FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Bank's market area, changes in real estate market values in the Bank's market area, and changes in relevant accounting principles and guidelines. Additional factors that may affect the Company's results are discussed in the Company's Annual Report on Form 10-K under "Item 1A. Risk Factors." These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be

placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

CRITICAL ACCOUNTING POLICIES

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider the following to be our critical accounting policies: allowance for loan losses and deferred income taxes.

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover probable credit losses in the loan portfolio at the statement of financial condition date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impacted loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance on a quarterly basis and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectibility of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Office of Thrift Supervision, as an integral part of its examination process, periodically reviews our allowance for loan losses. The Office of Thrift Supervision could require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings. For additional discussion, see note 1 of the notes to the consolidated financial statements included elsewhere in this filing.

Deferred Income Taxes. We use the asset and liability method of accounting for income taxes as prescribed in Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance would result in additional income tax expense in the period, which would negatively affect earnings.

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2008 AND DECEMBER 31, 2007

Total assets increased by $63.1 million, or 18.3%, from $343.9 million at December 31, 2007, to $407.0 million at September 30, 2008. The increase in total assets was primarily due to increases of $56.9 million in loans receivable, net, $4.2 million in cash and cash equivalents, and an increase of $1.5 million in Federal Home Loan Bank ("FHLB") of New York stock.

Cash and cash equivalents increased by $4.2 million, or 10.8%, to $43.4 million at September 30, 2008, from $39.1 million at December 31, 2007. The increase in short-term liquidity was primarily the result of increases of $30.0 million in Federal Home Loan Bank advances and $29.7 million in deposits which had not yet been redeployed in the loan portfolio.

Net loans receivable increased by $56.9 million, or 20.1%, to $340.1 million at September 30, 2008 from $283.1 million at December 31, 2007, due primarily to loan originations of $96.0 million and increases in commercial lines of credit and term loans of $1.6 million that exceeded loan repayments of $40.4 million.

Federal Home Loan Bank ("FHLB") of New York stock increased by $1.5 million, or 358.9%, to $1.9 million at September 30, 2008, from $414,000 at December 31, 2007. The increase was due to increased borrowings from the FHLB in the first and third quarters of 2008, which required additional purchases of FHLB New York stock.

Real estate owned increased to $608,000 at September 30, 2008 from zero at December 31, 2007 due to the acceptance on April 28, 2008 of a deed-in-lieu of foreclosure on a multi-family property located in Hampton, New Hampshire.

Advances from the FHLB increased to $30.0 million at September 30, 2008 from zero at December 31, 2007. The increase in borrowings was used to fund loan originations. During the nine-month period ended September 30, 2008, the Bank borrowed $30.0 million in fixed rate term advances from the FHLB. These advances mature during 2009 through 2013 and have an average interest rate of 3.53%.

Deposits increased by $29.7 million, or 13.1%, to $255.7 million at September 30, 2008 from $226.0 million at December 31, 2007. The increase in deposits was primarily attributable to an effort by the Bank to increase deposits from commercial business loan customers and through the offering of competitive interest rates in our retail branches and in two nationwide certificate of deposit listing services.

Advance payments by borrowers for taxes and insurance increased by $1.7 million, or 58.6%, to $4.6 million at September 30, 2008, from $2.9 million at December 31, 2007 due primarily to the increase in loans receivable and the timing of payments to municipalities, which are generally semi-annual in June and December.

Stockholders' equity increased by $1.2 million, or 1.1%, to $110.1 million at September 30, 2008, from $108.8 million at December 31, 2007. This increase was primarily the result of net income of $1.5 million and the amortization of $217,000 for the ESOP for the period, partially offset by cash dividends declared of $493,000.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

General. Net income decreased by $12,000, or 2.2%, to $542,000 for the three months ended September 30, 2008 from $554,000 for the three months ended September 30, 2007. The decrease was primarily the result of increases of $1.0 million in interest income and $235,000 in non-interest income, offset by increases of $705,000 in interest expense, $400,000 in non-interest expense and $147,000 in provision for loan losses.

Net Interest Income. Net interest income increased by $296,000, or 9.7%, to $3.4 million for the three months ended September 30, 2008 from $3.1 million for the three months ended September 30, 2007. The increase in net interest income resulted primarily from the increased average balance of loans receivable of $90.0 million due primarily to increased loan originations, partially offset by a 37 basis point decrease in our net interest spread to 2.64% for the three months ended September 30, 2008 from 3.01% for the three months ended September 30, 2007.

