GENERAL: The following discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's view of future interest income and net loans, management's confidence and strategies and management's expectations about new and existing programs and products, relationships, opportunities and market conditions. These statements may be identified by such forward-looking terminology as "expect", "look", "believe", "anticipate", "may", "will", or similar statements or variations of such terms. Actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities:

· Classification of securities to other-than-temporary impaired status.

· Unanticipated costs in connection with new branch openings.

· Deep declines in the direction of the economy in New Jersey.

· Effectiveness of the Corporation's balance sheet restructuring initiative.

· Unexpected changes in interest rates.

· Inability to manage growth in commercial loans.

· Unexpected high loan prepayment volume.

· Unanticipated exposure to credit risks.

· Insufficient allowance for loan losses.

· Competition from other financial institutions.

· Adverse effects of government regulation or different than anticipated effects from existing regulations.

· Decline in the levels of loan quality and origination volume.

· Decline in trust assets or deposits.

· The uncertain credit environment in which the Corporation operates.

The Corporation assumes no responsibility to update such forward-looking statements in the future.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES: "Management's Discussion and Analysis of Financial Condition and Results of Operations" is based upon the Corporation's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Corporation to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Corporation's Audited Consolidated Financial Statements included in the December 31, 2007 Annual Report on Form 10-K, contains a summary of the Corporation's significant accounting policies. Management believes the Corporation's policy with respect to the methodology for the determination of the allowance for loan losses involves a higher degree of complexity and requires management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact results of operations. This critical policy and its application are periodically reviewed with the Audit Committee and the Board of Directors.

The provision for loan losses is based upon management's evaluation of the adequacy of the allowance, including an assessment of known and inherent risks in the portfolio, giving consideration to the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, detailed analysis of individual loans for which full collectibility may not be assured, the existence and estimated net realizable value of any underlying collateral and guarantees securing the loans, and current economic and market conditions. Although management uses the best information available, the level of the allowance for loan losses remains an estimate, which is subject to significant judgment

and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's provision for loan losses. Such agencies may require the Corporation to make additional provisions for loan losses based upon information available to them at the time of their examination. Furthermore, the majority of the Corporation's loans are secured by real estate in the State of New Jersey. Accordingly, the collectibility of a substantial portion of the carrying value of the Corporation's loan portfolio is susceptible to changes in local market conditions and may be adversely affected should real estate values decline or should New Jersey experience adverse economic conditions. Future adjustments to the provision for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Corporation's control.

Securities are evaluated on at least a quarterly basis to determine whether a decline in their value is other-than-temporary. To determine whether a loss in value is other-than-temporary, Management utilizes criteria such as the reasons underlying the decline, the magnitude and the duration of the decline and the intent and ability of the Corporation to retain its investment in the security for a period of time sufficient to allow for an anticipated recovery in the fair value. "Other-than-temporary" is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized. No impairment charge has been recognized for the three or nine months ended September 30, 2008 and 2007.

EXECUTIVE SUMMARY: The Corporation recorded net income of $3.5 million for the third quarter of 2008 as compared to $2.6 million for the third quarter of 2007, an increase of $868 thousand, or 32.8 percent. Earnings per share were $0.42 per diluted share in the third quarter of 2008 as compared to $0.32 per diluted share for the same quarter of 2007. The primary factor contributing to the increase in net income is the improvement in net interest income and the net interest margin, which is explained below. Annualized return on average assets for the quarter was 1.04 percent and annualized return on average equity was 13.46 percent for the third quarter of 2008.

Net interest income, on a fully tax-equivalent basis, was $12.4 million in the third quarter of 2008, an increase of $3.3 million or 36.4 percent from the third quarter last year and an increase of $706 thousand or 6.0 percent over the second quarter of 2008. On a fully tax-equivalent basis, the net interest margin was 3.92 percent for the third quarter of 2008 as compared to 2.92 percent for the same period last year and 3.63 percent for the second quarter of 2008.

