
$

1.34
1.31
0.40
29.9%

$
$
$

1.30
1.25
0.35
26.9%

$
$
$

1.27
1.22
0.28
22.0%

$
$
$

0.93
0.90
0.24
25.7%

(Footnotes on the following page)

At or for the years ended December 31,

2006

2005

2004

2003

2002

Selected Financial Ratios and Other Data

Performance ratios:
Return on average assets
Return on average equity
Average equity to average assets
Equity to total assets
Interest rate spread
Net interest margin
Non-interest expense to average assets
Efficiency ratio
Average interest-earning assets to average
interest-bearing liabilities

Regulatory capital ratios: (4)
Tangible capital
Core capital
Total risk-based capital

Asset quality ratios:
Non-performing loans to gross loans (5)
Non-performing assets to total assets (6)
Net charge-offs to average loans
Allowance for loan losses to gross loans
Allowance for loan losses to total
non-performing assets (6)
Allowance for loan losses to total
non-performing loans (5)

0.84
11.14
7.58
7.70
2.54
2.78
1.67
55.21

1.07
14.27
7.47
7.50
3.03
3.24
1.64
48.03

1.13
14.97
7.56
7.81
3.30
3.49
1.77
48.79

1.21
15.93
7.57
7.68
3.37
3.56
1.74
47.00

1.03
12.57
8.22
7.95
3.32
3.55
1.76
47.41

1.06

1.07

1.06

6.91
6.91
10.99

0.13
0.11
-
0.30

7.14
7.14
12.12

0.13
0.10
0.01
0.34

7.89
7.89
14.01

0.06
0.04
-
0.43

8.00
8.00
15.12

0.05
0.04
-
0.51

7.74
7.74
14.27

0.31
0.26
-
0.56

225.72

260.39

717.29

960.86

153.34

225.72

260.39

717.29

960.86

183.23

Full-service customer facilities (7)

(1) Calculated by dividing stockholders’ equity of $218.4 million and $176.5 million at December 31, 2006 and 2005, respectively, by 21,131,274 and

19,465,844 shares outstanding at December 31, 2006 and 2005, respectively.

(2) Per share data has been adjusted for the three-for-two stock split distributed on December 15, 2003 in the form of a stock dividend.
(3) The shares held in the Company’s Employee Benefit Trust are not included in shares outstanding for purposes of calculating earnings per share.

Unvested restricted stock and unvested restricted stock unit awards are not included in basic earnings per share calculations, but are included in
diluted earnings per share calculations.

(4) The Bank exceeded all minimum regulatory capital requirements during the periods presented.
(5) Non-performing loans consist of non-accrual loans and loans delinquent 90 days or more that are still accruing.
(6) Non-performing assets consist of non-performing loans, real estate owned and non-performing investment securities.
(7) Does not include two branches opened in the first quarter of 2007 which brought the total number of full-service customer facilities to 14.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

Flushing Financial Corporation (“Holding Company”), a Delaware corporation, is the parent holding company
for Flushing Savings Bank, FSB (“Bank”), a federally chartered stock savings bank. The Bank was organized in 1929 as
a New York State chartered mutual savings bank. In 1994, the Bank converted to a federally chartered mutual savings
bank and changed its name from Flushing Savings Bank to Flushing Savings Bank, FSB. The Bank converted to a
federally chartered stock savings bank in 1995. As a federal savings bank, the Bank’s primary regulator is the Office of
Thrift Supervision (“OTS”). The Bank’s deposits are insured to the maximum allowable amount by the Federal Deposit
Insurance Corporation (“FDIC”). The Bank owns three subsidiaries: Flushing Preferred Funding Corporation, Flushing
Service Corporation, and FSB Properties Inc.

The Holding Company also owns a special purpose business trust, Flushing Financial Capital Trust I (“Trust”).
During 2002, the Trust issued $20.0 million of floating rate capital securities. The Trust invested the proceeds from the
sale of the capital securities, and the issuance of its common stock, in $20.6 million of junior subordinated debentures
issued by the Holding Company. Prior to 2004, the Trust was included in the consolidated financial statements of the
Company. Effective January 1, 2004, in accordance with the requirements of FASB Interpretation No. 46R, the Trust
was deconsolidated.

The following discussion of financial condition and results of operations includes the collective results of the
Holding Company and the Bank (collectively, the “Company”), but reflects principally the Bank’s activities.
Management views the Company as operating as a single unit, a community savings bank. Therefore, segment
information is not provided.

Michael J. Hegarty, President and Chief Executive Officer, retired effective June 30, 2005. Mr. Hegarty had
served in these positions since October 1998. He has continued on as a member of the Board of Directors of the Holding
Company and the Bank. John R. Buran, who joined the Company in January 2001 as Executive Vice President and Chief
Operating Officer, succeeded Mr. Hegarty as President and Chief Executive Officer. Maria A. Grasso joined the
Company on May 1, 2006 as Executive Vice President and Chief Operating Officer.

On June 30, 2006, the Company acquired all of the outstanding common stock of Atlantic Liberty Financial
Corporation (“Atlantic Liberty”), the parent holding company for Atlantic Liberty Savings, F.A., based in Brooklyn,
New York. The aggregate purchase price was $41.2 million, which consisted of $14.7 million of cash and common stock
valued at $26.6 million. Under the terms of the Agreement and Plan of Merger, dated December 20, 2005, Atlantic
Liberty's shareholders received $24.00 in cash, 1.43 Holding Company shares per Atlantic Liberty share owned, or a
combination thereof, subject to aggregate allocation to all Atlantic Liberty's shareholders of 65% stock / 35% cash. In
connection with the merger, the Company issued 1.6 million shares of common stock, the value of which was
determined based on the closing price of the Company’s common stock on the announcement date of December 21,
2005, and two days prior to and after the announcement date. The Company acquired two branches in prime areas of
Brooklyn, New York, with $185.6 million in assets, $116.2 million in net loans, $34.9 million in securities and assumed
$106.8 million in deposits.

On November 27, 2006, the Bank launched a new internet branch, iGObanking.com™, a division of Flushing

Savings Bank, FSB. iGObanking.com™ provides the Bank access to markets outside its geographic locations.

In December, 2006, the Bank filed an application with the New York State Banking Department to form a new
wholly owned subsidiary, Flushing Commercial Bank, for the limited purpose of accepting municipal deposits and state
funds in the State of New York. The application was approved on March 1, 2007. The commercial bank will offer a full
range of deposit products to municipalities and New York State, similar to the products currently being offered by the
Bank, but will not make loans.

Overview

The Company’s results of operations depend primarily on net interest income, which is the difference between
the income earned on its interest-earning assets and the cost of its interest-bearing liabilities. Net interest income is the

result of the Company’s interest rate margin, which is the difference between the average yield earned on interest-
earning assets and the average cost of interest-bearing liabilities, adjusted for the difference in the average balance of
interest-earning assets as compared to the average balance of interest-bearing liabilities. The Company also generates
non-interest income from loan fees, service charges on deposit accounts, mortgage servicing fees, and other fees, income
earned on Bank Owned Life Insurance (“BOLI”), dividends on Federal Home Bank of New York (“FHLB-NY”) stock
and net gains and losses on sales of securities and loans. The Company’s operating expenses consist principally of
employee compensation and benefits, occupancy and equipment costs, other general and administrative expenses and
income tax expense. The Company’s results of operations also can be significantly affected by its periodic provision for
loan losses and specific provision for losses on real estate owned. However, the Company has not recorded a provision
since 1999.

Management Strategy. Management’s strategy is to continue the Bank’s focus as an institution serving
consumers and businesses in its local markets. In furtherance of this objective, the Company intends to: (1) continue its
emphasis on the origination of multi-family residential, commercial real estate and one-to-four family mixed-use
property mortgage loans, (2) transition from a traditional thrift to a more ‘commercial-like’ banking institution,
(3) increase the Bank’s commitment to the multi-cultural marketplace, with a particular focus on the Asian community in
Queens, (4) maintain asset quality, (5) manage deposit growth and maintain a low cost of funds, utilizing the internet to
grow deposits, (6) cross selling to its lending and deposit customers, (7) manage interest rate risk, (8) explore new
business opportunities, and (9) manage capital. There can be no assurance that the Company will be able to effectively
implement this strategy. The Company’s strategy is subject to change by the Board of Directors.

Multi-Family Residential, Commercial Real Estate and One-to-Four Family Lending. In recent years,
the Company has emphasized the origination of higher-yielding multi-family residential, commercial real estate
and one-to-four family mixed-use property mortgage loans. The Company expects to continue this emphasis on
higher-yielding mortgage loan products.

The following table shows loan originations and purchases during 2006 (excluding the loans acquired

in the Atlantic Liberty acquisition), and loan balances as of December 31, 2006.

Loan
Originations and
Purchases

Loan Balances
December 31,
2006
(Dollars in thousands)

Multi-family residential
Commercial real estate
One-to-four family ― mixed-use property
One-to-four family ― residential
Co-operative apartment
Construction
Small Business Administration
Commercial Business and Other

166,744
153,891
154,456
13,786
125
75,087
19,914
51,580

870,912
519,552
588,092
161,889
8,059
104,488
17,521
50,899

Percent of
Gross Loans

37.52
22.38
25.33
6.98
0.35
4.50
0.75
2.19

Total

635,583

2,321,412

100.00

The Company’s increased emphasis on multi-family residential, commercial real estate and one-to-four
family mixed-use property mortgage loans has increased the overall level of credit risk inherent in the
Company’s loan portfolio. The greater risk associated with multi-family, commercial real estate and one-to-four
family mixed-use property mortgage loans could require the Company to increase its provisions for loan losses
and to maintain an allowance for loan losses as a percentage of total loans in excess of the allowance currently
maintained by the Company. To date, the Company has not experienced significant losses in its multi-family
residential, commercial real estate and one-to-four family mixed-use property mortgage loan portfolios, and has
determined that, at this time, additional provisions are not required.

Transition to a More ‘Commercial-like’ Banking Institution. The Bank established a business banking
unit during 2006 staffed with a team of experienced commercial bankers. The Bank has developed a
complement of deposit, loan and cash management products to support this initiative, and intends to expand
these product offerings during 2007. The business banking unit is responsible for building business
relationships in order to obtain lower-costing deposits, generate fee income, and originate commercial business
loans. Building these business relationships could provide the Bank with a lower-costing source of funds and
higher-yielding adjustable-rate loans, which would help the Bank manage its interest-rate risk. Commercial

business loans are generally viewed as having a higher risk than real estate loans, and could require the Bank to
maintain an allowance for loan losses as a percentage of total loans in excess of the allowance currently
maintained by the Company. To date, the Company has not experienced significant losses in its commercial
business loan portfolio, and has determined that, at this time, additional provisions are not required.

Increase the Bank’s Commitment to the Multi-Cultural Marketplace, with a Particular Focus on the
Asian Community in Queens. The Bank serves many diverse communities in the metropolitan area. Branches
are staffed with employees from their local neighborhoods who speak over 35 different languages, enabling
residents of these neighborhoods to speak to our banking specialists in the language they are familiar with and
the customs they are used to. The Bank is active in many community organizations. During 2006, the Bank
established an Asian Advisory Board to help broaden the Bank’s link to the community by providing guidance
on a number of future events and fostering awareness of the Bank’s active role in the local area.

Maintain Asset Quality. By adherence to its strict underwriting standards the Bank has been able to
minimize net losses from impaired loans with net charge-offs of $81,000 and $148,000 for the years ended
December 31, 2006 and 2005, respectively. The Company has maintained the strength of its loan portfolio, as
evidenced by the Company’s ratio of its allowance for loan losses to non-performing loans of 225.72% and
260.39% at December 31, 2006 and 2005, respectively. The Company seeks to maintain its loans in performing
status through, among other things, strict collection efforts, and consistently monitoring non-performing assets
in an effort to return them to performing status. To this end, management reviews the quality of loans and
reports to the Loan Committee of the Board of Directors of the Bank on a monthly basis. The Company has sold
and may continue to sell delinquent mortgage loans. The Bank sold thirty-five delinquent mortgage loans
totaling $12.2 million and eleven delinquent mortgage loans totaling $3.1 million during the years ended
December 31, 2006 and 2005, respectively. The terms of these loan sales included cash due upon closing of the
sale, no contingencies or recourse to the Bank, servicing is released to the buyer and time is of the essence. The
Bank realized gross gains of $169,000 and gross losses of $14,000 on the sale of these loans in 2006. The Bank
did not incur any gains or losses in connection with these sales in 2005. There can be no assurances that the
Bank will continue this strategy in future periods, or if continued, we will be able to find buyers to pay adequate
consideration. Non-performing assets amounted to $3.1 million and $2.5 million at December 31, 2006 and
2005, respectively. Non-performing assets as a percentage of total assets were 0.11% and 0.10% at December
31, 2006 and 2005, respectively.

Managing Deposit Growth and Maintaining Low Cost of Funds, Utilizing the Internet to Grow
Deposits. The Company has a relatively stable retail deposit base drawn from its market area through its twelve
full-service offices. Although the Company seeks to retain existing deposits and maintain depositor
relationships by offering quality service and competitive interest rates to its customers, the Company also seeks
to keep deposit growth within reasonable limits and its strategic plan. In November 2006, the Bank launched an
internet branch, “iGObanking.comTM” a division of Flushing Savings Bank, to compete for deposits from
sources outside the geographic footprint of its full-service offices. Also in 2006, the Bank filed an application
to form a new wholly owned subsidiary, Flushing Commercial Bank, for the limited purpose of accepting
municipal deposits and state funds in the State of New York as an additional source of deposits. The Company
also obtains deposits through brokers. Management intends to balance its goal to maintain competitive interest
rates on deposits while seeking to manage its overall cost of funds to finance its strategies. The Company
generally relies on its deposit base as its principal source of funding. In creating “iGObanking.comTM”, the
Bank’s strategy is to reduce our reliance on wholesale borrowings. In addition, the Bank is a member of the
FHLB-NY, which provides it with a source of borrowing. The Bank also utilizes reverse purchase agreements,
established with other financial institutions. These borrowings help the Company fund asset growth and
increase net interest income. During 2006, the Company realized an increase in due to depositors of $296.5
million and an increase in borrowed funds of $142.7 million.

Cross Selling to its Lending and Deposit Customers. A significant portion of the Bank’s lending and
deposit customers do not have both their loans and deposits with the Bank. The Bank intends to focus on
obtaining additional deposits from its lending customers, and originating additional loans to its deposit
customers. Product offerings were expanded in 2006 and are expected to be further expanded in 2007 to
accommodate perceived customer demands. In addition, specific employees have been identified who have
been assigned responsibilities of generating these additional deposits and loans by coordinating efforts between
lending and deposit gathering departments.

Managing Interest Rate Risk. The Company seeks to manage its interest rate risk by actively reviewing
the repricing and maturities of its interest rate sensitive assets and liabilities. The mix of loans originated by the
Company (fixed or ARM) is determined in large part by borrowers’ preferences and prevailing market

conditions. The Company seeks to manage the interest rate risk of the loan portfolio by actively managing its
security portfolio and borrowings. By adjusting the mix of fixed and adjustable rate securities, as well as the
maturities of the securities, the Company has the ability to manage the combined interest rate sensitivity of its
assets. See “- Interest Rate Sensitivity Analysis.” Additionally, the Company seeks to balance the interest rate
sensitivity of its assets by managing the maturities of its liabilities. During 2006 the Bank extended the maturity
of borrowings as they matured, and focused on attracting longer-term certificates of deposit and brokered
deposits. In addition, management’s expectation is that the new deposits generated from our internet branch,
“iGObanking.comTM,” will help to lessen our long standing dependency on wholesale borrowings.

Exploring New Business Opportunities. The Company has in the past increased growth through
acquisitions of financial institutions and branches of other financial institutions, and will continue to pursue
growth through acquisitions that are, or are expected to be within a reasonable time frame, accretive to earnings,
as well as evaluating the feasibility of opening additional branches. The Company has in the past opened new
branches. In 2006, the Company completed the acquisition of Atlantic Liberty Savings and opened a branch in
Bayside, Queens. Two branches were also opened in Queens in the first quarter of 2007. We plan to continue to
seek and review potential acquisition opportunities that complement our current business, are consistent with
our strategy to build a bank that is focused on the unique personal and small business banking needs of the
multi-ethnic communities we serve, and will be accretive to earnings.

Managing Capital. The Bank faces several minimum capital requirements imposed by the OTS. These
requirements limit the dividends the Bank is allowed to pay to the Holding Company, and can limit the annual
growth of the Bank. As part of the strategy to find ways to best utilize its available capital, during 2006, the
Holding Company continued its stock repurchase programs by repurchasing 374,600 shares of its common
stock. At December 31, 2006, 400,050 shares remain to be repurchased under the current stock repurchase
program. The Company had 33,778 shares held in treasury and 21,131,274 shares outstanding at December 31,
2006.

Trends and Contingencies. The Company’s operating results are significantly affected by national and local
economic and competitive conditions, including changes in market interest rates, the strength of the local economy,
government policies and actions of regulatory authorities. As short-term interest rates continued to rise during 2006, we
remained strategically focused on the origination of multi-family residential, commercial real estate and one-to-four
family mixed-use property mortgage loans. As a result of this strategy, we were able to continue to achieve a higher yield
on our mortgage portfolio than we would have otherwise experienced. We also established a business banking unit, and
launched an internet branch

Prevailing interest rates affect the extent to which borrowers repay and refinance loans. In a declining interest
rate environment, the number of loan prepayments and loan refinancings tends to increase, as do prepayments of
mortgage-backed securities. Call provisions associated with the Company’s investment in U.S. government agency and
corporate securities may also adversely affect yield in a declining interest rate environment. Such prepayments and calls
may adversely affect the yield of the Company’s loan portfolio and mortgage-backed and other securities as the
Company reinvests the prepaid funds in a lower interest rate environment. However, the Company typically receives
additional loan fees when existing loans are refinanced, which partially offsets the reduced yield on the Company’s loan
portfolio resulting from prepayments. In periods of low interest rates, the Company’s level of core deposits also may
decline if depositors seek higher-yielding instruments or other investments not offered by the Company, which in turn
may increase the Company’s cost of funds and decrease its net interest margin to the extent alternative funding sources
are utilized. By contrast, an increasing interest rate environment would tend to extend the average lives of lower yielding
fixed rate mortgages and mortgage-backed securities, which could adversely affect net interest income. In addition,
depositors tend to open longer term, higher costing certificate of deposit accounts which could adversely affect the
Bank’s net interest income if rates were to subsequently decline. Additionally, adjustable rate residential mortgage loans
and mortgage-backed securities generally contain interim and lifetime caps that limit the amount the interest rate can
increase at re-pricing dates.

During the first half of 2006, the Federal Reserve increased short term interest rates through their meeting in
June, while longer-term interest rates remained relatively stable. As a result, the yield curve flattened to the point where
there was little difference between the rate on overnight funds and the rate on ten year bonds. During the second half of
the year, the Federal Reserve maintained the overnight rate, while longer term rates declined, resulting in an inverted
yield curve. As a result, the Company’s net interest margin declined as the spread between the rate the Company
received on loans originated narrowed compared to the rate paid on new deposits. However, since demand remained
strong for our higher-yielding loan products, we grew our loan portfolio $442.9 million. We funded this growth with

principal payments received on our securities portfolio, deposit growth, and borrowings. At December 31, 2006, we had
loans in process of $291.9 million.

During the year ended December 31, 2006, certificates of deposit increased $204.8 million, while lower-costing
deposits increased $91.7 million. To fund the strong demand for our loan products, the growth in deposits was
augmented by an increase in borrowed funds of $142.7 million during 2006. The cost of funds rose to 4.26% in the
fourth quarter of 2006 from 3.49% in the fourth quarter of 2005.

As a result of the growth in our higher-yielding loan portfolio, and the decrease in the lower-yielding securities
portfolios, the yield on our total interest-earning assets increased 21 basis points during 2006 as compared to 2005.
However, primarily as a result of the interest rate increases by the Federal Reserve during 2005 and the first half of 2006,
the cost of our total interest-bearing liabilities increased 70 basis points. This resulted in a decrease in our interest rate
spread of 49 basis points to 2.54% for 2006 as compared to 3.03% for 2005. The net interest margin decreased 46 basis
points to 2.78% for 2006 as compared to 3.24% for 2005. The net interest margin declined to 2.58% in the fourth quarter
of 2006 as compared to 3.08% in the fourth quarter of 2005.

We are unable to predict the direction of future interest rate changes. However, since short-term interest rates
have increased without a corresponding increase in long-term interest rates, we may continue to see reductions in our net
interest margin. In addition, the cost of our existing deposit accounts, and the cost of obtaining new funds, may continue
to increase. Approximately 47% of the Company’s certificates of deposit accounts and borrowed funds reprice or mature
during the next year, which may result in an increase in the cost of our interest-bearing liabilities. Also, in an increasing
interest rate environment, mortgage loans and mortgage-backed securities with lower rates do not usually prepay as
quickly. A reduction in the level of our mortgagors refinancing their loans would reduce prepayment penalties we
receive, resulting in a reduction in the yield on our mortgage portfolio and net interest income. In a rising interest rate
environment, this has resulted in our cost of funds increasing more than the yield on our interest-earning assets.

During 2006, the nation’s economy was generally considered to be expanding. World events, particularly the
“War on Terror” and the level of oil prices, continued to have an effect on the economic recovery. These economic
conditions can result in borrowers defaulting on their loans, or withdrawing their funds on deposit at the Bank to meet
their financial obligations. While we have not seen a significant increase in delinquent loans, and have seen an increase
in deposits, we cannot predict the effect of these economic conditions on the Company’s financial condition or operating
results.

Interest Rate Sensitivity Analysis

A financial institution’s exposure to the risks of changing interest rates may be analyzed, in part, by examining
the extent to which its assets and liabilities are “interest rate sensitive” and by monitoring the institution’s interest rate
sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or
reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities
maturing or repricing within that time period. A gap is considered positive when the amount of interest-earning assets
maturing or repricing exceeds the amount of interest-bearing liabilities maturing or repricing within the same period. A
gap is considered negative when the amount of interest-bearing liabilities maturing or repricing exceeds the amount of
interest-earning assets maturing or repricing within the same period. Accordingly, a positive gap may enhance net
interest income in a rising rate environment and reduce net interest income in a falling rate environment. Conversely, a
negative gap may enhance net interest income in a falling rate environment and reduce net interest income in a rising rate
environment.

The table below sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at
December 31, 2006 which are anticipated by the Company, based upon certain assumptions, to reprice or mature in each
of the future time periods shown. Except as stated below, the amount of assets and liabilities shown that reprice or
mature during a particular period was determined in accordance with the earlier of the term to repricing or the
contractual terms of the asset or liability. Prepayment assumptions for mortgage loans and mortgage-backed securities
are based on the Bank’s experience and industry averages, which generally range from 6% to 25%, depending on the
contractual rate of interest and the underlying collateral. Money Market accounts and Savings accounts were assumed to
have a withdrawal or “run-off” rate of 14% and 18%, respectively, based on the Bank’s experience. While management
bases these assumptions on actual prepayments and withdrawals experienced by the Company, there is no guarantee that
these trends will continue in the future.

