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 cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company also advises 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 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 1 through 4, with a rating of 1 established for loans with minimal risk. Loans deemed to be of "questionable quality" are rated 5 (watch) or 6 (special mention). Loans with adverse classifications (substandard, doubtful or loss) are rated 7, 8 or 9, respectively. Commercial mortgage, commercial and construction loans are rated individually and each lending officer is responsible for risk rating loans in their portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and the Credit Administration Department. Risk ratings are then confirmed by the Loan Review Department. Loans requiring Credit Committee approval are periodically reviewed by the Credit Committee in the credit renewal or approval process.

Management assigns general valuation allowance ("GVA") percentages to each risk rating category for use in allocating the allowance for loan losses, giving consideration to historical loss experience by loan type. The appropriateness of these percentages is evaluated by management at least annually. In the second quarter of 2009, management completed its most recent evaluation of the GVA percentages. In that evaluation, the historical "look-back" period for assessing the magnitude of potential losses was shortened from five years to two years in recognition of recent macroeconomic and real estate market conditions, resulting in increases to GVA allocation percentages.

Management believes the primary risks inherent in the portfolio are a continued decline in the economy, generally, a continued decline in real estate market values, rising unemployment, increasing vacancy rates in commercial investment properties 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 appropriate levels, additions may be necessary if future economic and other conditions differ substantially from the current operating environment. Management evaluates its estimates and assumptions on an ongoing basis giving consideration to historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. Illiquid credit markets, volatile securities markets, and declines in the housing market and the economy generally have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. 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. Goodwill is evaluated for impairment on an annual basis, or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates. The Company engages an independent third party to perform an annual analysis during the fourth quarter as of September 30 to test the aggregate balance of goodwill for impairment. The fair value of goodwill is determined in the same manner as goodwill recognized in a business combination and uses standard valuation methodologies. Fair value may be determined using market prices, comparison to similar assets, market multiples, discounted cash flow analysis and other factors. Estimated cash flows may extend far into the future and by their nature are difficult to determine over an extended time frame. Factors that may significantly affect the estimates include specific industry or market sector conditions, changes in revenue growth trends, customer behavior, competitive forces, cost structures and changes in discount rates.

The goodwill impairment analysis is a two-step process, to evaluate the potential impairment of the goodwill on the financial statements of the Bank. For this analysis, the Reporting Unit is defined as the Bank, which includes all core and retail banking operations of the Company but excludes the assets, liabilities, equity, earnings and operations held exclusively at the Company level. Four standard valuation methodologies common to valuation in business combination transactions involving financial institutions were used: (1) the Public Market Peers approach based on the trading prices of similar publicly traded companies as measured by standard valuation ratios; (2) the Comparable Transactions approach based on pricing ratios recently paid in the sale or merger of comparable banking franchises; (3) the Control Premium approach based on the Company's trading price (a proxy for the Bank's market pricing ratios were it publicly traded) followed by the application of an industry based control premium; and (4) the Discounted Cash Flow ("DCF") approach where value is estimated based on the present value of projected dividends and a terminal value. These valuation techniques take into account the Bank's recent operating history, current operating environment and future prospects.

The Public Market Peers approach and the Comparable Transactions approach are based on Level 2 inputs. The Control Premium approach is based on a combination of Level 1 inputs (the quoted price for the Company's common stock) and Level 2 inputs (an estimated control premium based on comparable transactions). The DCF approach is based on Level 3 inputs including projections of future operations based on assumptions derived from management, the experience of the independent valuation firm that conducted the analysis and information from publicly available sources. All approaches were considered in the final estimate of fair value, with the approaches weighted based upon their applicability based upon the fair value hierarchy. These approaches and the resulting fair value conclusions are consistent with standard valuation techniques used by other market participants in evaluating business combinations for financial institutions.

If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. However, if the carrying amount of the reporting unit exceeds its fair value, an additional test must be performed. The second step test compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. An impairment loss would be recorded to the extent that the carrying amount of goodwill exceeds its implied fair value.

As reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2008, the Company performed an annual goodwill impairment test as of September 30, 2008, and a subsequent test as of December 31, 2008. The results of both analyses indicated that goodwill was not impaired. As a result of the continued decline in the first quarter of 2009 in stock prices in the financial services sector and in the Company's common stock price, the Company initiated a goodwill impairment test as of March 31, 2009. The step one analysis as of March 31, 2009, indicated potential impairment. Upon completion of the second step test, it was determined that the carrying amount of the goodwill exceeded its implied fair value and an impairment charge in the amount of $152.5 million was recognized as of March 31, 2009. The Company has determined that no triggering events have occurred during the quarter ended September 30, 2009 that would require the Company to perform an impairment test prior to the annual test. The annual goodwill impairment test as of September 30, 2009 was completed in the fourth quarter of 2009, with no impairment indicated. No goodwill impairment loss was required to be recognized for the three months ended September 30, 2009 or 2008, or the nine months ended September 30, 2008.

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 measure the total credit-related component of the unrealized loss, and recognize that portion of the loss as a charge to current period earnings. The remaining portion of the unrealized loss would be recognized as an adjustment to accumulated other comprehensive income. 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 current turmoil in the credit markets, primarily as a result of the continued fallout from sub-prime lending, resulted in a lack of liquidity in the mortgage-backed securities market. Increases in delinquencies and foreclosures, primarily in securities that are backed by sub-prime loans, have resulted in limited trading activity and significant price declines, regardless of favorable movements in interest rates. The Company evaluates if it has the intent to sell these

securities and if it is not more likely than not that the Company would be required to sell the securities before the anticipated recovery. 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, economic and stock market conditions. The Company recognized other-than-temporary securities impairment losses totaling $701,000 and $1.5 million for the three and nine months ended September 30, 2009, respectively. The Company recognized other-than-temporary securities impairment losses totaling $1.4 million for the three and nine months ended September 30, 2008.

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, 2009 AND DECEMBER 31, 2008

Total assets at September 30, 2009 increased $267.6 million, or 4.1%, to $6.82 billion, compared to $6.55 billion at December 31, 2008, primarily as a result of increases in securities available for sale and cash and cash equivalents, partially offset by decreases in loans and intangible assets.

Cash and cash equivalents increased $131.0 million to $199.5 million at September 30, 2009, from $68.5 million at December 31, 2008, as a result of deposit inflows and proceeds from repayments and sales of loans. The Company will continue to deploy these balances to fund loan originations, investment purchases and the repayment of maturing borrowings.

Securities available for sale, at fair value, increased $512.7 million, or 62.5%, to $1.33 billion at September 30, 2009, compared to $820.3 million at December 31, 2008. The increase in the securities available for sale portfolio included $84.9 million of residential mortgage loan pools that were securitized by the Company in the first quarter of 2009 and are now held as securities available for sale. The loan securitization was undertaken to enhance the liquidity and risk-based capital treatment of the underlying loans. Securities purchases for the nine months ended September 30, 2009 consisted primarily of U.S. Government Agency guaranteed mortgage-backed securities and obligations. The weighted average life of the Company's available for sale securities portfolio was 3.1 years at September 30, 2009 compared to 3.0 years at December 31, 2008.

