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; adequacy of loan loss reserves; 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; possible impairment of intangible assets, including goodwill from the Company's acquisition of Farnsworth; the ability of our borrowers to repay their loans; the uncertain credit environment in which the Company operates; the ability of the Company to manage the risk in its loan and investment portfolios; the ability of the Company to reduce noninterest expenses and increase net interest income, its growth, results of possible collateral collections and subsequent sales; 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 September 30, 2008 (unaudited) to the results of operations for the three months ended September 30, 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 Income (Loss). For the three months ended September 30, 2008, the net income totaled $79,000, compared to net loss of $94,000 for the three months ended September 30, 2007. Increased earnings for the three months ended September 30, 2008 was attributable primarily to a decrease in noninterest expenses of $220,000, an increase in net interest income of $106,000, an increase in noninterest income of $60,000, partially offset by an increase in provision for loan losses of $105,000. Basic and diluted income per share for the three months ended September 30, 2008 was $0.01. Basic and diluted loss per share for the three months ended September 30, 2007 was $0.02.

Net Interest Income. Net interest income for the three months ended September 30, 2008 totaled $3,343,000, an increase of 3.3% from $3,237,000 for the three months ended September 30, 2007. The net interest margin for the three months ended September 30, 2008 was 4.00%, compared to 3.39% for the comparable period of 2007. This increase is due to the current interest rate environment for interest-bearing liabilities in our marketplace.

Interest income decreased by $1,310,000 for the three months ended September 30, 2008 over the same period in 2007, attributable to a decrease in average interest earning assets of $46.4 million and a 48 basis point decrease in the yield on average earning assets from 7.09% in 2007 to 6.61% in 2008. Average loans outstanding decreased by $11.7 million while average investment securities decreased $26.4 million. The decrease in average loans outstanding was attributable to paydowns in loan balances while the decrease in average investment securities was attributable to agency securities being called in the current rate environment and management's efforts to decrease the Bank's reliance on short term borrowings and time deposits. Interest expense decreased by $1,416,000 compared to the same time period in 2007. Average interest-bearing liabilities decreased by $44.3 million which is attributable to management's efforts to decrease the Bank's reliance on short term borrowings and time deposits. The average rate paid on interest-bearing liabilities decreased to 2.85% for the three months ended September 30, 2008 from 4.12% for the same period of 2007.

Provision for Loan Losses. Provision for loan losses for the three months ended September 30, 2008 was $105,000 compared to $0 for the same period in 2007. This increase is principally the result of recent deterioration in the residential real estate spot lot construction loan portfolio.

Noninterest Income. Noninterest income increased $60,000, or 26.9%, for the three months ended September 30, 2008 to $283,000, from $223,000 for the same period of 2007, primarily from an increase in prepayment penalties on loans.

Noninterest Expenses. For the three months ended September 30, 2008, noninterest expenses decreased by $220,000, or 6.1%, to $3,382,000, compared to $3,602,000 for the same period of 2007. This was primarily caused by a decrease in compensation and benefits of $157,000 due to synergies realized in 2008 as a result of the merger with Farnsworth in 2007 and a decrease in marketing and business development due to opening of our Delran branch in 2007, partially offset by an increase in professional services of $96,000 due to increases in strategic planning and SOX 404 costs.

Income Taxes. We recorded an income tax expense of $60,000 on income before taxes of $139,000 for the three months ended September 30, 2008, resulting in an effective tax rate of 43.2% for the 2008 period, compared to an income tax benefit of $48,000 on loss before taxes of $142,000 for the same period of 2007.

The following discussion compares the results of operations for the nine months ended September 30, 2008 (unaudited) to the results of operations for the nine months ended September 30, 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 Income (Loss). For the nine months ended September 30, 2008, the net loss totaled $405,000, compared to a net loss of $141,000 for the nine months ended September 30, 2007. The increased net loss for the nine months ended September 30, 2008 was attributable primarily to an increase in noninterest expenses of $428,000 and an increase in provision for loan losses of $404,000, partially offset by an increase in net interest income of $236,000 and an increase in noninterest income of $169,000. Basic and diluted loss per share for the nine months ended September 30, 2008 and 2007 was $0.07 and $0.03, respectively.

