Forward-Looking Statements

The Company may from time to time make written or oral "forward-looking statements", including statements contained in the Company's filings with the Securities and Exchange Commission (including this Quarterly Report on Form 10-Q), in its reports to shareholders and in other communications by the Company, which are made in good faith by the Company pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations, estimates and intentions, which are subject to change based on various important factors (some of which are beyond the Company's control). The following factors, among others, could cause the Company's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; the effect that maintaining regulatory capital requirements could have on the growth of the Company; inflation; changes in prevailing short term and long term interest rates; national and global liquidity of the banking system; the performance of newly established branches; changes in loan portfolio quality; changes in the rate of deposit withdrawals; changes in the volume of loan refinancings; the timely development of and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes; changes in consumer spending and saving habits; changes in the local competitive landscape, including the acquisition of local and regional banks in the Company's geographic marketplace; the impact of additional costs incurred by the Company in connection with the acquisition of Farnsworth Bancorp, Inc. in March 2007 (the "Merger"); the ability of management of the Company to achieve the anticipated benefits of the Merger; and the success of the Company at managing the risks resulting from these factors.

The Company cautions that the above-listed factors are not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Bank.

Readers should carefully review the risk factors described in other reports the Company files from time to time with the Securities and Exchange Commission, including the Company's Form 10-KSB for the year ended December 31, 2007, and its subsequent quarterly reports on Form 10-Q and current reports on Form 8-K.

General

Our principal source of revenue is net interest income, which is the difference between the interest income from our earning assets and the interest expense of our deposits and borrowings. Interest-earning assets consist principally of loans, investment securities and federal funds sold, while our interest-bearing liabilities consist primarily of deposits and borrowings. Our net income is also affected by our provision for loan losses, noninterest income and noninterest expenses, which include salaries, benefits, occupancy costs and charges relating to non-performing and other classified assets.

The following discussion compares the results of operations for the three months ended March 31, 2008 (unaudited) to the results of operations for the three months ended March 31, 2007 (unaudited). This discussion should be read in conjunction with the accompanying financial statements (unaudited) and related notes, as well as statistical information included in this Form 10-Q.

Net Loss. For the three months ended March 31, 2008, the net loss totaled $84,000, compared to net loss of $49,000 for the three months ended March 31, 2007. Decreased earnings for the three months ended March 31, 2008 was attributable primarily to an increase in noninterest expenses of $466,000, partially offset by an increase in net interest income after provision for loan losses of $268,000 and an increase in noninterest income of $135,000. Basic and diluted loss per share for the three months ended March 31, 2008 and 2007 totaled $0.01, respectively.

Net Interest Income. Net interest income for the three months ended March 31, 2008 totaled $3,120,000, an increase of 7.3% from $2,908,000 for the three months ended March 31, 2007. The net interest margin for the three months ended March 31, 2008 was 3.50%, compared to 3.64% for the comparable period of 2007. This decrease is due mainly to the Federal Reserve monetary policy of lowering short term borrowing rates and the current interest rate environment for interest-bearing liabilities in our marketplace.

Interest income increased by $394,000 for the three months ended March 31, 2008 over the same period in 2007, attributable to an increase in average interest earning assets of $34.7 million, partially offset by a 29 basis point decrease in the yield on average earning assets from 7.06% in 2007 to 6.77% in 2008. Average loans outstanding increased by $47.0 million while average investment securities decreased $14.6 million. The increase in average loans outstanding was attributable to the acquisition of Farnsworth in March 2007 while the decrease in average investment securities was attributable to management's efforts to decrease the Bank's reliance on short term borrowings and time deposits. Interest expense increased by $182,000 over the same time period in 2007. Average interest-bearing liabilities increased by $49.0 million which was attributable to the acquisition of Farnsworth. The average rate paid on interest-bearing liabilities decreased to 3.65% for the three months ended March 31, 2008 from 4.07% for the same period of 2007.

Provision for Loan Losses. No provision for loan losses was made during the three months ended March 31, 2008 compared to $56,000 for the same period in 2007.

Noninterest Income. Noninterest income increased $135,000, or 79.9%, for the three months ended March 31, 2008 to $304,000, up from $169,000 for the same period of 2007, reflecting an increase in gains on sales of available for sale securities of $93,000 and an increase in miscellaneous fees attributable to the sale of branch rights of one of the former Farnsworth branch sites for $30,000.