Federal Home Loan Bank stock decreased $8.2 million, or 19.0%, to $34.7 million at September 30, 2009, from $42.8 million at December 31, 2008. 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, 2009, decreased $213.4 million, or 4.8%, to $4.27 billion, compared to $4.48 billion at December 31, 2008. Loan originations totaled $843.0 million and loan purchases totaled $40.0 million for the nine months ended September 30, 2009. Compared with December 31, 2008, residential mortgage loans decreased $269.2 million, consumer loans decreased $30.5 million, and construction loans decreased $16.5 million, while commercial mortgage and multi-family loans increased $95.5 million and commercial loans increased $17.7 million. In addition to amortization, pay-offs, and the securitization of $84.9 million of loans in the first quarter of 2009, total residential mortgage loans decreased as a result of the sale of $96.6 million of newly originated, primarily 30-year fixed-rate loans as part of the Company's interest rate risk management process. Commercial real estate, construction and commercial loans totaled $2.20 billion, representing 50.9% of the loan portfolio at September 30, 2009, compared to $2.10 billion, or 46.5% of the loan portfolio at December 31, 2008. The Company intends to continue to focus on the origination of commercially oriented loans. Retail loans, which consist of residential mortgage loans and consumer loans, such as fixed-rate home equity loans and lines of credit, totaled $2.12 billion and accounted for 49.1% of the loan portfolio at September 30, 2009, compared to $2.42 billion, or 53.5% of the portfolio at December 31, 2008.

The Company does not originate or purchase sub-prime or option ARM loans. On a limited basis, the Company has originated "Alt-A" mortgages in the form of stated income loans with a maximum loan-to-value ratio of 50%. The balance of these "Alt-A" loans at September 30, 2009 was $19.8 million. Of this total, 10 loans totaling $4.4 million were 90 days or more delinquent. General valuation reserves of 10%, or $444,000, were allocated to these loans at September 30, 2009.

The Company participates in loans originated by other banks, including participations designated as Shared National Credits ("SNC"). The Company's gross commitments and outstanding balances as a participant in SNCs were $149.3 million and $113.2 million, respectively, at September 30, 2009. The Company's participations in SNCs included three loans classified as substandard (rated 7) under the Company's loan risk rating system with gross commitments of $36.9 million and outstanding balances of $34.6 million, respectively, at September 30, 2009. These adversely classified SNCs are all commercial construction loans on projects located in New York City. All of the Company's SNC participations were current as to the payment of principal and interest as of September 30, 2009.

The Company had outstanding junior lien mortgages totaling $310.9 million at September 30, 2009. Of this total, 40 loans totaling $3.2 million were 90 days or more delinquent. General valuation reserves of 10%, or $323,000, were allocated to these loans at September 30, 2009.

The Company had outstanding indirect marine loans totaling $93.4 million at September 30, 2009. Of this total, 21 loans totaling $3.1 million were 90 days or more delinquent. General valuation reserves of 20%, or $605,000, were allocated to these loans at September 30, 2009.

The following table sets forth information regarding the Company's non-performing assets as of September 30, 2009 and December 31, 2008 (in thousands):

                                      September 30, 2009     December 31, 2008
       Mortgage loans:
       Residential                   $             22,627   $            14,503
       Commercial                                  34,815                24,830
       Construction                                 7,072                 9,403

       Total mortgage loans                        64,514                48,736

       Commercial loans                             5,885                 4,456
       Consumer loans                               7,833                 5,926

       Total non-performing loans                  78,232                59,118

       Foreclosed assets                            7,044                 3,439


       Total non-performing assets   $             85,276   $            62,557

The following table sets forth information regarding the Company's 60-89 day delinquent loans as of September 30, 2009 and December 31, 2008 (in thousands):

                                        September 30, 2009     December 31, 2008
    Mortgage loans:
    Residential                        $              6,260   $             5,786
    Commercial                                           -                     -
    Construction                                         -                     -

    Total mortgage loans                              6,260                 5,786

    Commercial loans                                  3,847                 1,482
    Consumer loans                                    1,976                 1,356

    Total 60-89 day delinquent loans                 12,083                 8,624

At September 30, 2009, the allowance for loan losses totaled $55.7 million, or 1.29% of total loans, compared with $47.7 million, or 1.05% of total loans at December 31, 2008. Total non-performing loans increased $19.1 million to $78.2 million, or 1.81% of total loans at September 30, 2009, from $59.1 million, or 1.31% of total loans at December 31, 2008.

