"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements contained in Bancorp's public reports, including this report, and in particular in "Management's Discussion and Analysis of Financial Condition and Results of Operations," may be forward looking and subject to a variety of risks and uncertainties. These factors include, but are not limited to, (1) changes in prevailing interest rates which would affect the interest earned on Bancorp's interest earning assets and the interest paid on its interest bearing liabilities, (2) the timing of repricing of Bancorp's interest earning assets and interest bearing liabilities, (3) the effect of changes in governmental monetary policy, (4) the effect of changes in regulations applicable to Bancorp and the conduct of its business, (5) changes in competition among financial services companies, including possible further encroachment of non-banks on services traditionally provided by banks, (6) the ability of competitors that are larger than Bancorp to provide products and services which it is impracticable for Bancorp to provide, (7) the effects of Bancorp's opening of branches, (8) the effect of any decision by Bancorp to engage in any business not historically operated by it, (9) the ability of Bancorp to raise additional capital in the future and successfully deploy the funds raised, (10) the state of the economy and real estate values in Bancorp's market areas, and the consequent affect on the quality of Bancorp's loans and
(11) the recently enacted Energy Economic Stabilization Act of 2008 is expected to have a profound effect on the financial services industry and could dramatically change the competitive environment of Bancorp. Other such factors may be described in Bancorp's other filings with the SEC.

Although Bancorp believes that it offers the loan and deposit products and has the resources needed for continued success, future revenues and interest spreads and yields cannot be reliably predicted. These trends may cause Bancorp to adjust its operations in the future. Because of the foregoing and other factors, recent trends should not be considered reliable indicators of future financial results or stock prices.

In the ordinary course of business, Bancorp has made a number of estimates and assumptions relating to reporting results of operations and financial condition in preparing its financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes the following discussion addresses Bancorp's only critical accounting policy, which is the policy that is most important to the presentation of Bancorp's financial results. This policy requires management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are considered impaired. The adequacy of the general component is measured using a risk rating system. Under this system, each loan is assigned a risk rating between one and nine; "one" being the least risk and "nine" reflecting the most risk or a complete loss. Risk ratings are assigned based upon the recommendations of the credit analyst and originating loan officer, and are confirmed by the loan committee at the initiation of the transactions. They are later reviewed and changed, when necessary, during the life of the loan. Each of these risk ratings has a corresponding loan loss factor which is based on historical loss experience adjusted for qualitative factors. These factors are multiplied against the balances in each risk rating category to arrive at the appropriate level for the allowance for loan losses. Loans assigned a risk rating of "six" or above are monitored more closely by the credit administration officers and the loan committee. Finally, the unallocated portion of the allowance reflects management's estimate of probable but undetected losses inherent in the portfolio; such estimates are influenced by uncertainties in economic conditions, delays in obtaining information such as unfavorable information about a borrower's financial condition, difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet manifested themselves in loss allocation factors.

Summary

Bancorp's net loss of $1,909,000 ($0.40 basic and diluted loss per share) for the quarter ended September 30, 2008 represents a decrease of $2,650,000, as compared to net income of $741,000 ($0.16 basic and diluted income per share) for the quarter ended September 30, 2007. For the nine-month period ended September 30, 2008, the net loss of $1,363,000 ($0.29 basic and diluted loss per share) represents a decrease of $3,154,000, as compared to net income of $1,791,000 ($0.38 basic and diluted income per share) for the nine months ended September 30, 2007.

Total assets increased $97.3 million from $807.5 million at December 31, 2007 to $904.8 million at September 30, 2008. Cash and cash equivalents decreased $0.5 million to $13.5 million at September 30, 2008 as compared to $14.0 million at December 31, 2007. The available-for-sale securities portfolio decreased $11.2 million to $56.0 million at September 30, 2008 from $67.3 million at December 31, 2007. The net loan portfolio increased $104.7 million from $685.9 million at December 31, 2007 to $790.6 million at September 30, 2008. Deposits increased $59.5 million to $731.9 million at September 30, 2008 from $672.4 million at December 31, 2007; borrowings increased $41.5 million during the same period. Total shareholders' equity decreased $1,889,000 from $66.8 million at December 31, 2007 to $64.9 million at September 30, 2008.