Noninterest Expenses. For the three months ended March 31, 2008, noninterest expenses increased by $466,000, or 15.1%, to $3,550,000, compared to $3,084,000 for the same period of 2007. Increases in compensation expenses of $295,000 and in occupancy, equipment and data processing expenses of $163,000 are primarily related to increases as a result of the Farnsworth acquisition and the opening of our Delran branch in June 2007.

Income Taxes. We recorded an income tax benefit of $42,000 on loss before taxes of $126,000 for the three months ended March 31, 2008, resulting in an effective tax rate of 33.3% for the 2008 period, compared to income tax benefit of $14,000 on loss before taxes of $63,000 for the same period of 2007, resulting in an effective tax rate of 22.2% for the 2007 period.

The following discussion compares the financial condition at March 31, 2008 (unaudited) to the financial condition at December 31, 2007. This discussion should be read in conjunction with the accompanying financial statements (unaudited) and related notes as well as statistical information included in this Form 10-Q.

Total Assets. Total assets decreased $16.3 million, or 4.0%, to $394.2 million at March 31, 2008, compared to $410.5 million at December 31, 2007. This was due to management's efforts to decrease the Bank's reliance on short term borrowings and time deposits.

Loans. Loans outstanding decreased $0.5 million, or 0.2%. The decrease in loans was due to normal contractual loan payments in the loan portfolio.

Allowance for Loan Losses. The allowance for loan losses was $2.7 million at March 31, 2008 as compared to $2.9 million at March 31, 2007. The ratio of the allowance for loan losses to total loans was 0.86% and 0.93% at March 31, 2008 and December 31, 2007, respectively. The Company's management has considered nonperforming assets and other assets of concern in establishing the allowance for loan losses. The Company continues to monitor its allowance for possible loan losses and will make future additions or reductions in light of the level of loans in its portfolio and as economic conditions dictate.

The current level of the allowance for loan losses is the result of management's assessment of the risks within the portfolio based on the information revealed in credit monitoring processes. The Company utilizes a risk-rating system on all commercial, business, agricultural, construction and multi-family and commercial real estate loans, including purchased loans. A quarterly risk analysis is performed on all types of loans to establish the necessary reserve based on the estimated risk within the portfolio. This assessment of risk takes into account the composition of the loan portfolio, historical loss experience for each loan category, previous loan experience, concentrations of credit, current economic conditions and other factors that in management's judgment deserve consideration.

Although management believes that it uses the best information available to determine the allowance, unforeseen market conditions could result in adjustments and net earnings could be significantly affected if circumstances differ substantially from the assumptions used in making the final determinations. Future additions to the Company's allowance may result from periodic loan, property and collateral reviews and thus cannot be predicted in advance.

The Company had $5.5 million and $4.5 million, respectively, in loans on a nonaccrual status at March 31, 2008 and December 31, 2007. This increase is the result of five loans that the Company placed on nonaccrual status during the first three months of 2008, less one which was sold.

Deposits. Deposits totaled $341.9 million at March 31, 2008, decreasing $7.1 million, or 2.0%, from the December 31, 2007 balance of $349.0 million. The decrease in deposits resulted primarily from management's efforts to decrease the bank's reliance on time deposits.

Federal Home Loan Bank Advances and Other Borrowings. Federal Home Loan Bank advances and other borrowings totaled $7.2 million at March 31, 2008, decreasing $9.5 million from December 31, 2007. The decrease in borrowings resulted primarily from management's efforts to decrease the Bank's reliance on short term borrowings.

Shareholders' Equity. Shareholders' equity increased by $0.1 million, or 0.2%, mainly as a result of an increase in other comprehensive income partially offset by our net loss.

Comparative Average Balances, Interest and Yields:

                                                                              Three Months Ended
                                                 March 31, 2008                                              March 31, 2007
                                 Average            Interest                                                      Interest
                                 Balance         Income/Expense       Annual Yield       Average Balance       Income/Expense       Annual Yield
Assets
Loans, net (1)                $ 304,170,000     $      5,510,000               7.29 %   $     257,128,000     $      4,939,000               7.79 %
Investment securities (2)        45,138,000              461,000               4.10            59,710,000              616,000               4.18
Due from banks                      125,000                1,000               3.94             4,357,000               50,000               4.65
Federal funds sold                9,260,000               63,000               2.73             2,812,000               36,000               5.25
Total interest-earning
assets                          358,693,000            6,035,000               6.77           324,007,000     $      5,641,000               7.06

Allowance for loan losses        (2,889,000 )                                                  (1,975,000 )
Other assets                     48,352,000                                                    25,795,000
Total assets                  $ 404,156,000                                             $     347,827,000