For the third quarter of 2008, average loans increased $102.2 million or 11.1 percent to $1.02 billion. The Corporation's long-term plan calls for a substantial shift in the asset mix, with less emphasis on residential mortgages and more emphasis on higher yielding commercial loans and commercial mortgages. As a result of this strategy, the average commercial loan portfolios grew $90.6 million or 24.7 percent, while the average mortgage loan portfolio increased $9.8 million to $504.7 million. Loan rates declined 33 basis points from the third quarter of 2007 to 5.85 percent for the same quarter of 2008.

Average deposits grew $17.2 million, or 1.5 percent, to $1.18 billion in the third quarter of 2008 over the levels of the same quarter in 2007. Deposit gathering remains highly competitive as short-term market rates have continued to decline in this year. Rates paid for interest-bearing deposits were 2.15 percent in the third quarter of 2008, as compared to 3.69 percent for the third quarter of 2007, a decline of 154 basis points.

For the first nine months of 2008, net income was $10.6 million, an increase of $2.4 million or 29.5 percent over the $8.2 million recorded for the same period of 2007. For the nine months ended September 30, 2008 and 2007, earnings per diluted share were $1.26 and $0.97, respectively. Annualized return on average assets for the year to date was 1.04 percent and annualized return on average equity was 13.26 percent for the first nine months of 2008.

On a fully tax-equivalent basis, net interest income was $34.9 million for the nine months ended September 30, 2008, an increase of $8.4 million or 31.5 percent from the same period a year ago. The net interest margin on a fully tax-equivalent basis was 3.63 percent and 2.86 percent for the nine months ended September 30, 2008 and 2007, respectively.

Average loans for the nine months ended September 30, 2008 totaled $998.2 million, growing $104.9 million, or 11.7 percent, as compared to $893.3 million over the same period last year. While the average mortgage loan portfolio remained flat compared to the first nine months of 2007, the commercial loan portfolios averaged $443.9, rising $100.4 million or 29.2 percent. Loan rates declined 24 basis points to 5.87 percent for the first nine months of 2008 as compared to 2007.

In the nine months ended September 30, 2008 and 2007, deposits averaged $1.19 billion and $1.16 billion, respectively, an increase of $31.0 million or 2.7 percent. Rates paid for interest-bearing deposits declined 118 basis points to 2.48 percent in the first nine months of 2008. Borrowings for the nine months ended September 30, 2008 averaged $48.4 million, an increase of $19.5 million. During the first quarter of 2008, the Corporation borrowed $12.0 million in fixed rate advances that are noncallable for one, two or three years.

Average investments declined $55.1 million for the first nine months of 2008 when compared to the same year-to-date period of 2007 and yields on investments remained relatively constant. For the past year, the Corporation followed a strategy of investing the proceeds of maturing and sold securities into higher yielding loans.

EARNINGS ANALYSIS

NET INTEREST INCOME: For the third quarter of 2008, net interest income, on a tax-equivalent basis on interest-earning assets and before the provision for loan losses, was $12.4 million as compared to $9.1 million for the same quarter of 2007, an increase of $3.3 million or 36.4 percent. On a fully tax-equivalent basis, the net interest margin was 3.92 percent and 2.92 percent in the third quarters of 2008 and 2007, respectively, an increase of 100 basis points. When compared to the second quarter of 2008, net interest income for the third quarter of 2008, rose $706 thousand, or 6.0 percent, from $11.7 million on a tax-equivalent basis. On a fully tax equivalent basis, the net interest margin, increased from 3.63 percent in the second quarter of 2008, to 3.92 percent in the third quarter of 2008.

Loans averaged $1.02 billion for the third quarter of 2008, an increase of $102.2 million or 11.1 percent from $917.6 million for the same quarter of 2007. While the average mortgage loan portfolio increased slightly to $504.7 million during this period, the average commercial loan portfolios grew $90.6 million or 24.7 percent.

Average deposits were $1.18 billion and $1.16 billion for the quarters ended September 30, 2008 and 2007, respectively, growing $17.2 million, or 1.5 percent. Average non-interest bearing demand deposits increased $9.6 million, or 5.2 percent, to $193.1 million for the third quarter of 2008, from the same quarter in 2007. Average money markets rose $13.8 million or 3.6 percent from the third quarter in 2007, totaling $397.8 million in the third quarter of 2008. Average certificates of deposit declined $24.1 million or 6.1 percent due to competitive pressure on rates and the maturity of certificates offered at a special rate for the grand opening of the Summit Branch beginning in March 2007. Average borrowings increased by $22.5 million to $58.1 million in the third quarter of 2008, from $35.6 million in the same quarter of 2007.