Three
Months
And Less

More Than
Three
Months To
One Year

Interest Rate Sensitivity Gap Analysis at December 31, 2006
More Than More Than More Than
Five Years
Three Years
One Year
To Ten
To Five
To Three
Years
Years
Years
(Dollars in thousands)

More Than
Ten Years

Total

Interest-Earning Assets
Mortgage loans
Other loans
Short-term securities (1)
Securities available for sale:

Mortgage-backed securities
Other

Total interest-earning assets

Interest-Bearing Liabilities
Savings accounts
NOW accounts
Money market accounts
Certificate of deposit accounts
Mortgagors' escrow deposits
Borrowed funds

Total interest-bearing liabilities (2)

Interest rate sensitivity gap
Cumulative interest-rate sensitivity gap
Cumulative interest-rate sensitivity gap

as a percentage of total assets

Cumulative net interest-earning assets
as a percentage of interest-bearing
liabilities

145,339
31,952
4,670

323,426
15,275
-

858,246
20,085
-

642,963
610
-

222,298
498
-

60,720
-
-

2,252,992
68,420
4,670

12,065
31,068
225,094

38,830
150
377,681

93,167
-
971,498

61,835
-
705,408

34,597
9,718
267,111

48,357
800
109,877

288,851
41,736
2,656,669

11,834
-
8,792
170,332
-
137,519
328,477

35,502
-
26,376
455,424
-
155,778
673,080

94,672
-
70,336
216,577
-
343,953
725,538

94,672
-
70,336
236,310
-
165,163
566,481

26,300
-
75,357
24,333
-
30,000
155,990

-
47,181
-
-
19,755
-
66,936

262,980
47,181
251,197
1,102,976
19,755
832,413
2,516,502

$
$

(103,383)
(103,383)

$
$

(295,399)
(398,782)

$
$

245,960
(152,822)

$
$

138,927
(13,895)

$
$

111,121
97,226

$
$

42,941
140,167

140,167

-3.64%

-14.06%

-5.39%

-0.49%

3.43%

4.94%

68.53%

60.18%

91.15%

99.39%

103.97%

105.57%

(1) Consists of interest-earning deposits.
(2) Does not include non-interest bearing demand accounts totaling $80.1 million at December 31, 2006.

Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example,
although certain assets and liabilities may have similar estimated maturities or periods to repricing, they may react in
differing degrees to changes in market interest rates and may bear rates that differ in varying degrees from the rates that
would apply upon maturity and reinvestment or upon repricing. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets, such as ARM loans, have features that restrict changes in interest rates
on a short-term basis and over the life of the asset. Further, in the event of a significant change in the level of interest
rates, prepayments on loans and mortgage-backed securities, and deposit withdrawal or “run-off” levels, would likely
deviate materially from those assumed in calculating the above table. In the event of an interest rate increase, some
borrowers may be unable to meet the increased payments on their adjustable-rate debt. The interest rate sensitivity
analysis assumes that the nature of the Company’s assets and liabilities remains static. Interest rates may have an effect
on customer preferences for deposits and loan products. Finally, the maturity and repricing characteristics of many assets
and liabilities as set forth in the above table are not governed by contract but rather by management’s best judgment
based on current market conditions and anticipated business strategies.

Interest Rate Risk

The Consolidated Financial Statements have been prepared in accordance with accounting principles generally
accepted in the United States of America, which requires the measurement of financial position and operating results in
terms of historical dollars without considering the changes in fair value of certain investments due to changes in interest
rates. Generally, the fair value of financial investments such as loans and securities fluctuates inversely with changes in
interest rates. As a result, increases in interest rates could result in decreases in the fair value of the Company’s interest-
earning assets which could adversely affect the Company’s results of operations if such assets were sold, or, in the case
of securities classified as available-for-sale, decreases in the Company’s stockholders’ equity, if such securities were
retained.

The Company manages the mix of interest-earning assets and interest-bearing liabilities on a continuous basis to
maximize return and adjust its exposure to interest rate risk. On a quarterly basis, management prepares the “Earnings
and Economic Exposure to Changes in Interest Rate” report for review by the Board of Directors, as summarized below.
This report quantifies the potential changes in net interest income and net portfolio value should interest rates go up or
down (shocked) 300 basis points, assuming the yield curves of the rate shocks will be parallel to each other. The OTS
currently places its focus on the net portfolio value ratio, focusing on a rate shock up or down of 200 basis points. The
OTS uses the change in Net Portfolio Value Ratio to measure the interest rate sensitivity of the Company. Net portfolio
value is defined as the market value of assets net of the market value of liabilities. The market value of assets and
liabilities is determined using a discounted cash flow calculation. The net portfolio value ratio is the ratio of the net
portfolio value to the market value of assets. All changes in income and value are measured as percentage changes from
the projected net interest income and net portfolio value at the base interest rate scenario. The base interest rate scenario
assumes interest rates at December 31, 2006. Various estimates regarding prepayment assumptions are made at each
level of rate shock. Actual results could differ significantly from these estimates. At December 31, 2006, the Company is
within the guidelines established by the Board of Directors for each interest rate level.

Change in Interest Rate

-300 basis points
-200 basis points
-100 basis points
Base interest rate
+100 basis points
+200 basis points
+300 basis points

Projected Percentage Change In

Net Interest Income
2006
2005

Net Portfolio Value
2006
2005

4.46 %
4.23
4.63
―
-3.29
-6.70
-12.37

4.91 %
5.00
4.37
―
-3.27
-6.57
-11.62

18.64 %
13.84
8.61
―
-11.02
-22.97
-35.56

24.57 %
17.20
9.93
―
-11.28
-23.10
-36.27

Net Portfolio
Value Ratio

2006

2005

10.59 % 10.79 %
10.34
10.05
9.45
8.62
7.65
6.57

10.36
9.92
9.23
8.39
7.46
6.35

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 relative amount of interest-earning assets and interest-bearing
liabilities and the interest rate earned or paid on them.

The following table sets forth certain information relating to the Company’s Consolidated Statements of
Financial Condition and Consolidated Statements of Income for the years ended December 31, 2006, 2005 and 2004, and
reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown.
Average balances are derived from average daily balances. The yields include amortization of fees that are considered
adjustments to yields.

2006

Average
Balance

Interest

Yield/
Cost

For the year ended December 31,
2005

Average
Balance

Interest

Yield/
Cost

(Dollars in thousands)

2004

Average
Balance

Interest

Yield/
Cost

2,035,145
47,500
2,082,645

138,524
3,566
142,090

302,527
38,113
340,640

13,865
1,757
15,622

6.81
7.51
6.82

4.58
4.61
4.59

1,687,701
23,136
1,710,837

114,319
1,531
115,850

353,364
39,149
392,513

14,949
1,523
16,472

6.77
6.62
6.77

4.23
3.89
4.20

1,376,685
12,742
1,389,427

97,367
787
98,154

447,209
52,621
499,830

18,516
1,836
20,352

7.07
6.18
7.06

4.14
3.49
4.07

14,533

672

4.62

3,586

117

3.26

18,066

218

1.21

2,437,818
125,906
2,563,724

158,384

6.50

2,106,936
100,726
2,207,662

132,439

6.29

118,724

6.22

1,907,323
95,231
2,002,554

265,421
43,052
235,642

1,001,438
1,545,553

4,031
202
8,804

43,757
56,794

1.52
0.47
3.74

4.37
3.67

241,121
43,133
228,818

748,747
1,261,819

2,225
216
5,199

26,960
34,600

0.92
0.50
2.27

3.60
2.74

218,336
44,103
279,952

1,092
221
5,122

644,328
1,186,719

22,487
28,922

0.50
0.50
1.83

3.49
2.44

29,275

0.22

27,337

0.21

20,482

0.24

1,574,828
715,324

56,857
33,823

3.61
4.73

1,289,156
683,039

34,657
29,572

2.69
4.33

1,207,201
580,550

28,972
23,261

2.40
4.01

2,290,152

90,680

3.96

1,972,195

64,229

3.26

1,787,751

52,233

2.92

60,991
18,345
2,369,488
194,236

52,017
18,499
2,042,711
164,951

45,093
18,415
1,851,259
151,295

2,563,724

2,207,662

2,002,554

67,704

2.54

68,210

3.03

66,491

3.30

147,666

2.78

134,741

3.24

119,572

3.49

1.06

1.07

.07

Interest-earning assets:
Mortgage loans, net (1)(2)
Other loans, net (1)(2)
Total loans, net
Mortgage-backed
securities
Other securities
Total securities
Interest-earning deposits
and federal funds sold
Total interest-earning
assets
Other assets
Total assets

Interest-bearing liabilities:
Deposits:
Savings accounts
NOW accounts
Money market accounts
Certificate of deposit
accounts
Total due to depositors
Mortgagors' escrow
accounts
Total interest-bearing
deposits
Borrowed funds
Total interest-bearing
liabilities
Non interest-bearing
demand deposits
Other liabilities
Total liabilities
Equity
Total liabilities and
equity

Net interest income /
net interest rate spread (3)

Net interest-earning assets /
net interest margin (4)

Ratio of interest-earning
assets to interest-bearing
liabilities

(1) Average balances include non-accrual loans.
(2) Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of

approximately $3.8 million, $4.2 million and $4.6 million for the years ended December 31, 2006, 2005 and 2004, respectively.
Interest rate spread represents the difference between the average rate on interest-earning assets and the average cost of interest-bearing liabilities.

(3)
(4) Net interest margin represents net interest income before the provision for loan losses divided by average interest-earning assets.

Rate/Volume Analysis

The following table presents the impact of changes in interest rates and in the volume of interest-earning assets
and interest-bearing liabilities on the Company’s interest income and interest expense during the periods indicated.
Information is provided in each category with respect to (1) changes attributable to changes in volume (changes in
volume multiplied by the prior rate), (2) changes attributable to changes in rate (changes in rate multiplied by the prior
volume) and (3) the net change. The changes attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.

Increase (Decrease) in Net Interest Income

Year Ended December 31, 2006
Compared to
Year Ended December 31, 2005

Due to

Volume

Rate

Year Ended December 31, 2005
Compared to
Year Ended December 31, 2004

Due to

Net
(Dollars in thousands)

Volume

Rate

Net

Interest-Earning Assets:
Mortgage loans, net
Other loans, net
Mortgage-backed securities
Other securities
Interest-earning deposits and

federal funds sold

Total interest-earning assets

Interest-Bearing Liabilities:
Deposits:

Savings accounts
NOW accounts
Money market accounts
Certificate of deposit accounts
Mortgagors' escrow accounts

Other borrowed funds

Total interest-bearing liabilities

23,530
1,805
(2,259)
(41)

675
230
1,175
275

24,205
2,035
(1,084)
234

21,225
684
(3,961)
(507)

(4,273)
60
394
194

16,952
744
(3,567)
(313)

488
23,523

67
2,422

555
25,945

(270)
17,171

169
(3,456)

(101)
13,715

242
-
159
10,281
3
1,439
12,124

1,564
(14)
3,446
6,516
3
2,812
14,327

1,806
(14)
3,605
16,797
6
4,251
26,451

125
(5)
(1,031)
3,744
14
4,346
7,193

1,008
-
1,108
729
(7)
1,965
4,803

1,133
(5)
77
4,473
7
6,311
11,996

Net change in net interest income

11,399

(11,905)

(506)

9,978

(8,259)

1,719

Comparison of Operating Results for the Years Ended December 31, 2006 and 2005

General. Diluted earnings per share decreased 13.0% to $1.14 for the year ended December 31, 2006 from
$1.31 for the year ended December 31, 2005. Net income for the year ended December 31, 2006 was $21.6 million, a
decrease of $1.9 million, or 8.1%, from the $23.5 million earned in the year ended December 31, 2005. Net interest
income for the year ended December 31, 2006 was $67.7 million, a decrease of $0.5 million, or 0.7% from $68.2 million
for the year ended December 31, 2005. Non-interest income increased $3.1 million, or 47.4%, as increases were seen in
most sources of income. Non-interest expense increased $6.5 million, or 17.9%, primarily due to expenditures related to
the growth and expansion of the Bank.

Return on average assets decreased to 0.84% for the year ended December 31, 2006 from 1.07% for the year
ended December 31, 2005. Return on average equity declined to 11.14% for the year ended December 31, 2006 from
14.27% for the year ended December 31, 2005.

Interest Income. Interest income increased $25.9 million, or 19.6%, to $158.4 million for the year ended
December 31, 2006 from $132.4 million for the year ended December 31, 2005. This is the result of a $330.9 million
increase in the average balance of interest-earning assets during 2006 compared to 2005, combined with a 21 basis point
increase in the yield of interest-earning assets during 2006 compared to 2005. The increase in the yield of interest-
earning assets is primarily due to an increase of $371.8 million in the average balance of the higher-yielding loan
portfolio to $2,082.6 million, combined with a $51.9 million decrease in the average balance of the lower-yielding
securities portfolios. The yield on the mortgage loan portfolio increased four basis points to 6.81% for the year ended
December 31, 2006 from 6.77% for the year ended December 31, 2005. The yield on the mortgage loan portfolio,
excluding prepayment penalty income, increased 10 basis points for the year ended December 31, 2006 compared to the
year ended December 31, 2005. This increase is due to the average rate of 7.37% on new mortgage loans originated
during the year ended December 31, 2006 being above the average rate on both the loan portfolio and loans that were
52

paid-in-full during the year. In an effort to increase the yield on interest-earning assets, we continued to fund a portion of
the growth in the higher-yielding mortgage loan portfolio through repayments received on the lower-yielding securities
portfolio. Excluding prepayment penalties from interest income, the yield on loans would have been 6.65% and 6.53%,
and the yield on total interest-earning assets would have been 6.35% and 6.09%, in each case, for the years ended
December 31, 2006 and 2005, respectively.

Interest income from securities decreased $0.9 million, as the average balance declined $51.9 million for the
year ended December 31, 2006 to $340.6 million, partially offset by a 39 basis point increase in the yield to 4.59%
during 2006 from 4.20% during 2005. The decrease in the average balance of the securities portfolio is a result of the
Bank's current strategy to reduce the lower-yielding securities portfolio and shift these funds to the higher-yielding
mortgage loan portfolio. Interest income from interest-earning deposits and federal funds sold increased $0.6 million due
to the increase in the average balance during 2006 compared to 2005, combined with an increase in the yield of 136 basis
points for the year ended December 31, 2006 compared to the year ended December 31, 2005.

Interest Expense. Interest expense increased $26.5 million to $90.7 million, or 41.2%, for the year ended
December 31, 2006, from $64.2 million for the year ended December 31, 2005. An increase of $318.0 million in the
average balance of interest-bearing liabilities was combined with a 70 basis point rise in the cost of interest-bearing
liabilities to 3.96% for the year ended December 31, 2006 from 3.26% for the year ended December 31, 2005. The
increase in the cost of interest-bearing liabilities is primarily attributed to the Federal Reserve having raised the overnight
interest rate at seventeen consecutive meetings through June 30, 2006. Although the overnight rate remained at 5.25%
for both the third and fourth quarters of 2006, the prior increases resulted in an increase in our cost of funds. The cost of
certificate of deposits, savings accounts and money market accounts increased 77 basis points, 60 basis points and 147
basis points, respectively, for the year ended December 31, 2006 compared to the year ended December 31, 2005,
resulting in an increase in the cost of due to depositors of 93 basis points for the year ended December 31, 2006
compared to the year ended December 31, 2005. The cost of borrowed funds also increased 40 basis points to 4.73% for
the year ended December 31, 2006 as compared to the year ended December 31, 2005.

Net Interest Income. Net interest income for the year ended December 31, 2006 totaled $67.7 million, a
decrease of $0.5 million, or 0.7%, from $68.2 million for 2005. The net interest spread declined 49 basis points to
2.54% for 2006 from 3.03% in 2005, as the yield on interest-earning assets increased 21 basis points while the cost of
interest-bearing liabilities increased 70 basis points. The net interest margin decreased 46 basis points to 2.78% for the
year ended December 31, 2006 from 3.24% for the year ended December 31, 2005. Excluding prepayment penalty
income, the net interest margin would have been 2.63% and 3.04% for the years ended December 31, 2006 and 2005,
respectively.

Provision for Loan Losses. There was no provision for loan losses for the years ended December 31, 2006 and
2005. In assessing the adequacy of the Company's allowance for loan losses, management considers the Company's
historical loss experience, recent trends in losses, collection policies and collection experience, trends in the volume of
non-performing loans, changes in the composition and volume of the gross loan portfolio, and local and national
economic conditions. In recent years, the Bank has seen a significant improvement in its loss experience, and an
improvement in local economic conditions and real estate values. As a result of these improvements, and despite the
growth in the loan portfolio, primarily in multi-family residential, commercial, and one-to-four family mixed-use
property mortgage loans, no adjustment to the allowance for loan losses was deemed necessary for the years ended
December 31, 2006 and 2005. The ratio of non-performing loans to gross loans was 0.13% at both December 31, 2006
and 2005. The allowance for loan losses as percentage of non-performing loans was 226% and 260% at December 31,
2006 and 2005, respectively. The ratio of allowance for loan losses to gross loans was 0.30% and 0.34% at December
31, 2006 and 2005, respectively. The Company experienced net charge-offs of $81,000 and $148,000 for the years ended
December 31, 2006 and 2005, respectively.

Non-Interest Income. Non-interest income increased $3.1 million, or 47.4%, for the year ended December 31,
2006 to $9.8 million, as compared to $6.6 million for the year ended December 31, 2005. This was attributed to increases
of $0.8 million in loan fees, $0.5 million in dividends received on Federal Home Loan Bank of New York (“FHLB-NY”)
stock, $0.4 million in BOLI dividends, and $0.5 million in other income, and a $0.7 million increase due to last year’s
loss on sale of securities due to a restructuring of the portfolio.

Non-Interest Expense. Non-interest expense was $42.7 million for the year ended December 31, 2006, an
increase of $6.5 million, or 17.9%, from $36.3 million for the year ended December 31, 2005. The increase from the
prior year is primarily attributed to increases of: $3.3 million in employee salary and benefit expenses related to
additional employees for new branches, the business banking initiative, and the internet branch, and the expensing of
stock options, $1.4 million in occupancy and equipment costs primarily related to rental expense due to new branch

leases (including the new branches scheduled to open in the first quarter of 2007) and $1.8 million in other operating
expense primarily related to the amortization of core deposit intangible and non-compete contracts, and expenditures
attributable to the growth of the Bank. The efficiency ratio was 55.2% and 48.0% for years ended December 31, 2006
and 2005, respectively. The increase in the efficiency ratio for 2006 was primarily related to the investments in: the new
branches, the startup of iGObanking.comTM, and the business banking initiative. While we expect each of these to
contribute to future revenues, they did not produce revenues sufficient to maintain the prior year’s efficiency ratio.

Income Tax Provisions. Income tax expense for the year ended December 31, 2006 decreased $1.9 million to
$13.1 million, compared to $15.1 million for the year ended December 31, 2005. This decrease is primarily attributed to
the decrease of $3.8 million in income before income taxes. The effective tax rate decreased to 37.7% for the year ended
December 31, 2006 from 39.0% for the year ended December 31, 2005. The decrease in the effective tax rate is due to
the increased impact on income from tax preference items, primarily BOLI income.

Comparison of Operating Results for the Years Ended December 31, 2005 and 2004

General. Diluted earnings per share increased 4.8% to $1.31 for the year ended December 31, 2005 from $1.25
for the year ended December 31, 2004. Net income increased $0.9 million, or 3.9%, to $23.5 million for the year ended
December 31, 2005 from $22.6 million for the year ended December 31, 2004. This was due to a $1.7 million increase
in net interest income, partially offset by an increase in the net loss from the sale of securities of $0.5 million and a
charge in the third quarter of 2005 of $0.5 million, $0.3 million on an after-tax basis or $0.02 per diluted share, for
expenses incurred in connection with our terminated negotiations to acquire another financial institution. The
negotiations were terminated after several months as the parties were unable to come to agreement on terms. The year
ended December 31, 2004 included charges of $1.1 million, $0.7 million on an after-tax basis or $0.04 per diluted share,
related to the retirement of an executive, the relocation of various departments as a result of the move of our executive
offices to Nassau County, and the additional expenses incurred for initial compliance with the provisions of the
Sarbanes-Oxley Act. In addition, 2004 also included a charge of $1.1 million, $0.7 million on an after-tax basis or $0.04
per diluted share, for compensation expense for certain of the Company's restricted stock awards and supplemental
retirement benefits.

Return on average assets declined to 1.07% for the year ended December 31, 2005 from 1.13% for the year
ended December 31, 2004. Return on average equity decreased to 14.27% for the year ended December 31, 2005 from
14.97% for the year ended December 31, 2004.

Interest Income. Interest income increased $13.7 million, or 11.6%, to $132.4 million for the year ended
December 31, 2004 from $118.7 million for the year ended December 31, 2004. This was the result of a $199.6 million
increase in the average balance of interest-earning assets during 2005 compared to 2004. The average balance of the
higher-yielding mortgage loan portfolio increased $311.0 million, while the average balance of the lower-yielding
securities portfolios declined $107.3 million. In addition, the average balance of interest-earning deposits declined $14.5
million. The yield on the mortgage loan portfolio decreased 30 basis points to 6.77% during 2005 from 7.07% during
2004. This decrease is due to the average rate on new loans originated during the year being below the average rate on
both the mortgage loan portfolio and loans which were paid-in-full. This decrease was partially offset by prepayment
penalties that had been collected. Interest income included $4.1 million and $4.3 million in prepayment penalties
collected during the years ended December 31, 2005 and 2004, respectively. Our focus on the origination of higher-
yielding multi-family residential and commercial real estate mortgage loans, along with the origination of one-to-four
family mixed-use property mortgage loans, allowed us to maintain a higher yield on our mortgage loan portfolio than we
would have otherwise experienced. The yield on interest-earning assets increased seven basis points to 6.29% during
2005 from 6.22% during 2004, primarily due to the increase in the average balance of the higher-yielding mortgage loan
portfolio combined with the decrease in the lower-yielding securities portfolios. Excluding prepayment penalties from
interest income, the yield on loans would have been 6.53% and 6.76%, and the yield on total interest-earning assets
would have been 6.09% and 6.00%, in each case, for the years ended December 31, 2005 and 2004, respectively.

Interest income from securities decreased $3.9 million, as the average balances declined $107.3 million for the
year ended December 31, 2005 to $392.5 million, partially offset by a 13 basis point increase in the yield to 4.20%
during 2005 from 4.07% during 2004. The decrease in the average balance of the securities portfolio was the result of
the Bank's strategy to reduce the lower-yielding securities portfolio and shift these funds to the higher-yielding mortgage
loan portfolio. Interest income from interest-earning deposits and federal funds sold declined due to the decrease in the
average balance during 2005 compared to 2004, partially offset by an increase in the yield of 205 basis points for the
year ended December 31, 2005 compared to the year ended December 31, 2004.

Interest Expense. Interest expense increased $12.0 million to $64.2 million, or 23.0%, for the year ended
December 31, 2005, from $52.2 million for the year ended December 31, 2004. An increase of $184.4 million in the

average balance of interest-bearing liabilities was combined with a 34 basis point rise in the cost of interest-bearing
liabilities to 3.26% for the year ended December 31, 2005 from 2.92% for the year ended December 31, 2004. The
increase in the cost of interest-bearing liabilities was attributed to an increase in the average balances of certificates of
deposit, borrowed funds and savings accounts of $104.4 million, $102.5 million and $22.8 million, respectively,
combined with an 11 basis point, 32 basis point and 42 basis point increase in their respective costs.

Net Interest Income. Net interest income for the year ended December 31, 2005 totaled $68.2 million, an
increase of $1.7 million, or 2.6%, from $66.5 million for 2004. The net interest spread declined 27 basis points to 3.03%
for 2005 from 3.30% in 2004, as the yield on interest-earning assets increased seven basis points while the cost of
interest-bearing liabilities increased 34 basis points. The net interest margin declined 25 basis points to 3.24% for the
year ended December 31, 2005 from 3.49% for the year ended December 31, 2004. Excluding prepayment penalty
income, the net interest margin would have been 3.04% and 3.26% for the years ended December 31, 2005 and 2004,
respectively.

