Forward Looking Statements

Certain statements contained in this Form 10-Q, in other filings made by the Company with the U.S. Securities and Exchange Commission (SEC), and in the Company's press releases or other shareholder communications are forward-looking statements, as that term is defined in U.S. federal securities laws. Generally, these statements relate to business plans or strategies, projections involving anticipated revenues, earnings, profitability or other aspects of operating results or other future developments in the Company's affairs or the industry in which it conducts business. Forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology such as "anticipates," "believes," "expects," "intends," "plans," "estimates," "would be," "will," "intends to," "projects" or similar expressions or the negative thereof.

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company also advises readers that various factors, including regional and national economic conditions, changes in levels of market interest rates, credit and other risks which are inherent in the Company's lending and investment activities, legislative changes, changes in the cost of funds, demand for loan products and financial services, changes in accounting principles and competitive and regulatory factors, could affect the Company's financial performance and could cause the Company's actual results for future periods to

differ materially from those anticipated or projected. For further discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements see "Part II. Item 1A. Risk Factors" of this Form 10-Q as well as "Part I. Item 1A. Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2008. Such forward-looking statements are not guarantees of future performance. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

RECENT DEVELOPMENTS

On January 27, 2009, PL Capital, LLC and certain other persons (collectively, the "PL Capital Group") filed a Schedule 13D with the Securities and Exchange Commission reporting, among other matters, the PL Capital Group's beneficial ownership of more than 5% of the outstanding shares of common stock of the Company. On March 27, 2009, the PL Capital Group filed an amendment to its Schedule 13D that included as an exhibit a copy of a letter pursuant to which Mr. John Palmer, a principal of the PL Capital Group, made a shareholder derivative demand to the Company's board of directors. The board of directors has appointed a committee to consider Mr. Palmer's demand. The Company expects that it will incur expenses in the second and third quarter of 2009 related to Mr. Palmer's demand and the process to be pursued by the committee.

RECENT MARKET DEVELOPMENTS

Deposits in the Bank are insured by the Federal Deposit Insurance Corporation (FDIC) up to a maximum amount, which is generally $250,000 (in effect until December 31, 2009) per depositor subject to aggregation rules. As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC.

As disclosed in the Company's 2008 Annual Report on Form 10-K, the FDIC adopted a Restoration Plan to restore the reserve ratio of the Deposit Insurance Fund (DIF) to 1.15%. The Restoration Plan increases assessment rates uniformly by seven basis points effective January 1, 2009 for the first quarter of 2009 assessment period. In addition, effective April 1, 2009 the Restoration Plan provides base assessment rate adjustments downward for unsecured debt, upward for secured liabilities, and, for certain institutions, upward for brokered deposits. For most institutions, assessment rates are based on weighted-average supervisory ratings and financial ratios.

Under the regulations of the FDIC, as presently in effect, insurance assessments range from 0.12% to 0.50% of total deposits for the first calendar quarter 2009 assessment period only (subject to the application of assessment credits, if any, issued by the FDIC in 2007). Effective April 1, 2009, insurance assessments will range from 0.07% to 0.78%, depending on a bank's risk classification, as well as its unsecured debt, secured liabilities and brokered deposits.

In addition, under an interim proposed rule, the FDIC has indicated it plans to impose a 20 basis point emergency special assessment on insured depository institutions on June 30, 2009. The special assessment is proposed to be payable on September 30, 2009. FDIC representatives subsequently indicated the amount of this special assessment could decrease if certain events transpire. The interim proposed rule also authorizes the FDIC to impose an additional emergency special assessment after June

30, 2009, of up to 10 basis points, if necessary to maintain public confidence in federal deposit insurance.

Increases in industry-wide deposit insurance premiums resulted in an additional $264,000 of FDIC insurance expense for the Bank during the first quarter of 2009 compared to the first quarter of 2008. Based upon the Restoration Plan in effect on April 1, 2009 and the range of proposed emergency assessments of 10 basis points to 20 basis points, the Company anticipates that its FDIC insurance expense could increase between $2.4 million and $3.3 million for the year ended December 31, 2009 compared to the year ended December 31, 2008. These increases to the Bank's operating expenses will be reflected in other expenses in the Company's condensed consolidated statement of condition during the appropriate period.

Overview

The Company's results for the quarter ended March 31, 2009 were positive with net income totaling $1.5 million and diluted earnings per share of $0.14. The Company's core business operations have improved in the midst of continued economic pressures and uncertainty. Tangible common equity was $110.8 million, or 9.96% of tangible assets at March 31, 2009.

The Bank's risk-based capital increased to 13.34% at March 31, 2009 from 13.21% at December 31, 2008. This ratio continues to be in excess of the regulatory requirements to be considered "well-capitalized" of 10%. At March 31, 2009, the Bank's risk-based capital was $28.5 million in excess of amounts required by regulatory agencies to be "well-capitalized."

The Bank's Tier 1 capital also continues to be in excess of the regulatory requirements to be considered "well-capitalized" of 5%. At March 31, 2009, the Bank's Tier 1 capital was 9.25% and was $47.2 million in excess of the amounts required by regulatory agencies to be "well-capitalized."

The Company's net interest margin expanded 40 basis points to 3.61% for the three months ended March 31, 2009 from 3.21% for the comparable 2008 period which resulted in an increase in net interest income of 7.1% or $610,000. The expansion of the net interest margin resulted from decreases in short-term interest rates which decreased the Company's cost of deposits and borrowed money.

