Forward Looking Statements

Certain statements contained herein are "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. Such forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "estimate," "anticipate," "continue," or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake and specifically declines any obligation to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies

The calculation of the allowance for loan losses is a critical accounting policy of the Company. The allowance for loan losses is a valuation account that reflects management's evaluation of the probable losses inherent in the loan portfolio. The Company maintains the allowance for loan losses through provisions for loan losses that are charged to income. Charge-offs against the allowance for loan losses are taken on loans where management determines that the collection of loan principal is unlikely. Recoveries made on loans that have been charged-off are credited to the allowance for loan losses.

The Company's evaluation of the adequacy of the allowance for loan losses includes a review of all loans on which the collectibility of principal may not be reasonably assured. For residential mortgage and consumer loans, this is determined primarily by delinquency and collateral values. For commercial real estate and commercial loans, an extensive review of financial performance, payment history and collateral values is conducted on a quarterly basis.

As part of the evaluation of the adequacy of the allowance for loan losses, each quarter management prepares a worksheet. This worksheet categorizes the entire loan portfolio by certain risk characteristics such as loan type (residential mortgage, commercial mortgage, construction, commercial, etc.) and loan risk rating.

When assigning a risk rating to a loan, management utilizes a nine point internal risk rating system. Loans deemed to be "acceptable quality" are rated one through four, with a rating of one established for loans with minimal risk. Loans deemed to be of "questionable quality" are rated five (watch) or six (special mention). Loans with adverse classifications (substandard, doubtful or loss) are rated seven, eight or nine, respectively. Commercial mortgage, commercial and construction loans are rated individually and each lending officer is responsible for risk rating loans in his or her portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and the Credit Administration Department. The risk ratings are then confirmed by the Loan Review Department and, for loans requiring Credit Committee approval, they are periodically reviewed by the Credit Committee in the credit renewal or approval process.

Management believes the primary risks inherent in the portfolio are a decline in the economy, generally, a decline in real estate market values, and possible increases in interest rates. Any one or a combination of these events may adversely affect borrowers' ability to repay the loans, resulting in increased delinquencies, loan losses and future levels of provisions. Accordingly, the Company has provided for loan losses at the current level to address the current risk in its loan portfolio. Management considers it important to maintain the ratio of the allowance for loan losses to total loans at an acceptable level given current economic conditions, interest rates and the composition of the portfolio.

Although management believes that the Company has established and maintained the allowance for loan losses at adequate levels, additions may be necessary if future economic and other conditions differ substantially from the current operating environment. In addition, various regulatory agencies periodically review the adequacy of the Company's allowance for loan losses as an integral part of their examination process. Such agencies may require the Company to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination. Although management uses the best information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change.

Additional critical accounting policies relate to judgments about other asset impairments, including goodwill, investment securities and deferred tax assets. The Company engages an independent third party to perform an annual analysis during the fourth quarter to test the aggregate balance of goodwill for impairment. For purposes of goodwill impairment evaluation, the Bank is identified as the reporting unit. The fair value of goodwill is determined in the same manner as goodwill recognized in a business combination and uses standard valuation methodologies, including a review of comparable transactions and discounted cash flow analysis. A continuing period of market disruption resulting in the Company's stock price remaining below its book value per share may adversely impact the goodwill valuation. If the carrying amount of goodwill pursuant to this analysis were to exceed the implied fair value of goodwill, an impairment loss would be recognized. No impairment loss was required to be recognized for the three or nine months ended September 30, 2008 or 2007.

The Company's available for sale securities portfolio is carried at estimated fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders' equity. Estimated fair values are based on market quotations or matrix pricing as discussed in Note 6 to the unaudited consolidated financial statements. Securities which the Company has the positive intent and ability to hold to maturity are classified as held to maturity and carried at amortized cost. The Company conducts a periodic review and evaluation of the securities portfolio to determine if any declines in the fair values of securities are other than temporary. If such a decline were deemed other than temporary, the Company would write down the security to fair value through a charge to current period operations. The market value of the securities portfolio is significantly affected by changes in interest rates. In general, as interest rates rise, the market value of fixed-rate securities decreases and as interest rates fall, the market value of fixed-rate securities increases. The Company evaluates its intent and ability to hold securities for a sufficient time to recover the recorded principal balance. The Company also has investments in common stock issued by several publicly-traded financial institutions, the valuation of which is affected by the institutions' performance and market conditions. During the three and nine months ended September 30, 2008, the Company recognized impairment charges totaling $1.4 million related to investments in a debt security issued by Lehman Brothers Holdings, Inc. and the common stock of two publicly-traded financial institutions.