The decrease in the interest rate spread in the third quarter of 2008 compared to the third quarter of 2007 was due to a decrease in the yield earned on our interest-earning assets and an increase in the cost of our interest-bearing liabilities. The yield on our interest-earning assets decreased by 29 basis points to 5.84% for the three months ended September 30, 2008 from 6.13% for the three months ended September 30, 2007. The decrease was largely due to the decline in yield on other-interest earning assets due to lower short-term market interest rates. The cost of our interest-bearing liabilities increased by 7 basis points to 3.20% for the three months ended September 30, 2008 from 3.13% for the three months ended September 30, 2007. The increase in average cost was due to an increased reliance on higher cost certificates of deposit and borrowings to fund loan growth.

The net interest margin decreased by 59 basis points between these periods from 4.11% for the quarter ended September 30, 2007 to 3.52% for the quarter ended September 30, 2008. The increase in the net interest income, despite the declines in the net interest spread and net interest margin, was due to the increase in loans receivable providing more interest income than the interest expense incurred from corresponding increases in funding sources.

The following table summarizes average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the three months ended September 30, 2008 and 2007. Yield and costs are presented on an annualized basis.

                                                      Three Months Ended September 30,
                                               2008                                       2007
                                             Interest                                   Interest
                               Average          and          Yield/       Average          and          Yield/
                               Balance       Dividends        Cost        Balance       Dividends        Cost
                                                           (Dollars in thousands)
Assets:
Interest-earning assets:
  Loans                       $ 335,697     $     5,326         6.35 %   $ 245,685     $     3,884         6.32 %
  Securities                      4,225              52         4.92        10,228             140         5.48
  Other interest-earning
assets                           41,184             185         1.80        41,695             538         5.16
  Total interest-earning
assets                          381,106           5,563         5.84       297,608           4,562         6.13
Allowance for loan losses        (1,551 )                                   (1,536 )
Non-interest-earning assets      22,201                                     19,281
   Total assets               $ 401,756                                  $ 315,353

Liabilities and equity:
Interest-bearing
liabilities:
  Interest-bearing demand
deposits                      $  20,844     $        33         0.63     $  20,187     $        27         0.53
  Savings and club accounts      58,625             117         0.81        58,258             104         0.71
  Certificates of deposit       169,751           1,818         4.28       112,690           1,355         4.81
   Total interest-bearing
deposits                        249,220           1,968         3.16       191,135           1,486         3.11

  Borrowings                     27,003             241         3.57         1,304              18         5.52
   Total interest-bearing
liabilities                     276,223           2,209         3.20       192,439           1,504         3.13

 Noninterest-bearing demand       4,930                                      2,623
 Other liabilities               10,710                                     12,092
   Total liabilities            291,863                                    207,154

Stockholders' equity            109,893                                    108,199
   Total liabilities and
     Stockholders' equity     $ 401,756                                  $ 315,353
Net interest income                         $     3,354                                $     3,058
Interest rate spread                                            2.64                                       3.00
Net interest margin                                             3.52                                       4.11
Net interest-earning assets   $ 104,883                                  $ 105,169
Average interest-earning
assets to
  average interest-bearing
liabilities                      137.97 %                                   154.65 %

Total interest income increased by $1.0 million, or 21.9%, to $5.6 million for the three months ended September 30, 2008, from $4.6 million for the three months ended September 30, 2007. Interest income on loans increased by $1.4 million, or 37.1%, to $5.3 million for the three months ended September 30, 2008 from $3.9 million for the three months ended September 30, 2007. The average balance of the loan portfolio increased by $90.0 million, or 36.6%, to $335.7 million for the three months ended September 30, 2008 from $245.7 million for the three months ended September 30, 2007 as loan originations and participation purchases outpaced loan repayments. The average yield on loans increased by 3 basis points to 6.35% for the three months ended September 30, 2008 from 6.32% for the three months ended September 30, 2007.

Interest income on securities decreased by $88,000, or 62.9%, to $52,000 for the three months ended September 30, 2008 from $140,000 for the three months ended September 30, 2007. The decrease was primarily due to a decrease of $6.0 million, or 58.7%, in the average balance of securities to $4.2 million for the three months ended September 30, 2008 from $10.2 million for the three months ended September 30, 2007. The decrease was also due to a decrease of 56 basis points in the average yield on securities to 4.92% for the three months ended

September 30, 2008 from 5.48% for the three months ended September 30, 2007. The decrease in the average balance was due to the redeployment of funds into loans receivable, while the decrease in the yield on securities was due to lower market interest rates.