Provision for Loan Losses. There was no provision for loan losses for the years ended December 31, 2005 and
2004. In assessing the adequacy of the Company's allowance for loan losses, management considered the Company's
historical loss experience, recent trends in losses, collection policies and collection experience, trends in the volume of
non-performing loans, changes in the composition and volume of the gross loan portfolio, and local and national
economic conditions. In recent years, the Bank has seen a significant improvement in its loss experience, and an
improvement in local economic conditions and real estate values. As a result of these improvements, and despite the
growth in the loan portfolio, primarily in multi-family residential, commercial, and one-to-four family mixed-use
property mortgage loans, no adjustment to the allowance for loan losses was deemed necessary for the years ended
December 31, 2005 and 2004. The ratio of non-performing loans to gross loans was 0.13% at December 31, 2005
compared to 0.06% at December 31, 2004. The allowance for loan losses as percentage of non-performing loans was
260.39% and 717.29% at December 31, 2005 and 2004, respectively. The ratio of allowance for loan losses to gross
loans was 0.34% and 0.43% at December 31, 2005 and 2004, respectively. The Company experienced net charge-offs of
$148,000 and $20,000 for the years ended December 31, 2005 and 2004, respectively.

Non-Interest Income. Non-interest income increased $0.7 million, or 11.8%, to $6.6 million for the year ended
December 31, 2005, as compared to $5.9 million for same period in 2004. The increase was primarily attributed to
increases of $0.3 million in gains on the sale of loans originated for sale, $0.7 million in dividends received on FHLB-
NY stock, and $0.2 million in loan fee income (primarily due to an increase in miscellaneous fees collected at the time
mortgage loans paid-in-full prior to their maturity), partially offset by an increase of $0.5 million in the net loss on the
sale of securities. During the fourth quarter of 2005, $29.9 million of securities with an average yield of 3.23% were
sold, with the proceeds invested in $29.6 million of securities with an average yield of 5.58%. This resulted in a net loss
from the sale of these securities of $0.6 million.

Non-Interest Expense. Non-interest expense was $36.3 million for the year ended December 31, 2005, an
increase of $0.9 million, or 2.5%, from $35.4 million for the year ended December 31, 2004. The increase from the prior
year period was attributed to: $0.5 million in occupancy and equipment primarily due to a full year of operating expenses
for the Company’s executive offices which were relocated in the third quarter of 2004; $0.3 million in audit and exam
fees related to the increased compliance requirements of the Sarbanes-Oxley Act; $0.5 million for legal expenses
recorded in the third quarter in connection with the terminated negotiations to acquire another financial institution; $0.4
million in advertising costs for campaigns to attract new deposits; $0.4 million in data processing expense; $0.4 in
employee pension and health benefits; $0.2 million for the cost of certain restricted stock unit awards granted in the
current period as the participants had no risk of forfeiture; and $0.3 million in board of director fees due to the increases
in the size of the board of directors and the number of meetings. The increased cost of restricted stock units in 2005
compared to 2004 was due to the increased level of the awards to non-employee directors. The 2005 Omnibus Incentive
Plan, approved at the annual stockholders meeting, increased annual grants to each non-employee director to 3,600
restricted stock units, while eliminating grants of stock options for non-employee directors. This provided an expense
benefit beginning in 2006 when we were required to expense stock option grants. These increases were offset by
decreases in salaries and employee benefits and other operating expenses of $0.9 million and $0.2 million, respectively,
due to the 2004 adjustment to amortization of compensation expense for certain of the Company’s restricted stock
awards and supplemental retirement benefits, and $0.2 million and $0.8 million, recorded in the second and fourth
quarters of 2004, respectively, to reflect amounts due under retirement agreements with the former Chief Financial
Officer and former Chief Executive Officer, respectively. The efficiency ratio was 48.0% and 48.8% for years ended
December 31, 2005 and 2004, respectively.

Income Tax Provisions. Income tax expense for the year ended December 31, 2005 increased $0.7 million to
$15.1 million, compared to $14.4 million for the year ended December 31, 2004. This increase was primarily attributed
to the increase of $1.5 million in income before income taxes. The effective tax rate was 39.0% for the year ended
December 31, 2005 compared to 38.9% for the year ended December 31, 2004.

Liquidity, Regulatory Capital and Capital Resources

The Company’s primary sources of funds are deposits, borrowings, principal and interest payments on loans,
mortgage-backed and other securities, proceeds from sales of securities and, to a lesser extent, proceeds from sales of
loans. Deposit flows and mortgage prepayments, however, are greatly influenced by general interest rates, economic
conditions and competition. At December 31, 2006, the Bank had an approved overnight line of credit of $100.0 million
with the FHLB-NY. In total, as of December 31, 2006, the Bank may borrow up to $848.3 million from the FHLB-NY
in Federal Home Loan advances and overnight lines of credit. As of December 31, 2006, the Bank had borrowed $587.9
million in FHLB-NY advances. There were no funds outstanding at December 31, 2006 under the overnight line of
credit. In addition, the Holding Company has $20.6 million in junior subordinated debentures (which are included in
Borrowed Funds) and the Bank had $223.9 million in repurchase agreements to fund lending and investment
opportunities. (See Note 7 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report.) Management
believes their available sources of funds are sufficient to fund current operations.

The Company’s most liquid assets are cash and cash equivalents, which include cash and due from banks,
overnight interest-earning deposits and federal funds sold with original maturities of 90 days or less. The level of these
assets is dependent on the Company’s operating, financing, lending and investing activities during any given period. At
December 31, 2006, cash and cash equivalents totaled $29.3 million, an increase of $2.5 million from December 31,
2005. The Company also held marketable securities available for sale with a carrying value of $330.6 million at
December 31, 2006.

At December 31, 2006, the Company had commitments to extend credit (principally real estate mortgage loans)
of $83.3 million and open lines of credit for borrowers (principally construction loan and home equity loan lines of
credit) of $78.0 million. Since generally all of the loan commitments are expected to be drawn upon, the total loan
commitments approximate future cash requirements, whereas the amounts of lines of credit may not be indicative of the
Company’s future cash requirements. The loan commitments generally expire in ninety days, while construction loan
lines of credit mature within eighteen months and home equity loan lines of credit mature within ten years. The
Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-
sheet instruments.

The Company’s total interest and operating expenses in 2006 were $90.7 million and $42.7 million,
respectively. Certificate of deposit accounts that are scheduled to mature in one year or less as of December 31, 2006
totaled $625.8 million.

The Company maintains three postretirement benefit plans for its employees: a noncontributory defined benefit
pension plan which was frozen as of September 30, 2006, a contributory medical plan, and a noncontributory life
insurance plan. The Company also maintains a noncontributory defined benefit plan for certain of its non-employee
directors. The employee pension plan is the only plan that the Company has funded. During 2006, the Company did not
make a contribution to the employee pension plan, and incurred cash expenditures of $0.1 million for the medical and
life insurance plans and $0.1 million for the non-employee director plan. The Company expects to pay similar amounts
for these plans in 2007. (See Note 10 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report.)

The amounts reported in the Company’s financial statements are obtained from reports prepared by independent
actuaries, and are based on significant assumptions. The most significant assumption is the discount rate used to
determine the accumulated postretirement benefit obligation (“APBO”) for these plans. The APBO is the present value
of projected benefits that employees and retirees have earned to date. The discount rate is a single rate at which the
liabilities of the plans are discounted into today’s dollars and could be effectively settled or eliminated. The discount rate
used is based on the Citigroup Pension Liability Index, and reflects a rate which could be earned on bonds over a similar
period that the Company anticipates the plans’ liabilities will be paid. An increase in the discount rate would reduce the
APBO, while a reduction in the discount rate would increase the APBO. During the past several years, when interest
rates have been at historically low levels, the discount rate used for the Company’s plans has declined from 7.25% for
2001 to 6.00% for 2006. This decline in the discount rate has resulted in an increase in the Company’s APBO.

The Company’s actuaries use several other assumptions that could have a significant impact on the Company’s
APBO and periodic expense for these plans. These assumptions include, but are not limited to, the rate of increase in
future compensation levels, expected rate of return on plan assets, future increases in medical and life insurance
premiums, turnover rates of employees, and life expectancy. The accounting standards for postretirement plans involve
mechanisms that serve to limit the volatility of earnings by allowing changes in the value of plan assets and benefit

obligations to be amortized over time when actual results differ from the assumptions used, there are changes in the
assumptions used, or there are plan amendments. At December 31, 2006, the Company’s employee pension plan has a
$2.8 million unrecognized loss, and the medical and life insurance plans have a $0.6 million unrecognized gain, due to
experience different from what had been estimated and changes in actuarial assumptions. The pension plan’s
unrecognized loss is primarily attributed to the reduction in the discount rate over the past several years. The medical and
insurance plans’ unrecognized gain is attributed to a reduction in medical premiums. In addition, the non-employee
directors pension plan and the medical and life insurance plans have unrecognized past service liabilities of $0.6 million
and $0.1 million, respectively, due to plan amendments in prior years. The net after tax effect of the unrecognized gains
and losses associated with these plans has been recorded in accumulated other comprehensive income in stockholders’
equity, resulting in a reduction of stockholders’ equity of $1.5 million as of December 31, 2006.

The change in the discount rate, the reduction in medical premiums, and the freezing of the employee defined
benefit pension plan are the only significant changes made to the assumptions used for these plans for each of the years
in the three years ended December 31, 2006. During this time period, the actual return on the employee pension plan’s
assets has approximated the assumed return used to determine the periodic pension expense.

The market value of the assets of the Company’s employee pension plan is $15.6 million at December 31, 2006,
which is $0.8 million more than the projected benefit obligation. The Company does not anticipate a change in the
market value of these assets which would have a significant effect on liquidity, capital resources, or results of operations.

During 2006, funds provided by the Company’s operating activities amounted to $30.3 million. These funds,
together with $291.2 million provided by financing activities, were utilized to fund net investing activities of $319.0
million. Funds provided by financing activities were primarily the result of growth in due to depositors of $190.8
million and net borrowings of $111.9 million. Principal payments and calls on loans and securities provided additional
funds. The primary investment activity of the Company is the origination of loans, and the purchase of mortgage-backed
securities. During 2006, the Bank had loan originations and purchases of $635.6 million, plus $129.0 million of loans
acquired from Atlantic Liberty Savings. In addition during 2006, the Company purchased $55.3 million of mortgage-
backed and other securities.

At the time of the Bank’s conversion from a federally chartered mutual savings bank to a federally chartered
stock savings bank, the Bank was required by the OTS to establish a liquidation account which is reduced as and to the
extent that eligible account holders reduce their qualifying deposits. The balance of the liquidation account at December
31, 2006 was $4.8 million, which includes an increase of $2.0 million, due to the addition of Atlantic Liberty’s
liquidation account. In the unlikely event of a complete liquidation of the Bank, each eligible account holder will be
entitled to receive a distribution from the liquidation account. The Bank is not permitted to declare or pay a dividend or
to repurchase any of its capital stock if the effect would be to cause the Bank’s regulatory capital to be reduced below the
amount required for the liquidation account. Unlike the Bank, the Holding Company is not subject to OTS regulatory
restrictions on the declaration or payment of dividends to its stockholders, although the source of such dividends could
depend upon dividend payments from the Bank. The Holding Company is subject, however, to the requirements of
Delaware law, which generally limit dividends to an amount equal to the excess of its net assets (the amount by which
total assets exceed total liabilities) over its stated capital or, if there is no such excess, to its net profits for the current
and/or immediately preceding fiscal year.

Regulatory Capital Position. Under OTS capital regulations, the Bank is required to comply with each of three
separate capital adequacy standards: tangible capital, leverage and core capital and total risk-based capital. Such
classifications are used by the OTS and other bank regulatory agencies to determine matters ranging from each
institution’s semi-annual FDIC deposit insurance premium assessments, to approvals of applications authorizing
institutions to grow their asset size or otherwise expand business activities. At December 31, 2006 and 2005, the Bank
exceeded each of the three OTS capital requirements. (See Note 12 of Notes to Consolidated Financial Statements
included in Item 8 of this Annual Report.)

Critical Accounting Policies

The Company’s accounting policies are integral to understanding the results of operations and statement of
financial condition. These policies are described in the Notes to Consolidated Financial Statements. Several of these
policies require management’s judgment to determine the value of the Company’s assets and liabilities. The Company
has established detailed written policies and control procedures to ensure consistent application of these policies. The
accounting policy that requires significant management valuation judgment is determining the allowance for loan losses.

An allowance for loan losses is provided to absorb probable estimated losses inherent in the loan portfolio.
Management reviews the adequacy of the allowance for loan losses by reviewing all impaired loans on an individual
basis. The remaining portfolio is evaluated based on the Company's historical loss experience, recent trends in losses,
collection policies and collection experience, trends in the volume of non-performing loans, changes in the composition

and volume of the gross loan portfolio, and local and national economic conditions. Judgment is required to determine
how many years of historical loss experience are to be included when reviewing historical loss experience. A full credit
cycle must be used, or loss estimates may be inaccurate. This evaluation is inherently subjective, as it requires estimates
that are susceptible to significant revisions as more information becomes available.

Notwithstanding the judgment required in assessing the components of the allowance for loan losses, the
Company believes that the allowance for loan losses is adequate to cover losses inherent in the loan portfolio. The policy
has been applied on a consistent basis for all periods presented in the Consolidated Financial Statements.

Contractual Obligations

Payments Due By Period

Total

832,413
1,764,150
161,245
-
27,467
9,187

Less Than
1 Year

203,778
1,286,930
161,245
-
2,578
2,674

1 - 3
Years
(In thousands)
$
353,953
216,577
-
-
5,493
3,236

3 - 5
Years

204,063
236,310
-
-
5,489
3,236

More
Than
5 Years

70,619
24,333
-
-
13,907
41

5,953
4,492

321
721

893
444

1,004
444

3,735
2,883

Borrowed funds
Deposits
Loan commitments
Capital lease obligations
Operating lease obligations
Purchase obligations
Pension and other postretirement
benefits
Deferred compensation plans

Total

2,804,907

1,658,247

580,596

450,546

115,518

The Company has significant obligations that arise in the normal course of business. The Company finances its
assets with deposits and borrowed funds. The Company also uses borrowed funds to manage its interest-rate risk. The
Company has the means to refinance these borrowings as they mature through its financing arrangements with the
FHLB-NY and its ability to arrange repurchase agreements with broker-dealers and the FHLB-NY. (See Notes 6 and 7
of Notes to Consolidated Financial Statements in Item 8 of this Annual Report.)

The Company focuses its balance sheet growth on the origination of mortgage loans. At December 31, 2006, the
Bank had commitments to extend credit and lines of credit of $161.2 million for mortgage and other loans. These loans
will be funded through principal and interest payments received on existing mortgage loans and mortgage-backed
securities, growth in customer deposits, and, when necessary, additional borrowings. (See Note 13 of Notes to
Consolidated Financial Statements in Item 8 of this Annual Report.)

At December 31, 2006, the Bank has twelve branches, six of which are leased. The table above also includes the
leases obtained in connection with the two new branch offices opened in the first quarter of 2007. The Bank leases its
branch locations primarily when it is not the sole tenant. Whether the Bank will purchase its future branch locations will
depend in part on the availability of suitable locations and the availability of properties. In addition, the Bank leases its
executive offices.

The Bank currently outsources its data processing, loan servicing and check processing functions. The Bank
believes that this is the most cost effective method for obtaining these services. These arrangements are usually volume
dependent and have varying terms. The contracts for these services usually include annual increases based on the
increase in the consumer price index. The amounts shown above for purchase obligations represent the current term and
volume of activity of these contracts. The Bank expects to renew these contracts as they expire.

The amounts shown for pension and other postretirement benefits reflect the Company’s employee and
directors’ pension plans, the supplemental retirement benefits of its president, and amounts due under its plan for
medical and life insurance benefits for retired employees. The amount shown in the “Less Than 1 Year” column
represents the Company’s current estimate for these benefits, some of which are based on information supplied by
actuaries. The amounts shown in columns reflecting periods over one year represent the Company’s current estimate
based on the past year’s actual disbursements and information supplied by actuaries, but do not include an estimate for
the employee pension plan as we do not currently have an estimate for this plan. The amounts do not include an increase
for possible future retirees or increases in health plan costs. The amount shown in the “More Than 5 Years” column
represents the amount required to increase the total amount to the projected benefit obligation of the directors’ plan and

the medical and life insurance benefit plans, since these are unfunded plans. (See Note 10 of Notes to Consolidated
Financial Statements in Item 8 of this Annual Report.)

The Bank provides a non-qualified deferred compensation plan for officers who have achieved the level of at
least vice president. In addition to the amounts deferred by the officers, the Bank matches 50% of their contributions,
generally up to a maximum of 5% of the officers’ salary. These plans generally require the deferred balance to be
credited with earnings at a rate earned by certain mutual funds. Employees do not receive a distribution from these plans
until their employment is terminated. The amounts shown in the columns for less than five years represent the estimate
of the amounts the Bank will contribute to a rabbi trust with respect to matching contributions under these plans, and the
amounts to be paid from the rabbi trust to two executives who have retired. The amount shown in the “More Than 5
Years” column represents the current accrued liability for these plans, adjusted for the activity in the columns for less
than five years. This expense is provided in the Consolidated Statements of Income, and the liability has been provided
in the Consolidated Statements of Financial Condition.

Impact of New Accounting Standards

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards No. 123R (revised 2004), “Share Based Payment.” This statement revised FASB Statement No.
123, “Accounting for Stock Based Compensation”, and superseded APB Opinion No. 25 “Accounting for Stock Issued
to Employees” and its related implementation guidance. This statement established fair value as the measurement
objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based
measurement method in accounting for share-based payment transactions with employees. It requires that a public entity
measure the cost of employee services received in exchange for an award of an equity instrument based on the grant date
fair value of the award. That cost will be recognized over the period during which an employee is required to provide
service in exchange for the award. The requisite service period is usually the vesting period. The provisions of this
statement were effective for the first interim or annual reporting period that began after June 15, 2005. On April 12,
2005, the U.S. Securities and Exchange Commission issued a release which changed the implementation date to the
beginning of the next fiscal year after June 15, 2005. The adoption of this statement reduced diluted earnings per share
by $0.01 for 2006. The effect on future earnings as a result of the adoption of this statement will primarily be dependent
on the level of future grants of stock options awarded by the Company.

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation 48 (FIN 48),
“Accounting for Uncertainty in Income Taxes: an interpretation of SFAS No. 109”. FIN 48 clarifies Statement of
Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes”, by defining a criterion that an
individual tax position would have to meet for some or all of the benefit of that position to be recognized in an entity’s
financial statements. Entities should evaluate a tax position to determine if it is more likely than not that a position will
be sustained on examination by taxing authorities. FIN 48 defines more likely than not as “a likelihood of more than 50
percent”. FIN 48 also requires certain disclosures, including the amount of unrecognized tax benefits that if recognized
would change the effective tax rate, information concerning tax positions for which a significant increase or decrease in
the unrecognized tax benefit liability is reasonably possible in the next 12 months, a tabular reconciliation of the
beginning and ending balances of unrecognized tax benefits, and tax years that remain open for examination by major
jurisdictions. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 did not
have a material effect on the Company’s results of operations or financial condition.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments.”
The Statement amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS
No.140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” The
Statement also resolves issues addressed in SFAS No. 133 Implementation Issue No. D1, “Application of Statement 133
to Beneficial Interest in Securitized Financial Assets.” SFAS No. 155 permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which
interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a
requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or
that are hybrid financial instruments that contain as embedded derivative requiring bifurcation, and clarifies that
concentrations of credit risk in the form of subordination are not embedded derivatives. The Statement eliminates the
interim guidance in SFAS No. 133 Implementation Issue No. D1, which provided that beneficial interests in securitized
financial assets are not subject to the provisions of SFAS No. 133. The Statement is effective for all financial instruments
acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Since the
Statement is effective for purchases made by the Company after December 31, 2006, management is unable, at this time,
to determine the impact of this statement.

as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date, establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. Adoption of SFAS No. 157 is not expected to have a material impact on the Company’s results
of operations or financial condition.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans.” The Statement requires an employer that is a business entity and sponsors one or more
single-employer defined benefit plans to: (1) recognize the funded status of a benefit plan – measured as the difference
between plan assets at fair value and the benefit obligation – in its statement of financial position, with the corresponding
credit or charge, net of taxes, upon initial adoption to Accumulated Other Comprehensive Income; (2) recognized as a
component of Accumulated Other Comprehensive Income, net of tax, the gains or losses and prior service costs or
credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to SFAS
No. 87, “Employers’ Accounting for Pensions”, or SFAS No. 106, “Employers’ Accounting for Postretirement Benefits
Other Than Pensions”; (3) measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year
end; and (4) expand disclosures in the notes to the financial statements about certain effects on net periodic benefit cost.
The Statement also amends SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other
Postretirement Benefits”, and SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans for Termination Benefits”. An employer who has publicly traded equity securities, such as the
Holding Company, is required to initially recognize the funded status of a defined benefit postretirement plan and to
provide the required disclosures as of the end of its fiscal year ending after December 15, 2006. For the Holding
Company, this is for the year ended December 31, 2006. The requirement to measure plan assets and benefit obligations
as of the date of the employer’s fiscal year end is effective for fiscal years ending after December 15, 2008. The adoption
of this statement resulted in a charge to Accumulated Other Comprehensive Income, and a corresponding reduction of
stockholders’ equity, of $1.2 million, net of taxes, at December 31, 2006.

In February 2007, the FASB Issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities-Including an amendment of FASB No. 115”. This Statement permits entities to choose to measure many
financial instruments and certain other items at fair value. This statement is effective for the beginning of the first fiscal
year that begins after November 15, 2007. Management is currently evaluating the impact of adopting this statement on
the Company’s consolidated financial statements.

In May 2005, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 154, “Accounting
Changes and Error Corrections,” which replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3,
“Reporting Accounting Changes in Interim Financial Statements,” and changes the requirements for the accounting for
and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle
and to changes required by an accounting pronouncement when the pronouncement does not include specific transition
provisions. SFAS No. 154 requires retrospective application of changes in accounting principle to prior periods’
financial statements unless it is impracticable to determine either the period-specific effects or the cumulative effect of
the change. APB Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized
by including the cumulative effect of the change in net income for the period of the change in accounting principle.
SFAS No. 154 carries forward without change the guidance contained in APB Opinion No. 20 for reporting the
correction of an error in previously issued financial statements and a change in accounting estimate. SFAS No. 154 also
carries forward the guidance in APB Opinion No. 20 requiring justification of a change in accounting principle on the
basis of preferability. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005, with early adoption permitted. The adoption of SFAS No. 154 did not have a
material impact on the Company’s results of operations or financial condition.

On November 3, 2005, the FASB issued FASB Staff Position (FSP) Nos. FAS 115-1 and FAS 124-1, “The
Meaning of Other-Than-Temporary Impairment and Its Application.” This FSP addresses the determination as to when
an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an
impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-
temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-
than-temporary impairments. The guidance in this FSP amends SFAS No. 115, “Accounting for Certain Investments in
Debt and Equity Securities,” and No. 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations,”
and APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” This FSP is effective
for reporting periods beginning after December 15, 2005. The adoption of this FSP did not have a material effect on the
Company’s results of operations or financial condition.

insurance policy during postretirement periods in accordance with SFAS No. 106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions”, or APB Opinion 12, “Omnibus Opinion”, when an employer has
effectively agreed to maintain a life insurance policy during the employee’s retirement. At December 31, 2006, the
Company had endorsement split-dollar life insurance arrangements with thirty-one present or former employees, which
currently provides approximately $5.6 million of life insurance benefits to these employees. The amount of the benefit
for each employee is based on the employee’s salary when their employment terminates. Issue No. 06-4 is effective for
fiscal years beginning after December 15, 2007. Management has not yet determined the effect of the adoption of Issue
No. 06-4 on its financial statements.

