General

This discussion, and other written material, and statements management may make, may contain certain forward-looking statements regarding the Company's prospective performance and strategies within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of said safe harbor provisions.

Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in the Company's Annual Report on Form 10-K and in other documents filed by the Company with the Securities and Exchange Commission. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identified by the use of the words "plan," "believe," "expect," "intend," "anticipate," "estimate," "project," "may," "will," "should," "could," "predicts," "forecasts," "potential," or "continue" or similar terms or the

negative of these terms. The Company's ability to predict results or the actual effects of its plans or strategies is inherently uncertain. Accordingly, actual results may differ materially from anticipated results.

Factors that could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in market interest rates, general economic conditions, legislation, and regulation; changes in monetary and fiscal policies of the United States Government, including policies of the United States Treasury and Federal Reserve Board; changes in the quality or composition of the loan or investment portfolios; changes in deposit flows, competition, and demand for financial services, loans, deposits and investment products in the Company's local markets; changes in accounting principles and guidelines; war or terrorist activities; and other economic, competitive, governmental, regulatory, geopolitical and technological factors affecting the Company's operations, pricing and services.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this discussion. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law or regulation, the Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

Critical Accounting Policies

Critical accounting policies are those accounting policies that can have a significant impact on the Company's financial position and results of operations that require the use of complex and subjective estimates based upon past experiences and management's judgment. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. Below are those policies applied in preparing the Company's consolidated financial statements that management believes are the most dependent on the application of estimates and assumptions. For additional accounting policies, see Note 2 of "Notes to Consolidated Financial Statements."

Allowance for Loan Losses

Loans receivable are presented net of an allowance for loan losses. In determining the appropriate level of the allowance, management considers a combination of factors, such as economic and industry trends, real estate market conditions, size and type of loans in portfolio, nature and value of collateral held, borrowers' financial strength and credit ratings, and prepayment and default history. The calculation of the appropriate allowance for loan losses requires a substantial amount of judgment regarding the impact of the aforementioned factors, as well as other factors, on the ultimate realization of loans receivable.

Stock Options

The Company had, through December 31, 2005, the choice to account for stock options using either Accounting Principles Board Opinion No. 25 ("APB 25") or Statement of Financial Accounting Standards ("Statement") No. 123, "Accounting for Stock-Based Compensation."

For the year ended December 31, 2005, the Company elected to use the accounting method under APB 25 and the related interpretations to account for its stock options. Under APB 25, generally, when the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. On December 14, 2005, the Board of Directors of the Company approved the accelerated vesting and exercisability of all unvested and unexercisable stock options granted as a part of the 2003 and 2002 Stock Option Plans effective December 20, 2005. Had the Company elected to use Statement No. 123 to account for its stock options under the fair value method, it would have been required to record compensation expense and, as a result, diluted earnings per share for the fiscal year ended December 31, 2005 would have been lower by $0.32. No stock options were granted prior to 2002. See Note 2 to "Notes to Consolidated Financial Statements." Effective January 1, 2006, the Company accounts for stock options pursuant to Statement No. 123 (revised 2004). The acceleration of vesting was done primarily to avoid the recording of compensation expense in future years.

Financial Condition

Comparison at December 31, 2007 and at December 31, 2006

Since we commenced operations in 2000 we have sought to grow our assets and deposit base consistent with our capital requirements. We offer competitive loan and deposit products and seek to distinguish ourselves from our competitors through our service and availability. Total assets increased by $52.7 million or 10.3% to $563.5 million at December 31, 2007 from $510.8 million at December 31, 2006 as the Company continued to grow the Bank's balance sheet with loans and securities funded primarily through growth in the Bank's deposit base and the utilization of wholesale funding sources, specifically Federal Home Loan Bank advances.

Total cash and cash equivalents decreased by $14.0 million or 54.3% to $11.8 million at December 31, 2007 from $25.8 million at December 31, 2006 as the Company recognized that, with money market rates decreasing, specifically during the second half of 2007, management deployed those liquid assets into higher yielding loans and investment securities. Securities held-to-maturity increased by $16.3 million or 11.0% to $165.0 million at December 31, 2007 from $148.7 million at December 31, 2006. The increase was primarily attributable to the purchase of $25.0 million in callable agency securities and $12.3 million in mortgage backed securities, partially offset by call options exercised on $15.4 million of callable agency securities, maturities of $2.0 million of callable agency securities and $3.6 million of repayments and prepayments in the mortgage backed securities portfolio during the year ended December 31, 2007.

