This section presents discussion and analysis of the Company's consolidated financial condition at March 31, 2008 and December 31, 2007, and consolidated results of operations for the three month periods ended March 31, 2008 and March 31, 2007. The Company is consolidated with its wholly-owned subsidiaries, Hudson Valley Bank, NA and its subsidiaries, Grassy Sprain Real Estate Holdings, Inc., Sprain Brook Realty Corp., HVB Leasing Corp., HVB Employment Corp., HVB Realty Corp. and A.R. Schmeidler & Co., Inc. (collectively "HVB"), and New York National Bank and its subsidiary 369 East 149th Street Corp. (collectively "NYNB"). This discussion and analysis should be read in conjunction with the financial statements and supplementary financial information contained in the Company's 2007 Annual Report on Form 10-K.

Overview of Management's Discussion and Analysis

This overview is intended to highlight selected information included in this Quarterly Report on Form 10-Q. It does not contain sufficient information for a complete understanding of the Company's financial condition and operating results and, therefore, should be read in conjunction with this entire Quarterly Report on Form 10-Q and the Company's 2007 Annual Report on Form 10-K.

The Company derives substantially all of its revenue from providing banking and related services to businesses, professionals, municipalities, not-for profit organizations and individuals within its market area, primarily Westchester County and Rockland County, New York, portions of New York City and Fairfield County, Connecticut. The Company's assets consist primarily of loans and investment securities, which are funded by deposits, borrowings and capital. The primary source of revenue is net interest income, the difference between interest income on loans and investments, and interest expense on deposits and borrowed funds. The Company's basic strategy is to grow net interest income and non interest income by the retention of its existing customer base and the expansion of its core businesses and branch offices within its current market and surrounding areas. The Company's primary market risk exposure is interest rate risk. Interest rate risk is the exposure of net interest income to changes in interest rates.

Net income for the three month period ended March 31, 2008 was $8.4 million or $0.82 per diluted share, a slight increase of $0.1 million or 1.2 percent compared to $8.3 million or $0.82 per diluted share for the three month period ended March 31, 2007. Excluding the effects of a $97 million temporary deposit in a money market account from late December 2007 through early February 2008, the Company achieved growth in both its core businesses of loans and deposits during the three month period ended March 31, 2008, primarily as a result of the addition of new customers and additional loans and deposits from existing customers, partially offset by seasonal declines in certain deposits, and other declines related to a slowdown in the overall economy in general and, in particular, in activity related to the commercial real estate industry, a significant source of business for the Company. In addition, the Company continued to increase its fee based revenue through its subsidiary A.R. Schmeidler & Co., Inc., a registered investment advisory firm located in Manhattan, New York, which at March 31, 2008 had approximately $1.4 billion in assets under management as compared to approximately $1.1 billion at March 31, 2007.

Despite an increase in non-performing assets, overall asset quality continued to be good as a result of the Company's conservative underwriting and investment standards. Recently, there has been considerable national media attention regarding increases in delinquencies and defaults primarily resulting from "sub-prime" residential mortgage lending. The Company does not generally engage in sub-prime lending, except in occasional circumstances where additional underwriting factors are present which justify extending the loan. The Company does not offer loans with low "teaser" rates or high loan-to-value ratios to sub-prime borrowers. In addition, the Company has not invested in mortgage-backed securities secured by sub-prime loans.

Short-term interest rates, which rose gradually in 2005 and into the second quarter of 2006, remained virtually unchanged from September, 2006 through the first half of September 2007. The immediate effect of this rise in interest rates was positive to the Company, due to more assets than liabilities repricing in the near term. The rise in short-term rates, however, was not accompanied with similar increases in longer term interest rates resulting in a flattening and eventual inversion of the yield curve. The persistence of this condition throughout the second half of 2006 and the first three quarters of 2007 had put downward pressure on the Company's net interest income as liabilities continued to reprice at higher rates and maturing longer term assets repriced at similar or only slightly

higher rates. The 300 basis point reduction of short-term interest rates from September 2007 through March 2008 has resulted in some improvement in the yield curve, however, despite the improvement in the shape of the yield curve, the Company expects continued downward pressure on net interest income for the near future.

As a result of the effects of interest rates and growth in the Company's core businesses of loans and deposits, tax equivalent basis net interest income increased by $0.7 million or 2.7 percent to $27.1 million for the three month period ended March 31, 2008, compared to $26.4 million for the same period in the prior year. The effect of the adjustment to a tax equivalent basis was $1.2 million for both of the three month periods ended March 31, 2008 and 2007.