Financial Condition

Bancorp's total assets increased $97.3 million, from $807.5 million at December 31, 2007 to $904.8 million at September 30, 2008. The growth in assets was funded by an increase in deposits and borrowings. The increase in borrowings provides a lower cost alternative to retail deposits and was strategically done to help facilitate lowering the overall cost of funds. Cash and cash equivalents decreased $0.5 million to $13.4 million at September 30, 2008 as compared to $14.0 million at December 31, 2007. Cash and due from banks and short-term investments increased $4.3 million and $1.2 million respectively, while Federal funds sold decreased $6.0 million.

Investments

The following table is a summary of Bancorp's available for sale securities
portfolio, at fair value, at the dates shown:

                                         September 30,      December 31,
                                             2008               2007

U. S. Government sponsored
 agency obligations                      $  10,086,300      $ 16,924,648
U. S. Government Agency and sponsored
  agency mortgage-backed securities         39,968,386        41,325,870
Money market preferred
 equity securities                           5,994,399         9,039,522
Total Available for Sale Securities      $  56,049,085      $ 67,290,040

Available-for-sale securities decreased $11.2 million, or 17%, from $67.3 million at December 31, 2007 to $56.0 million at September 30, 2008. The decrease is primarily due to the call or maturity of eight government sponsored agency bonds and the redemption of two money market preferred securities, which was offset by the purchase of two government sponsored agency bonds. Management determined the fair value of the FHLMC money market preferred equity security to be $0 based on FHLMC going into receivership and the uncertainty of the collectability on the security and as a result an impairment charge of $1.05 million was recorded through earnings.

Loans

The following table is a summary of Bancorp's loan portfolio at the dates shown:

                               September 30,      December 31,
                                   2008              2007
Real Estate
  Commercial                   $ 264,065,297     $ 233,121,685
  Residential                    155,749,740       110,154,838
  Construction                   256,653,082       254,296,326
  Construction to permanent       38,551,811        37,701,509
Commercial                        41,026,327        27,494,531
Consumer installment                 942,685         1,270,360
Consumer home equity              44,225,084        29,154,498
Total Loans                      801,214,026       693,193,747
Premiums on purchased loans          159,612           195,805
Net deferred fees                 (1,277,613 )      (1,830,942 )
Allowance for loan losses         (9,502,148 )      (5,672,620 )
Loans receivable, net          $ 790,593,877     $ 685,885,990

Bancorp's net loan portfolio increased $104.7 million, or 15%, from $685.9 million at December 31, 2007 to $790.6 million at September 30, 2008. The significant increase includes a $45.6 million increase in residential real estate loans, a $30.9 million increase in commercial real estate loans and a $15.1 million increase in home equity loans.

The Bank offers a competitively priced and expanded product line, but due to changing economic and market conditions, loan growth has slowed as the year progressed.

At September 30, 2008, the net loan to deposit ratio was 108% and the net loan to total assets ratio was 88%. At December 31, 2007, these ratios were 102% and 85%, respectively.

Non-Accrual, Past Due and Restructured Loans

The following table presents non-accruing loans and loans past due 90 days or
more and still accruing:

                                  September 30,    December 31,
  (Thousands of dollars)              2008             2007

  Loans past due over 90 days   $         2,464   $          112
     still accruing
  Non accruing loans                     28,570            3,832
     Total                      $        31,034  $         3,944
  % of Total Loans                        3.88%            0.57%
  % of Total Assets                       3.44%            0.49%

Potential Problem Loans

Non-accrual loans increased from $3,832,000 at December 31, 2007 to $28,570,000 at September 30, 2008 as a result of the unprecedented economic crisis and its impact on the local real estate market. The non-accrual portfolio consists of nine relationships of which eight are secured by real estate. The remaining relationship is secured by real estate and business assets, a portion of which is also guaranteed by the U.S. Small Business Administration. All the Bank's non-accrual loans are either in the foreclosure process or forbearance agreements are under consideration. In all cases, recent appraisals have been received which have been utilized to estimate any potential loan impairment. The aggregate estimated impairment was determined to be $278,000, for which a specific reserve has been established.

Loans delinquent over 90 days and still accruing totaled approximately $2,464,000 and consisted of six loans, all of which are current for payment, but are past maturity dates by at least 90 days. Of the six loans, four are in the process of being renewed and two are included on the Bank's watch list. Of this amount, $1,652,000 is real estate secured and $812,000 is business loans.

Of the non-accrual loans at September 30, 2008, 69% were construction loans. While the Bank has never recorded a construction loan charge-off, slowing home sales activity and lower residential home prices in the Bank's market area will cause borrowers to incur additional carrying costs and may lead to a further increased level of non-accrual construction loans. However, due to the Bank's conservative loan-to-value ratio policies and close loan monitoring, we do not anticipate significant loan charge-offs in the Bank's construction loan portfolio.