In September 2006, the Staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No.
108 (“SAB 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements.” SAB 108 was issued to address diversity in practice in quantifying financial statement
misstatements and the potential under current practice for the build up of improper amounts on the balance sheet, and to
provide consistency between how registrants quantify financial statement misstatements. The techniques most commonly
used in practice to accumulate and quantify misstatements are generally referred to as the “roll-over” and “iron curtain”
approaches. The roll-over approach quantifies a misstatement based on the amount of the error originating in the current
year statement. The iron curtain approach quantifies a misstatement based on the effects of correcting the misstatement
existing in the balance sheet at the end of the current year, irrespective of when the misstatement originated. SAB 108
requires a “dual approach” that requires quantification of errors under both the roll-over and iron curtain methods. SAB
108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB 108 did not have a material effect
on the Company’s results of operations or financial condition.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

This information is contained in the section captioned “Interest Rate Risk” on page 49 and in Notes 13 and 14

of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report.

Item 8.

Financial Statements and Supplementary Data.

Consolidated Statements of Financial Condition

Assets
Cash and due from banks
Securities available for sale:
Mortgage-backed securities (including assets pledged of $243,873 and
$198,415 at December 31, 2006 and 2005, respectively)
Other securities
Loans
Less: Allowance for loan losses
Net loans
Interest and dividends receivable
Bank premises and equipment, net
Federal Home Loan Bank of New York stock
Bank owned life insurance
Goodwill
Core deposit intangible
Other assets
Total assets

Liabilities
Due to depositors:
Non-interest bearing
Interest-bearing
Mortgagors' escrow deposits
Borrowed funds
Securities sold under agreements to repurchase
Other liabilities
Total liabilities

Commitments and contingencies (Note 13)

Stockholders' Equity
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued)
Common stock ($0.01 par value; 40,000,000 shares authorized; 21,165,052 shares
and 19,466,894 shares issued at December 31, 2006 and, 2005, respectively;
21,131,274 shares and 19,465,844 shares outstanding at December 31, 2006
and 2005, respectively)
Additional paid-in capital
Treasury stock, at average cost (33,778 shares and 1,050 shares at
December 31, 2006 and 2005, respectively)
Unearned compensation
Retained earnings
Accumulated other comprehensive loss, net of taxes
Total stockholders' equity

December 31,
2006

December 31,
2005

(Dollars in thousands, except per share data)

29,251

26,754

288,851
41,736
2,331,805
(7,057)
2,324,748
13,332
23,042
36,160
40,516
14,818
3,279
20,788
2,836,521

80,061
1,664,334
19,755
608,513
223,900
21,543
2,618,106

301,194
36,567
1,888,261
(6,385)
1,881,876
10,554
7,238
29,622
26,526
3,905
-
28,972
2,353,208

58,678
1,389,186
19,423
510,810
178,900
19,744
2,176,741

212
71,079

(592)
(2,897)
156,879
(6,266)
218,415

195
39,635

(12)
(4,159)
146,068
(5,260)
176,467

Total liabilities and stockholders' equity

2,836,521

2,353,208

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Income

Interest and dividend income
Interest and fees on loans
Interest and dividends on securities:
Interest
Dividends
Other interest income
Total interest and dividend income

Interest expense
Deposits
Other interest expense
Total interest expense

Net interest income
Provision for loan losses
Net interest income after provision for loan losses

Non-interest income
Loan fee income
Banking services fee income
Net gain on sale of loans held for sale
Net gain on sale of loans
Net gain (loss) on sale of securities
Federal Home Loan Bank of New York stock dividends
Bank owned life insurance
Other income
Total non-interest income

Non-interest expense
Salaries and employee benefits
Occupancy and equipment
Professional services
Data processing
Depreciation and amortization of premises and equipment
Other operating expenses
Total non-interest expense

Income before income taxes

Provision for income taxes
Federal
State and local
Total provision for income taxes

Net income

Basic earnings per share
Diluted earnings per share

2006

For the years ended December 31,
2005
(In thouasands, except per share data)

2004

142,090

115,850

98,154

15,302
320
672
158,384

56,857
33,823
90,680

67,704
-
67,704

2,938
1,462
550
182
81
1,695
1,553
1,334
9,795

20,356
5,542
4,170
2,591
1,655
8,428
42,742

34,757

10,729
2,389
13,118

16,098
374
117
132,439

34,657
29,572
64,229

68,210
-
68,210

2,162
1,454
583
19
(647)
1,163
1,127
786
6,647

17,096
4,170
4,489
2,290
1,553
6,666
36,264

38,593

11,896
3,155
15,051

19,963
389
218
118,724

28,972
23,261
52,233

66,491
-
66,491

1,924
1,588
306
-
(100)
441
1,157
627
5,943

18,403
3,653
3,497
1,892
1,487
6,457
35,389

37,045

11,454
2,942
14,396

21,639

23,542

22,649

$1.16
$1.14

$1.34
$1.31

$1.30
$1.25

The accompanying notes are an integral part of these consolidated financial statements.
63

Consolidated Statements of Changes in Stockholders’ Equity

Common Stock
Balance, beginning of year
Issuance upon the exercise of stock options (71,278, 10,198 and
166,095 common shares for the years ended December 31,
2006, 2005 and 2004, respectively)
Shares issued upon vesting of restricted stock unit awards (4,500 common
shares in 2006)
Shares issued in connection with acquisition of Atlantic Liberty
(1,622,380 shares in 2006)
Balance, end of year

Additional Paid-In Capital
Balance, beginning of year
Award of common shares released from Employee Benefit Trust
(52,809, 46,212 and 35,779 common shares for the years ended
December 31, 2006, 2005 and 2004, respectively)
Cumulative adjustment related to adoption of SFAS No. 123R
Shares issued upon vesting of restricted stock unit awards
(40,191, 200 and 1,687 common shares for the years ended
December 31, 2006, 2005 and 2004, respectively)
Forefeiture of restricted stock awards (2,685, 2,400 and 2,025 common
shares for the years ended December 31, 2006, 2005 and 2004, respectively)
Options exercised (86,728, 10,198 and 166,095 common shares
for the years ended December 31, 2006, 2005 and 2004, respectively)
Stock-based compensation activity, net
Surrender of restricted stock awards (124,650 common shares for the year
ended December 31, 2004) which were replaced by restricted stock units
Restricted stock awards (16,874 common shares for the year ended
December 31, 2004)
Stock-based income tax benefit
Shares issued in connections with acquisition of Atlantic Liberty
(1,622,380 common shares in 2006)
Balance, end of year

For the years ended December 31,
2004
2005
(Dollars in thouasands, except per share data)

2006

195

193

16
212

-
195

39,635

37,187

32,783

734
847

529
1,224

-
1,479

26,541
71,079

616
-

(4)

-
1,752

-
39,635

585
-

(2)

858
-

(227)

44
3,144

-
37,187

Continued

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Changes in Stockholders’ Equity (continued)

Treasury Stock
Balance, beginning of year
Purchases of common shares outstanding (374,600, 144,700 and 520,600
shares for the years ended December 31, 2006, 2005 and 2004,
respectively)
Issuance upon exercise of stock options (341,386, 329,968 and 394,668
shares for the years ended December 31, 2006, 2005 and 2004,
respectively)
Repurchase of restricted stock awards to satisfy tax obligations (20,705,
28,651 and 25,222 common shares for the years ended December 31,
2006, 2005 and 2004, respectively)
Forfeiture of restricted stock awards (2,685, 2,400 and 2,025 common
shares for the years ended December 31, 2006, 2005 and 2004,
respectively)
Shares issued upon vesting of restricted stock unit awards (60,186,
69,181 and 44,077 common shares for the years ended December 31,
2006, 2005 and 2004,respectively)
Purchase of common shares to fund options exercised
(36,310 and 7,570 common shares for the year ended December 31,
2006 and 2004, respectively)
Surrender of restricted stock awards (124,650 common shares for the
year ended December 31, 2004) which were replaced by
restricted stock units.
Restricted stock awards (16,874 common shares for the year ended
December 31, 2004)
Balance, end of year

Unearned Compensation
Balance, beginning of year
Cumulative adjustment related to the adoption of SFAS No. 123R
Release of shares from Employee Benefit Trust (218,941, 204,492 and
182,601 common shares for the years ended December 31, 2006,
2005 and 2004, respectively)
Surrender of restricted stock awards (124,650 common shares for the
year ended December 31, 2004) which were replaced by restricted
stock units
Restricted stock awards (16,874 common shares for the year ended
December 31, 2004)
Forfeiture of restricted stock awards (2,400 and 2,025 common shares
for the years ended December 31, 2005 and 2004, respectively
Restricted stock award expense
Balance, end of year

For the years ended December 31,
2004
2005
(Dollars in thouasands, except per share data)

2006

(12)

(3,893)

$
-

(6,249)

(2,567)

(9,337)

5,646

5,777

6,329

(344)

(518)

(436)

(28)

(27)

(25)

1,014

(619)

-
(592)

1,216

-
(12)

(4,159)
516

(5,117)
-

607

(147)

(1,177)

293
(3,893)

(7,373)
-

746

696

622

-
-
(2,897)

31
231
(4,159)

564

(337)

27
1,380
(5,117)

Continued

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Changes in Stockholders’ Equity (continued)

Retained Earnings
Balance, beginning of year
Net income
Stock options exercised (253,415, 329,968 and 394,668 common
shares for the years ended December 31, 2006, 2005 and 2004,
respectively)
Shares issued upon vesting of restricted stock unit awards (24,495,
68,981, 42,390 common shares for the years ended December 31,
2006, 2005 and 2004, respectively)
Cash dividends declared and paid ($0.44, $0.40 and $0.35 per common
share for the years ended December 31, 2006, 2005 and 2004,
respectively)
Balance, end of year

Accumulated Other Comprehensive (Loss) Income, Net of Taxes
Balance, beginning of year
Adjustment required to recognize minimum pension liability for Directors
Pension Plan, net of taxes of approximately $28 and $(9) for the
years ended December 31, 2005 and 2004, respectively
Adjustment required for initial application of SFAS No. 158 for deferred
costs for the postretirement plans, net of taxes of approximately $975
for the year ended December 31, 2006
Change in net unrealized gain (loss) on securities available for sale, net of
taxes of approximately ($207), $3,379 and $1,229 for the years ended
December 31, 2006, 2005 and 2004, respectively
Less: Reclassification adjustment for (gains) losses included in net
income, net of taxes of approximately $32, ($252) and ($39) for the
years ended December 31, 2006, 2005 and 2004, respectively
Balance, end of year

For the years ended December 31,
2004
2005
(Dollars in thouasands, except per share data)

2006

146,068
21,639

133,290
23,542

120,683
22,649

(2,582)

(3,439)

(3,759)

(66)

(298)

(156)

(8,180)
156,879

(7,027)
146,068

(6,127)
133,290

(5,260)

(1,009)

(1,241)

(38)

476

284

(4,608)

(1,553)

(49)
(6,266)

395
(5,260)

61
(1,009)

Total Stockholders' Equity

218,415

176,467

160,653

Comprehensive Income
Net income
Other comprehensive income, net of tax
Adjustment to recognize minimum postretirement liability
prior to the adoption of SFAS No. 158
Unrealized gains (losses) on securities
Comprehensive income

21,639

23,542

22,649

-
235
21,874

(38)
(4,213)
19,291

7
(1,492)
21,164

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Cash Flows

Operating Activities

Net income
Adjustments to reconcile net income to net cash provided
by operating activities:

Depreciation and amortization of premises and equipment
Origination of loans held for sale
Proceeds from sale of loans held for sale
Net gain on sales of loans held for sale
Net gain on sales of loans
Net (gain) loss on sales of securities
Amortization of premium, net of accretion of discount
Impairment write-down of investment securities
Stock based compensation expense
Deferred compensation
Amortization of core deposit intangibles
Excess tax benefits from stock-based payment arrangements
Deferred income tax provision (benefit)

Net change in other assets and liabilities

For the years ended December 31,
2005

2004

2006

(In thousands)

21,639

23,542

22,649

1,655
(7,477)
8,108
(550)
(182)
(81)
1,506
-
2,307
(392)
234
(1,479)
485
4,565

1,553
(6,630)
7,259
(583)
(19)
647
1,584
-
144
(2,593)
-
-
2,021
(1,382)

1,487
(5,916)
6,222
(306)
-

11
1,920
89
1,420
351
-
-
(678)
2,043

Net cash provided by operating activities

30,338

25,543

29,292

Investing Activities

Purchases of premises and equipment
Net (purchase) redemption of Federal Home Loan Bank-NY shares
Purchases of securities available for sale
Proceeds from sales and calls of securities available for sale
Proceeds from maturities and prepayments of
securities available for sale
Net originations and repayments of loans
Purchases of loans
Proceeds from sale of loans
Proceeds from sale of delinquent loans
Purchase of bank owned life insurance
Cash used to acquire Atlantic Liberty Financial Corporation
Cash acquired in acquisition of Atlantic Liberty Financial Corporation

Net cash used in investing activities

(8,362)
(4,846)
(55,284)
45,547

51,735
(342,495)
(5,074)
8,695
12,314
(10,000)
(14,663)
3,401

(319,032)

(1,233)
(7,361)
(30,384)
29,248

89,839
(368,442)
(1,009)
1,030
3,088
-
-
-

(285,224)

(2,665)
2,201
(104,336)
78,822

121,346
(250,884)
-
-
4,339
-
-
-

(151,177)

Continued

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Cash Flows (continued)

2006

For the years ended December 31,
2005
(In thousands)

2004

Financing Activities

Net increase in non-interest bearing deposits
Net increase in interest bearing deposits
Net (decrease) increase in mortgagors' escrow deposits
Net repayments of short-term borrowed funds
Proceeds from long-term borrowings
Repayment of long-term borrowings
Purchases of treasury stock
Excess tax benefits from stock-based payment arrangements
Proceeds from issuance of common stock upon exercise
of stock options
Cash dividends paid

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year

17,673
173,078
(1,118)
(10,000)
250,000
(128,079)
(6,593)
1,479

9,138
162,402
2,950
(10,000)
170,000
(55,026)
(3,085)
-

8,143
109,606
5,139
(5,000)
110,000
(99,025)
(9,773)
-

2,931
(8,180)

2,422
(7,027)

3,283
(6,127)

291,191

271,774

116,246

2,497
26,754

12,093
14,661

(5,639)
20,300

Cash and cash equivalents, end of year

29,251

26,754

14,661

Supplemental Cash Flow Disclosure
Interest paid
Income taxes paid
Taxes paid if excess tax benefit were not tax deductible
Fair value of assets acquired
Fair value of liablilities assumed
Common shares issued in exchange for Atlantic Liberty common shares
Non-cash activities:
Securities sale transaction, not yet settled

87,577
8,653
10,132
185,599
144,379
26,557

62,909
13,538
-
-
-
-

51,961
11,534
-
-
-
-

319

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial Statements
For the years ended December 31, 2006, 2005 and 2004

1. Nature of Operations

Flushing Financial Corporation (the “Holding Company”), a Delaware business corporation, is a savings and loan
holding company organized at the direction of its subsidiary, Flushing Savings Bank, FSB (the “Bank”), in connection
with the Bank’s conversion from a mutual to capital stock form of organization. The Holding Company and its direct and
indirect wholly-owned subsidiaries, the Bank, Flushing Preferred Funding Corporation, Flushing Service Corporation,
and FSB Properties Inc., are collectively herein referred to as the “Company.”

The Bank’s principal business is attracting retail deposits from the general public and investing those deposits together
with funds generated from ongoing operations and borrowings, primarily in (1) originations and purchases of one-to-four
family (focusing on mixed-use properties – properties that contain both residential dwelling units and commercial units),
multi-family residential and commercial real estate mortgage loans; (2) construction loans, primarily for multi-family
residential properties; (3) Small Business Administration (“SBA”) loans and other small business loans; (4) mortgage
loan surrogates such as mortgage-backed securities; and (5) U.S. government securities, corporate fixed-income
securities and other marketable securities. The Bank also originates certain other consumer loans. The Bank primarily
conducts its business through twelve full-service banking offices, seven of which are located in Queens County, one in
Nassau County, three in Kings County (Brooklyn), and one in New York County (Manhattan), New York. In November,
2006, the Bank launched “iGObanking.comTM”, an internet branch, offering savings accounts and certificates of deposit.

2. Summary of Significant Accounting Policies

The accounting and reporting policies of the Company follow generally accepted accounting principles in the United
States of America (“GAAP”). The policies which materially affect the determination of the Company’s financial
position, results of operations and cash flows are summarized below.

Principles of consolidation:
The accompanying consolidated financial statements include the accounts of Flushing Financial Corporation and the
following direct and indirect wholly-owned subsidiaries of the Holding Company: the Bank, Flushing Preferred Funding
Corporation (“FPFC”), Flushing Service Corporation (“FSC”), and FSB Properties Inc. (“Properties”). FPFC is a real
estate investment trust formed to hold a portion of the Bank’s mortgage loans to facilitate access to capital markets. FSC
was formed to market insurance products and mutual funds. Properties is an inactive subsidiary whose purpose was to
manage real estate properties and joint ventures.

Use of estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual
results could differ from these estimates.

Cash and cash equivalents:
For the purpose of reporting cash flows, the Company defines cash and due from banks, overnight interest-earning
deposits and federal funds sold with original maturities of 90 days or less as cash and cash equivalents.

Securities available for sale:
Securities are classified as available for sale when management intends to hold the securities for an indefinite period of
time or when the securities may be utilized for tactical asset/liability purposes and may be sold from time to time to
effectively manage interest rate exposure and resultant prepayment risk and liquidity needs. Premiums and discounts are
amortized or accreted, respectively, using the level-yield method. Realized gains and losses on the sales of securities are
determined using the specific identification method. Unrealized gains and losses (other than unrealized losses considered
other than temporary which are recognized in the Consolidated Statements of Income) on securities available for sale are
excluded from earnings and reported as accumulated other comprehensive income, net of taxes. In estimating other-than-
temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has
been less than cost, (2) the financial condition and near-term prospects of the issuer, if applicable, and (3) the intent and
ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated
recovery in fair value.

Goodwill:
Upon the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible
Assets”, on January 1, 2002, the Company no longer amortizes goodwill, but rather performs annual tests for impairment
as of the end of each year. These annual impairment tests have not resulted in recognizing an impairment in goodwill.

Loans:
Loans are reported at their principal outstanding balance net of any unearned income, charge-offs, deferred loan fees and
costs on originated loans and unamortized premiums or discounts on purchased loans. Interest on loans is recognized on
the accrual basis. The accrual of income on loans is discontinued when certain factors, such as contractual delinquency
of ninety days or more, indicate reasonable doubt as to the timely collectibility of such income. Interest previously
recognized on non-accrual loans is reversed from interest income at the time the loan is placed on non-accrual status. A
non-accrual loan can be returned to accrual status after the loan meets certain criteria. Subsequent cash payments
received on non-accrual loans that do not meet the criteria are applied first as a reduction of principal until all principal is
recovered and then subsequently to interest. Loan fees and certain loan origination costs are deferred. Net loan
origination costs and premiums or discounts on loans purchased are amortized into interest income over the contractual
life of the loans using the level-yield method. Prepayment penalties received on loans which pay in full prior to their
scheduled maturity are included in interest income.

Allowance for loan losses:
The Company maintains an allowance for loan losses at an amount, which, in management’s judgment, is adequate to
absorb probable estimated losses inherent in the loan portfolio. Management’s judgment in determining the adequacy of
the allowance is based on evaluations of the collectibility of loans. This evaluation is inherently subjective, as it requires
estimates that are susceptible to significant revisions as more information becomes available. In assessing the adequacy
of the Company's allowance for loan losses, management considers the Company's historical loss experience, recent
trends in losses, collection policies and collection experience, trends in the volume of non-performing loans, changes in
the composition and volume of the gross loan portfolio, and local and national economic conditions. The Board of
Directors reviews and approves management’s evaluation of the adequacy of the allowance for loan losses on a quarterly
basis.

A loan is considered impaired when, based upon current information, the Company believes it is probable that it will be
unable to collect all amounts due, both principal and interest, according to the contractual terms of the loan. Impaired
loans are measured based on the present value of the expected future cash flows discounted at the loan’s effective
interest rate or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.
Interest income on impaired loans is recorded on the cash basis. The Company reviews all non-accrual loans for
impairment.

The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses.
Increases and decreases in the allowance other than charge-offs and recoveries are included in the provision for loan
losses. When a loan or a portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged
against the allowance, and subsequent recoveries, if any, are credited to the allowance.

Loans held for sale:
Loans held for sale are initially recorded at the principal amount outstanding net of deferred origination costs and fees
and any premiums or discounts. Loans held for sale are carried at the lower of adjusted cost or market, which is
computed by the aggregate method (unrealized losses are offset by unrealized gains). Net unrealized losses are
recognized through a valuation allowance by charges to income. The Company did not have any loans held for sale as of
December 31, 2006 and 2005.

Bank owned life insurance:
Bank owned life insurance (“BOLI”) represents life insurance on the lives of certain employees who have provided
positive consent allowing the Bank to be the beneficiary of such policies. Increases in the cash value of the policies, as
well as proceeds received, are recorded in other non-interest income, and are not subject to income taxes.

Real estate owned:
Real estate owned consists of property acquired by foreclosure. These properties are carried at the lower of carrying
amount or fair value (which is based on appraised value with certain adjustments) less estimated costs to sell (hereinafter
defined as fair value). This determination is made on an individual asset basis. If the fair value is less than the carrying
amount, the deficiency is recognized as a valuation allowance. Further decreases to fair value will be recorded in this
valuation allowance through a provision for losses on real estate owned. The Company utilizes estimates of fair value to
determine the amount of its valuation allowance. Actual values may differ from those estimates. The Company had no
real estate owned as of or during the years ended December 31, 2006, 2005 and 2004.

Bank premises and equipment:
Bank premises and equipment are stated at cost, less depreciation accumulated on a straight-line basis over the estimated
useful lives of the related assets (3 to 40 years). Leasehold improvements are amortized on a straight-line basis over the
term of the related leases or the lives of the assets, whichever is shorter. Maintenance, repairs and minor improvements
are charged to non-interest expense in the period incurred.

Federal Home Loan Bank Stock:
The Federal Home Loan Bank of New York (“FHLB-NY”) has assigned to the Bank a mandated membership stock
purchase, based on the Bank’s asset size. In addition, for all borrowing activity, the Bank is required to purchase shares
of FHLB-NY non-marketable capital stock at par. Such shares are redeemed by FHLB-NY at par with reductions in the
Bank’s borrowing levels. The Bank carries this investment at historical cost, as it does not consider the value of this
investment to be impaired.

Securities sold under agreements to repurchase:
Securities sold under agreements to repurchase are accounted for as collateralized financing and are carried at amounts at
which the securities will be subsequently reacquired as specified in the respective agreements. Interest incurred under
these agreements is included in other interest expense.

Income Taxes:
Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this
method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between
book and tax bases of the various balance sheet assets and liabilities, and gives current recognition to changes in tax rates
and laws.

Stock compensation plans:
Prior to January 1, 2006, the Company accounted for stock-based compensation in accordance with APB Opinion No.
25, “Accounting for Stock Issued to Employees”, which did not require compensation cost to be recognized for stock
option grants, with the exception of certain circumstances. Effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment.” This statement revised SFAS No. 123,
“Accounting for Stock Based Compensation”, and superseded APB No. 25 and its related implementation guidance.
SFAS No. 123R establishes fair value as the measurement objective in accounting for share-based payment arrangements
and requires a fair-value-based measurement method in accounting for share-based payment transactions with
employees. It also requires measurement of the cost of employee services received in exchange for an award of an equity
instrument based on the grant date fair value of the award. That cost is recognized over the period during which an
employee is required to provide service in exchange for the award. The requisite service period is usually the vesting
period. The Company elected to adopt SFAS No. 123R using the modified prospective method, and, accordingly,
financial statement amounts for the prior periods presented have not been restated to reflect the fair value method of
expensing share-based compensation.