On a tax-equivalent basis, average interest rates on interest-earning assets declined 19 basis points to 5.73 percent for the third quarter of 2008 from 5.92 percent for the third quarter of 2007. Average interest rates earned on loans and investment securities declined 33 basis points to 5.85 percent and 11 basis points to 5.32 percent, respectively, for the third quarter of 2008 as compared to the same period in 2007. The decline in interest income due to lower rates has been mitigated by the increase in the volume of loans due to our long-term plan, which calls for a substantial shift in our asset mix, with less emphasis on residential mortgages and more emphasis on higher yielding commercial loans and commercial mortgages. Adjustable rates on the commercial portfolios have declined due to competitive pressures and the lowering of the federal funds rate.

For the third quarter of 2008, average rates paid on interest-bearing deposits declined 154 basis points to 2.15 percent as compared to 3.69 percent for the same quarter of 2007. For the third quarter of 2008, yields on money market products averaged 1.91 percent, declining 203 basis points, while certificates of deposit yields averaged 3.21 percent, declining 169 basis points, from the same quarter of 2007. Overnight rates on borrowings have also declined 299 basis points since the third quarter of 2007 to 2.21 percent for the third quarter in 2008.

The cost of funds decreased to 1.87 percent for the third quarter of 2008 as compared to 3.14 percent for the same quarter in 2007, a decline of 127 basis points. The net interest income and net interest margin have benefited from the Federal Reserve Board's decisions to reduce the fed funds target rate 275 basis points since the beginning of the year.

Net interest income, on a fully tax-equivalent basis and before the provision for loan losses, for the nine months ended September 30, 2008 and 2007, was $34.9 million and $26.6 million, respectively, increasing $8.4 million or 31.5 percent. The net interest margin, on a fully tax-equivalent basis, was 3.63 percent for the first nine months of 2008 as compared to 2.86 percent for the same nine month period in 2007, an increase of 77 basis points. Net interest income has mostly benefited from the reduction in short-term market rates as liability costs have declined $7.8 million for the nine months ended September 30, 2008 when compared to the same period in 2007.

For the nine months ended September 30, 2008 and 2007, loans averaged $998.2 million and $893.3 million, respectively, an increase of $104.9 million or 11.7 percent. The average commercial loan portfolios grew to $443.9 million for the first nine months of 2008 from $343.5 million for the same period in 2007, an increase of $100.4 million or 29.2 percent. The average mortgage loan portfolio remained flat during this same period. Average investments declined $55.1 million or 16.8 percent to $273.3 million. As previously discussed, most maturities in this portfolio were reinvested in the loan portfolio.

Average deposits were $1.19 billion, an increase of $31.0 million or 2.7 percent. Non-interest bearing demand deposits averaged $192.6 million and $184.7 million for the first nine months of 2008 and 2007, respectively, rising $7.9 million or 4.3 percent. Average money markets rose $21.4 million or 5.7 percent from the nine months ended September 30, 2007, totaling $399.4 million in the first nine months of 2008. Average certificates of deposit totaled $391.0 million for the first nine months of 2008, remaining flat when compared to the same period a year ago. For the same nine months of 2008, average borrowings increased by $19.5 million to $48.4 million from $28.9 million in the same period in 2007, as the Corporation increased its level of fixed rate advances. These advances are noncallable for one, two or three years and then callable quarterly within final maturities of three, five or ten years.

Average interest rates on assets, on a tax-equivalent basis, for the first nine months of 2008 and 2007 were 5.68 percent and 5.84 percent, respectively, declining 16 basis points between 2008 and 2007. Accounting for much of this decrease, average interest rates earned on loans declined 24 basis points to 5.87 percent for the period in 2008 from 6.11 percent for the same period in 2007.