Interest income on other interest-earning assets decreased by $353,000, or 65.6%, to $185,000 for the three months ended September 30, 2008 from $538,000 for the three months ended September 30, 2007. The decrease was primarily the result of a decrease of 336 basis points in the yield to 1.80% for the three months ended September 30, 2008 from 5.16% for the three months ended September 30, 2007, while the average balance of other-interest earning assets decreased by $511,000 to $41.2 million for the three months ended September 30, 2008 from $41.7 million for the three months ended September 30, 2007. The decrease in the yield on other interest-earning assets was due to a decline in the short-term interest rates subsequent to the quarter ended September 30, 2007. The decrease in the average balance of other-interest bearing assets was due to the redeployment of funds into loans receivable.

Total interest expense increased by $705,000, or 46.9%, to $2.2 million for the three months ended September 30, 2008 from $1.5 million for the three months ended September 30, 2007. The increase was primarily due to an increase in the average balances of interest-bearing deposits and borrowed money. Interest expense on deposits increased by $482,000, or 32.4%, to $2.0 million for the three months ended September 30, 2008 from $1.5 million for the three months ended September 30, 2007. During this same period, the average interest cost of deposits increased by 5 basis points to 3.16% for the three months ended September 30, 2008 from 3.11% for the three months ended September 30, 2007. Interest expense on borrowed money increased by $223,000 to $241,000 for the three months ended September 30, 2008 from $18,000 for the three months ended September 30, 2007. During this same period, the average cost of borrowings decreased by 195 basis points to 3.57% for the three months ended September 30, 2008 from 5.52% for the three months ended September 30, 2007.

The increase in interest expense on deposits is attributable to the Bank's effort to increase deposits through the posting of competitive interest rates in our retail branch network and on two nationwide certificate of deposit listing services. This had the effect of increasing the average balance of certificates of deposits by $57.1 million, or 50.6%, to $169.8 million for the three months ended September 30, 2008 from $112.7 million for the three months ended September 30, 2007. As a result, interest expense on our certificates of deposits increased by $463,000, or 34.2%, to $1.8 million for the three months ended September 30, 2008 from $1.4 million for the three months ended September 30, 2007. Mitigating this increase was a decrease of 53 basis points in the cost of certificates of deposits to 4.28% for the three months ended September 30, 2008 from 4.81% for the three months ended September 30, 2007.

Interest expense on our other deposit products increased by $20,000, or 15.3%, to $151,000 for the three months ended September 30, 2008 from $131,000 for the three months ended September 30, 2007. The increase was due to an increase of 10 basis points in the cost of our interest-bearing demand deposits to 0.63% for the three months ended September 30, 2008 from 0.53% for the three months ended September 30, 2007 and an increase of 10 basis points in the cost of our savings and holiday club deposits to 0.81% for the three months ended September 30, 2008 from 0.71% for the three months ended September 30, 2007. The increase was also due to increases of $657,000, or 3.3%, in the average balance of interest-bearing demand deposits to $20.8 million for the three months ended September 30, 2008 from $20.2 million for the three months ended September 30, 2007, and $367,000, or 0.6%, in the average balance of our savings and holiday club deposits to $58.6 million for the three months ended September 30, 2008 from $58.3 million for the three months ended September 30, 2007.

Interest expense on borrowing increased by $223,000 to $241,000 for the three months ended September 30, 2008 from $18,000 for the three months ended September 30, 2007. The increase was primarily due to an increase of $25.7 million in the average balance of borrowed money to $27.0 million for the three months ended September 30, 2008 from $1.3 million for the three months ended September 30, 2007. Interest expense on borrowed money for the three months ended September 30, 2008 comprised of $234,000 in interest expense on an average balance of $26.4 million in FHLB advances and $7,000 in interest expense on an average balance of $644,000 on a note payable incurred in connection with the acquisition of the operating assets of Hayden Financial Group LLC (now operating as Hayden Wealth Management Group, the Bank's investment advisory and financial planning service division) in the fourth quarter of 2007. This compared to interest expense from FHLB advances of $18,000 for the

three months ended September 30, 2007 due to a borrowing of $4.0 million that occurred on June 29, 2007 and that was subsequently paid-off on July 31, 2007.

Provision for Loan Losses. The following table summarizes the activity in the allowance for loan losses and provision for loan losses for the three months ended September 30, 2008 and 2007.