Liabilities and
shareholders' equity
Time deposits                 $ 205,849,000     $      2,335,000               4.56 %   $     186,713,000     $      2,198,000               4.77 %
NOW/MMDA/savings accounts       103,089,000              407,000               1.59            80,872,000              478,000               2.40
Borrowed funds                   12,639,000              173,000               5.51             5,003,000               57,000               4.66
Total interest-bearing
liabilities                     321,577,000            2,915,000               3.65           272,588,000     $      2,733,000               4.07

Noninterest-bearing demand
deposits                         38,582,000                                                    36,812,000
Other liabilities                   769,000                                                     3,313,000
Shareholders' equity             43,228,000                                                    35,114,000
  Total liabilities and
shareholders' equity          $ 404,156,000                                             $     347,827,000

Net interest income                             $      3,120,000                                              $      2,908,000

Interest rate spread (3)                                                       3.12 %                                                        2.99 %

Net interest margin (4)                                                        3.50 %                                                        3.64 %


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Liquidity

Liquidity describes our ability to meet the financial obligations that arise out of the ordinary course of business. Liquidity addresses the Company's ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund current and planned expenditures. Liquidity is derived from loan and investment securities repayments and income from interest-earning assets. Our loan to deposit ratio was 91.2% and 89.5% at March 31, 2008 and December 31, 2007, respectively.

The Company seeks to rely primarily on core deposits from customers to provide stable and cost-effective sources of funding to support growth. The Company also seeks to augment such deposits with longer term and higher yielding certificates of deposit. To the extent that retail deposits are not adequate to fund customer loan demand, liquidity needs can be met in the short-term funds market. As of March 31, 2008, the Company maintained lines of credit with correspondent banks of $109.2 million. Longer term funding requirements can be satisfied through advances from the Federal Home Loan Bank.

As of March 31, 2008, the Company's investment securities portfolio included $17.0 million of mortgage-backed securities that provide significant cash flow each month. The majority of the investment portfolio is classified as available-for-sale, is readily marketable, and is available to meet liquidity needs. The Company's residential real estate portfolio includes loans, which are underwritten to secondary market criteria, and provide an additional source of liquidity.

A strong capital position is fundamental to support the continued growth of the Company. The Company is subject to various regulatory capital requirements. Regulatory capital is defined in terms of Tier I capital (shareholders' equity adjusted for unrealized gains or losses on available-for-sale securities), Tier II capital (which includes a portion of the allowance for loan losses) and Total capital (Tier I plus Tier II). Risk-based capital ratios are expressed as a percentage of risk-weighted assets. Risk-weighted assets are determined by assigning various weights to all assets and off-balance sheet associated risk. Regulators have also adopted minimum Tier I leverage ratio standards, which measure the ratio of Tier I capital to average assets.

At March 31, 2008, management believes that the Bank is "well capitalized," as defined by regulatory banking agencies, and in compliance with all applicable regulatory capital requirements. The Company's long term goal is to ensure that the Bank is "well capitalized" under the applicable regulatory standards. To this end, the Company issued $6.0 million of trust preferred securities (the "Securities") on May 1, 2007. The Securities bear interest at 6.744% for the first five years. Subsequently, the interest rate will be adjusted quarterly based on a three month LIBOR rate plus 1.70%. The Securities are callable after five years with a final maturity of May 1, 2037. The Company contributed $4.5 million of the proceeds of the Securities to the capital of the Bank, as Tier I capital.

On June 16, 2007, the Company opened a branch in Delran Township, Burlington County, New Jersey. The Company has incurred and will continue to incur significant expenses in connection with the new branch, including costs associated with branch construction, staffing and equipment needs sufficient to maintain the infrastructure necessary for branch operations. Unless and until the new branch generates sufficient income to offset these additional costs, the new branch will reduce the Company's net earnings.

Off-Balance Sheet Arrangements

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, including unused portions of lines of credit and standby letters of credit. The Company has also entered into long-term lease obligations for some of its premises and equipment, the terms of which generally include options to renew. The above instruments and obligations involve, to varying degrees, elements of off-balance sheet risk in excess of the amount recognized in the balance sheets. None of these instruments or obligations have or are reasonably likely to have a current or future effect on the Company's financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

As of March 31, 2008, commitments to extend credit and unused lines of credit amounted to approximately $54.8 million and standby letters of credit were approximately $5.0 million. See Note 8 to the Notes to Financial Statements included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2007 for additional information regarding the Bank's long-term lease obligations.