For the nine months ended September 30, 2008, average rates paid on interest-bearing deposits declined 118 basis points to 2.48 percent as compared to 3.66 percent for the same period in 2007.

Yields on money market products averaged 2.13 percent, while certificates of deposit yields averaged 3.80 percent for the first nine months of 2008. Average rates paid on borrowings declined 46 basis points, yielding 3.37 percent and 3.83 percent for the first nine months of 2008 and 2007, respectively.

The cost of funds for the first nine months of 2008 also declined to 2.13 percent from 3.10 percent for the same year ago period. The net interest income and net interest margin has benefited from the Federal Reserve Board's decisions to reduce the fed funds target rate 250 basis points since the beginning of the year.

The following tables reflect the components of net interest income for the periods indicated:

                             Average Balance Sheet
                                   Unaudited
                                 Quarters Ended
                  (Tax-Equivalent Basis, Dollars in Thousands)

                                    September 30, 2008                          September 30, 2007
                            Average        Income/                      Average        Income/
                            Balance        Expense        Yield         Balance        Expense        Yield
ASSETS:
Interest-earnings
assets:
  Investments:
   Taxable (1)            $   202,248      $  2,632         5.21 %    $   263,636      $  3,431         5.21 %
   Tax-exempt (1) (2)          44,121           643         5.83           55,041           717         5.21
  Loans (2) (3)             1,019,791        14,903         5.85          917,599        14,179         6.18
  Federal funds sold              716             3         1.94           11,116           149         5.36
  Interest-earning
deposits                        2,085            10         1.91              706             9         4.99
  Total
interest-earning
assets                      1,268,961      $ 18,191         5.73 %      1,248,098      $ 18,485         5.92 %
Noninterest -earning
assets:
  Cash and due from
banks                          20,586                                      20,510
  Allowance for loan
losses                         (8,313 )                                    (6,996 )
  Premises and
equipment                      26,507                                      25,591
  Other assets                 41,338                                      26,015
  Total
noninterest-earning
assets                         80,118                                      65,120
Total assets              $ 1,349,079                                 $ 1,313,218

LIABILITIES:
Interest-bearing
deposits:
  Checking                $   146,673      $    309         0.84 %    $   126,506      $    254         0.80 %
  Money markets               397,778         1,896         1.91          384,013         3,778         3.94
  Savings                      66,586           102         0.61           68,796           118         0.69
  Certificates of
deposit                       372,465         2,991         3.21          396,529         4,855         4.90
   Total
interest-bearing
deposits                      983,502         5,298         2.15          975,844         9,005         3.69
  Borrowings                   58,076           461         3.18           35,578           364         4.09
  Total
interest-bearing
liabilities                 1,041,578         5,759         2.21        1,011,422         9,369         3.71
Noninterest bearing
liabilities
  Demand deposits             193,050                                     183,500
  Accrued expenses and
   other liabilities            9,951                                      11,365
  Total
noninterest-bearing
   liabilities                203,001                                     194,865
Shareholders' equity          104,500                                     106,931
  Total liabilities
and
   shareholders'
equity                    $ 1,349,079                                 $ 1,313,218
  Net Interest income
   (tax-equivalent
basis)                                       12,432                                       9,116
   Net interest spread                                      3.52 %                                      2.21 %
   Net interest margin
(4)                                                         3.92 %                                      2.92 %
Tax equivalent
adjustment                                     (279 )                                      (229 )
Net interest income                        $ 12,153                                    $  8,887

                             Average Balance Sheet
                                   Unaudited
                                  Year-To-Date
                  (Tax-Equivalent Basis, Dollars in Thousands)

