The increaseresulted from an additional 1

As of December31, 2008, these securities, which also have performed in accordance withtheir contractual terms since inception, were still considered likely topay all contractual cash flows during their remaining respective lives.However, in the event that the banks and insurance companies whose debtforms the underlying collateral of these securities continue toexperience financial difficulties and elect to defer their payments,these securities could meet the criteria for an other-than temporaryimpairment charge in the future. Of the $14.4 million remaining costbasis, $5.7 million of unrealized loss has previously been recognized asa reduction of the Company's stockholders' equity (representing a portionof other comprehensive loss at December 31, 2008), reflecting theunrealized loss on these securities that existed when they weretransferred from available for sale into held to maturity status onSeptember 1, 2008.On the liability side, the deposit campaign that the Bank initiated inSeptember 2008, resulted in growth of $113.1 million in certificates ofdeposit, $37.6 million in money markets, and $11.3 million in interestbearing checking balances. As a result of this deposit growth, "wholesale"borrowings (primarily advances from the Federal Home Loan Bank of NewYork) were maintained near their September 30, 2008 levels.OPERATING RESULTSThe Company's pre-tax income was $7.4 million for the quarter endedDecember 31, 2008, compared to $13.4 million in the linked-quarterSeptember 2008, and $9.1 million during the same quarter last year. Thelinked-quarter decrease resulted from lower net interest income of $1.4million and lower non-interest income of $4.6 million, along with anincrementally higher provision for loan losses of $444,000. These werepartially offset by a reduction of $391,000 in non-interest expense.Looking at the components of net interest income during thelinked-quarter, the Company earned $140,000 more in total interest incomeon growth of $17.6 million in the average balance of the real estate loanportfolio. The Company earned $971,000 in prepayment and other fee incomeduring the December 2008 quarter compared to $1.2 million during theSeptember 2008 quarter.The Company incurred $1.5 million more in total interest expense in theDecember 2008 quarter than the September 2008 quarter.

The increaseresulted from an additional $1.7 million of interest expense on depositsproduced by an increase of $113.8 million in their average balance and 18basis points in their average cost during the December 2008 quartercompared to the September 2008 quarter. Offsetting this increase was adecline of $211,000 in expense on borrowed funds, reflecting a decline of$71.2 million in their average balance compared to the September 2008quarter.For the quarter ended December 31, 2008, non-interest income was $4.6million below the linked-quarter of September 2008. This decline resultedprimarily from the aforementioned $3.2 million impairment charge oninvestment securities, a reduction of $1.1 million in mortgage bankingincome, and a decline of $423,000 in service charges and other fees (dueprimarily to $300,000 of mortgage servicing fees that are typically billedand collected in the third quarter of each year).The $1.1 million decline in mortgage banking income reflected a reductionof $812,000 in the gain on loan sales, and a provision of $1.9 million, upfrom $1.7 million during the quarter ended September 30, 2008, to increasethe book reserve for anticipated losses on loans sold to Fannie Mae withrecourse.During the September 2008 quarter, the Bank sold approximately $100million of multifamily loans (representing an 80 participation interestin $124 million of such loans) to a third party financial institution.The loans were sold at par and without recourse, and the Bank recognizeda mortgage servicing gain of $662,000 on the sale (as a component ofmortgage banking income), as it retained servicing on all of the loans.Since the inception of the Fannie Mae program through December 2008, theBank has sold approximately $660 million of multifamily loans to FannieMae. This portfolio had an outstanding principal balance of $519.8 millionat December 31, 2008. All other loans serviced forFannie Mae continue to perform in accordance with their contractual terms.While there has been marketplace interest expressed for all of thesedelinquent properties, the timing of their ultimate resolution remainsuncertain.Total non-interest ("operating") expense for the quarter ended December31, 2008 was $12.5 million, down $391,000 from the previous quarter,reflecting reduced salaries and benefits and data processing expenses anda decline in professional fees. Operating expenses in the March 2009quarter are expected to approximate $12.8 million, including forecastedincreases in Federal Deposit Insurance Corporation ("FDIC") insurancepremiums.Comparing the current quarter to the same quarter last year, the Company'spre-tax income for the three months ended December 31, 2008 was $7.4million, compared to $9.1 million during the quarter ended December 31,2007.

The $1.7 million quarter-over-quarter decrease was primarily the netresult of lower non-interest income of $5.3 million, higher non-interestexpense of $1.2 million and a higher loan loss provision of $980,000,which were partially offset by higher net interest income of $5.7 million.Examining the components of net interest income quarter-over-quarter, theCompany earned $5.5 million more in total interest income on significantlylarger loan and investment portfolios. The average yield on totalinterest-earning assets was 5.80 during the December 2008 quartercompared to 5.94 during the December 2007 quarter. The Company earned$971,000 in prepayment and other fee income during the quarter endedDecember 2008 compared to $1.3 million during the December 2007 quarter.This decline, coupled with both lower pass-through capital gains on alarge capitalization equity mutual fund investment and lower short-terminterest rates, generated the reduction in the yield on totalinterest-earning assets from the December 2007 quarter.Interest expense declined by $298,000 during the December 2008 quartercompared to the December 2007 quarter, despite an increase of $511.8million in the average balance of interest bearing liabilities, as theaverage cost of interest bearing liabilities declined from 4.02 in theDecember 2007 quarter to 3.38 in the December 2008 quarter, due to a 90basis point decrease in the average cost of interest bearing deposits anda 47 basis point decline in the average cost of borrowings during thecomparative period.For the quarter ended December 31, 2008, non-interest income was $5.3million below the quarter ended December 31, 2007. Salary and benefitexpense was the largest component of the variance, and included bothongoing salary increases and an increase of $251,000 related to stockbenefit expenses associated with equity awards granted in July 2008 alongwith higher ESOP expense resulting from an increase in the Company's stockprice. Deposit insurance costs increased $234,000 during the comparativeperiod, due to a re-capitalization program instituted by the FDIC in 2006that resulted in increased insurance premiums for all insuredinstitutions.