                                                              Three Months
                                                           Ended September 30,
                                                           2008             2007
                                                         (Dollars in thousands)
    Allowance at beginning of period                   $       1,568       $ 1,538
    Provision for loan losses                                    147             -
    Charge-offs                                                    -            49
    Recoveries                                                     -             -
    Net charge-offs                                                -            49
    Allowance at end of period                         $       1,715       $ 1,489

    Allowance to nonperforming loans                           56.90 %       65.48 %
    Allowance to total loans outstanding at the end
    of the period                                               0.50 %        0.58 %
    Annualized net charge-offs (recoveries) to
    average loans outstanding during the period                 0.00 %        0.06 %

The allowance for loan losses was $1.72 million at September 30, 2008, $1.49 million at December 31, 2007, and $1.49 million at September 30, 2007. We recorded a provision for loan losses of $147,000 for the three-month period ended September 30, 2008. The primary reason for the provision in the 2008 period was the growth of the Bank's loan portfolio, and a general weakening in the economy throughout our lending territory. In this regard, the Bank's gross loan portfolio grew by $15.5 million, or 4.8%, to $341.8 million at September 30, 2008 from $326.3 million at June 30, 2008. We did not have any charge-offs during the three months ended September 30, 2008. See also "Nonperforming Assets."

We did not record any provisions for loan losses during the three months ended September 30, 2007. We recorded a charge-off of $49,000 on a multi-family mortgage loan that was subsequently foreclosed and sold as real estate owned during the three months ended September 30, 2007.

We did not have any recoveries during the three months ended September 30, 2008 and September 30, 2007.

Non-interest Income. Non-interest income increased by $235,000, or 120.5%, to $430,000 for the three months ended September 30, 2008 from $195,000 for the three months ended September 30, 2007. The increase was primarily due to $208,000 in fee income generated by Hayden Wealth Management Group, which commenced operations during the fourth quarter of 2007. The increase was also due to an increase of $14,000, or 14.1%, in other loan fees and service charges to $113,000 for the three months ended September 30, 2008 from $99,000 for the three months ended September 30, 2007.

Non-interest Expense. Non-interest expense increased by $400,000, or 16.9%, to $2.8 million for the three months ended September 30, 2008 from $2.4 million for the three months ended September 30, 2007. The increase resulted from increases of $196,000 in salaries and employee benefits, $121,000 in an impairment loss recognized on a foreclosed multi-family property, $43,000 in other non-interest expense, $16,000 in advertising expense, $16,000 in occupancy expense, and $15,000 in equipment expense, partially offset by a $7,000 decrease in outside data processing expense.

Salaries and employee benefits, which represent more than 50% of the Company's non-interest expense, increased by $196,000, or 15.7%, to $1.4 million in 2008 from $1.2 million in 2007 due to an increase in the number of full time equivalent employees from 76 at September 30, 2007 to 87 at September 30, 2008. The increase was due to the acquisition of Hayden Financial Group, LLC, an investment advisory firm, in November 2007 and the addition of one loan officer in December 2007.

The Bank recognized an impairment loss of $121,000 in 2008 on a foreclosed multi-family property due to a fair value calculation based upon a recent appraisal. The Bank did not have any impairment loss on foreclosed property in 2007.

Other non-interest expense increased by $43,000, or 7.8%, to $597,000 in 2008 from $554,000 in 2007 due mainly to increases in amortization expense of intangible assets and other non-interest expense categories, partially offset by decreases in legal fees and telephone expense.

Advertising expense increased by $16,000 to $33,000 in 2008 from $17,000 in 2007 due to an increased effort to market the Bank's loan, deposit, and investment products and services. Occupancy expense increased by $16,000 to $291,000 in 2008 from $275,000 in 2007 due to the additional occupancy expense in connection with the acquisition of Hayden Financial Group. Equipment expense increased by $15,000, or 14.9%, to $116,000 in 2008 from $101,000 in 2007 due to the upgrade of equipment. Outside date processing expense decreased by $7,000, or 4.2%, to $160,000 in 2008 from $167,000 in 2007 due to a decrease in the Bank's ATM data processing expense.

Income Taxes. Income tax expense decreased by $4,000, or 1.6%, to $333,000 for the three months ended September 30, 2008 from $337,000 for the three months ended September 30, 2007. The decrease resulted primarily from a $16,000 decrease in pre-tax income in 2008 compared to 2007. The effective tax rate was 38.1% for the three months ended September 30, 2008 compared to 37.8% for the three months ended September 30, 2007.

COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
2007

General. Net income decreased by $10.1 million, or 86.9%, to $1.5 million for the nine months ended September 30, 2008 from $11.6 million for the nine months ended September 30, 2007. The decrease was primarily the result of the $19.0 million gain ($10.7 million net of income taxes) from the disposition of the Bank's branch office building located at 1353-55 First Avenue that occurred during the nine months ended September 30, 2007. Absent the impact of the building sale, net income improved approximately $0.6 million due primarily to increased net interest income.

Net Interest Income. Net interest income increased by $1.3 million, or 14.8%, to . . .