Allowance for Loan Losses and Impaired Loans

The changes in the allowance for loan losses for the nine months ended September
30, 2008 and September 30, 2007 are as follows:

                                    Three months ending       Nine months ending
                                       September 30,             September 30,
(Thousands of dollars)                  2008        2007          2008        2007

Balance at beginning of period     $    7,218  $    5,598    $    5,673  $    5,630
Charge-offs                             (716)           -         (716)        (32)
Recoveries                                  1           -             1           -
Net (charge-offs) recoveries            (715)           -         (715)        (32)
Provision charged to operations         3,000           -         4,545           -
Balance at end of period           $    9,502  $    5,598    $    9,502  $    5,598

Ratio of net (charge-offs) during
   the period to average loans
   outstanding during the period.      -0.09%       0.00%        -0.09%      -0.01%

Based on management's evaluation of the allowance for loan losses, management believes that the allowance of $9.5 million at September 30, 2008 and $5.7 million at December 31, 2007 is adequate, but not excessive, under prevailing economic conditions, to absorb losses on existing loans. As a result of the present economic crisis and its impact on the local real estate market, the Bank increased the allowance for loan losses by $3.0 million during the third quarter.

An impairment analysis has been conducted on all non-accrual loans based on recent appraised values, resulting in an impairment estimate of $278,000. These loans, as well as all watch list special mention loans, are reviewed weekly by a board-level committee. Included in the non-accruing loans are three loans to a single borrower, partially guaranteed by the U.S. Small Business Administration. During the third quarter, the Bank charged-off $716,000 of this relationship leaving a total remaining balance of $2.1 million, representing the SBA guaranteed portion plus the recent appraised value of the real estate collateral net of estimated liquidation costs.

Goodwill and Other Intangibles

In accordance with SFAS 142, "Goodwill and Other Intangibles," ("SFAS 142"), Bancorp performs annual impairment analyses on its goodwill and other intangible assets. The annual measurement date for evaluating goodwill for impairment is October 31; however, in accordance with SFAS 142, impairment testing between annual tests shall be performed if events or circumstances change that would more likely than not reduce the fair value of a

As Bancorp is comprised of a single reporting unit, management has historically considered the book value of the Company's stock (total capital) as it compared to the market value (closing stock price as of the measurement date times the number of shares outstanding) in its goodwill impairment analysis.

The current state of the economy has had a dramatic impact upon market conditions. The stock market in general is down considerably and the financial services sector, in particular, has experienced significant declines. The price of the Company's stock has not been immune to these conditions, which has prompted management to gather certain information to determine if given the current circumstances consideration should be given to the potential impairment of goodwill. Based upon the analysis performed, management believes that goodwill is not impaired at September 30, 2008.

Management assessed the decline in the Company's market capitalization relative to the declining values within the financial services sector, in general, and the declines in several bank stock indices in particular, such as the KBW BKX index, the NASDAQ bank index and the S&P 500 index, and determined the decline in the Company's market capitalization does not currently represent an other than temporary decline in the company's enterprise value and accordingly management believes that goodwill is not impaired at September 30, 2008.

Deposits

The following table is a summary of Bancorp's deposits at the dates shown:

                                           September 30,      December 31,
                                                2008              2007

Non-interest bearing                       $   54,145,346     $  51,925,991

Interest bearing
   NOW                                         19,002,322        19,462,123
   Savings                                     41,739,357        34,261,389
   Money market                                62,041,569        34,880,837
   Time certificates, less than $100,000      372,631,862       300,502,281
   Time certificates, $100,000 or more        182,382,945       231,366,788
Total interest bearing                        677,798,055       620,473,418
Total Deposits                             $  731,943,401     $ 672,399,409

Total deposits increased $59.5 million or 9% from $672.4 million at December 31, 2007 to $731.9 million at September 30, 2008. Demand deposits increased $2.2 million, which is reflective of increases in cashier's checks of $2.3 million and commercial checking of $0.6 million offset by decreases in other demand deposits account types. Quarterly average balances for demand deposits increased by $2.8 million from December 31, 2007 to September 30, 2008, which is primarily due to growth in personal and internal accounts. Due to the uncertainty regarding the future direction of interest rates, certain customers are placing funds in non-maturity deposits. As a result, consumer money market premium accounts increased $25.1 million. Certificates of deposit increased $23.1 million due to more attractive product pricing in the third quarter. Savings accounts increased $7.5 million or 22% due primarily to increases in competitively priced consumer and commercial statement savings products.