Net Interest Income. Net interest income for the nine months ended September 30, 2008 totaled $9,676,000, an increase of 2.5% from $9,440,000 for the nine months ended September 30, 2007. The net interest margin for the nine months ended September 30, 2008 was 3.74%, compared to 3.43% for the comparable period of 2007. This increase is due mainly to the current interest rate environment for interest-bearing liabilities in our marketplace.

Interest income decreased by $2,265,000 for the nine months ended September 30, 2008 compared to the same period in 2007, attributable to a 41 basis point decrease in the yield on average earning assets from 7.03% in 2007 to 6.62% in 2008 and a decrease in average interest earning assets of $23.2 million. This decline primarily resulted from a decline in average investment securities of $23.0 million. Interest expense decreased by $2,501,000 compared to the same time period in 2007. Average interest-bearing liabilities decreased by $16.9 million primarily as a result of management's efforts to decrease the Bank's reliance on short term borrowings and time deposits which was partially offset by the issuance of $6.2 million in trust preferred securities in 2007. The average rate paid on interest-bearing liabilities decreased to 3.22% for the nine months ended September 30, 2008 from 4.09% for the same period of 2007 and is attributable to the Federal Reserve policy of lowering short term rates and local pricing for deposits.

Provision for Loan Losses. The provision for loan losses was $505,000 for the nine months ended September 30, 2008, compared to $101,000 for the same period in 2007. This increase was primarily attributable to the increased risk in the loan portfolio during 2008 compared to the same period in 2007 due primarily to a recent deterioration in the residential real estate spot lot construction loan portfolio.

Noninterest Income. Noninterest income increased $169,000, or 27.0%, for the nine months ended September 30, 2008 to $795,000, up from $626,000 for the same period of 2007, reflecting mainly an increase of $90,000 in gains on sales of available-for-sale securities, an increase in prepayment penalties on loans of $32,000 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 nine months ended September 30, 2008, noninterest expenses increased by $428,000, or 4.2%, to $10,588,000, compared to $10,160,000 for the same period of 2007. Increases in compensation expenses of $171,000, in occupancy, equipment and data processing expenses of $196,000, and amortization of core deposit intangible asset of $72,000, are primarily a result of a full nine months of operations related to the Farnsworth Bancorp, Inc. acquisition in March 2007 and the opening of our Delran branch in June 2007.

Income Taxes. We recorded an income tax benefit of $217,000 on loss before taxes of $622,000 for the nine months ended September 30, 2008, resulting in an effective tax rate of 34.9%, compared to an income tax benefit of $54,000 on loss before taxes of $195,000 for the same period of 2007.

The following discussion compares the financial condition at September 30, 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 $22.6 million, or 5.6%, to $387.9 million at September 30, 2008, compared to $410.5 million at December 31, 2007. This was due to management's efforts to decrease the Bank's reliance on time deposits and reductions in the investment and loan portfolios.

Loans. Loans outstanding decreased $10.2 million, or 3.3%, from $312.2 million at December 31, 2007. The decrease in loans was due to normal contractual loan payments/payoffs in the loan portfolio, an early loan payoff of $2.0 million and the sale of a $3.6 million nonperforming loan.

Allowance for Loan Losses. The allowance for loan losses was $3.0 million at September 30, 2008 as compared to $2.9 million at December 31, 2007. The ratio of the allowance for loan losses to total loans was 1.00% and 0.93% at September 30, 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 results of operations could be significantly and adversely 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 $8.1 million and $4.5 million, respectively, in loans on nonaccrual status at September 30, 2008 and December 31, 2007. This increase is the result of ten loans that the Company placed on nonaccrual status during the first nine months of 2008, less one which was sold.

Goodwill. The Company recorded $11.8 million of goodwill from its merger-related activities during 2007. In accordance with SFAS No. 142, goodwill is not amortized but rather tested for impairment annually during the fourth quarter. Impairment testing consists of comparing the fair value of the acquired reporting units with their carrying amounts, including goodwill. An impairment loss would be recorded to the extent the carrying value of the goodwill exceeds the fair value of the goodwill. At September 30, 2008, the Company's market capitalization was less than the total shareholders' equity, which is one factor that is considered when determining goodwill impairment. If current market conditions persist, it is possible that we will have a goodwill impairment charge against earnings in a future period.

Deposits. Deposits totaled $321.5 million at September 30, 2008, decreasing $27.5 million, or 7.9%, 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.

Shareholders' Equity. Shareholders' equity decreased by $0.4 million, or 1.0%, mainly as a result of our net loss as of September 30, 2008.