Earnings per share:
Basic earnings per share for the years ended December 31, 2006, 2005 and 2004 was computed by dividing net income
by the total weighted average number of common shares outstanding, including only the vested portion of restricted
stock and restricted stock unit awards. Diluted earnings per share includes the additional dilutive effect of stock options
outstanding and the unvested portions of restricted stock and restricted stock unit awards during the period. The shares
held in the Company’s Employee Benefit Trust are not included in shares outstanding for purposes of calculating
earnings per share.

Earnings per share has been computed based on the following, for the years ended December 31:

2006

2005
(In thousands, except per share data)

2004

Net income, as reported
Divided by:

Weighted average common shares outstanding
Weighted average common stock equivalents
Total weighted average common shares outstanding and

common stock equivalents

Basic earnings per share
Diluted earnings per share

$21,639

$23,542

$22,649

18,639
293

18,932

$1.16
$1.14

17,555
446

18,001

$1.34
$1.31

17,429
663

18,092

$1.30
$1.25

Common stock equivalents that are anti-dilutive are not included in the computation of diluted earnings per share.
Options to purchase 275,750 shares, at an average exercise price of $18.05, 291,625 shares, at an average exercise price
of $18.03 and 35,750 shares, at an average exercise price of $19.94 were not included in the computation of diluted
earnings per share for 2006, 2005 and 2004, respectively. Unvested restricted stock and restricted stock unit awards of
73,529 shares, at an average market price on the date of grant of $18.10, 92,825 shares, at an average market price on the
date of grant of $18.20 and 17,874 shares, at an average market price on the date of grant of $19.94 were not included in
the computation of diluted earnings per share for 2006, 2005 and 2004, respectively.

3. Loans

The composition of loans is as follows at December 31:

Multi-family residential
Commercial real estate
One-to-four family ― mixed-use property
One-to-four family ― residential
Co-operative apartments
Construction
Small Business Administration
Commercial business and other

Gross loans

Unearned loan fees and deferred costs, net

Total loans

2006

2005

(In thousands)

870,912
519,552
588,092
161,889
8,059
104,488
17,521
50,899

788,071
399,081
477,775
134,641
2,161
49,522
9,239
19,362

2,321,412
10,393

1,879,852
8,409

2,331,805

1,888,261

The total amount of loans on non-accrual status and loans classified as impaired was $3,126,000 and $911,000 for both
classifications at December 31, 2006 and 2004, respectively. The total amount of loans on non-accrual status and loans
classified as impaired was $1,922,000 and $2,452,000, respectively, at December 31, 2005. The portion of the allowance
for loan losses allocated to impaired loans was $316,000 (4.5%), $231,000 (3.6%) and $165,000 (2.5%) at December 31,
2006, 2005 and 2004, respectively. The portion of the impaired loan amount above 100% of the loan-to-value ratio is
charged off. The average balance of impaired loans was $2,686,000, $1,802,000 and $2,605,000 for 2006, 2005 and
2004, respectively.

The following is a summary of interest foregone on non-accrual loans for the years ended December 31:
2005
(In thousands)

2006

2004

Interest income that would have been recognized had the loans performed

in accordance with their original terms

Less: Interest income included in the results of operations

Foregone interest

227
83

158
55

76
26

144

103

The following are changes in the allowance for loan losses for the years ended December 31:

Balance, beginning of year
Provision for loan losses
Allowance from Atlantic Liberty acquisition
Charge-offs
Recoveries

2006

2005

2004

6,385
-
753
(93)
12

(In thousands)

6,533
-
-
(164)
16

6,553
-
-
(28)
8

Balance, end of year

7,057

6,385

6,533

4. Bank Premises and Equipment, Net

Bank premises and equipment are as follows at December 31:

Land
Building and leasehold improvements
Equipment and furniture

Total

Less: Accumulated depreciation and amortization

Bank premises and equipment, net

2006

2005

(In thousands)

3,551
17,003
14,451
35,005
11,963

801
4,668
12,287
17,756
10,518

23,042

7,238

5. Debt and Equity Securities
Investments in equity securities that have readily determinable fair values and all investments in debt securities are
classified in one of the following three categories and accounted for accordingly: (1) trading securities, (2) securities
available for sale and (3) securities held-to-maturity.

The Company did not hold any trading securities or securities held-to-maturity during the years ended December 31,
2006, 2005 and 2004. Securities available for sale are recorded at estimated fair value based on dealer quotations where
available. Actual values may differ from estimates provided by outside dealers. Securities classified as held-to-maturity
would be stated at cost, adjusted for amortization of premium and accretion of discount using the level-yield method.

The amortized cost and estimated fair value of the Company’s securities, classified as available for sale at December 31,
2006 are as follows:

U.S. government agencies
Mutual funds
Other

Total other securities

FNMA
REMIC and CMO
FHLMC
GNMA

Total mortgage-backed securities

Amortized
Cost

Estimated
Fair Value

Gross
Unrealized
Gains

Gross
Unrealized
Losses

(In thousands)

15,016
21,224
6,304
42,544

15,004
20,645
6,087
41,736

135,458
100,165
53,440
7,199
296,262

131,192
98,652
51,733
7,274
288,851

$
3

8
11

277
246
94
79
696

15
579
225
819

4,543
1,759
1,801
4
8,107

Total securities available for sale

338,806

330,587

707

8,926

The following table shows the Company’s available for sale securities’ gross unrealized losses and estimated fair value,
aggregated by category and length of time that individual securities have been in a continuous unrealized loss position, at
December 31, 2006.

Total

Less than 12 months

12 months or more

Estimated
Fair Value

Unrealized
Losses

Estimated
Fair Value

Unrealized
Losses

Estimated
Fair Value

Unrealized
Losses

(In thousands)

U. S. government agencies
Mutual funds
Other

Total other securities

4,717
20,645
4,275
29,637

15
579
225
819

4,717
-
4,275
8,992

$
15
-
225
240

$
-
20,645
-
20,645

$
-
579
-
579

FNMA
REMIC and CMO
FHLMC
GNMA

Total mortgage-backed
securities
Total securities
available for sale

113,076
75,497
43,546
4,756

236,875

4,543
1,759
1,801
4

8,107

732
14,426
-
4,756

19,914

-
28
-

112,344
61,071
43,546
-

216,961

4,543
1,731
1,801
-

8,075

266,512

8,926

28,906

272

237,606

8,654

The unrealized loss on the Company’s investment in a U.S. government sponsored entity note was caused by interest rate
increases. It is expected that the security would not be settled at a price less than the amortized cost of the Company’s
investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and
because the Company has the ability and intent to hold this investment until a recovery of fair value, which may be
maturity, the Company does not consider this investment to be other-than-temporarily impaired at December 31, 2006.

The unrealized losses on the Company’s investment in mutual funds were caused by interest rate increases. These funds
invest in adjustable-rate mortgage-backed securities and short term government and government agency backed notes.

The changes in their market value reflect the changes in interest rates. These funds are rated AAA. It is expected that the
securities would not be settled at a price less than the amortized cost of the funds’, and therefore the Company’s,
investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and
because the Company has the ability and intent to hold these investments in the funds until a recovery of fair value,
which may be maturity of the underlying securities, the Company does not consider these investments to be other-than-
temporarily impaired at December 31, 2006.

The unrealized loss on the Company’s investment in other securities was caused by interest rate increases. This is an
investment in a preferred stock which pays a fixed dividend rate, and is traded on the NYSE. Its pricing reflects the
changes in interest rates. When rates increased during 2006, the price of the stock declined. When rates decreased during
2006, the price of the stock increased. This stock is rated in one of the top categories by two rating agencies. This
preferred stock does not have a mandatory call, but does have call dates at the option of the issuer. The issuer may not
call the security at less than par. Because the decline in market value is attributable to changes in interest rates and not
credit quality, and because the Company has the ability and intent to hold this investment until a recovery of fair value,
the Company does not consider this investment to be other-than-temporarily impaired at December 31, 2006.

The unrealized losses on the Company’s investment in mortgage-backed securities were caused by interest rate increases.
These securities were either issued by a U.S. government agency (GNMA), a government sponsored entity (FNMA or
FHLMC) or were privately issued and carry a rating of AAA. It is expected that the securities would not be settled at a
price less than the amortized cost of the Company’s investment. Because the decline in market value is attributable to
changes in interest rates and not credit quality, and because the Company has the ability and intent to hold these
investments until a recovery of fair value, which may be maturity, the Company does not consider these investments to
be other-than-temporarily impaired at December 31, 2006.

The amortized cost and estimated fair value of the Company’s securities, classified as available for sale at December 31,
2006, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years

Total other securities
Mortgage-backed securities

Amortized
Cost

Estimated
Fair Value

(In thousands)

32,011
-
9,733
800

31,218
-
9,718
800

42,544
296,262

41,736
288,851

Total securities available for sale

338,806

330,587

The amortized cost and estimated fair value of the Company’s securities classified as available for sale at December 31,
2005 were as follows:

U.S. government agencies
Mutual funds
Other

Total other securities

FNMA
REMIC and CMO
FHLMC
GNMA

Total mortgage-backed securities

Amortized
Cost

Estimated
Fair Value

Gross
Unrealized
Gains

Gross
Unrealized
Losses

(In thousands)

10,942
20,296
6,112
37,350

10,911
19,767
5,889
36,567

-
$
-
21
21

31
529
244
804

152,412
91,369
57,470
7,789
309,040

147,802
89,561
55,735
8,096
301,194

222
19
81
307
629

4,832
1,827
1,816
-
8,475

Total securities available for sale

346,390

337,761

650

9,279

The following table shows the Company’s available for sale securities gross unrealized losses and estimated fair value,
aggregated by category and length of time that individual securities have been in a continuous unrealized loss position, at
December 31, 2005.

Total

Less than 12 months

12 months or more

Estimated
Fair Value

Unrealized
Losses

Estimated
Fair Value

Unrealized
Losses

Estimated
Fair Value

Unrealized
Losses

U. S. government agencies
Mutual funds
Other

Total other securities

4,967
19,767
4,334
29,068

31
529
244
804

(In thousands)

4,967
-
4,334
9,301

31
$
-
244
275

FNMA
REMIC and CMO
FHLMC

Total mortgage-backed
securities
Total securities
available for sale

134,450
78,681
50,447

263,578

4,832
1,827
1,816

8,475

28,594
40,170
12,796

81,560

$
-
19,767
-
19,767

105,856
38,511
37,651

479
447
264

1,190

182,018

-
$
529
-
529

4,353
1,380
1,552

7,285

292,646

9,279

90,861

1,465

201,785

7,814

For the year ended December 31, 2006, gross gains of $81,000 were realized on sales of securities available for sale;
there were no losses realized on the sales of securities available for sale. For the year ended December 31, 2005, gross
gains of $508,000 and losses of $1,155,000 were realized on sales of securities available for sale. For the year ended
December 31, 2004, gross gains of $318,000 and losses of $329,000 were realized on sales of securities available for
sale. In addition, an impairment write-down of $89,000 was recorded during the year ended December 31, 2004.

6. Deposits

Total deposits at December 31, 2006 and 2005, and the weighted average rate on deposits at December 31, 2006, are as
follows:

Interest-bearing deposits:

Certificate of deposit accounts
Savings accounts
Money market accounts
NOW accounts

Total interest-bearing deposits
Non-interest bearing demand deposits
Total due to depositors

Mortgagors' escrow deposits
Total deposits

2006

2005

(Dollars in thousands)

1,102,976
262,980
251,197
47,181
1,664,334
80,061
1,744,395
19,755
1,764,150

898,157
273,753
175,247
42,029
1,389,186
58,678
1,447,864
19,423
1,467,287

Weighted
Average
Rate
2006

4.64
1.70
4.06
0.44

0.22

The aggregate amount of time deposits with denominations of $100,000 or more was $298,930,000 and $255,331,000 at
December 31, 2006 and 2005, respectively. The Bank utilizes brokered deposits as an additional funding source. The
aggregate amount of brokered deposits was $144,926,000 and $31,310,000 at December 31, 2006 and 2005,
respectively.

Interest expense on deposits is summarized as follows for the years ended December 31:

2006

2005
(In thousands)

2004

Certificate of deposit accounts
Savings accounts
Money market accounts
NOW accounts

Total due to depositors
Mortgagors' escrow deposits

Total interest expense on deposits

43,757
4,031
8,804
202
56,794
63
56,857

26,960
2,225
5,199
216
34,600
57
34,657

22,487
1,092
5,122
221
28,922
50
28,972

Scheduled remaining maturities of certificate of deposit accounts are summarized as follows for the years ended
December 31:

2006

2005

(In thousands)

Within 12 months
More than 12 months to 24 months
More than 24 months to 36 months
More than 36 months to 48 months
More than 48 months to 60 months
More than 60 months

625,756
132,111
84,466
160,711
75,599
24,333
1,102,976

490,070
107,613
83,243
51,919
123,179
42,133
898,157

Total certificate of deposit accounts

As of December 31, 2006, $5.3 million of U. S. Treasury Bills were pledged as collateral for a deposit account.

7. Borrowed Funds and Securities Sold Under Agreements to Repurchase

Borrowed funds and securities sold under agreements to repurchase are summarized as follows at December 31:

2006

2005

Repurchase agreements - adjustable rate:

Due in 2009
Due in 2010
Due in 2013

Total repurchase agreements - adjustable rate

Repurchase agreements - fixed rate:

Due in 2006
Due in 2007
Due in 2008
Due in 2009
Due in 2010
Due in 2011
Due in 2016

Total repurchase agreements - fixed rate

Total repurchase agreements

FHLB-NY advances - adjustable rate:

Due in 2006
Due in 2007

Total FHLB-NY advances - adjustable rate

FHLB-NY advances - fixed rate:

Due in 2006
Due in 2007
Due in 2008
Due in 2009
Due in 2010
Due in 2011

Total FHLB-NY advances - fixed rate

Total FHLB-NY advances

Junior subordinated debentures - adjustable rate

Due in 2032

Total borrowings

Weighted
Average
Rate

Amount

(Dollars in thousands)

5.77
5.85
4.87
5.34

-
5.25
3.89
5.08
4.07
4.87
4.98
4.82

4.91

-
5.24
5.24

-
4.00
4.18
4.37
5.83
5.10
4.59

4.63

9.02

$
-
-
-
-

35,000
60,000
20,000
35,000
28,900
-
-
178,900

178,900

10,000
35,000
45,000

85,000
90,000
165,000
55,000
50,000
191
445,191

490,191

20,619

-
-
-
-

3.00
5.25
3.89
5.08
4.07
-
-
4.43

4.43

4.54
5.06
4.95

4.25
4.04
4.06
3.79
6.56
7.34
4.34

4.40

7.80

Amount

10,000
10,000
20,000
40,000

-
60,000
20,000
35,000
28,900
10,000
30,000
183,900

223,900

-
35,000
35,000

-
108,778
188,953
100,000
115,000
40,163
552,894

587,894

20,619

832,413

4.81

689,710

4.51

Borrowed funds which have call provisions are summarized as follows at December 31, 2006:

Amount

Rate

Maturity Date

Call Date

FHLB-NY advances - fixed rate
Repurchase agreements - fixed rate
Repurchase agreements - fixed rate
Repurchase agreements - fixed rate
Repurchase agreements - fixed rate
Repurchase agreements - fixed rate
Repurchase agreements - fixed rate
Repurchase agreements - Adjustable rate
Repurchase agreements - Adjustable rate

25,000
50,000
25,000
10,900
18,000
10,000
20,000
10,000
10,000

(Dollars in thousands)
6.15
%
5.64
5.52
4.18
4.00
4.89
5.02
4.87
4.88

7/13/2007
12/18/2007
7/22/2009
3/15/2010
4/19/2010
7/28/2016
7/28/2016
6/27/2013
7/27/2013

On Demand
On Demand
On Demand
3/15/2007
4/19/2007
7/28/2010
7/28/2011
6/27/2008
7/27/2008

As part of the Company’s strategy to finance investment opportunities and manage its cost of funds, the Company enters
into repurchase agreements with broker-dealers and the FHLB-NY. These agreements are recorded as financing
transactions and the obligations to repurchase are reflected as a liability in the consolidated financial statements. The
securities underlying the agreements were delivered to the broker-dealers or the FHLB-NY who arranged the transaction.
The securities remain registered in the name of the Company and are returned upon the maturity of the agreement. The
Company retains the right of substitution of collateral throughout the terms of the agreements. All the repurchase
agreements are collateralized by mortgage-backed securities. Information relating to these agreements at or for the years
ended December 31 is as follows:

Book value of collateral
Estimated fair value of collateral
Average balance of outstanding agreements during the year
Maximum balance of outstanding agreements at a month end during the year
Average interest rate of outstanding agreements during the year

2006

2005

(Dollars in thousands)

243,873
243,873
207,955
238,900
4.70%

198,415
198,415
210,174
213,900
4.25%

Pursuant to a blanket collateral agreement with the FHLB-NY, advances are secured by all of the Bank’s stock in the
FHLB-NY, certain qualifying mortgage loans, mortgage-backed and mortgage-related securities, and other securities not
otherwise pledged in an amount at least equal to 110% of the advances outstanding.

The Holding Company also has a trust formed under the laws of the State of Delaware for the purpose of issuing capital
and common securities and investing the proceeds thereof in $20.6 million of junior subordinated debentures of the
Holding Company. On July 11, 2002, the Trust issued $20.0 million of floating rate capital securities. The capital
securities have a maturity date of October 7, 2032, are callable at par on July 7, 2007 and every quarter thereafter, and
pay cumulative cash distributions at a floating per annum rate of interest, reset quarterly, equal to 3.65% over 3-month
LIBOR, with an initial rate of 5.51%. The rate was 9.02% at December 31, 2006. A rate cap of 12.50% is effective
through October 7, 2007. The Holding Company has guaranteed the payment of the Trust’s obligations under these
capital securities. The terms of the junior subordinated debentures are the same as those of the capital securities issued by
the Trust. Prior to 2004, the Trust was included in the consolidated financial statements of the Company. Effective
January 1, 2004, the Trust was deconsolidated. The consolidated financial statements now include the junior
subordinated debentures of the Holding Company.

8. Income Taxes

Flushing Financial Corporation files consolidated Federal and combined New York State and New York City income tax
returns with its subsidiaries, with the exception of the Trust and FPFC, which file separate Federal, New York State and
New York City income tax returns as a trust and real estate investment trust, respectively. A deferred tax liability is
recognized on all taxable temporary differences and a deferred tax asset is recognized on all deductible temporary
differences and operating losses and tax credit carry-forwards. A valuation allowance is recognized to reduce the
potential deferred tax asset if it is “more likely than not” that all or some portion of that potential deferred tax asset will
not be realized. The Company must also take into account changes in tax laws or rates when valuing the deferred
income tax amounts it carries on its Consolidated Statements of Financial Condition.

The Company’s annual tax liability for New York State and New York City was the greater of a tax based on “entire net
income”, “alternative entire net income”, “taxable assets” or a minimum tax. For the year ended December 31, 2006, the
Company’s state and city tax was based on “alternative entire net income.” For the year ended December 31, 2005, the
Company’s state tax was based on “alternative entire net income”, with the city tax based on “entire net income.” For
the year ended December 31, 2004, the Company’s state and city tax was based on “entire net income.”

Income tax provisions (benefits) are summarized as follows for the years ended December 31:

Federal:

Current
Deferred

Total federal tax provision

State and Local:
Current
Deferred

Total state and local tax provision

Total income tax provision

2006

2005
(In thousands)

2004

10,826
(97)
10,729

10,989
907
11,896

12,197
(743)
11,454

1,808
581
2,389
13,118

2,041
1,114
3,155
15,051

2,877
65
2,942
14,396

The income tax provision in the Consolidated Statements of Income has been provided at effective rates of 37.7%,
39.0% and 38.9% for the years ended December 31, 2006, 2005 and 2004, respectively. The effective rates differ from
the statutory federal income tax rate as follows for the years ended December 31:

2006

2005

2004

Taxes at federal statutory rate
Increase (reduction) in taxes resulting from:

State and local income tax, net of Federal

12,165

35.0

(Dollars in thousands)
13,508

35.0

12,966

35.0

income tax benefit

Other

Taxes at effective rate

1,553
(600)
13,118

4.5
(1.8)
37.7

2,051
(508)
15,051

5.3
(1.3)
39.0

1,912
(482)
14,396

5.2
(1.3)
38.9

The components of the income taxes attributable to income from operations and changes in equity are as follows for the
years ended December 31:

Income from operations
Equity:

Change in fair value of securities available for sale
Adjustment required to recognize minimum pension liability
Adjustment required to recognize funded status of
postretirement pension plans
Compensation expense for tax purposes in excess of that

recognized for financial reporting purposes

Total income taxes

2006

13,118

2005
(In thousands)
15,051
$

2004

14,396

175
-

(975)

(3,127)
(28)

(1,190)
9

(1,479)
10,839

(1,752)
10,144

(3,144)
10,071

The components of the net deferred tax asset are as follows at December 31:

Deferred tax asset:

Postretirement benefits
Stock based compensation
Unrealized losses on securities available for sale
Adjustment required to recognize funded status of
postretirement pension plans
Minimum pension liability
Other

Deferred tax asset

Deferred tax liability:

Allowance for loan losses
Depreciation
Core deposit intangibles
Valuation differences resulting from acquired
assets and liabilities
Other

Deferred tax liability

2006

2005

(In thousands)

2,341
1,628
3,501

1,574
-
3,676

1,237
-
103
8,810

1,265
135
1,455

3,554
1,180
7,589

-
262
722
6,234

722
106
-

-
519
1,347

Net deferred tax asset included in other assets

1,221

4,887

The Company has recorded a net deferred tax asset of $1,221,000. This represents the anticipated net federal, state and
local tax benefits expected to be realized in future years upon the utilization of the underlying tax attributes comprising
this balance. The Company has reported taxable income for federal, state, and local tax purposes in each of the past three
years. In management’s opinion, in view of the Company’s previous, current and projected future earnings trend, it is
more likely than not that the net deferred tax asset will be fully realized. Accordingly, no valuation allowance was
deemed necessary for the net deferred tax asset at December 31, 2006 and 2005.

9. Stock Based Compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R,
“Share-Based Payment.” Prior to January 1, 2006, the Company accounted for stock-based compensation in accordance
with APB Opinion No. 25, “Accounting for Stock Issued to Employees”, which did not require compensation cost to be
recognized for stock option grants, with the exception of certain circumstances.

Assuming the Company had recognized compensation cost for stock-based compensation in accordance with SFAS No.
123R prior to January 1, 2006, net income and earnings per share would have been as indicated in the table below:

Net income, as reported
Add: Stock-based compensation expense included in reported net income,

net of related tax effects

Deduct: Total stock-based compensation expense determined under fair value

based method for all awards, net of related tax effects

Pro forma net income
Basic earnings per share:

As reported
Pro forma

Diluted earnings per share:

As reported
Pro forma

2005
2006
(Dollars in thousands, except per share data)
$21,639

$23,542

2004

$22,649

1,503

908

1,272

(1,503)
$21,639

(1,559)
$22,891

(3,062)
$20,859

$1.16
$1.16

$1.14
$1.14

$1.34
$1.30

$1.31
$1.27

$1.30
$1.20

$1.25
$1.15

For the years ended December 31, 2006, 2005 and 2004, the Company’s net income, as reported, includes $2.4 million,
$1.5 million and $2.1 million, respectively, of stock-based compensation costs and $0.9 million, $0.6 million and $0.8
million of income tax benefits related to the stock-based compensations plans. The adoption of SFAS No. 123R reduced
income before income taxes by $0.4 million, net income by $0.3 million, and basic and diluted earnings per share each

by $0.01. Cash provided by operating activities was decreased, and cash provided by financing activities was increased,
for the year ended December 31, 2006 by $1.5 million as a result of the adoption of the SFAS No. 123R.