Non interest income, excluding net gains and losses on securities transactions, was $4.8 million for the three month period ended March 31, 2008, an increase of $1.2 million or 33.3 percent compared to $3.6 million for the same period in the prior year. The increase was primarily due to growth in the investment advisory fee income of A.R. Schmeidler & Co., Inc., and also reflected increases in deposit activity and other service fees and other income. The net realized loss on securities for the three months ended March 31, 2008 included a $0.5 million pretax adjustment for other than temporary impairment related to the Company's investment in a mutual fund. The investment, which had a previous pretax other than temporary impairment adjustment of $0.6 million in December 2007, was sold in April 2008 due to its inability to meet the Company's performance expectations.

Non interest expense was $17.0 million for the three month period ended March 31, 2008, an increase of $1.6 million or 10.4 percent compared to $15.4 million for the same period in the prior year. The increase reflects the Company's continued investment in its branch offices, technology and personnel to accommodate growth in loans and deposits, the expansion of services and products available to new and existing customers and the upgrading of certain internal processes.

The Company uses a simulation analysis to estimate the effect that specific movements in interest rates would have on net interest income. Excluding the effects of planned growth and anticipated new business, the simulation analysis at March 31, 2008 shows the Company's net interest income increasing moderately if interest rates rise and decreasing moderately if interest rates fall.

The Company has established specific policies and operating procedures governing its liquidity levels to address future liquidity needs, including contingent sources of liquidity. The Company believes that its present liquidity and borrowing capacity are sufficient for its current business needs.

The Company, HVB and NYNB are subject to various regulatory capital guidelines. To be considered "well capitalized," an institution must generally have a leverage ratio of at least 5 percent, a Tier 1 ratio of 6 percent and a Total capital ratio of 10 percent. The Company, HVB and NYNB exceeded all current regulatory capital requirements to be considered in the "well-capitalized" category at March 31, 2008. Management plans to conduct the affairs of the Company and its subsidiary banks so as to maintain a strong capital position in the future.

Critical Accounting Policies

Allowance for Loan Losses - The Company maintains an allowance for loan losses to absorb losses incurred in the loan portfolio based on ongoing quarterly assessments of the estimated losses. The Company's methodology for assessing the appropriateness of the allowance consists of several key components, which include a specific component for identified problem loans, a formula component, and an unallocated component. The specific component incorporates the results of measuring impaired loans as provided in SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." These accounting standards prescribe the measurement methods, income recognition and disclosures related to impaired loans. A loan is recognized as impaired when it is probable that principal and/or interest are not collectible in accordance with the loan's contractual terms. A loan is not deemed to be impaired if there is a short delay in receipt of payment or if, during a longer period of delay, the Company expects to collect all amounts due including interest accrued at the contractual rate during the period of delay. Measurement of impairment can be based on the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or the fair value of the collateral, if the loan is collateral dependent. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant

change. If the fair value of the impaired loan is less than the related recorded amount, a specific valuation allowance is established within the allowance for loan losses or a writedown is charged against the allowance for loan losses if the impairment is considered to be permanent. Measurement of impairment does not apply to large groups of smaller balance homogenous loans that are collectively evaluated for impairment such as the Company's portfolios of home equity loans, real estate mortgages, installment and other loans.

The formula component is calculated by applying loss factors to outstanding loans by type. Loss factors are based on historical loss experience. New loan types, for which there has been no historical loss experience, as explained further below, is one of the considerations in determining the appropriateness of the unallocated component.

The appropriateness of the unallocated component is reviewed by management based upon its evaluation of then-existing economic and business conditions affecting the key lending areas of the Company and other conditions, such as new loan products, credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectibility of the loan portfolio. Senior management reviews these conditions quarterly. Management's evaluation of the loss related to these conditions is reflected in the unallocated component. Due to the inherent uncertainty in the process, management does not attempt to quantify separate amounts for each of the conditions considered in estimating the unallocated component of the allowance. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific credits or portfolio segments.

Actual losses can vary significantly from the estimated amounts. The Company's methodology permits adjustments to the allowance in the event that, in management's judgment, significant factors which affect the collectibility of the loan portfolio as of the evaluation date have changed.

Management believes the allowance for loan losses is the best estimate of probable losses which have been incurred as of March 31, 2008. There is no assurance that the Company will not be required to make future adjustments to the allowance in response to changing economic conditions, particularly in the Company's service area, since the majority of the Company's loans are collateralized by real estate. In addition, various regulatory agencies, as an integral part of the examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments at the time of their examinations.