Borrowings

At September 30, 2008, total borrowings were $104.2 million. This reflects an increase of $41.5 million since December 31, 2007 as Bancorp is utilizing lower rate borrowings to offset the decline in certificates of deposit. This was strategically planned in order to assist with reducing the overall cost of funds. Bancorp is also trying to lengthen the maturities of its liabilities for better balance sheet management and this is more easily accomplished through the use of borrowings rather than certificates of deposit.

In addition to the outstanding borrowings disclosed in the consolidated balance sheet, the Bank has the ability to borrow approximately $37.9 million in additional advances from the Federal Home Loan Bank of Boston, which includes a $2.0 million overnight line of credit.

Capital

Capital decreased $1,889,000 for the nine months ended September 30, 2008 resulting from the net loss that Bancorp experienced during the third quarter. Due to the current condition of the local real estate environment, Bancorp recorded a loan loss reserve provision of $3,000,000 during the third quarter. Management determined the fair value of the FHLMC money market preferred equity security to be $0 based on FHLMC going into receivership and the uncertainty of the collectability on the security and as a result an impairment charge of $1.05 million was recorded through earnings.

Off-Balance Sheet Arrangements

Bancorp's off-balance sheet arrangements, which primarily consist of commitments to lend, decreased by $61.9 million from $244.2 million on December 31, 2007 to $182.2 million on September 30, 2008 due primarily to decreases in approved loan commitments and undisbursed construction loans.

Results of Operations

Interest and dividend income and expense

The following tables present average balance sheets (daily averages), interest
income, interest expense and the corresponding yields earned and rates paid for
major balance sheet components:

                                                 Three months ended September 30,
                                          2008                                        2007
                                       Interest                                    Interest
                         Average       Income/        Average        Average       Income/        Average
                         Balance       Expense          Rate         Balance       Expense          Rate
                                                      (dollars in thousands)
Interest earning
assets:
Loans                   $ 788,837     $   12,685           6.43 %   $ 619,672     $   12,280           7.93 %
Federal funds sold
and
 other cash
equivalents                 7,786             39           2.00 %      26,414            342           5.18 %
Investments                64,056            749           4.68 %      64,718            676           4.18 %
Total interest
 earning assets           860,679         13,473           6.26 %     710,804         13,298           7.48 %

Cash and due from
banks                       4,648                                       3,889
Premises and
equipment, net              7,517                                       6,515
Allowance for loan
losses                     (8,358 )                                    (5,598 )
Other assets               29,153                                      10,283
Total Assets            $ 893,639                                   $ 725,893

Interest bearing
liabilities:
Deposits                $ 665,379     $    5,585           3.36 %   $ 586,834     $    6,843           4.66 %
FHLB advances              86,451            583           2.70 %       3,706             46           4.96 %
Subordinated debt           8,248            124           6.01 %       8,248            175           8.49 %
Other borrowings            7,000             78           4.46 %         163              2           4.91 %
Total interest
 bearing liabilities      767,078          6,370           3.32 %     598,951          7,066           4.72 %

Demand deposits            56,462                                      55,060
Accrued expenses and
 other liabilities          3,345                                       5,949
Shareholders' equity       66,754                                      65,933
Total liabilities and
equity                  $ 893,639                                   $ 725,893

Net interest income                   $    7,103                                  $    6,232
Interest margin                                            3.30 %                                      3.51 %
Interest spread                                            2.94 %                                      2.76 %

                                                  Nine months ended September 30,
                                          2008                                        2007
                                       Interest                                    Interest
                         Average       Income/        Average        Average       Income/        Average
                         Balance       Expense          Rate         Balance       Expense          Rate
                                                      (dollars in thousands)
Interest earning
assets:
Loans                   $ 761,506     $   39,782           6.97 %   $ 574,823     $   33,887           7.86 %
Federal funds sold
and
 other cash
equivalents                14,494            318           2.93 %      48,603          1,890           5.18 %
Investments                63,537          2,195           4.61 %      67,391          2,080           4.12 %
Total interest
 earning assets           839,537         42,295           6.72 %     690,817         37,857           7.31 %

Cash and due from
banks                       5,651                                       4,206
Premises and
equipment, net              7,639                                       5,877
Allowance for loan
losses                     (6,847 )                                    (5,618 )
Other assets               29,100                                       9,922
Total Assets            $ 875,080                                   $ 705,204

Interest bearing
. . .