The year ended December 31, 2004 includes a charge to earnings, on an after-tax basis, of $0.5 million or $0.03 per
diluted share, related to an adjustment of compensation expense for certain restricted stock awards made in prior periods.
These charges reflect that certain participants under these plans have reached, or are close to reaching, retirement
eligibility, at which time such awards fully vest. These amounts are included above in stock-based compensation
expense.

In addition, the year ended December 31, 2004 includes, in the deduction for stock-based compensation determined
under the fair value method, a net after tax charge of $0.8 million or $0.04 per diluted share, related to an adjustment of
compensation expense using the fair value method for stock option grants awarded during prior periods. In addition to
the previously mentioned deduction, the year ended December 31, 2004 includes, in the deduction for stock-based
compensation determined under fair value method, a net after tax charge of $0.4 million or $0.02 per diluted share,
related to certain stock option grants awarded granted in June 2004. These deductions reflect that certain participants
under these plans had reached, or were close to reaching, retirement eligibility, at which time such awards fully vest.

The Company estimates the fair value of stock options using the Black-Scholes valuation model that uses the
assumptions noted in the table below. Key assumptions used to estimate the fair value of stock options include the
exercise price of the award, the expected option term, the expected volatility of the Company’s stock price, the risk-free
interest rate over the options’ expected term and the annual dividend yield. The Company uses the fair value of the
common stock on the date of award to measure compensation cost for restricted stock and restricted stock unit awards.
Compensation cost is recognized over the vesting period of the award, using the straight line method. For the year ended
December 31, 2006, there were 133,475 stock options granted and awards of 121,425 shares of restricted stock units,
with 123,725 stock options granted and awards of 125,200 restricted stock units for the year ended December 31, 2005.

The following are the significant weighted assumptions relating to the valuation of the Company’s stock options granted
for the periods indicated and exclude the Atlantic Liberty stock options, for the years ended December 31:

Dividend yield
Expected volatility
Risk-free interest rate
Expected option life (years)

2006 Grants

2005 Grants

2004 Grants

3.38%
29.31%
5.10%
7 years

2.24%
21.48%
3.87%
7 years

2.04%
24.49%
4.29%
7 years

Holders of Atlantic Liberty stock options had the election to convert their options to Holding Company options or
receive cash for the difference between their option price and $24.00. Holders of 148,734 Atlantic Liberty options, with
an exercise price of $18.50, elected to receive 212,687 Holding Company options with an exercise price of $12.94. This
is considered a modification under SFAS 123R. No additional expense was recognized as the fair value of these options
after this modification is less than the fair value before the modification, as the time period in which they can be
exercised, and therefore their expected life, was reduced. The following are the significant assumptions relating to the
valuation of the Atlantic Liberty stock options upon modification. As the merger occurred in 2006, 2005 and 2004 grants
are not applicable.

Dividend yield
Expected volatility
Risk-free interest rate
Expected option life (years)

2006 Grants

3.71%
29.31%
5.13%
3 years

for non-full value awards. All grants and awards under the 1996 Restricted Stock Incentive Plan and the 1996 Stock
Option Incentive Plan prior to the effective date of the Omnibus Plan are still outstanding as issued. The Company will
maintain separate pools of available shares for full value as opposed to non-full value awards, except that shares can be
moved from the non-full value pool to the full value pool on a 3-for-1 basis. The exercise price per share of a stock
option grant may not be less than the fair market value of the common stock of the Company on the date of grant, and
may not be repriced without the approval of the Company’s stockholders. Options, stock appreciation rights, restricted
stock, restricted stock units and other stock based awards granted under the Omnibus Plan are generally subject to a
minimum vesting period of three years. The Omnibus Plan increased the annual grants to each outside director to 3,600
restricted stock units, while eliminating grants of stock options for outside directors. Prior to the approval of the 2005
Omnibus Plan, outside directors were annually granted 1,687 restricted stock unit awards and 14,850 stock options

Full Value Awards: The first pool is available for full value awards, such as restricted stock unit awards. The
pool will be decreased by the number of shares granted as full value awards. The pool will be increased from time to
time by the number of shares that are returned to or retained by the Company as a result of the cancellation, expiration,
forfeiture or other termination of a full value award (under the Omnibus Plan or the 1996 Restricted Stock Incentive
Plan); the settlement of such an award in cash; the delivery to the award holder of fewer shares than the number
underlying the award, including shares which are withheld from full value awards; or the surrender of shares by an award
holder in payment of the exercise price or taxes to a full value award. The Omnibus Plan will allow the Company to
transfer shares from the non-full value pool to the full value pool on a 3-for-1 basis, but does not allow the transfer of
shares from the full value pool to the non-full value pool.

The following table summarizes the Company’s full value awards at or for the year ended December 31, 2006:

Full Value Awards

Non-vested at December 31, 2005

Granted
Vested
Forfeited

Non-vested at December 31, 2006

197,778
121,425
(113,708)
(11,200)
194,295

Weighted-Average
Grant-Date
Fair Value

16.16
16.55
15.55
16.03
16.77

Vested but unissued at December 31, 2006

85,296

16.70

As of December 31, 2006, there was $2.6 million of total unrecognized compensation cost related to non-vested full
value awards granted under the Omnibus Plan. That cost is expected to be recognized over a weighed-average period of
3.2 years. The total fair value of awards vested for the year ended December 31, 2006, 2005 and 2004 were $1.9 million,
$1.5 million and $3.2 million, respectively. The vested but unissued full value awards were made to employees and
directors who are eligible for retirement. According to the terms of the Omnibus Plan, these employees and directors
have no risk of forfeiture. These shares will be issued at the original contractual vesting dates.

Non-Full Value Awards: The second pool is available for non-full value awards, such as stock options. The pool
will be increased from time to time by the number of shares that are returned to or retained by the Company as a result of
the cancellation, expiration, forfeiture or other termination of a non-full value award (under the Omnibus Plan or the
1996 Stock Option Incentive Plan). The second pool will not be replenished by shares withheld or surrendered in
payment of the exercise price or taxes, retained by the Company as a result of the delivery to the award hold of fewer
shares than the number underlying the award, or the settlement of the award in cash.

The following table summarizes certain information regarding the non-full value awards, all of which have been granted
as stock options, at or for the year ended December 31, 2006:

Non-Full Value Awards

Weighted-
Average
Exercise
Price

Weighted-Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value
($000) *

Outstanding at December 31, 2005

Granted
Conversion of Atlantic Liberty options
Exercised
Forfeited

Outstanding at December 31, 2006

Exercisable shares at December 31, 2006
Vested but unexercisable shares at

December 31, 2006

1,731,793
133,475
212,687
(412,664)
(13,715)
1,651,576

11.56
16.61
12.94
8.60
14.86
12.86

1,373,761

12.25

5.7 years

5.2 years

6,955

6,625

70,525

15.72

7.2 years

* The intrinsic value of a stock option is the difference between the market value of the underlying stock and the exercise
price of the option.

As of December 31, 2006, there was $0.7 million of total unrecognized compensation cost related to unvested non-full
value awards granted under the Omnibus Plan. That cost is expected to be recognized over a weighed-average period of
3.4 years. The vested but unexercisable non-full value awards were made to employees and directors who are eligible
for retirement. According to the terms of the Omnibus Plan, these employees and directors have no risk of forfeiture.
These shares will be exercisable at the original contractual vesting dates.

Cash proceeds, fair value received, tax benefits, and intrinsic value related to stock options exercised, and the weighted
average grant date fair value for options granted, during the years ended December 31, 2006, 2005 and 2004 are
provided in the following table:

(In thousands, except grant date fair value)
Proceeds from stock options exercised
Fair value of shares received upon exercise of stock options
Tax benefit related to stock options exercised
Intrinsic value of stock options exercised

Grant date fair value at weighted average

2006

2005

2004

2,931
619
1,428
3,434

5.52

2,422
-
1,751
3,552

4.47

3,283
129
3,032
6,799

4.78

Phantom Stock Plan: The Company maintains a non-qualified phantom stock plan as a supplement to its profit
sharing plan for officers who have achieved the level of Vice President and above. Awards are made under this plan on
certain compensation not eligible for awards made under the profit sharing plan, due to the terms of the profit sharing
plan and IRS regulations. Employees receive awards under this plan proportionate to the amount they would have
received under the profit sharing plan, had the excluded compensation been eligible. The awards are made as cash
awards, and then converted to common stock equivalents (phantom shares) at the then current market value of the
Company’s common stock. Dividends are credited to each employee’s account in the form of additional phantom shares
each time the Company pays a dividend on its common stock. Employees vest under this plan 20% per year for 5 years.
Employees receive their vested interest in this plan in the form of a cash payment, after termination of employment. The
Company adjusts its liability under this plan to the fair value of the shares at the end of each period.

Phantom Stock Plan

Fair Value

Outstanding at December 31, 2005

Granted
Forfeited
Distributions

Outstanding at December 31, 2006

17,630
3,407
(43)
(5,074)
15,920

15.57
17.32
15.57
16.58
17.07

Vested at December 31, 2006

15,797

17.07

The Company recorded stock-based compensation expense for the phantom stock plan of $28,900 for the year ended
December 31, 2006, recorded a credit of $86,000 for the year ended December 31, 2005 and an expense of $40,000 for
the year ended December 31, 2004. The total fair value of the distributions from the phantom stock plan during the year
ended December 31, 2006, 2005 and 2004 was $84,100, $466,400 and $4,800, respectively.

10. Pension and Other Postretirement Benefit Plans

The Company sponsors qualified pension, postretirement health care and life insurance benefits, 401(k), and profit
sharing plans for its employees. The Company also sponsors a non-qualified deferred compensation plan for officers
who have achieved the level of at least vice president, and a non-qualified pension plan for its outside directors.

Effective December 31, 2006, the Company adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans.” The Statement requires recognition of the funded status of a benefit plan –
measured as the difference between plan assets at fair value and the benefit obligation – in the statement of financial
position, with the corresponding credit or charge, net of taxes, upon initial adoption to accumulated other comprehensive
income. This credit or charge arose as a result of gains or losses and prior service costs or credits that arose during prior
periods but were not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, “Employers’
Accounting for Pensions”, or SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than
Pensions”. The following table reflects the effects of the adoption of SFAS No. 158 on the Consolidated Statements of
Financial Position as of December 31, 2006.

Other assets
Total assets
Other liabilities
Total liabilities
Accumulated other comprehensive income
Total stockholders' equity
Total liabilities and stockholders' equity

Before Adoption
of SFAS No. 158

23,310
2,839,043
22,824
2,619,387
(5,025)
219,656
2,839,043

Adjustments
(In thousands)
$

(2,522)
(2,522)
(1,281)
(1,281)
(1,241)
(1,241)
(2,522)

After Adoption
of SFAS No. 158

20,788
2,836,521
21,543
2,618,106
(6,266)
218,415
2,836,521

The amounts recognized in accumulated other comprehensive income, on a pre-tax basis, consist of the following, and
includes $572,000 previously recognized for the outside directors plan to recognize the minimum liability in prior years:

Employee Retirement Plan
Other Postretirement Benefit Plans
Atlantic Liberty Retirement Plan
Outside Directors Plan
Total

Net Acturarial
loss (gain)

2,789
(614)
10
(41)
2,144

Prior Service
Cost

(In thousands)
$
-
81
-
560
641

Total

2,789
(533)
10
519
2,785

Amounts in accumulated other comprehensive income to be recognized as components of net periodic expense for these
plans in 2007 are as follows:

Employee Retirement Plan
Other Postretirement Benefit Plans
Atlantic Liberty Retirement Plan
Outside Directors Plan

Net Actuarial
loss (gain)

Prior Service
Cost
(In thousands)
-
$
(14)
-
141
127

Total

135
(39)
-
141
237

135
(25)
-
-
110

Employee Retirement Plan:
The Bank has a funded noncontributory defined benefit retirement plan covering substantially all of its employees (the
“Retirement Plan”). The benefits are based on years of service and the employee’s compensation during the three
consecutive years out of the final ten years of service that produces the highest average. The Bank’s funding policy is to
contribute annually the amount recommended by the Retirement Plan’s actuary. The Bank’s Retirement Plan invests in
diversified equity and fixed-income funds, which are independently managed by a third party. Effective September 30,
2006, the Bank’s Retirement Plan was frozen so that no further benefits will accrue to any participants under the
Retirement Plan after that date. As a result, the Company did not make a contribution to the Employee Pension Plan
during the year ended December 31, 2006. Freezing the Employee Pension Plan resulted in a curtailment gain of $1.7
million. This curtailment gain was not recognized in the Consolidated Statements of Income, but was instead used to
reduce the unrecognized net loss from past experience different from that assumed and effects of changes in assumptions
for the Retirement Plan. Effective October 1, 2006, the Bank added a new program to its 401(k) Plan to replace the
Retirement Plan. The Company estimates that the change in the Retirement Plan is anticipated to reduce annual operating
expense by $0.4 million beginning in 2007. The Company uses a September 30 measurement date for the Retirement
Plan.

The following table sets forth, for the Retirement Plan, the change in benefit obligation and assets, and for the Company,
the amounts recognized in the Consolidated Statements of Financial Position at December 31:

Change in benefit obligation:

Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Curtailment gain
Benefits paid

Projected benefit obligation at end of year

Change in plan assets:

Market value of assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid

Market value of plan assets at end of year

2006

2005

(In thousands)

16,009
646
884
(397)
(1,695)
(630)
14,817

14,006
587
843
1,173
-
(600)
16,009

14,990
1,235
-
(630)
15,595

13,039
1,575
976
(600)
14,990

(1,019)

5,139
4,120

Funded status
Unrecognized net loss from past experience different from that

assumed and effects of changes in assumptions

Prepaid pension cost included in other assets

778

NA
778

Assumptions used to determine the Retirement Plan’s benefit obligations were:

Weighted average discount rate
Rate of increase in future compensation levels
Expected long-term rate of return on assets

2006

2005

6.00%
NA
8.50%

5.63%
3.00%
8.50%

The accumulated benefit obligation for the Retirement Plan was $14,817,000 and $14,149,000 at December 31,
2006 and 2005, respectively.

The components of the net pension expense for the Retirement Plan are as follows for the years ended December 31:

Service cost
Interest cost
Amortization of past service liability
Amortization of unrecognized loss
Expected return on plan assets
Net pension expense

2006

646
884
-
325
(1,302)
553

2005
(In thousands)
$
587
843
-
161
(1,238)
353

2004

621
788
(13)
81
(1,166)
311

Assumptions used to develop periodic pension benefit expense for the Retirement Plan for the years ended December 31
were:

Weighted average discount rate
Rate of increase in future compensation levels
Expected long-term rate of return on assets

2006

2005

2004

5.63%
3.00%
8.50%

6.13%
3.25%
8.50%

6.25%
3.50%
9.00%

The long-term rate-of-return on assets assumption was set based on historical returns earned by equities and fixed
income securities, adjusted to reflect expectations of future returns as applied to the Retirement Plan’s target allocation
of asset classes. Equities and fixed income securities were assumed to earn real rates of return in the ranges of 5-9% and
2-6%, respectively. The long-term inflation rate was estimated to be 3%. When these overall return expectations are
applied to the Retirement Plan’s target allocation, the expected rate of return is determined to be 8.50%, which is roughly
the midpoint of the range of expected return.

The Retirement Plan’s weighted average asset allocations at December 31, by asset category, were:

Equity securities
Debt securities

2006
73%
27%

2005
72%
28%

Retirement Plan assets are invested in six diversified investment funds of the RSI Retirement Trust (the “RSI Trust”), a
no load series open-end mutual fund. The investment funds include four equity mutual funds and two bond mutual
funds, each with its own investment objectives, investment strategies and risks, as detailed in the RSI Trust’s prospectus.
The RSI Trust has been given discretion by the Plan Sponsor to determine the appropriate strategic asset allocation
versus plan liabilities, as governed by the RSI Trust’s Statement of Investment Objectives and Guidelines (the
“Guidelines”).

The long-term investment objective is to be invested 65% in equity securities (equity mutual funds) and 35% in debt
securities (bond mutual funds). If the plan’s current liability is underfunded under the Guidelines, the bond fund portion
may be temporarily increased up to 50% in order to lessen asset value volatility. When the plan’s current liability is no
longer underfunded, the bond fund portion will be decreased back to 35%. Asset rebalancing is performed at least
annually, with interim adjustments made when the investment mix varies more than 5% from the target (i.e., a 10%
target range).

The investment goal is to achieve investment results that will contribute to the proper funding of the Retirement Plan by
exceeding the rate of inflation over the long-term. In addition, investment managers for the RSI Trust are expected to
provide above average performance when compared to their peers. Performance volatility is also monitored.
Risk/volatility is further managed by the distinct investment objectives of each of the RSI Trust’s funds and the
diversification within each fund.

The Bank does not expect to make a contribution to the Retirement Plan in 2007.

The following benefit payments, which reflect expected future service, are expected to be paid by the Retirement Plan:

For the year ending December 31:

2007
2008
2009
2010
2011
2012 – 2016

Future
Benefit
Payments

(In thousands)
$ 694
754
807
837
894
4,924

In connection with the Company’s acquisition of Atlantic Liberty Savings on June 30, 2006, the Company acquired The
Retirement Plan of Atlantic Liberty Savings, F.A. (“Atlantic Liberty Plan”), a non-contributory defined benefit pension
plan, which was frozen effective as of June 30, 2006. As of that date, no employee will be permitted to commence
participation and no further benefits will accrue to participants. No contributions have been made to the Atlantic Liberty
Plan during 2006. The Atlantic Liberty Plan has not been merged with the Retirement Plan and is not material in amount.

Other Postretirement Benefit Plans:
The Company sponsors two unfunded postretirement benefit plans (the “Postretirement Plans”) that cover all retirees who were
full-time permanent employees with at least five years of service, and their spouses. One plan provides medical benefits
through a 50% cost sharing arrangement. Effective January 1, 2000, the spouses of future retirees will be required to pay
100% of the premiums for their coverage. The other plan provides life insurance benefits and is noncontributory. Under
these programs, eligible retirees receive lifetime medical and life insurance coverage for themselves and lifetime medical
coverage for their spouses. The Company reserves the right to amend or terminate these plans at its discretion.

Comprehensive medical plan benefits equal the lesser of the normal plan benefit or the total amount not paid by
Medicare. Life insurance benefits for retirees are based on annual compensation and age at retirement. As of December
31, 2006, the Company has not funded these plans. The Company uses a September 30 measurement date for these
plans.

The following table sets forth, for the Postretirement Plans, the change in benefit obligation and assets, and for the
Company, the amounts recognized in the Consolidated Statements of Financial Condition at December 31:

Change in benefit obligation:

Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial gain
Benefits paid
Plan Amendment

Projected benefit obligation at end of year

Change in plan assets:

Market value of assets at beginning of year
Employer contributions
Benefits paid

Market value of plan assets at end of year

Funded status
Unrecognized net (gain) loss from past experience different from that

assumed and effects of changes in assumptions

Prior service cost not yet recognized in periodic pension cost

2006

2005

(In thousands)

2,626
113
145
(58)
(83)
152
2,895

4,142
156
249
(1,721)
(200)
-
2,626

83
(83)
-

-
200
(200)
-

(2,895)

(2,626)

NA
NA

(581)
(100)

Accrued pension cost included in other liabilities

(2,895)

(3,307)

The accumulated benefit obligation for the Postretirement Plans was $2,895,000 and $2,626,000 at December 31, 2006
and 2005, respectively.

Assumptions used in determining the actuarial present value of the accumulated postretirement benefit obligations at
December 31 are as follows:

Rate of return on plan assets
Discount rate
Rate of increase in health care costs

2006

2005

N/A
6.00%

N/A
5.63%

Initial
Ultimate (year 2011)

Annual rate of salary increase for life insurance

9.50%
4.50%
3.00%
The resulting net periodic postretirement benefit expense consisted of the following components for the years ended
December 31:

9.00%
4.50%
3.50%

Service cost
Interest cost
Amortization of unrecognized (gain) loss
Amortization of past service liability

Net postretirement benefit expense

2006

2005
(In thousands)
$
156
249
64
(35)
434

113
145
(25)
(29)
204

2004

162
235
69
(131)
335

Assumptions used to develop periodic postretirement benefit expense for the Postretirement Plans for the years ended
December 31 were:

Rate of return on plans assets
Discount rate
Rate of increase in health care costs

Initial
Ultimate (year 2011)

Annual rate of salary increases for life insurance

2006

2005

2004

NA
5.63%

9.50%
4.50%
3.00%

NA
6.13%

10.00%
4.25%
3.25%

NA
6.25%

10.00%
3.75%
3.25%

The health care cost trend rate assumptions have a significant effect on the amounts reported. A one percentage point
change in assumed health care trend rates would have the following effects:

Effect on postretirement benefit obligation
Effect on total service and interest cost

Increase

Decrease

(In thousands)

$181
19

$(157)
(16)

The Company expects to pay benefits of $112,000 under its Postretirement Plans in 2007.

The following benefit payments under the Postretirement Plan, which reflect expected future service, are expected to be
paid

For the year ending December 31:

2007
2008
2009
2010
2011
2012 - 2016

Future Benefit
Payments

(In thousands)
$ 112
125
134
144
152
889

Defined Contribution Plans:
The Holding Company maintains a profit sharing plan and the Bank maintains a 401(k) plan. Both plans are tax-qualified
defined contribution plans which cover substantially all employees. Annual contributions are at the discretion of the
Company’s Board of Directors, but not to exceed the maximum amount allowable under the Internal Revenue Code.
Currently, annual matching contributions under the Bank’s 401(k) plan equal 50% of the employee’s contributions, up to

a maximum of 3% of the employee’s compensation. Effective October 1, 2006, the Bank added a program to the 401(k)
plan, a Defined Retirement Contribution Plan, under which the Bank contributes an amount equal to 4% of an eligible
employee’s compensation. Contributions to the profit sharing plan are determined at the end of each year. Contributions
by the Bank into the 401(k) plan vest 20% per year over a five-year period beginning after the employee has completed
one year of service. Contributions into the profit sharing plan vest 20% per year over the employee’s first five years of
service. Compensation expense recorded by the Company for these plans amounted to $1,017,000, $868,000 and
$805,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

As a result of the Atlantic Liberty acquisition, the Atlantic Liberty 401(k) Savings Plan was frozen effective June 30,
2006. As of that date, a participant no longer was permitted to commence participation or establish a compensation
reduction agreement under this plan. In addition, as of the freeze date, all future before-tax, discretionary employer,
matching, catch-up and rollover contributions ceased.

The Bank provides a non-qualified deferred compensation plan as an incentive for officers who have achieved the level
of at least vice president. In addition to the amounts deferred by the officers, the Bank matches 50% of their
contributions, generally up to a maximum of 5% of the officers’ salary. The Bank had also provided an additional non-
contributory deferred compensation plan for its former president in the amount of 10% of his salary. Compensation
expense recorded by the Company for these plans amounted to $135,000, $172,000 and $201,000 for the years ended
December 31, 2006, 2005 and 2004, respectively.

