The Federal Reserve released its Beige Book last month, a report published eight times a year that looks at current economic conditions in each Fed bank district. The latest edition painted a fairly rosy picture for banks. According to the report, banking conditions have improved across most of the Fed districts, with loan volumes growing and credit problems continuing to dissipate. In fact, none of the districts reported any deterioration in credit quality with most banks adhering to fairly tight lending standards.

That didn’t protect the financial sector from last month’s market swoon though, with banks generally plunging along with the broader indexes. One bank actually dodged the worst of that decline, though – First National Bank of Long Island (NSDQ: FLIC).

The largest nationally chartered bank on Long Island, First National taps into some of the richest demographics in the New York City suburbs. Thanks to the bank’s well-heeled customers, its loan book has posted steady growth over the past decade, including in the worst years of the recession when many banks were struggling to stay afloat. The bank’s average loans outstanding have grown by more than 25% in the first three quarters of this year alone.

Despite that steady loan growth, the overall credit quality of the loans has remained excellent. As of the end of the third quarter, loans past due by less than 90 days accounted for just 0.23% of the bank’s total loans outstanding. While there has been some fluctuation in the number over the past several quarters – at the end of last year it just 0.01% of total loans – that has mostly been due to problems with specific loans. That’s still well below the national average of 1.2% for similar sized banks and First National has been able to step down its loan-loss provision, the money set aside to cover any bad loans, with the reserve falling from 1.41% of assets at the end of last year to 1.34% at the end of the third quarter. Even with the lower reserve level, it still covers nonperforming loans by 9.7 times.

First National has also gotten a boost from its bond portfolio, which consists mostly of mortgage securities and municipal bonds. Its mortgage bonds are backed by conventional mortgages, with more than 80% guaranteed by the Fannie Mae and Freddie Mac, insuring the bank against losses if the bonds were to go sour. Its municipal bond holdings are also highly rated by the credit agencies, though the bank also performs its own due diligence so there are two layers of credit analysis on each bond.

The bank has also caught a tailwind from its deposits in this low interest rate environment. About a third of its deposits are in non-interest bearing checking accounts, reducing the bank’s overall interest expense and making its loans much more profitable. That tailwind could become a gale-force blow for earnings as interest rates rise; the bank will be able to make loans at higher rates even as it pays no interest on about a third of the money it loans.

Largely because of that steady loan growth and solid credit quality, 10-year average revenue growth at the bank has been running at 5.9% while earnings per share have grown 5.5% over the same period. First National’s dividend has also been steadily growing, up from a total annual payout of $0.26 a decade ago to $0.72 this year for a yield of 2.8%. That bank has maintained an average payout ratio of about 40%, so as earnings rise with interest rates we can expect attractive dividend growth to go along with it.

Going forward, First National of Long Island plans to open its 40^th branch by the end of this year and has said it will aggressively expand when interest rates begin rising. Despite being one of the largest banks on Long Island, it is still a relatively small bank so it is nowhere near bumping up against the Federal Reserve’s rules limiting a banks market share in each metropolitan area. Even with its 40 branches, Long Island encompasses more than 1,400 square miles and is so densely populated that come believe it should be a state in its own right. So First National clearly hasn’t saturated its market and has plenty of growth potential ahead, something which can’t be said for the large national banks.

Turning in steady growth over the past decade and about to get a boost from rising interest rates, First National Bank of Long Island is a terrific buy up to $31.