Income Recognition on Loans - Interest on loans is accrued monthly. Net loan origination and commitment fees are deferred and recognized as an adjustment of yield over the lives of the related loans. Loans, including impaired loans, are placed on a non-accrual status when management believes that interest or principal on such loans may not be collected in the normal course of business. When a loan is placed on non-accrual status, all interest previously accrued, but not collected, is reversed against interest income. Interest received on non-accrual loans generally is either applied against principal or reported as interest income, in accordance with management's judgment as to the collectability of principal. Loans can be returned to accruing status when they become current as to principal and interest, demonstrate a period of performance under the contractual terms, and when, in management's opinion, they are estimated to be fully collectible.

Securities - Securities are classified as either available for sale, representing securities the Company may sell in the ordinary course of business, or as held to maturity, representing securities the Company has the ability and positive intent to hold until maturity. Securities available for sale are reported at fair value with unrealized gains and losses (net of tax) excluded from operations and reported in other comprehensive income. Securities held to maturity are stated at amortized cost. Interest income includes amortization of purchase premium and accretion of purchase discount. The amortization of premiums and accretion of discounts is determined by using the level yield method. Securities are not acquired for purposes of engaging in trading activities. Realized gains and losses from sales of securities are determined using the specific identification method. Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other-than-temporary losses, management considers: the length of time and extent that fair value has been less than cost, the financial

condition and near term prospects of the issuer, and the Company's ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Goodwill and Other Intangible Assets - In accordance with the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill and identified intangible assets with indefinite useful lives are not subject to amortization. Identified intangible assets that have finite useful lives are amortized over those lives by a method which reflects the pattern in which the economic benefits of the intangible asset are used up. All goodwill and identified intangible assets are subject to impairment testing on an annual basis, or more often if events or circumstances indicate that impairment may exist. If such testing indicates impairment in the values and/or remaining amortization periods of the intangible assets, adjustments are made to reflect such impairment. The Company's impairment evaluations as of December 31, 2007 did not indicate impairment of its goodwill or identified intangible assets. The Company is not aware of any events during the three month period ended March 31, 2008 which would have required additional impairment evaluations.

Bank Owned Life Insurance - The Company has purchased life insurance policies on certain key executives. In accordance with Emerging Issues Task Force finalized Issue No. 06-5, Accounting for Purchases of Life Insurance - Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4 (Accounting for Purchases of Life Insurance) ("EITF No. 06-5"), bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Prior to adoption of EITF 06-5, the Company recorded bank owned life insurance at its cash surrender value.

Retirement Plans - Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. Employee 401(k) and profit sharing plan expense is the amount of matching contributions. Supplemental retirement plan expense allocates the benefits over years of service.

Results of Operations for the Three Month Periods Ended March 31, 2008 and March 31, 2007

Summary of Results

The Company reported net income of $8.4 million for the three month period ended March 31, 2008, an increase of $0.1 million or 1.2 percent compared to $8.3 million reported for the same period in the prior year. The increases in net income in the current year period compared to the prior year period resulted from higher net interest income, higher non interest income, a lower provision for loan loss and slightly lower income taxes, partially offset by higher non interest expense. In addition, the three month period ended March 31, 2008 included a $0.5 million pretax adjustment for other than temporary impairment related to the Company's investment in a mutual fund.

Diluted earnings per share were $0.82 for both three month periods ended March 31, 2008 and 2007. Annualized returns on average equity and average assets were 16.2 percent and 1.5 percent, respectively, for the three month period ended March 31, 2008, compared to 17.6 percent and 1.5 percent, respectively, for the same period in the prior year. Annualized returns on adjusted average equity and adjusted average assets were 16.3 percent and 1.5 percent, respectively, for the three month period ended March 31, 2008, compared to 17.2 percent and 1.4 percent, respectively, for the same period in the prior year. Adjusted average stockholders' equity and adjusted average assets exclude the effects of net unrealized gains and losses on securities available for sale. Management believes this alternate presentation more closely reflects actual performance, as it is more consistent with the Company's stated asset/liability management strategies, which have not resulted in significant realization of temporary market gains or losses on securities available for sale which were primarily related to changes in interest rates.

 Average Balances and Interest Rates

The following table sets forth the average balances of interest earning assets
and interest bearing liabilities for the three month periods ended March 31,
2008 and March 31, 2007, as well as total interest and corresponding yields and
rates. The data contained in the table has been adjusted to a tax equivalent
basis, based on the federal statutory rate of 35 percent in 2008 and 2007.