Loans receivable increased by $46.6 million or 14.6% to $364.7 million at December 31, 2007 from $318.1 million at December 31, 2006. The increase resulted primarily from a $38.3 million increase in real estate mortgages comprising residential, commercial and construction loans, net of amortization, a $3.4 million increase in consumer loans, net of amortization, and a $5.2 million increase in commercial loans consisting primarily of business loans and commercial lines of credit partially offset by a $332,000 increase in the allowance for loan losses. At December 31, 2007, the allowance for loan losses was $4.1 million or 1.10% of total loans. The growth in loans receivable was primarily attributable to competitive pricing in a lower than

historically normal interest rate environment and a vibrant local economy where residential construction and rehabilitation remain active.

Deposit liabilities increased by $16.1 million or 4.2% to $398.8 million at December 31, 2007 from $382.7 million at December 31, 2006. The increase resulted primarily from an increase of $13.7 million or 6.8% in time deposits to $214.5 million from $200.8 million and an increase of $19.6 million or 30.5% in demand deposits to $83.9 million from $64.3 million, partially offset by a decrease of $17.2 million or 14.6% in savings and club accounts to $100.4 million from $117.6 million. The decrease in savings and club account balances resulted primarily from internal disintermediation brought on by an increasingly competitive local market for deposit growth. The Bank has been able to achieve these growth rates through competitive pricing on select deposit products.

Borrowed money increased by $40.0 million or 54.0% to $114.1 million at December 31, 2007 from $74.1 million at December 31, 2006. The increase in borrowings reflects the use of long-term Federal Home Loan Bank advances to augment deposits as the Bank's funding source for originating loans and investing in Government Sponsored Enterprise (GSE) investment securities.

Total stockholders' equity decreased by $3.5 million or 6.7% to $48.5 million at December 31, 2007 from $52.0 million at December 31, 2006. The decrease in stockholders' equity primarily reflects the repurchase of 385,358 shares of the Company's common stock through the stock repurchase plans in place and effect through the year totaling $6.5 million and cash dividends paid through the year totaling $1.6 million, partially offset by net income of $4.4 million for the year ended December 31, 2007. At December 31, 2007 the Bank's Tier 1 leverage, Tier 1 risk-based and Total risk-based capital ratios were 8.81%, 13.05%, and 14.12% respectively.

Analysis of Net Interest Income

Net interest income is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them, respectively.

The following tables set forth balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, discounts and premiums, which are included in interest income.

                                     At December 31, 2007                         The year ended December 31, 2007                         The year ended December 31, 2006
                                                                                                                                                                          Average
                                 Actual            Actual Yield/          Average            Interest            Average              Average            Interest          Yield/
                                 Balance               Cost               Balance          earned/paid        Yield/Cost (5)          Balance          earned/paid        Cost (5)
Interest-earning assets:                                                                     (Dollars in Thousands)
Loans receivable (1)          $     362,721                  7.23 %    $     339,057       $     24,365                  7.19 %    $     315,493       $     22,770            7.22 %
Investment securities(2)            172,633                  5.66            161,707              8,843                  5.47            153,628              8,046            5.24
Interest-earning deposits             8,810                  3.63             26,010              1,182                  4.54             12,569                445            3.54
Total interest-earning
assets                              544,164                  6.68 %          526,774             34,390                  6.53 %          481,690             31,261            6.49 %

Interest-earning
liabilities:
Interest-bearing demand
deposits                      $      20,260                  1.38 %    $      21,076       $        294                  1.40 %    $      21,397                302            1.41 %
Money market deposits                27,697                  3.87             17,212                712                  4.14              3,353                124            3.70
Savings deposits                    100,441                  1.64            108,921              1,866                  1.71            137,046              2,611            1.91
Certificates of deposit             214,524                  4.86            209,828             10,109                  4.82            182,340              7,807            4.28
Borrowings                          114,124                  4.46             93,412              4,236                  4.54             63,775              2,633            4.13
Total interest-bearing
liabilities                         477,046                  3.88 %          450,449             17,217                  3.82 %          407,911             13,477            3.30 %

Net interest income                                                                        $     17,173                                                $     17,784

Interest rate spread(3)                                      2.80 %                                                      2.71 %                                                3.19 %
Net interest margin(4)                                                                                                   3.26 %                                                3.69 %
Ratio of interest-earning
assets to interest-bearing
liabilities                          114.07 %                                 116.94 %                                                    118.09 %

(2) Includes Federal Home Loan Bank of New York stock.

(3) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(4) Net interest margin represents net interest income as a percentage of average interest-earning assets.