The determination of whether deferred tax assets will be realizable is predicated on estimates of future taxable income. Such estimates are subject to management's judgment. A valuation allowance is established when management is unable to conclude that it is more likely than not that it will realize deferred tax assets based on the nature and timing of these items.

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2008 AND DECEMBER 31, 2007

Total assets at September 30, 2008 increased $91.7 million, or 1.4%, to $6.45 billion compared to $6.36 billion at December 31, 2007, due primarily to increases in loans and securities available for sale.

Securities available for sale, at fair value, increased $63.0 million, or 8.2%, to $832.7 million at September 30, 2008, compared to $769.6 million at December 31, 2007. The increase in the securities available for sale portfolio included $55.2 million of residential mortgage loan pools that were securitized by the Company in the first quarter of 2008 and are held as securities available for sale. The investment portfolio consists primarily of Agency-guaranteed mortgage-backed securities and bank-qualified municipal bonds. There are no preferred or trust preferred equity securities, or common or preferred stock of Fannie Mae or Freddie Mac in the portfolio. The weighted average life of the Company's available for sale securities portfolio was 4.8 years at September 30, 2008.

Federal Home Loan Bank stock increased $3.4 million, or 8.5%, to $43.1 million at September 30, 2008, compared to $39.8 million at December 31, 2007. The Company invests in stock of the Federal Home Loan Bank of New York ("FHLB-NY") as required under the terms of membership. The level of required stock holdings is dependent, in part, on outstanding borrowings by the Company from the FHLB-NY.

Total net loans at September 30, 2008 increased $79.3 million, or 1.9%, to $4.33 billion, compared to $4.26 billion at December 31, 2007, as year-to-date loan originations and purchases more than offset the securitization of $55.2 million of conforming one- to four-family 30-year fixed-rate residential mortgage loans during the first quarter of 2008. Loan originations totaled $952.6 million and loan purchases totaled $228.4 million for the nine months ended September 30, 2008. Compared with December 31, 2007, commercial mortgage and multi-family loans increased $136.9 million, and residential mortgage loans increased $81.9 million, while construction loans decreased $80.1 million, commercial loans decreased $40.4 million, and consumer loans decreased $17.5 million. Commercial loans, consisting of commercial real estate, construction and commercial loans, totaled $1.95 billion, or 44.7% of the loan portfolio at September 30, 2008, compared to $1.94 billion, or 45.2% of the loan portfolio at December 31, 2007. The Company intends to continue to focus on the origination of commercial loans. Retail loans, which consist of residential mortgage loans and consumer loans, such as fixed-rate home equity loans and lines of credit, totaled $2.41 billion and accounted for 55.3% of the loan portfolio at September 30, 2008, compared to $2.35 billion, or 54.8% of the portfolio at December 31, 2007.

At September 30, 2008, the allowance for loan losses totaled $43.3 million, or 0.99% of total loans, compared with $40.8 million, or 0.95% of total loans at December 31, 2007. Total non-performing loans were $35.3 million, or 0.81% of total loans at September 30, 2008, compared to $34.6 million, or 0.81% of total loans at December 31, 2007. The Company had one loan with an outstanding balance of $1.1 million at September 30, 2008, for which terms have been modified under a troubled debt restructuring. This loan was current as to principal and interest prior to restructuring and has continued to perform in accordance with the modified terms; therefore it is not included in non-performing loans at September 30, 2008. No impairment charge has been required with respect to this loan. Non-performing assets were $38.8 million, or 0.60% of total assets at September 30, 2008, compared to $35.7 million, or 0.56% of total assets at December 31, 2007.

At September 30, 2008, the Company identified two commercial real estate loans and one commercial loan with total outstanding balances of $22.5 million that are potential problem loans. These loans were not past due at September 30, 2008, but known information about possible credit problems of the borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in these loans being included later in non-performing loans.