Non-performing commercial mortgage loans increased $10.0 million, to $34.8 million at September 30, 2009, from $24.8 million at December 31, 2008. The increase in non-performing commercial mortgage loans was largely attributable to the addition, in the third quarter of 2009, of an $11.2 million senior participation interest in a $283.0 million Shared National Credit. Proceeds from this construction loan facility are being used to convert an existing 35-story, 631,000 square foot office building in New York City into a mixed-use 349-unit residential condominium and 251-room hotel. The project has been impacted by additional costs and a decline in sales activity. While this loan has been classified as non-accrual, the hotel construction is nearing completion and the loan was current as to principal and interest at September 30, 2009. The Company estimates a loan-to-value ratio of approximately 77% at September 30, 2009, and therefore, in accordance with GAAP, no specific reserve has been allocated to this loan. The Company had an unfunded commitment on this loan of an additional $527,000 at September 30, 2009.

The remaining balance of non-performing commercial mortgage loans at September 30, 2009 was primarily attributable to two loans to a single real estate developer. The first is an $11.4 million loan secured by a planned unit development of 203 single family detached townhouse and age restricted units; and the second is a $9.1 million commercial mortgage loan secured by a 184-unit, age restricted townhouse project. At September 30, 2009, these loans were deemed impaired and were allocated $5.1 million of the allowance for loan losses. Management believes that the allowance for loan losses allocated to this credit relationship is appropriate and adequate based on recent appraisals and projections of net realizable value. There is no contractual commitment to advance additional funds to this borrower.

Non-performing residential mortgage loans increased $8.1 million, to $22.6 million at September 30, 2009, from $14.5 million at December 31, 2008. Furthermore, non-performing consumer loans increased $2.0 million, to $7.8 million at September 30, 2009, from $5.9 million at December 31, 2008. The Company attributes the increase in non-performing residential mortgage and consumer loans to rising unemployment, declining property values and increased personal debt levels.

Non-performing commercial loans increased $1.4 million, to $5.9 million at September 30, 2009, from $4.4 million at December 31, 2009. Non-performing commercial loans consisted of 34 loans. The largest non-performing commercial loan had an outstanding balance of $880,000 at September 30, 2009.

Non-performing construction mortgage loans decreased $2.3 million, to $7.1 million at September 30, 2009, from $9.4 million at December 31, 2008, as a result of repayments due to unit sales. Non-performing construction mortgage loans at September 30, 2009 consisted of one $7.1 million loan to a real estate developer secured by a 5-story, 66-unit, 2 bedroom condominium project. At September 30, 2009, this loan was deemed impaired and was allocated $1.1 million of the allowance for loan losses. Management believes that the allowance for loan losses allocated to this relationship is appropriate and adequate based on recent appraisals and projections of net realizable value. There is no contractual commitment to advance additional funds to this borrower.

At September 30, 2009, the Company held $7.0 million of foreclosed assets, compared with $3.4 million at December 31, 2008. Foreclosed assets at September 30, 2009 are carried at fair value based on recent appraisals and valuation estimates, less estimated selling costs. Foreclosed assets consisted of $3.5 million of commercial real estate, $2.0 million of residential properties, $1.5 million of boats, and $21,000 of automobiles at September 30, 2009.

Non-performing assets totaled $85.3 million, or 1.25% of total assets at September 30, 2009, compared to $62.6 million, or 0.96% of total assets at December 31, 2008.

Intangible assets decreased $155.6 million to $359.1 million at September 30, 2009, from $514.7 million at December 31, 2008. At September 30, 2009, the Company had goodwill totaling $346.3 million, compared to $498.8 million at December 31, 2008, resulting primarily from acquisitions completed in 2004 and 2007. U.S. GAAP requires companies to perform an annual test for goodwill impairment. As reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2008, the Company performed an annual goodwill impairment test as of September 30, 2008, and a subsequent test as of December 31, 2008. The results of both analyses indicated that goodwill was not impaired. As a result of the continued decline in the first quarter of 2009 in stock prices in . . .