Employee Benefit Trust:
An Employee Benefit Trust (“EBT”) has been established to assist the Company in funding its benefit plan obligations.
In connection with the Bank’s conversion to a federal stock savings bank in 1995, the EBT borrowed $7,928,000 from
the Company and used $7,000 of cash received from the Bank to purchase 2,328,750 shares of the common stock of the
Company. The loan will be repaid principally from the Company’s discretionary contributions to the EBT and dividend
payments received on common stock held by the EBT, or may be forgiven by the Company, over a period of 30 years.
At December 31, 2006, the loan had an outstanding balance of $2,894,000, bearing a fixed interest rate of 6.22% per
annum. The loan obligation of the EBT is considered unearned compensation and, as such, is recorded as a reduction of
the Company’s stockholders’ equity. Both the loan obligation and the unearned compensation are reduced by the amount
of loan repayments made by the EBT or forgiven by the Company. Shares purchased with the loan proceeds are held in a
suspense account for contribution to specified benefit plans as the loan is repaid or forgiven. Shares released from the
suspense account are used solely for funding matching contributions under the Bank’s 401(k) plan, contributions to the
401(k) plan for the Defined Contribution Retirement Plan, and contributions to the Company’s profit-sharing plan. Since
annual contributions are discretionary with the Company or dependent upon employee contributions, compensation
payable under the EBT cannot be estimated. For the years ended December 31, 2006, 2005 and 2004, the Company
funded $914,000, $773,000 and $707,000, respectively, of employer contributions to the 401(k) and profit sharing plans
from the EBT.

The shares held in the suspense account are pledged as collateral and are reported as unallocated EBT shares in
stockholders’ equity. As shares are released from the suspense account, the Company reports compensation expense
equal to the current market price of the shares, and the shares become outstanding for earnings per share computations.
The EBT shares are as follows at December 31:

Shares owned by Employee Benefit Trust, beginning balance
Shares released and allocated
Shares owned by Employee Benefit Trust, ending balance

2006

2005

1,697,066
(52,809)
1,644,257

1,743,278
(46,212)
1,697,066

Market value of unallocated shares.

28,067,467

26,423,318

Outside Director Retirement Plan:
The Bank has an unfunded noncontributory defined benefit Outside Director Retirement Plan (the “Directors’ Plan”),
which provides benefits to each non-employee director who has at least five years of service as a non-employee director
and whose years of service as a non-employee director plus age equal or exceed 55. Benefits are also payable to a non-
employee director whose status as a non-employee director terminates because of death or disability or who is a non-
employee director upon a change of control (as defined in the Directors’ Plan). Any person who becomes a non-
employee director after January 1, 2004 will not be eligible to participate in the Directors’ Plan. An eligible director
will be paid an annual retirement benefit equal to $48,000 for any participant whose termination occurs after November
22, 2005. Such benefit will be paid in equal monthly installments for the lesser of the number of months such director
served as a non-employee director or 120 months. In the event of a termination of Board service due to a change of control, a
non-employee director who has completed at least two years of service as a non-employee director will receive a cash lump
89

sum payment equal to 120 months of benefit, and a non-employee director with less than two years service will receive a cash
lump sum payment equal to a number of months of benefit equal to the number of months of his service as a non-employee
director. In the event of the director’s death, the surviving spouse will receive the equivalent benefit. No benefits will be
payable to a director who is removed for cause. The Holding Company has guaranteed the payment of benefits under
the Directors’ Plan. Upon adopting the Directors’ Plan, the Bank elected to immediately recognize the effect of
adopting the Directors’ Plan. Subsequent plan amendments are amortized as a past service liability. The Bank uses a
September 30 measurement date for the Directors’ Plan.

The following table sets forth, for the Directors’ Plan, the change in benefit obligation and assets, and for the Company,
the amounts recognized in the Consolidated Statements of Financial Condition at December 31:

Change in benefit obligation:

Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid

Projected benefit obligation at end of year

Change in plan assets:

Market value of assets at beginning of year
Employer contributions
Benefits paid

Market value of plan assets at end of year

Funded status
Unrecognized net loss from past experience different from that

assumed and effects of changes in assumptions

Prior service cost not yet recognized in periodic pension cost
Adjustment required to recognize minimum liability

2006

2005

(In thousands)

3,142
92
68
(597)
(147)
2,558

3,051
84
72
82
(147)
3,142

-
147
(147)
-

(2,558)

NA
NA
NA

-
147
(147)
-

(3,142)

610
708
(1,277)

Accrued pension cost included in other liabilities

(2,558)

(3,101)

The accumulated benefit obligation for the Directors’ Plan was $2,558,000 and $3,142,000 at December 31, 2006 and
2005, respectively.

The components of the net pension expense for the Directors’ Plan are as follows for the years ended December 31:

Service cost
Interest cost
Amortization of unrecognized loss
Amortization of past service liability

Net pension expense

2006

92
68
17
148
325

2005
(In thousands)
$
84
72
12
148
316

2004

74
50
15
141
280

Assumptions used to determine benefit obligations and periodic pension benefit expense for the Directors’ Plan for the
years ended December 31 were:

Weighted average discount rate for the benefit obligation
Weighted average discount rate for periodic pension benefit expense
Rate of increase in future compensation levels

2006

2005

2004

6.00%
5.63%
0.00%

5.63%
6.13%
0.00%

6.13%
6.25%
0.00%

The following benefit payments under the Directors’ Plan, which reflect expected future service, are expected to be paid:

For the year ending December 31:

2007
2008
2009
2010
2011
2012 – 2016

Future Benefit
Payments

(In thousands)
$ 159
233
301
317
291
1,410

Amounts recognized for the Directors’ Plan in the Consolidated Statements of Financial Position at December 31, 2005,
in addition to the accrued liability, were an intangible asset of $708,000, and a reduction of accumulated other
comprehensive income of $307,000. The (decrease) increase in other comprehensive income from the change in the
minimum liability for the Directors’ Plan was ($38,000) and $7,000 for the years ended December 31, 2005 and 2004,
respectively. Upon the adoption of SFAS No. 158, the accrued liability was adjusted to the unfunded status of the
Directors’ Plan, and the intangible asset previously recorded was reversed.

The Bank expects to make payments of $159,000 under its Directors’ Plan in 2007.

11. Stockholders’ Equity

Dividend Restrictions:
In connection with the Bank’s conversion from mutual to stock form in November 1995, a special liquidation account
was established at the time of conversion, in accordance with the requirements of the Office of Thrift Supervision
(“OTS”), which was equal to its capital as of June 30, 1995. The liquidation account is reduced as and to the extent that
eligible account holders have reduced their qualifying deposits. Subsequent increases in deposits do not restore an
eligible account holder’s interest in the liquidation account. In the event of a complete liquidation of the Bank, each
eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate
to the current adjusted qualifying balances for accounts then held. As of December 31, 2006, the Bank’s liquidation
account was $4.8 million, which was increased by and includes $2.0 million acquired in the Atlantic Liberty merger and
was presented within retained earnings.

In addition to the restriction described above, Federal banking regulations place certain restrictions on dividends paid by
the Bank to the Holding Company. The total amount of dividends which may be paid at any date is generally limited to
the net income of the Bank for the current year and prior two years, less any dividends previously paid from those
earnings. As of December 31, 2006, the Bank had $14.1 million in retained earnings available to distribute to the
Holding Company in the form of cash dividends.

In addition, dividends paid by the Bank to the Holding Company would be prohibited if the effect thereof would cause
the Bank’s capital to be reduced below applicable minimum capital requirements.

Stockholder Rights Plan:

The Holding Company has adopted a Shareholder Rights Plan under which each stockholder has one right to purchase
from the Holding Company, for each share of common stock owned, one one-hundredth of a share of Series A junior
participating preferred stock at a price of $65. The rights will become exercisable only if a person or group acquires 15%
or more of the Holding Company’s common stock or commences a tender or exchange offer which, if consummated,
would result in that person or group owning at least 15% of the Common Stock (the “acquiring person or group”). In
such case, all stockholders other than the acquiring person or group will be entitled to purchase, by paying the $65
exercise price, Common Stock (or a common stock equivalent) with a value of twice the exercise price. In addition, at
any time after such event, and prior to the acquisition by any person or group of 50% or more of the Common Stock, the
Board of Directors may, at its option, require each outstanding right (other than rights held by the acquiring person or
group) to be exchanged for one share of Common Stock (or one common stock equivalent). If a person or group
becomes an acquiring person and the Holding Company is acquired in a merger or other business combination or sells
more than 50% of its assets or earning power, each right will entitle all other holders to purchase, by payment of $65
exercise price, common stock of the acquiring company with a value of twice the exercise price. The rights plan expires
on September 30, 2016.

Treasury Stock Transactions:
The Holding Company repurchased 374,600 shares in 2006 and 144,700 shares in 2005, of its outstanding common
stock on the open market under its stock repurchase programs. In 2004, the Company approved a new stock repurchase
program, which authorized the purchase of an additional 1,000,000 shares. At December 31, 2006, 400,050 shares
remain to be repurchased under this plan. At December 31, 2006 and 2005, there were 33,778 and 1,050 shares,
respectively, held as Treasury Stock.

12. Regulatory Capital

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) imposes a number of mandatory
supervisory measures on banks and thrift institutions. Among other matters, FDICIA established five capital zones or
classifications (well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized). Such classifications are used by the OTS and other bank regulatory agencies to determine matters
ranging from each institution’s semi-annual FDIC deposit insurance premium assessments, to approvals of applications
authorizing institutions to grow their asset size or otherwise expand business activities. Under OTS capital regulations,
the Bank is required to comply with each of three separate capital adequacy standards. As of December 31, 2006, the
Bank continues to be categorized as “well-capitalized” by the OTS under the prompt corrective action regulations and
continues to exceed all regulatory capital requirements.

Set forth below is a summary of the Bank’s compliance with OTS capital standards.

Tangible capital:
Capital level
Requirement
Excess

Leverage and Core (Tier I) capital:

Capital level
Requirement
Excess

Total risk-based capital:

Capital level
Requirement
Excess

December 31, 2006

December 31, 2005

Amount

Percent of
Assets

Amount

Percent of
Assets

(Dollars in thousands)

$194,585
42,249
152,336

$194,585
84,497
110,088

$201,642
146,736
54,906

6.91
1.50
5.41

6.91
3.00
3.91

10.99
8.00
2.99

$167,550
35,201
132,349

$167,550
70,402
97,148

$173,936
114,845
59,091

7.14
1.50
5.64

7.14
3.00
4.14

12.12
8.00
4.12

13. Commitments and Contingencies

Commitments:
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to extend credit and lines of credit.
The instruments involve, to varying degrees, elements of credit and market risks in excess of the amount recognized in
the consolidated financial statements.

The Company’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument
for loan commitments and lines of credit is represented by the contractual amounts of these instruments.

Commitments to extend credit (principally real estate mortgage loans) and lines of credit (principally construction loans
and home equity lines of credit) amounted to $83.3 million and $78.0 million, respectively, at December 31, 2006.
Included in these commitments were $60.1 million of fixed-rate commitments at a weighted average rate of 8.65%, and
$101.1 million of adjustable-rate commitments with a weighted average rate, as of December 31, 2006, of 8.02%. Since
generally all of the loan commitments are expected to be drawn upon, the total loan commitments approximate future
cash requirements, whereas the amounts of lines of credit may not be indicative of the Company’s future cash
requirements. The loan commitments generally expire in ninety days, while construction loan lines of credit mature
within eighteen months and home equity lines of credit mature within ten years. The Company uses the same credit
policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Commitments to extend credit are legally binding agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates and require payment of a fee.
The Company evaluates each customer’s creditworthiness on a case-by-case basis. Collateral held consists primarily of
real estate.

The Trust issued $20.0 million of floating rate capital securities in July 2002. The Holding Company has guaranteed the
payment of the Trust’s obligations under these capital securities.

The Company’s minimum annual rental payments for Bank premises due under non-cancelable leases are as follows:

Minimum Rental

(In thousands)

Years ended December 31:

2007
2008
2009
2010
2011
Thereafter

Total minimum payments required

2,578
2,695
2,798
2,760
2,729
13,907
27,467

The leases have escalation clauses for operating expenses and real estate taxes. Certain lease agreements provide for
increases in rental payments based upon increases in the consumer price index. Rent expense under these leases for the
years ended December 31, 2006, 2005 and 2004 was approximately $2,310,000, $1,660,000 and $1,300,000,
respectively.

Contingencies:

The Company is a defendant in various lawsuits. Management of the Company, after consultation with outside legal
counsel, believes that the resolution of these various matters will not result in any material adverse effect on the
Company’s consolidated financial condition, results of operations or cash flows.

14. Concentration of Credit Risk

The Company’s lending is concentrated in the metropolitan New York area. The Company evaluates each customer’s
creditworthiness on a case-by-case basis under the Company’s established underwriting policies. The collateral obtained
by the Company generally consists of first liens on one-to-four family residential, multi-family residential, and
commercial real estate.

15. Disclosures About Fair Value of Financial Instruments

SFAS No. 107, “Disclosures About Fair Value of Financial Instruments”, requires that the Company disclose the
estimated fair values for certain of its financial instruments. Financial instruments include items such as loans, deposits,
securities, commitments to lend and other items as defined in SFAS No. 107.

Fair value estimates are supposed to represent estimates of the amounts at which a financial instrument could be exchanged
between willing parties in a current transaction other than in a forced liquidation. However, in many instances current exchange
prices are not available for many of the Company’s financial instruments, since no active market generally exists for a significant
portion of the Bank’s financial instruments. Accordingly, the Company uses other valuation techniques to estimate fair values of
its financial instruments such as discounted cash flow methodologies and other methods allowable under SFAS No. 107.

Fair value estimates are subjective in nature and are dependent on a number of significant assumptions based on management’s
judgment regarding future expected loss experience, current economic condition, risk characteristics of various financial
instruments, and other factors. In addition, SFAS No. 107 allows a wide range of valuation techniques; therefore, it may be
difficult to compare the Company’s fair value information to independent markets or to other financial institutions’ fair value
information.

The Company generally holds its earning assets, other than securities available for sale, to maturity and settles its
liabilities at maturity. However, fair value estimates are made at a specific point in time and are based on relevant market
information. These estimates do not reflect any premium or discount that could result from offering for sale at one time
the Company’s entire holdings of a particular instrument. Accordingly, as assumptions change, such as interest rates and
prepayments, fair value estimates change and these amounts may not necessarily be realized in an immediate sale.

SFAS No. 107 does not require disclosure about fair value information for items that do not meet the definition of a
financial instrument or certain other financial instruments specifically excluded from its requirements. These items
include core deposit intangibles and other customer relationships, premises and equipment, leases, income taxes,
foreclosed properties and equity.

Further, SFAS No. 107 does not attempt to value future income or business. These items may be material and
accordingly, the fair value information presented does not purport to represent, nor should it be construed to represent,
the underlying “market” or franchise value of the Company.

The estimated fair value of each material class of financial instruments at December 31, 2006 and 2005 and the related
methods and assumptions used to estimate fair value are as follows:

Cash and due from banks, overnight interest-earning deposits and federal funds sold, FHLB-NY stock, bank
owned life insurance, interest and dividends receivable, mortgagors’ escrow deposits and other liabilities:
The carrying amounts are a reasonable estimate of fair value.

Securities available for sale:

The estimated fair values of securities available for sale are contained in Note 5 of Notes to Consolidated Financial
Statements. Fair value is based upon quoted market prices, where available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities and adjusted for differences between the quoted
instrument and the instrument being valued.

Loans:

The estimated fair value of loans, with carrying amounts of $2,331,805,000 and $1,881,876,000 at December 31, 2006
and 2005, respectively, was $2,348,007,000 and $1,881,008,000 at December 31, 2006 and 2005, respectively.

Fair value is estimated by discounting the expected future cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings and remaining maturities.

For non-accruing loans, fair value is generally estimated by discounting management’s estimate of future cash flows
with a discount rate commensurate with the risk associated with such assets.

Due to depositors:

The estimated fair value of due to depositors, with carrying amounts of $1,744,395,000 and $1,447,864,000 at December
31, 2006 and 2005, respectively, was $1,716,216,000 and $1,408,553,000 at December 31, 2006 and 2005, respectively.

The fair values of demand, passbook savings, NOW and money market deposits are, by definition, equal to the amount payable
on demand at the reporting dates (i.e. their carrying value). The fair value of fixed-maturity certificates of deposits are estimated
by discounting the expected future cash flows using the rates currently offered for deposits of similar remaining maturities.

Borrowed funds:

The estimated fair value of borrowed funds, with carrying amounts of $832,413,000 and $689,710,000 at December 31, 2006
and 2005, respectively, was $828,623,000 and $682,872,000 at December 31, 2006 and 2005, respectively.

The fair value of borrowed funds is estimated by discounting the contractual cash flows using interest rates in effect for
borrowings with similar maturities and collateral requirements.

Other financial instruments:

The fair values of commitments to sell, lend or borrow are estimated using the fees currently charged or paid to enter into
similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the
counterparties or on the estimated cost to terminate them or otherwise settle with the counterparties at the reporting date.
For fixed-rate loan commitments to sell, lend or borrow, fair values also consider the difference between current levels of
interest rates and committed rates (where applicable).

At December 31, 2006 and 2005, the fair values of the above financial instruments approximate the recorded amounts of
the related fees and were not considered to be material.

16. Recent Accounting Pronouncements

in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement
method in accounting for share-based payment transactions with employees. It requires that a public entity measure the
cost of employee services received in exchange for an award of an equity instrument based on the grant date fair value of
the award. That cost will be recognized over the period during which an employee is required to provide service in
exchange for the award. The requisite service period is usually the vesting period. The provisions of this statement were
effective for the first interim or annual reporting period that began after June 15, 2005. On April 12, 2005, the U.S.
Securities and Exchange Commission issued a release which changed the implementation date to the beginning of the
next fiscal year after June 15, 2005. The adoption of this statement reduced diluted earnings per share by $0.01 for 2006.
The effect on future earnings as a result of the adoption of this statement will primarily be dependent on the level of
future grants of stock options awarded by the Company.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments.” The
Statement amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS No.140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” The Statement also
resolves issues addressed in SFAS No. 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial
Interest in Securitized Financial Assets.” SFAS No. 155 permits fair value remeasurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only
strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to
evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain as embedded derivative requiring bifurcation, and clarifies that concentrations of credit
risk in the form of subordination are not embedded derivatives. The Statement eliminates the interim guidance in SFAS
No. 133 Implementation Issue No. D1, which provided that beneficial interests in securitized financial assets are not
subject to the provisions of SFAS No. 133. The Statement is effective for all financial instruments acquired or issued
after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Since the Statement is effective
for purchases made by the Company after December 31, 2006, management is unable, at this time, to determine the
impact of this statement.

In September 2006 the FASB issued SFAS No. 157, “Fair Value Measurements.” The Statement is effective for all
financial statements issued for fiscal years beginning after November 15, 2007. The Statement defines fair value as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date, establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. Adoption of SFAS No. 157 is not expected to have a material impact on the Company’s results
of operations or financial condition.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans.” The Statement requires an employer that is a business entity and sponsors one or more single-
employer defined benefit plans to: (1) recognize the funded status of a benefit plan – measured as the difference between
plan assets at fair value and the benefit obligation – in its statement of financial position, with the corresponding credit or
charge, net of taxes, upon initial adoption to Accumulated Other Comprehensive Income; (2) recognized as a component
of Accumulated Other Comprehensive Income, net of tax, the gains or losses and prior service costs or credits that arise
during the period but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87,
“Employers’ Accounting for Pensions”, or SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other
Than Pensions”; (3) measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year end;
and (4) expand disclosures in the notes to the financial statements about certain effects on net periodic benefit cost. The
Statement also amends SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement
Benefits”, and SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans for Termination Benefits”. An employer who has publicly traded equity securities, such as the Holding Company,
is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required

disclosures as of the end of its fiscal year ending after December 15, 2006. For the Holding Company, this is for the year
ended December 31, 2006. The requirement to measure plan assets and benefit obligations as of the date of the
employer’s fiscal year end is effective for fiscal years ending after December 15, 2008. The adoption of this statement
resulted in a charge to Accumulated Other Comprehensive Income, and a corresponding reduction of stockholders’
equity, of $1.2 million, net of taxes, at December 31, 2006.

In May 2005, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 154, “Accounting Changes and
Error Corrections,” which replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting
Accounting Changes in Interim Financial Statements,” and changes the requirements for the accounting for and reporting
of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle and to
changes required by an accounting pronouncement when the pronouncement does not include specific transition
provisions. SFAS No. 154 requires retrospective application of changes in accounting principle to prior periods’
financial statements unless it is impracticable to determine either the period-specific effects or the cumulative effect of
the change. APB Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized
by including the cumulative effect of the change in net income for the period of the change in accounting principle.
SFAS No. 154 carries forward without change the guidance contained in APB Opinion No. 20 for reporting the
correction of an error in previously issued financial statements and a change in accounting estimate. SFAS No. 154 also
carries forward the guidance in APB Opinion No. 20 requiring justification of a change in accounting principle on the
basis of preferability. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005, with early adoption permitted. The adoption of SFAS No. 154 did not have a
material impact on the Company’s results of operations or financial condition.

On November 3, 2005, the FASB issued FASB Staff Position (FSP) Nos. FAS 115-1 and FAS 124-1, “The Meaning of
Other-Than-Temporary Impairment and Its Application.” This FSP addresses the determination as to when an
investment is considered impaired, whether that impairment is other than temporary, and the measurement of an
impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-
temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-
than-temporary impairments. The guidance in this FSP amends SFAS No. 115, “Accounting for Certain Investments in
Debt and Equity Securities,” and No. 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations,”
and APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” This FSP is effective
for reporting periods beginning after December 15, 2005. The adoption of this FSP did not have a material effect on the
Company’s results of operations or financial condition.

In September 2006, the FASB ratified the consensus reached by the Emerging Issues Task Force on Issue No. 06-4,
“Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements.” The consensus reached in Issue No. 06-4 requires the accrual of a liability for the cost of the insurance
policy during postretirement periods in accordance with SFAS No. 106, “Employers’ Accounting for Postretirement
Benefits Other Than Pensions”, or APB Opinion 12, “Omnibus Opinion”, when an employer has effectively agreed to
maintain a life insurance policy during the employee’s retirement. At December 31, 2006, the Company had
endorsement split-dollar life insurance arrangements with thirty-one present or former employees, which currently
provides approximately $5.6 million of life insurance benefits to these employees. The amount of the benefit for each
employee is based on the employee’s salary when their employment terminates. Issue No. 06-4 is effective for fiscal
years beginning after December 15, 2007. Management has not yet determined the effect of the adoption of Issue No. 06-
4 on its financial statements.

In September 2006, the Staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108
(“SAB 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements.” SAB 108 was issued to address diversity in practice in quantifying financial statement
misstatements and the potential under current practice for the build up of improper amounts on the balance sheet, and to
provide consistency between how registrants quantify financial statement misstatements. The techniques most commonly
used in practice to accumulate and quantify misstatements are generally referred to as the “roll-over” and “iron curtain”
approaches. The roll-over approach quantifies a misstatement based on the amount of the error originating in the current
year statement. The iron curtain approach quantifies a misstatement based on the effects of correcting the misstatement
existing in the balance sheet at the end of the current year, irrespective of when the misstatement originated. SAB 108
requires a “dual approach” that requires quantification of errors under both the roll-over and iron curtain methods. SAB

108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB 108 did not have a material effect
on the Company’s results of operations or financial condition.