Comparative Average Balances, Interest and Yields:

                                                                              Three Months Ended
                                               September 30, 2008                                          September 30, 2007
                                 Average            Interest                                                      Interest
                                 Balance         Income/Expense       Annual Yield       Average Balance       Income/Expense       Annual Yield
Assets
Loans, net (1)                $ 298,773,000     $      5,125,000               6.90 %   $     310,504,000     $      6,032,000               7.71 %
Investment securities (2)        28,955,000              318,000               4.41            55,320,000              570,000               4.09
Due from banks                      144,000                    -               1.48             2,047,000               28,000               5.49
Federal funds sold                4,708,000               21,000               1.81            11,124,000              144,000               5.15
Total interest-earning
assets                          332,580,000            5,464,000               6.61           378,995,000            6,774,000               7.09

Allowance for loan losses        (3,006,000 )                                                  (2,854,000 )
Other assets                     48,636,000                                                    49,374,000
Total assets                  $ 378,210,000                                             $     425,515,000

Liabilities and
shareholders'
 equity
Time deposits                 $ 181,059,000            1,636,000               3.59 %   $     230,914,000            2,829,000               4.84 %
NOW/MMDA/savings accounts       105,213,000              349,000               1.32           102,402,000              595,000               2.36
Borrowed funds                    9,821,000              136,000               5.48             7,236,000              113,000               6.20
Total interest-bearing
liabilities                     296,093,000            2,121,000               2.85           340,552,000            3,537,000               4.12

Noninterest-bearing demand
  deposits                       37,971,000                                                    41,778,000
Other liabilities                 1,430,000                                                         6,000
Shareholders' equity             42,716,000                                                    43,179,000
  Total liabilities and
    shareholders' equity      $ 378,210,000                                             $     425,515,000

Net interest income                             $      3,343,000                                              $      3,237,000

Interest rate spread (3)                                                       3.76 %                                                        2.97 %

Net interest margin (4)                                                        4.00 %                                                        3.39 %

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                                                                               Nine Months Ended
                                               September 30, 2008                                          September 30, 2007
                                 Average            Interest                                                      Interest
                                 Balance         Income/Expense       Annual Yield       Average Balance       Income/Expense       Annual Yield
Assets
Loans, net (1)                $ 301,245,000     $     15,839,000               7.02 %   $     295,497,000     $     16,984,000               7.68 %
Investment securities (2)        34,412,000            1,093,000               4.24            57,390,000            1,778,000               4.14
Due from banks                      113,000                2,000               2.38             4,444,000              168,000               5.07
Federal funds sold                9,366,000              159,000               2.27            10,974,000              428,000               5.22
Total interest-earning
assets                          345,136,000           17,093,000               6.62           368,305,000           19,358,000               7.03

Allowance for loan losses        (2,866,000 )                                                  (2,567,000 )
Other assets                     48,393,000                                                    40,285,000
Total assets                  $ 390,663,000                                             $     406,023,000

Liabilities and
shareholders'
 equity
Time deposits                 $ 194,283,000            5,926,000               4.07 %   $     220,669,000            7,944,000               4.81 %
NOW/MMDA/savings accounts       103,211,000            1,068,000               1.38            97,798,000            1,721,000               2.35
Borrowed funds                    9,882,000              423,000               5.72             5,851,000              253,000               5.78
Total interest-bearing
liabilities                     307,376,000            7,417,000               3.22           324,318,000            9,918,000               4.09

Noninterest-bearing demand
  deposits                       38,422,000                                                    40,554,000
Other liabilities                 1,856,000                                                       558,000
Shareholders' equity             43,009,000                                                    40,593,000
  Total liabilities and
    shareholders' equity      $ 390,663,000                                             $     406,023,000

Net interest income                             $      9,676,000                                              $      9,440,000

Interest rate spread (3)                                                       3.40 %                                                        2.94 %

Net interest margin (4)                                                        3.74 %                                                        3.43 %


________________________

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 93.9% and 89.5% at September 30, 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 September 30, 2008, the Company maintained lines of credit with correspondent banks of $89.7 million. Longer term funding requirements can be satisfied through advances from the Federal Home Loan Bank.

As of September 30, 2008, the Company's investment securities portfolio included $30.0 million of mortgage-backed securities that provide significant cash flow each month. About half 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 consistent to secondary market criteria, and provide an additional source of liquidity.

Capital Resources

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 September 30, 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 . . .