(5) Average yields are computed using annualized interest income and expense for the periods.

                                                                  The year ended December 31, 2005
                                                           Average            Interest           Average
                                                           Balance          earned/paid       Yield/Cost (5)
                                                                       (Dollars in Thousands)
Interest-earning assets:
Loans receivable (1)                                    $     274,306       $     18,760                 6.84 %
Investment securities(2)                                      124,315              6,297                 5.07
Interest-earning deposits                                       4,700                 71                 1.51
Total interest-earning assets                                 403,321             25,128                 6.23 %

Interest-earning liabilities:
Interest-bearing demand deposits                        $      20,815                284                 1.36 %
Money market deposits                                           2,289                 45                 1.97
Savings deposits                                              183,288              3,958                 2.16
Certificates of deposit                                       116,560              3,736                 3.21
Borrowings                                                     33,527              1,222                 3.64
Total interest-bearing liabilities                            356,479              9,245                 2.59 %

Net interest income                                                         $     15,883

Interest rate spread(3)                                                                                  3.64 %
Net interest margin(4)                                                                                   3.94 %
Ratio of average interest-earning assets to average
interest-bearing liabilities                                   113.14 %


                     _____________________________________

(1) Excludes allowance for loan losses.

(2) Includes Federal Home Loan Bank of New York stock.

(3) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(4) Net interest margin represents net interest income as a percentage of average interest-earning assets.

(5) Average yields are computed using annualized interest income and expense for the periods.

Rate/Volume Analysis

The table below sets forth certain information regarding changes in our interest
income and interest expense for the periods indicated. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in average volume (changes in
average volume multiplied by old rate); (ii) changes in rate (change in rate
multiplied by old average volume); (iii) changes due to combined changes in rate
and volume; and (iv) the net change.

                                                           Years Ended December 31,
                             2007 vs. 2006                                        2006 vs. 2005
                          Increase/(Decrease)                                  Increase/(Decrease)
                                 Due to                     Total                     Due to                     Total
                                             Rate/        Increase                                Rate/         Increase
                    Volume       Rate        Volume      (Decrease)      Volume       Rate        Volume       (Decrease)
                                                                (In Thousands)
Interest income:
Loans receivable    $ 1,701     $   (98 )   $     (8 )   $     1,595     $ 2,817     $ 1,037     $    156     $      4,010
Investment
securities              423         355           19             797       1,485         214           50            1,749
Interest-earning
deposits
with other banks        476         126          135             737         119          95          160              374
Total
interest-earning
assets                2,600         383          146           3,129       4,421       1,346          366            6,133

Interest expense:
Interest-bearing
demand accounts          (4 )        (4 )          -              (8 )         8          10            -               18
Money market            512          15           61             588          21          40           18               79
Savings and club       (536 )      (263 )         54            (745 )      (999 )      (466 )        118           (1,347 )
Certificates of
Deposits              1,177         978          147           2,302       2,108       1,255          708            4,071
Borrowed funds        1,224         259          120           1,603       1,103         162          146            1,411

Total
interest-bearing
liabilities           2,373         985          382           3,740       2,241       1,001          990            4,232
Change in net
interest income     $   227     $  (602 )   $   (236 )   $      (611 )   $ 2,180     $   345     $   (624 )   $      1,901

Results of Operations for the Years Ended December 31, 2007 and 2006

Net income decreased by $1.13 million or 20.3% to $4.44 million for the year ended December 31, 2007 from $5.57 million for the year ended December 31, 2006. The decrease in net income resulted primarily from decreases in net interest income and non-interest income and an increase in non-interest expense, partially offset by decreases in the provision for loan losses, and income taxes. Net interest income decreased by $611,000 or 3.4% to $17.2 million for the year ended December 31, 2007 from $17.8 million for the year ended December 31, 2006. This decrease in net interest income resulted primarily from an increase of $42.6 million or 10.4% in the average balance of interest-bearing liabilities to $450.5 million for the year ended December 31, 2007 from $407.9 million for the year ended December 31, 2006 and an increase in the cost of interest-bearing liabilities to 3.82% for the year ended December 31, 2007 from 3.30% for the year ended December 31, 2006. The average balance of interest-earning assets increased by $45.1 million or 9.4% to $526.8 million at December 31, 2007 from $481.7 million at December 31, 2006 while the yield on interest-earning assets increased slightly to 6.53% for the year ended December 31, 2007 from 6.49% for the year ended December 31, 2006. As a consequence of the aforementioned, our net interest margin decreased to 3.26% for the year ended December 31, 2007 from 3.69% for the year ended December 31, 2006.