At September 30, 2008, the Company held $3.6 million of foreclosed assets, compared with $1.0 million at December 31, 2007. The increase in foreclosed assets was primarily attributable to one commercial real estate line of credit secured by a number of properties that was previously classified as impaired.

Total deposits decreased $88.9 million to $4.14 billion at September 30, 2008, from $4.22 billion at December 31, 2007. However, core deposits, which consist of all demand and savings deposits, increased $51.8 million, or 2.0%, to $2.64 billion at September 30, 2008, compared to $2.59 billion at December 31, 2007. Within core deposits, NOW checking account balances increased $121.5 million, to $589.3 million at September 30, 2008, and money market account balances increased $81.7 million, to $680.0 million at September 30, 2008. These increases were primarily due to increases in relationship checking and money market account balances, increases in business money market accounts, and a shift in customer deposits out of short-term certificates of deposit and lower-rate savings accounts. Certificates of deposit decreased $140.7 million, or 8.8%, to $1.50 billion at September 30, 2008, compared to $1.64 billion at December 31, 2007. Certain higher-cost certificates of deposit that matured were replaced with borrowed funds at more favorable rates, as the Company continued to emphasize relationship banking in its deposit acquisition strategy. Core deposits increased to 63.8% of total deposits at September 30, 2008, from 61.2% of total deposits at December 31, 2007. Borrowed funds increased $169.7 million, or 15.8%, to $1.24 billion at September 30, 2008, from $1.08 billion at December 31, 2007.

Total stockholders' equity increased $14.8 million, or 1.5%, to $1.02 billion at September 30, 2008, compared to $1.00 billion at December 31, 2007. This increase was primarily attributable to net income of $34.2 million and the allocation of shares to stock-based compensation plans of $6.0 million, partially offset by cash dividends declared totaling $19.9 million, an increase of $4.8 million in unrealized securities losses, net of tax, and common stock repurchases totaling $1.4 million. At September 30, 2008, book value per share and tangible book value per share were $17.04 and $8.38, respectively, compared with $16.78 and $8.05, respectively, at December 31, 2007.

Liquidity and Capital Resources. The Company's primary sources of funds are deposits, FHLB-NY advances, repurchase agreements, loan repayments and sales, maturities and sales of investments and cash flows from mortgage-backed securities. Scheduled loan amortization is a fairly predictable source of funds, while loan and mortgage-backed securities prepayments and deposit flows are influenced by interest rates, local economic conditions and the competitive marketplace. Additional sources of liquidity that are available to the Company, should the need arise, are a $100.0 million overnight line of credit and a $100.0 million one-month line of credit with the FHLB-NY. As of September 30, 2008, the Company had $50.0 million in outstanding borrowings against these lines of credit.

Cash needs for the nine months ended September 30, 2008, were provided for primarily from income and principal payments on loans, investments and mortgage-backed securities, borrowings and sales of residential mortgage loans, mortgage-backed securities and investments. The cash was used primarily to fund interest and operating expenses, current loan originations and purchases, securities purchases, and the net reduction in deposits.

As of September 30, 2008, the Bank and the Company exceeded all regulatory capital requirements as follows:

                                                     At September 30, 2008
                                                Required               Actual
                                             Amount     Ratio      Amount     Ratio
                                                    (Dollars in thousands)
       Bank:
       Regulatory Tier 1 leverage capital   $ 235,521    4.00 %   $ 383,866    6.52 %
       Tier 1 risk-based capital              160,578    4.00       383,866    9.56
       Total risk-based capital               321,155    8.00       427,195   10.64
       Company:
       Regulatory Tier 1 leverage capital   $ 236,188    4.00 %   $ 500,246    8.47 %
       Tier 1 risk-based capital              161,171    4.00       500,246   12.42
       Total risk-based capital               322,341    8.00       543,575   13.49

COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

General. The Company reported net income of $13.2 million for the three months ended September 30, 2008 and $34.2 million for the nine months ended September 30, 2008, compared to $8.3 million and $32.7 million for the same periods in 2007. Basic and diluted earnings per share were $0.23 for the quarter and $0.61 for the nine months ended September 30, 2008, compared with basic and diluted earnings per share of $0.14 for the same quarter in 2007 and $0.55 for the nine months ended September 30, 2007. The annualized return on average assets was 0.82% and 0.72% for the three and nine months ended September 30, 2008, respectively, compared with 0.53% and 0.73% for the same respective periods in 2007. Annualized return on average equity was 5.17% and 4.53% for the three and nine months ended September 30, 2008, compared with 3.18% and 4.22% for the same respective periods in 2007.