                                                         Three Months Ended                            Three Months Ended
                                                           March 31, 2008                                March 31, 2007
                                                Average                         Yield/        Average                         Yield/
                                                Balance        Interest(3)       Rate         Balance        Interest(3)       Rate
                                                     (000's except percentages)                    (000's except percentages)
ASSETS
Interest earning assets:
Deposits in banks                             $     5,633     $          46        3.27 %   $     3,288     $          45        5.47 %
Federal funds sold                                 67,114               627        3.74          16,220               200        4.93
Securities:(1)
Taxable                                           560,541             6,882        4.91         719,524             8,849        4.92
Exempt from federal income taxes                  214,470             3,452        6.44         214,852             3,525        6.56
Loans, net(2)                                   1,321,788            25,302        7.66       1,210,253            25,671        8.48

Total interest earning assets                   2,169,546            36,309        6.69       2,164,137            38,290        7.08

Non interest earning assets:
Cash and due from banks                            46,949                                        52,616
Other assets                                       99,043                                        81,733

Total non interest earning assets                 145,992                                       134,349

Total assets                                  $ 2,315,538                                   $ 2,298,486

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Money market                                  $   656,850     $       3,558        2.17 %   $   448,062     $       2,769        2.47 %
Savings                                            93,775               217        0.93          93,570               192        0.82
Time                                              260,426             2,217        3.41         280,011             2,742        3.92
Checking with interest                            157,134               426        1.08         149,819               366        0.98
Securities sold under repurchase agreements
and other short-term borrowings                    92,128               480        2.08         250,226             3,059        4.89
Other borrowings                                  210,839             2,328        4.42         249,367             2,792        4.48

Total interest bearing liabilities              1,471,152             9,226        2.51       1,471,055            11,920        3.24

Non interest bearing liabilities:
Demand deposits                                   605,236                                       605,362
Other liabilities                                  31,358                                        28,956

Total non interest bearing liabilities            636,594                                       634,318

Stockholders' equity(1)                           207,792                                       193,113

Total liabilities and stockholders'
equity(1)                                     $ 2,315,538                                   $ 2,298,486

Net interest earnings                                         $      27,083                                 $      26,370

Net yield on interest earning assets                                               4.99 %                                        4.87 %

(1) Excludes unrealized gains (and losses) on securities available for sale

(2) Includes loans classified as non-accrual

(3) Effects of adjustments to a tax equivalent basis were increases of $1,208 and $1,234 for the three month periods ended March 31, 2008 and March 31, 2007, respectively.

 Interest Differential

The following table sets forth the dollar amount of changes in interest income,
interest expense and net interest income between the three month periods ended
March 31, 2008 and March 31, 2007.


                                                                           (000's)
                                                                 Three Month Period Increase
                                                                 (Decrease) Due to Change in
                                                             Volume          Rate        Total(1)

Interest Income:
Deposits in banks                                          $       32      $    (31 )    $       1
Federal funds sold                                                628          (201 )          427
Securities:
Taxable                                                        (1,955 )         (12 )       (1,967 )
Exempt from federal income taxes(2)                                (6 )         (67 )          (73 )
Loans, net                                                      2,366        (2,735 )         (369 )

Total interest income                                           1,065        (3,046 )       (1,981 )

Interest expense:
Deposits:
Money market                                                    1,290          (501 )          789
Savings                                                             -            25             25
Time                                                             (192 )        (333 )         (525 )
Checking with interest                                             18            42             60
Securities sold under repurchase agreements and other
short-term borrowings                                          (1,933 )        (646 )       (2,579 )
Other borrowings                                                 (431 )         (33 )         (464 )

Total interest expense                                         (1,248 )      (1,446 )       (2,694 )

Increase in interest differential                          $    2,313      $ (1,600 )    $     713

(1) Changes attributable to both rate and volume are allocated between the rate and volume variances based upon their absolute relative weights to the total change.

(2) Equivalent yields on securities exempt from federal income taxes are based on a federal statutory rate of 35 percent in 2008 and 2007.

Net Interest Income

Net interest income, the difference between interest income and interest expense, is the most significant component of the Company's consolidated earnings. For the three month period ended March 31, 2008, net interest income, on a tax equivalent basis, increased $0.7 million or 2.7 percent to $27.1 million compared to $26.4 million for the same period in the prior year. Net interest income for the three month period ended March 31, 2008 was higher due to a slight increase in the excess of average interest earning assets over average interest bearing liabilities of $5.3 million or 0.8 percent to $698.3 million compared to $693.0 million for the same period in the prior year and an increase in the tax equivalent basis net interest margin to 4.99% for the three month period ended March 31, 2008 from 4.87% for the same period in the prior year.

Interest income is determined by the volume of, and related rates earned on, interest earning assets. Interest income, on a tax equivalent basis, decreased $2.0 million or 5.2 percent to $36.3 million for the three month period ended March 31, 2008, compared to $38.3 million for the same period in the prior year. Average interest earning assets increased $5.4 million or 0.2 percent to $2,169.5 million for the three month period ended March 31, 2008, compared to $2,164.1 million for the same period in the prior year. Volume decreases in . . .