Interest income on loans receivable increased by $1.6 million or 7.0% to $24.4 million for the year ended December 31, 2007 from $22.8 million for the year ended December 31,

2006. The increase was primarily due to an increase in average loans receivable of $23.6 million or 7.5% to $339.1 million for the year ended December 31, 2007 from $315.5 million for the year ended December 31, 2006, partially offset by a slight decrease in the average yield on loans receivable to 7.19% for the year ended December 31, 2007 from 7.22% for the year ended December 31, 2006. The increase in the average balance of loans reflects management's philosophy of deploying funds in higher yielding instruments, specifically commercial real estate loans in an effort to achieve higher returns. The decrease in average yield reflects the competitive price environment prevalent in the Bank's primary market area for commercial and construction loans as well as the effect of the actions taken by the Federal Open Market Committee to reduce interest rates during the latter half of 2007.

Interest income on securities increased by $797,000 or 9.9% to $8.8 million for the year ended December 31, 2007 from $8.0 million for the year ended December 31, 2006. The increase was primarily attributable to an increase in the average balance of securities of $8.1 million or 5.3% to $161.7 million for the year ended December 31, 2007 from $153.6 million for the year ended December 31, 2006, and an increase in the average yield on securities to 5.47% for the year ended December 31, 2007 from 5.24% for the year ended December 31, 2006. The increase in average balances reflects management's philosophy to deploy funds in investments, absent an opportunity to originate higher yielding loans, in an effort to achieve higher returns.

Interest income on other interest-earning assets consisting primarily of federal funds sold increased by $737,000 or 165.6% to $1.2 million for the year ended December 31, 2007 from $445,000 for the year ended December 31, 2006. This increase was primarily due to an increase in the average balance of other interest-earning assets of $13.4 million or 106.3% to $26.0 million for the year ended December 31, 2007 from $12.6 million for the year ended December 31, 2006 and an increase in the average yield on other interest-earning assets to 4.54% for the year ended December 31, 2007 from 3.54% for the year ended December 31, 2006. During 2007, as short term interest rates remained elevated and the yield curve remained inverted through the majority of the year, increased balances in cash and cash equivalent accounts, in the absence of higher yielding loan product, provided a competitive yield while affording management the latitude to research more profitable investment opportunities.

Total interest expense increased by $3.7 million or 27.4% to $17.2 million for the year ended December 31, 2007 from $13.5 million for the year ended December 31, 2006. This increase resulted from an increase in the average balance of total interest-bearing deposit liabilities of $12.9 million or 3.7% to $357.0 million for the year ended December 31, 2007 from $344.1 million for the year ended December 31, 2006, and an increase of $29.6 million or 46.4% in average borrowings to $93.4 million for the year ended December 31, 2007, from $63.8 million for the year ended December 31, 2006, as well as an increase in the average cost of interest-bearing liabilities to 3.82% for the year ended December 31, 2007 from 3.30% for the year ended December 31, 2006.

The provision for loan losses totaled $600,000 and $625,000 for the years ended December 31, 2007 and 2006, respectively. The provision for loan losses is established based upon management's review of the Bank's loans and consideration of a variety of factors including, but not limited to, (1) the risk characteristics of the loan portfolio, (2) current

economic conditions, (3) actual losses previously experienced, (4) the significant level of loan growth and (5) the existing level of reserves for loan losses that are probable and estimable. During 2007, the Bank experienced $268,000 in net charge-offs (consisting of $285,000 in charge-offs and $17,000 in recoveries). During 2006, the Bank experienced $18,000 in net recoveries (consisting of $85,000 in recoveries and $67,000 in charge-offs). The Bank had non-accrual loans totaling $3.8 million at December 31, 2007 and $323,000 at December 31, 2006. The allowance for loan losses stood at $4.1 million or 1.10% of gross total loans at December 31, 2007 as compared to $3.7 million or 1.16% of gross total loans at December 31, 2006. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates. Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance. While management uses available information to recognize loses on loans, future loan loss provisions may be necessary based on changes in the aforementioned criteria. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require the Bank to recognize additional provisions based on their judgment of information available to them at the time of their examination. Management believes that the allowance for loan losses was adequate at both December 31, 2007 and 2006.

Total non-interest income decreased by $168,000 or 13.3% to $1.1 million for the year ended December 31, 2007 from $1.3 million for the year ended December 31, 2006. The decrease in non-interest income resulted primarily from a $215,000 decrease in gain on sales of loans originated for sale, to $420,000 for the year . . .