17. Quarterly Financial Data (unaudited)

Selected unaudited quarterly financial data for the fiscal years ended December 31, 2006 and 2005 is presented below:

2006

2005

4th

3rd

2nd

1st

4th

3rd

2nd

1st

(In thousands, except per share data)

Quarterly operating data:
Interest income
Interest expense

Net interest income
Provision for loan losses
Other operating income
Other operating expense

Income before income

tax expense
Income tax expense
Net income

Basic earnings per share
Diluted earnings per share
Dividends per share

43,153
26,249
16,904
-
2,617
11,747

7,774
2,764
5,010

$0.26
$0.25
$0.11

41,473
24,249
17,224
-
2,385
11,178

37,546
20,885
16,661
-
2,586
10,385

36,212
19,297
16,915
-
2,207
9,432

35,139
18,103
17,036
-
1,182
8,868

34,098
16,959
17,139
-
2,089
9,433

32,486
15,324
17,162
-
1,861
9,360

30,716
13,843
16,873
-
1,515
8,603

8,431
3,119
5,312

$0.27
$0.27
$0.11

8,862
3,456
5,406

$0.30
$0.30
$0.11

9,690
3,779
5,911

$0.33
$0.33
$0.11

9,350
3,646
5,704

$0.32
$0.32
$0.10

9,795
3,820
5,975

9,663
3,769
5,894

$0.34
$0.33
$0.10

9,785
3,816
5,969

$0.34
$0.33
$0.10

Average common shares outstanding for:
Basic earnings per share
Diluted earnings per share

19,500
19,783

19,452
19,752

17,811
18,080

17,766
18,078

17,673
18,031

17,581
18,034

17,487
17,937

17,478
18,003

18. Acquisition of Atlantic Liberty Financial Corporation
On June 30, 2006, the Company acquired 100 percent of the outstanding common stock of Atlantic Liberty Financial
Corporation (“Atlantic Liberty”), the parent holding company for Atlantic Liberty Savings, F.A., based in Brooklyn,
New York. The aggregate purchase price was $41.2 million, which included $14.7 million of cash and common stock
valued at $26.6 million. Under the terms of the Agreement and Plan of Merger, dated December 20, 2005, Atlantic
Liberty's shareholders received $24.00 in cash, 1.43 Holding Company shares per Atlantic Liberty share owned, or a
combination thereof, subject to aggregate allocation to all Atlantic Liberty's shareholders of 65% stock / 35% cash. In
connection with the merger, the Company issued 1.6 million shares of common stock, the value of which was
determined based on the closing price of the Company’s common stock on the announcement date of December 21,
2005, and two days prior to and after the announcement date.

The acquisition was accounted for as a purchase. The Company recorded goodwill (the excess of cost over the fair value
of net assets acquired) of $10.9 million in the transaction. This amount is subject to adjustment as estimates made for the
fair value of assets acquired and liabilities assumed may be recorded in future periods. In accordance with the provisions
of Statement of Financial Accounting Standards (SFAS) No. 142, goodwill is not being amortized in connection with
this transaction. The Company estimates that none of the goodwill will be deductible for income tax purposes. The
Company also recorded a core deposit intangible asset of $3.5 million, which is being amortized using the straight-line
method over 7.5 years, resulting in an annual expense of $0.5 million. The results of Atlantic Liberty’s operations have
been included in the consolidated statement of income subsequent to June 30, 2006.

The purchase price has been allocated to the assets acquired and liabilities assumed using fair values as of the acquisition
date. The Company acquired $185.6 million in assets, which includes $3.4 million of cash, $116.2 million in net loans,
$34.9 million in securities, $9.1 million in fixed assets and $22.0 million in other assets, and assumed $144.4 million in
liabilities, which includes $106.8 million in deposits, $30.5 million in borrowed funds and $7.1 in other liabilities.

As a result of the acquisition, the Bank now has branches on Montague Street and Avenue J in Brooklyn, two highly
attractive markets. The Holding Company expects the transaction to be accretive to earnings per share.

Had the acquisition of Atlantic Liberty taken place on January 1, 2006, the Company’s pro forma net income for the year
ended December 31, 2006 would have been $18.3 million, or $0.93 per diluted share. Included in Atlantic Liberty’s
financial results were merger related expenses of $3.4 million, on an after-tax basis. Excluding these merger related
expenses, the Company’s pro forma net income would have been $21.7 million, or $1.10 per diluted share. These results,

which do not reflect cost savings that may be achieved, are not necessarily indicative of the actual results that would
have occurred had the acquisition taken place on January 1, 2006.

19. Parent Company Only Financial Information

Earnings of the Bank are recognized by the Holding Company using the equity method of accounting. Accordingly,
earnings of the Bank are recorded as increases in the Holding Company’s investment, any dividends would reduce the
Holding Company’s investment in the Bank, and any changes in the Bank’s unrealized gain or loss on securities
available for sale, net of taxes, would increase or decrease, respectively, the Holding Company’s investment in the Bank.
The condensed financial statements for the Holding Company, at and for the years ended December 31, 2006 and 2005
are presented below:

Condensed Statements of Financial Condition

Assets:

Cash and due from banks
Securities available for sale:

Other securities
Interest receivable
Investment in subsidiaries
Goodwill
Other assets

Total assets

Liabilities:

Borrowings
Other liabilities

Total liabilities

Stockholders' Equity:
Common stock
Additional paid-in capital
Treasury stock
Unearned compensation
Retained earnings
Accumulated other comprehensive income, net of taxes

Total equity

Total liabilities and equity

2006

2005

(In thousands)

24,101

23,197

4,983
27
205,565
876
4,943
240,495

4,588
21
166,517
-
3,498
197,821

20,619
1,461
22,080

20,619
735
21,354

212
71,079
(592)
(2,897)
156,879
(6,266)
218,415

195
39,635
(12)
(4,159)
146,068
(5,260)
176,467

240,495

197,821

Condensed Statements of Income

Dividends from the Bank
Interest income
Interest expense
Gain on sale of securities
Other operating income
Other operating expenses

Income before taxes and equity in undistributed

earnings of subsidiary

Income tax benefit

Income before equity in undistributed subsidiary

Equity in undistributed earnings of the Bank

Net income

Condensed Statements of Cash Flows

Operating activities:
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:

Equity in undistributed earnings of the Bank
Amortization of unearned (discount) premium, net
Impairment write-down of investment securities
Net gain on sale of investment securities

Stock based compensation expense
Net increase in operating assets and liabilities
Net cash provided by operating activities

Investing activities:

Purchases of securities available for sale
Proceeds from sales and calls of securities available for sale
Cash used to acquire Atlantic Liberty Financial Corporation
Cash acquired in acquisition of Atlantic Liberty Financial
Corporation

Net cash (used in) provided by investing activities

Financing activities:

Purchase of treasury stock
Cash dividends paid
Stock options exercised

Net cash used in financing activities

Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year

2006

2005
(In thousands)

2004

20,000
501
(1,855)
-
-
(1,126)

20,000
305
(1,487)
437
-
(1,307)

17,000
283
(1,095)
229
6
(983)

17,520
1,160
18,680
2,959
21,639

17,948
934
18,882
4,660
23,542

15,440
690
16,130
6,519
22,649

2006

2005
(In thousands)

2004

21,639

23,542

22,649

(2,959)
(4)

-
-
2,278
2,247
23,201

(156)
2,383
(14,663)

1,981
(10,455)

(6,593)
(8,180)
2,931
(11,842)

(4,660)
-
-
(437)
231
1,469
20,145

(150)
1,689
-

-
1,539

(3,085)
(7,027)
2,422
(7,690)

(6,519)
3
89
(318)
1,380
1,039
18,323

(124)
931
-

-
807

(9,773)
(6,127)
3,283
(12,617)

904
23,197
24,101

13,994
9,203
23,197

6,513
2,690
9,203

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Flushing Financial Corporation:

We have audited the accompanying consolidated balance sheet of Flushing Financial Corporation as of December 31,
2006 and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then
ended. We have also audited management's assessment, included in the accompanying Management’s Report on Internal
Control over Financial Reporting, that Flushing Financial Corporation maintained effective internal control over
financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Flushing Financial
Corporation's management is responsible for these financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on these financial statements, an opinion on management's assessment, and an
opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audit of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of
internal control included obtaining an understanding of internal control over financial reporting, evaluating
management's assessment, testing and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Flushing Financial Corporation as of December 31, 2006 and its consolidated results of operations and cash
flows for the year then ended, in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, management's assessment that Flushing Financial Corporation maintained effective
internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Furthermore, in our opinion, Flushing Financial Corporation maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).

As discussed in Notes 9 and 10 to the consolidated financial statements, the Company has adopted Financial Accounting
Standards Board Statement (FASB) No. 123(R), Share Based Payments and FASB No.158, Employers’ Accounting for
Defined Benefit Pension and Other Post Retirement Plans - an amendment of FASB Statements No. 87, 88, 106
and 132(R) in 2006.

/S/Grant Thornton LLP
New York, New York
March 13, 2007

100

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of
Flushing Financial Corporation:

In our opinion, the consolidated balance sheet as of December 31, 2005 and the related consolidated statements of
income, shareholders' equity and cash flows for each of the two years in the period ended December 31, 2005 present
fairly, in all material respects, the financial position of Flushing Financial Corporation and its subsidiaries at December
31, 2005, and the results of their operations and their cash flows for each of the two years in the period ended December
31, 2005, in conformity with accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these statements in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
New York, New York
March 9, 2006

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

On May 10, 2006, the Company’s independent registered public accounting firm, PriceWaterhouseCoopers,
LLP, (“PWC”) was dismissed. The Company engaged Grant Thornton LLP, as its independent registered public
accounting firm as of May 10, 2006. PWC’s reports for the fiscal years ending December 31, 2005 and 2004 contained
no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle. During the two most recent fiscal years and through May 10, 2006, there have been no
disagreements with PWC on any matter of accounting principles or practices, financial statements disclosure, or auditing
scope of procedures, which disagreements, if not resolved to the satisfaction of PWC would have caused them to make
reference to the subject matter of disagreement in connection with the Company’s financial statements for such years.
During the two most recent fiscal years and through May 10, 2006, there were no reportable events. The Audit
Committee of the Company’s Board of Directors has the sole authority to appoint or replace the external auditors and as
such approved the dismissal of PWC as the Company’s independent registered public accounting firm. The Company
requested and received a letter from PWC dated May 12, 2006 and addressed to the SEC, stating that it agrees with the
statements as outlined above.

101

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

The Company carried out, under the supervision and with the participation of the Company's management,
including its Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this Annual Report. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of December 31, 2006, the design and operation of
these disclosure controls and procedures were effective. During the period covered by this Annual Report, there have
been no changes in the Company's internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting,
and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31,
2006. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the
Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal
executive and principal financial officers and effected by the Company’s board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. Internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

Management performed an assessment of the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2006 based upon criteria in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment,
management concluded that the Company’s internal control over financial reporting was effective as of December 31,
2006 based on those criteria issued by COSO.

The Company’s independent registered public accounting firm, Grant Thornton LLP, has audited management’s
assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, as
stated in their report which appears on page 100.

Dated March 13, 2007

Item 9B. Other Information.

None.

PART III

102

Item 10. Directors, Executive Officers and Corporate Governance.

Other than the disclosures below, information regarding the directors and executive officers of the Company
appears in the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held May 15, 2007 (“Proxy
Statement”) under the captions “Board Nominees”, “Continuing Directors”, “Executive Officers Who Are Not
Directors” and “Meeting and Committees of the Board of Directors – Audit Committee” and is incorporated herein by
this reference. Information regarding Section 16(a) beneficial ownership appears in the Company’s Proxy Statement
under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by this
reference.

Code of Ethics. The Company has adopted a Code of Business Conduct and Ethics that applies to all of its
directors, officers and employees. This code is publicly available on the Company’s website at http://media.corporate-
ir.net/media_files/NSD/FFIC/reports/codeofethics.pdf. Any substantive amendments to the code and any grant of a
waiver from a provision of the code requiring disclosure under applicable SEC or NASDAQ rules will be disclosed in a
report on Form 8-K.

Audit Committee Financial Expert. The Board of Directors of the Company has determined that Louis C.
Grassi, the Chairman of the Audit Committee, is an “audit committee financial expert” as defined under Item 401(h) of
Regulation S-K, and that he is independent as defined under applicable NASDAQ listing standards. Mr. Grassi is a
certified public accountant and a certified fraud examiner.

Item 11. Executive Compensation.

Information regarding executive compensation appears in the Proxy Statement under the caption “Executive

Compensation” and is incorporated herein by this reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information regarding security ownership of certain beneficial owners appears in the Proxy Statement under the

caption “Stock Ownership of Certain Beneficial Owners” and is incorporated herein by this reference.

Information regarding security ownership of management appears in the Proxy Statement under the caption

“Stock Ownership of Management” and is incorporated herein by this reference.

The following table sets forth securities authorized for issuance under all equity compensation plans of the

Company at December 31, 2006:

( a )
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights

( b )
Weighted-average
exercise price of
outstanding options,
warrants and rights

( c )

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)

Equity compensation plans approved

by security holders

Equity compensation plans not

approved by security holders

Total

1,651,576

$12.86

⎯

1,651,576

⎯

$12.86

761,718 (1)

⎯

761,718 (1)

(1) Consists of 632,152 shares available for future non-full value awards and 129,566 shares available for future full value awards.

103

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Information regarding certain relationships and related transactions and directors independence, appears in the
Proxy Statement under the captions “Compensation Committee Interlocks and Insider Participation” and “Related Party
Transactions” and is incorporated herein by this reference.

Item 14. Principal Accounting Fees and Services.

Information regarding fees paid to the Company’s independent auditor appears in the Proxy Statement under the

caption “Schedule of Fees to Independent Auditors” and is hereby incorporated by this reference.

Item 15. Exhibits, Financial Statement Schedules.

(a) 1. Financial Statements

PART IV

The following financial statements are included in Item 8 of this Annual Report and are incorporated herein by

this reference:

• Consolidated Statements of Financial Condition at December 31, 2006 and 2005

• Consolidated Statements of Income for each of the three years in the period ended December 31, 2006

• Consolidated Statements of Changes in Stockholders’ Equity for each of the three years in the period

ended December 31, 2006

• Consolidated Statements of Cash Flows for each of the three years in the period ended December 31,

2006

• Notes to Consolidated Financial Statements

• Report of Independent Registered Public Accounting Firm

2. Financial Statement Schedules

Financial Statement Schedules have been omitted because they are not applicable or the required information is
shown in the Consolidated Financial Statements or Notes thereto included in Item 8 of this Annual Report and are
incorporated herein by this reference.

104

Exhibits Required by Securities and Exchange Commission Regulation S-K

Exhibit
Number

Description

2.1

3.1
3.2
3.3

3.4

3.5
4.1

4.2

4.3
4.4

4.5

4.6

4.7

10.1*

10.2*

10.3*

10.4*

10.5*

10.6*
10.7*

Agreement and Plan of Merger dated as of December 20, 2005 by and between Flushing Financial Corporation

and Atlantic Liberty Financial Corp. (18)

Certificate of Incorporation of Flushing Financial Corporation (1)
Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (10)
Certificate of Designations of Series A Junior Participating Preferred Stock of Flushing Financial
Corporation (12)
Certificate of Increase of Shares Designated as Series A Junior Participating Preferred Stock of Flushing
Financial Corporation (20)
By-Laws of Flushing Financial Corporation (1)
Rights Agreement, dated as of September 8, 2006, between Flushing Financial Corporation. and Computershare
Trust Company N.A., as Rights Agent, which includes the form of Certificate of Increase of Shares Designated
as Series A Junior Participating Preferred Stock as Exhibit A, form of Right Certificate as Exhibit B and the
Summary of Rights to Purchase Preferred Stock as Exhibit C (20)
Form of Capital Security Certificate of Flushing Financial Capital Trust I (contained in Exhibit A-1 to Exhibit

4.6)

Form of Common Security of Flushing Financial Capital Trust I (contained in Exhibit A-2 to Exhibit 4.6)
Form of Floating Rate Junior Subordinated Debt Security of Flushing Financial Corporation (contained in

Exhibit A to Exhibit 4.5)

Indenture dated July 11, 2002 relating to Floating Rate Junior Subordinated Debt Securities due 2032 between

Flushing Financial Corporation and Wilmington Trust Company (12)

Amended and Restated Declaration of Trust of Flushing Financial Capital Trust I among Flushing Financial
Corporation, Wilmington Trust Company, the Administrators named therein and the holders of undivided
beneficial interests in the assets of the Trust to be issued pursuant to the Declaration (12)

Guarantee Agreement dated July 11, 2002 between Flushing Financial Corporation and Wilmington Trust

Company (12)

Form of Amended and Restated Employment Agreements between Flushing Savings Bank, FSB and
Certain Officers (8)
Form Amended and Restated Employment Agreements between Flushing Financial Corporation and
Certain Officers (8)
Amended and Restated Employment Agreement between Flushing Financial Corporation
and Michael J. Hegarty (9)
Amended and Restated Employment Agreement between Flushing Savings Bank, FSB
and Michael J. Hegarty (9)
Amended and Restated Employment Agreement between Flushing Financial Corporation and John R.
Buran (9)
Amended and Restated Employment Agreement between Flushing Savings Bank, FSB and John R. Buran (9)
Amended and Restated Employment Agreement between Flushing Financial Corporation and Maria A. Grasso,

dated May 1, 2006. (21)

10.8*

Amended and Restated Employment Agreement between Flushing Savings Bank, FSB and Maria A. Grasso,

dated May 1, 2006. (21)

10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15

Amendment to Henry A. Braun Employment Agreement dated May 15, 2006 (21)
Form of Special Termination Agreement as amended (8)
Amended and Restated Employee Severance Compensation Plan of Flushing Savings Bank, FSB (8)
Amended and Restated Outside Director Retirement Plan (13)
Amended and Restated Flushing Savings Bank, FSB Outside Director Deferred Compensation Plan (8)
Restated Flushing Savings Bank, FSB Supplemental Savings Incentive Plan (11)
Form of Indemnity Agreement among Flushing Savings Bank, FSB, Flushing Financial Corporation, and each

Director (2)

10.16

Form of Indemnity Agreement among Flushing Savings Bank, FSB, Flushing Financial Corporation, and

Certain Officers (2)

10.17*
10.18*
10.19*

Employee Benefit Trust Agreement (1)
Amendment to the Employee Benefit Trust Agreement (4)
Loan Document for Employee Benefit Trust (1)

105

10.20*
10.21*

Guarantee by Flushing Financial Corporation (1)
Consulting Agreement between Flushing Savings Bank, FSB, Flushing Financial
Corporation and Gerard P. Tully, Sr. (3)

10.22(a)* Amendment to Gerard P. Tully, Sr. Consulting Agreement (4)
10.22(b)* Amendment No. 2 to Gerard P. Tully, Sr. Consulting Agreement (6)
10.22(c)* e Amendment No. 3 to Gerard P. Tully, Sr. Consulting Agreement (7)
10.22(d)* e Amendment No. 4 to Gerard P. Tully, Sr. Consulting Agreement (11)
10.22(e)* Amendment No. 5 to Gerard P. Tully, Sr. Consulting Agreement (14)
10.22(f)* Amendment No. 6 to Gerard P. Tully, Sr. Consulting Agreement (22)
10.23*
10.24*
10.25*

1996 Restricted Stock Incentive Plan of Flushing Financial Corporation (15)
1996 Stock Option Incentive Plan of Flushing Financial Corporation (13)
Retirement Agreement among Flushing Financial Corporation, Flushing Savings Bank, FSB, and Monica C.

Passick (15)

10.26*

Retirement Agreement among Flushing Financial Corporation, Flushing Savings Bank, FSB, and Michael J.

10.27*

10.28*
10.29*
10.30*
10.31*
10.32*
10.33*
10.34*
10.35*
10.36*
21.1
23.1
23.2
31.1
31.2
32.1

32.2

Hegarty dated December 23, 2005. (16)

Retirement and Consulting Agreement between Flushing Financial Corporation, Flushing Savings Bank, FSB
and Robert Callicutt dated January 24, 2007 (23)
Description of Outside Director Fee Arrangements
Form of Outside Director Restricted Stock Award Letter (19)
Form of Outside Director Restricted Stock Unit Award Letter (19)
Form of Outside Director Stock Option Grant Letter (19)
Form of Employee Restricted Stock Award Letter (19)
Form of Employee Restricted Stock Unit Award Letter (19)
Form of Employee Stock Option Award Letter (19)
2006 Omnibus Incentive Plan (17)
Annual Incentive Plan for Executives and Senior Officers (24)
Subsidiaries information incorporated herein by reference to Part I – Subsidiary Activities
Consent of Independent Registered Public Accounting Firm
Consent of Independent Registered Public Accounting Firm
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer
Certification Pursuant to 18 U.S.C, Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by the Chief Executive Officer
Certification Pursuant to 18 U.S.C, Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by the Chief Financial Officer

*Indicates compensatory plan or arrangement.
______________

(1)

(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)

(18)
(19)

Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1, Registration No.
33-96488.
Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended September 30, 1996.
Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 1996.
Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 1997.
Incorporated by reference to Exhibits filed with Form 8-K filed September 11, 2006.
Incorporated by reference to Exhibit filed with the Form 10-K for the year ended December 31, 1998.
Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 1999.
Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended September 30, 2000.
Incorporated by reference to Exhibits filed with Form 8-K/A filed July 5, 2005.
Incorporated by reference to Exhibits filed with Form S-8 filed May 31, 2002
Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2001.
Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended September 30, 2002.
Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended March 31, 2006.
Incorporated by reference to Exhibit filed with Form 8-K filed November 26, 2004.
Incorporated by reference to Exhibit filed with Form 10-Q for the quarter ended June 30, 2004.
Incorporated by reference to Exhibit filed with Form 8-K filed December 28, 2004.
Incorporated by reference to Exhibit A to the Company’s definitive proxy statement on Schedule 14A filed on
March 31, 2006 for the Company’s annual meeting of stockholders.
Incorporated by reference to Exhibit filed with Form 8-K filed December 23, 2005.
Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2004.

106

(20)
(21)
(22)
(23)
(24)

Incorporated by reference to Exhibit filed with Form 8-K filed September 21, 2006.
Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended June 30, 2006.
Incorporated by reference to Exhibit filed with Form 8-K filed November 27, 2006.
Incorporated by reference to Exhibit filed with Form 8-K filed January 29, 2007.
Incorporated by reference to Exhibit filed with Form 8-K filed March 2, 2007.

107

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the Company has duly
caused this report, or amendment thereto, to be signed on its behalf by the undersigned, thereunto duly authorized, in
New York, New York, on March 13, 2007.

SIGNATURES

FLUSHING FINANCIAL CORPORATION

/S/JOHN R. BURAN

John R. Buran
President and CEO

POWER OF ATTORNEY

We, the undersigned directors and officers of Flushing Financial Corporation (the “Company”) hereby severally
constitute and appoint John R. Buran and David W. Fry as our true and lawful attorneys and agents, each acting alone
and with full power of substitution and re-substitution, to do any and all things in our names in the capacities indicated
below which said John R. Buran or David W. Fry may deem necessary or advisable to enable the Company to comply
with the Securities Exchange Act of 1934, and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the report on Form 10-K, or amendment thereto, including specifically, but not limited
to, power and authority to sign for us in our names in the capacities indicated below the report on Form 10-K, or
amendment thereto; and we hereby approve, ratify and confirm all that said John R. Buran or David W. Fry shall do or
cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K, or amendment

thereto, has been signed by the following persons in the capacities and on the dates indicated.

Signature

Title

Date

/S/JOHN R. BURAN
John R. Buran

/S/GERARD P. TULLY, SR.
Gerard P. Tully, Sr.

/S/DAVID W. FRY

David W. Fry

/S/JAMES D. BENNETT
James D. Bennett

Director, President (Principal Executive
Officer)

March 13, 2007

Director, Chairman

March 13, 2007

Treasurer (Principal Financial and
Accounting Officer)

March 13, 2007

Director

March 13, 2007

108

March 13, 2007

/S/STEVEN J. D'IORIO
Steven J. D'Iorio

/S/LOUIS C. GRASSI
Louis C. Grassi

/S/MICHAEL J. HEGARTY
Michael J. Hegarty

/S/JOHN J. MCCABE
John J. McCabe

/S/VINCENT F. NICOLOSI
Vincent F. Nicolosi

/S/DONNA M. O'BRIEN
Donna M. O'Brien

/S/FRANKLIN F. REGAN, JR.
Franklin F. Regan, Jr.

/S/JOHN E. ROE, SR.

John E. Roe, Sr.

/S/MICHAEL J. RUSSO
Michael J. Russo

Director

109