Earnings and per share data for the nine months ended September 30, 2008 reflect severance costs totaling $503,000, net of tax, recognized during the second quarter of 2008. In addition, the Company recorded other-than-temporary impairment charges on investments in a debt security issued by Lehman Brothers Holdings, Inc. and the common stock of two publicly-traded financial

institutions totaling $869,000, net of tax, during the quarter ended September 30, 2008. Results for the nine months ended September 30, 2008, were also impacted by a $180,000 net after-tax gain recorded in connection with the ownership and mandatory redemption of a portion of the Company's Class B Visa, Inc. shares as part of Visa's initial public offering in the first quarter of 2008, and a $175,000 net after-tax gain resulting from the sale of a branch office in the first quarter of 2008.

Earnings and per share data for the three and nine months ended September 30, 2007 were impacted by severance charges totaling $1.9 million, net of tax. Earnings and per share data for the nine months ended September 30, 2007 were further impacted by the settlement of an insurance claim which resulted in a recovery of $3.5 million, net of tax, related to a fraud loss that occurred and was recognized in 2002, and one-time expenses of $246,000, net of tax, related to the April 1, 2007 acquisition of First Morris Bank & Trust ("First Morris").

Net Interest Income. Total net interest income increased $6.1 million, or 15.4%, to $45.4 million for the quarter ended September 30, 2008, compared to $39.3 million for the quarter ended September 30, 2007. For the nine months ended September 30, 2008, total net interest income increased $10.5 million, or 9.0%, to $127.1 million, compared to $116.6 million for the same period in 2007. Interest income for the third quarter of 2008 decreased $1.2 million, or 1.5%, to $76.6 million, compared to $77.8 million for the same period in 2007. For the nine months ended September 30, 2008, interest income increased $3.9 million, or 1.7%, to $228.6 million, compared to $224.8 million for the nine months ended September 30, 2007. Interest expense decreased $7.3 million, or 18.8%, to $31.3 million for the quarter ended September 30, 2008, compared to $38.5 million for the quarter ended September 30, 2007. For the nine months ended September 30, 2008, interest expense decreased $6.6 million, or 6.1%, to $101.5 million, compared to $108.2 million for the nine months ended September 30, 2007. The changes in interest income and expense for the three months ended September 30, 2008, versus the comparable 2007 period reflected decreased short-term interest rates and a steepening yield curve, as the Federal Open Market Committee of the Federal Reserve Bank reduced the Federal funds rate by 225 basis points from 4.25% through April of 2008. The changes in interest income and expense for the nine months ended September 30, 2008, versus the comparable 2007 period were also impacted by increases in the average volume of interest-earning assets and interest-bearing liabilities attributable to the April 1, 2007 acquisition of First Morris.

The Company's net interest margin increased 30 basis points to 3.27% for the quarter ended September 30, 2008, compared to 2.97% for the quarter ended September 30, 2007. The net interest margin for the quarter ended September 30, 2008, increased 17 basis points from the trailing quarter net interest margin of 3.10%. The net interest margin increased 8 basis points to 3.08% for the nine months ended September 30, 2008, from 3.00% for the same period in 2007. The net interest spread was 2.96% for the quarter ended September 30, 2008, compared with 2.53% for the same period in 2007 and 2.76% for the trailing quarter. For the nine months ended September 30, 2008, the net interest spread was 2.74%, compared with 2.55% for the same period in 2007.

The average yield on interest-earning assets decreased 36 basis points to 5.51% for the quarter ended September 30, 2008, compared to 5.87% for the comparable quarter in 2007. Compared to the trailing quarter, the yield on interest-earning assets increased 1 basis point from 5.50%. For the nine months ended September 30, 2008, the yield on interest-earning assets decreased 26 basis points to 5.54%, from 5.80% for the same period in 2007.