                                    September 30, 2008                          September 30, 2007
                            Average        Income/                      Average        Income/
                            Balance        Expense        Yield         Balance        Expense        Yield
ASSETS:
Interest-earnings
assets:
  Investments:
   Taxable (1)            $   220,120      $  8,317         5.04 %    $   272,355      $ 10,375         5.08 %
   Tax-exempt (1) (2)          53,153         2,248         5.64           56,041         2,196         5.22
  Loans (2) (3)               998,228        43,917         5.87          893,319        40,962         6.11
  Federal funds sold            4,891           115         3.14           14,664           585         5.32
  Interest-earning
deposits                        8,081           134         2.20              773            30         5.25
  Total
interest-earning
assets                      1,284,473      $ 54,731         5.68 %      1,237,152      $ 54,148         5.84 %
Noninterest -earning
assets:
  Cash and due from
banks                          20,708                                      22,112
  Allowance for loan
losses                         (7,850 )                                    (6,888 )
  Premises and
equipment                      26,488                                      25,044
  Other assets                 31,954                                      26,500
  Total
noninterest-earning
assets                         71,300                                      66,768
Total assets              $ 1,355,773                                 $ 1,303,920

LIABILITIES:
Interest-bearing
deposits:
  Checking                $   139,945      $    733         0.70 %    $   133,954      $    839         0.84 %
  Money markets               399,367         6,392         2.13          377,922        11,283         3.98
  Savings                      65,780           301         0.61           70,520           365         0.69
  Certificates of
deposit                       391,047        11,137         3.80          390,621        14,246         4.86
   Total
interest-bearing
deposits                      996,139        18,563         2.48          973,017        26,733         3.66
  Borrowings                   48,390         1,222         3.37           28,939           831         3.83
  Total
interest-bearing
liabilities                 1,044,529        19,785         2.53        1,001,956        27,564         3.67
Noninterest bearing
liabilities
  Demand deposits             192,599                                     184,738
  Accrued expenses and
   other liabilities           12,472                                      11,190
  Total
noninterest-bearing
   liabilities                205,071                                     195,928
Shareholders' equity          106,173                                     106,036
  Total liabilities
and
   shareholders'
equity                    $ 1,355,773                                 $ 1,303,920
  Net Interest income
   (tax-equivalent
basis)                                       34,946                                      26,584
   Net interest spread                                      3.15 %                                      2.17 %
   Net interest margin
(4)                                                         3.63 %                                      2.86 %
Tax equivalent
adjustment                                     (862 )                                      (703 )
Net interest income                        $ 34,084                                    $ 25,881

(1) Average balances for available-for sale securities are based on amortized cost.

(2) Interest income is presented on a tax-equivalent basis using a 35 percent federal tax rate.

(3) Loans are stated net of unearned income and include non-accrual loans.

(4) Net interest income on a tax-equivalent basis as a percentage of total average interest-earning assets.

OTHER INCOME: For the third quarter of 2008, other income was $3.6 million, an increase of $393 thousand or 12.4 percent over the same quarter of 2007. In the third quarter of 2008, PGB Trust and Investments, the Bank's trust division, generated $2.5 million in fee income, an increase of $237 thousand or 10.5 percent over the same quarter of 2007 due in part to higher levels of overall business and higher estate fees. The market value of trust assets under administration for PGB Trust and Investments was approximately $1.86 billion at September 30, 2008.

The Corporation recorded net securities gains of $104 thousand for the third quarter of 2008 as compared to no security gains or losses in the third quarter of 2007.

Other income, excluding trust fee income and the net gains noted above, totaled $964 thousand and $912 thousand for the third quarters of 2008 and 2007, respectively. In the first quarter of 2008, the Bank invested in an additional $5.0 million of Bank Owned Life Insurance, which resulted in additional income of $70 thousand in the third quarter of 2008. Also included in other income in this third quarter of 2008 is fee income from the sale of mortgage loans of $24 thousand.

For the nine months ended September 30, 2008, other income was $10.9 million, an increase of $1.0 million or 10.4 percent when compared to the $9.9 million recorded in the same period a year ago. PGB Trust and Investments generated fee income of $7.6 million and $6.9 million in the first nine months of 2008 and 2007, respectively.

Net securities gains for the nine months ended September 30, 2008 totaled $483 thousand as compared to $382 thousand in the same period a year ago. Included in net securities gains in 2008 was a gain of $81 thousand from the mandatory redemption of Class B Visa shares in conjunction with Visa's initial public offering. Relocating the Shunpike Branch to Green Village Road and closing the New Vernon Branch in 2008 resulted in a $153 thousand loss on disposal of fixed assets.

. . .