The average cost of interest-bearing liabilities decreased 79 basis points to 2.55% for the quarter ended September 30, 2008, compared to 3.34% for the quarter ended September 30, 2007. Compared to the trailing quarter, the average cost of interest-bearing liabilities decreased 19 basis points from 2.74%. For the nine months ended September 30, 2008, the average cost of interest-bearing liabilities decreased 45 basis points to 2.80%, from 3.25% for the same period in 2007.

The average balance of net loans increased $175.9 million, or 4.3%, to $4.29 billion for the quarter ended September 30, 2008, compared to $4.12 billion for the same period in 2007. Income on loans secured by real estate decreased $326,000, or 0.8%, to $42.5 million for the three months ended September 30, 2008, compared to $42.8 million for the three months ended September 30, 2007. Interest income on commercial loans decreased $882,000, or 7.6%, to $10.7 million for the quarter ended September 30, 2008, compared to $11.5 million for the quarter ended September 30, 2007. Consumer loan interest income decreased $1.1 million, or 11.0%, to $9.1 million for the quarter ended September 30, 2008, compared to $10.2 million for the quarter ended September 30, 2007. The average loan yield for the three months ended September 30, 2008 was 5.78%, compared with 6.24% for the same period in 2007.

For the nine months ended September 30, 2008, the average balance of net loans increased $269.4 million, or 6.8%, to $4.24 billion, compared to $3.98 billion for the same period in 2007. Income on loans secured by real estate decreased $909,000, or 0.7%, to $124.4 million for the nine months ended September 30, 2008, compared to $125.3 million for the nine months ended September 30, 2007. Interest income on commercial loans increased $2.7 million, or 9.0%, to $32.6 million for the nine months ended September 30, 2008, compared to $29.9 million for the nine months ended September 30, 2007. Consumer loan interest income decreased $1.1 million, or 3.9%, to $27.9 million for the nine months ended September 30, 2008, compared to $29.1 million for the nine months ended September 30, 2007. The average loan yield for the nine months ended September 30, 2008, was 5.81%, compared with 6.19% for the same period in 2007.

Interest income on investment securities held to maturity decreased $196,000, or 5.2%, to $3.6 million for the quarter ended September 30, 2008, compared to $3.8 million for the quarter ended September 30, 2007. Average investment securities held to maturity totaled $354.6 million for the quarter ended September 30, 2008, compared with $369.5 million for the same period last year. For the nine months ended September 30, 2008, interest income on investment securities held to maturity decreased $804,000, or 6.9%, to $10.9 million, compared to $11.7 million for the same period in 2007. Average investment securities held to maturity totaled $354.7 million for the nine months ended September 30, 2008, compared with $377.5 million for the same period last year.

Interest income on securities available for sale increased $1.4 million, or 14.4%, to $10.8 million for the quarter ended September 30, 2008, compared to $9.4 million for the quarter ended September 30, 2007. Average securities available for sale were $855.0 million for the three months ended September 30, 2008, compared with $765.5 million for the same period in 2007. For the nine months ended September 30, 2008, interest income on securities available for sale increased $3.8 million, or 13.1%, to $32.4 million, compared to $28.6 million for the nine months ended September 30, 2007. Average securities available for sale were $843.6 million for the nine months ended September 30, 2008, compared with $786.0 million for the same period in 2007. The average yield on all securities was 4.59% and 4.64% for the three and nine months ended September 30, 2008, respectively, compared with 4.55% and 4.50% for the same respective periods in 2007.

The average balance of interest-bearing core deposit accounts increased $81.2 million, or 3.9%, to $2.17 billion for the quarter ended September 30, 2008, compared to $2.09 billion for the quarter ended September 30, 2007. For the nine months ended September 30, 2008, average interest-bearing core deposits increased $148.1 million, or 7.4%, to $2.14 billion, compared with $1.99 billion for the same period in 2007. Average time deposit account balances decreased $213.9 million, or 12.5%, to $1.49 billion for the quarter ended September 30, 2008, compared to $1.71 billion for the same period in 2007. For the nine months . . .