The Company's non-performing loans were relatively stable at $55.3 million at March 31, 2009 compared to $54.7 million at December 31, 2008. The allowance for losses on loans was also stable at $15.5 million at March 31, 2009 compared to $15.6 million at December 31, 2008. The ratio of the allowance for losses on loans to total loans was 2.05% at March 31, 2009 and 2.07% at December 31, 2008. The ratio of the allowance for losses on loans to total non-performing loans was 27.96% and 28.44%, respectively, at March 31, 2009 and December 31, 2008.

Critical Accounting Policies

The Company's consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP), which require the Company to establish various accounting policies. Certain of these accounting policies require management to make estimates, judgments or assumptions that could have a material effect on the carrying value of certain assets and liabilities. The estimates, judgments and assumptions used by management are based on historical experience, projected

results, internal cash flow modeling techniques and other factors which management believes are reasonable under the circumstances.

The Company's significant accounting policies are presented in Note 1 to the consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" of the Company's Annual Report on Form 10-K for December 31, 2008. These policies, along with the disclosures presented in other financial statement notes and in this management's discussion and analysis, provide information on the methodology used for the valuation of significant assets and liabilities in the Company's financial statements. Management views critical accounting policies to be those that are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for losses on loans, valuations and impairments of securities and the accounting for income taxes to be critical accounting policies.

Allowance for Losses on Loans. The Company maintains an allowance for losses on loans at a level management believes is sufficient to absorb credit losses inherent in the loan portfolio. The allowance for losses on loans represents management's estimate of probable incurred losses in the loan portfolio at each statement of condition date and is based on the review of available and relevant information.

One component of the allowance for losses on loans contains allocations for probable inherent but undetected losses within various pools of loans with similar characteristics pursuant to SFAS No. 5, Accounting for Contingencies. This component is based in part on certain loss factors applied to various loan pools as stratified by the Company. In determining the appropriate loss factors for these loan pools, management considers historical charge-offs and recoveries; levels of and trends in delinquencies, impaired loans and other classified loans; concentrations of credit within the commercial loan portfolios; volume and type of lending; and current and anticipated economic conditions.

The second component of the allowance for losses on loans contains allocations for probable losses that have been identified relating to specific borrowing relationships pursuant to SFAS No. 114. This component consists of expected losses resulting in specific credit allocations for individual loans not considered within the above mentioned loan pools. The analysis of each loan involves a high degree of judgment in estimating the amount of the loss associated with the loan, including the estimation of the amount and timing of future cash flows and collateral values.

Loan losses are charged off against the allowance when the loan balance or a portion of the loan balance is no longer covered by the paying capacity of the borrower based on an evaluation of available cash resources and collateral value, while recoveries of amounts previously charged off are credited to the allowance. The Company assesses the adequacy of the allowance for losses on loans on a quarterly basis and adjusts the allowance for losses on loans by recording a provision for losses on loans in an amount sufficient to maintain the allowance at a level deemed appropriate by management. The evaluation of the adequacy of the allowance for losses on loans is inherently subjective as it requires estimates that are susceptible to significant revision as additional information becomes available or as future events occur. To the extent that actual outcomes differ from management estimates, an additional provision for losses on loans could be required which could adversely affect earnings or the Company's financial position in future periods. In addition, various regulatory agencies, as an integral part of their

examination processes, periodically review the allowance for losses on loans for the Bank and the carrying value of its other non-performing loans, based on information available to them at the time of their examinations. Any of these agencies could require the Bank to make additional provisions for losses on loans.

Securities. Under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, investment securities must be classified as held-to-maturity, available-for-sale or trading. Management determines the appropriate classification at the time of purchase. The classification of securities is significant since it directly impacts the accounting for unrealized gains and losses on securities. Debt securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and the Company has the ability to hold the securities to maturity. Securities not classified as held-to-maturity are classified as available-for-sale and are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income and do not effect earnings until realized.

The fair values of the Company's securities are generally determined by reference to quoted prices from reliable independent sources utilizing observable inputs. Certain of the Company's fair values of securities are determined using models whose significant value drivers or assumptions are unobservable and are significant to the fair value of the securities. These models are utilized when quoted prices are not available for certain securities or in markets where trading activity has slowed or ceased. When quoted prices are not available and are not provided by third party pricing services, management judgment is necessary to determine fair value. As such, fair value is determined using discounted cash flow analysis models, incorporating default rates, estimation of prepayment characteristics and implied volatilities.

The Company evaluates all securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, for determining if an other-than-temporary impairment (OTTI) exists pursuant to guidelines established in FSP 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. In evaluating the possible impairment of securities, consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial conditions and near-term prospects of the issuer, and the ability and intent of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer's financial condition, the Company may consider whether the securities are issued by the federal government or its agencies or government sponsored agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer's financial condition. The Company may also evaluate securities for OTTI more frequently when economic or market concerns warrant additional evaluations. If management determines that an investment experienced an OTTI, the loss is recognized in the income statement as a realized loss. Any recoveries related to the value of these securities are recorded as an unrealized gain (as other comprehensive income (loss) in shareholders' equity) and not recognized in income until the security is ultimately sold.

The Company from time to time may dispose of an impaired security in response to asset/liability management decisions, future market movements, business plan changes, or if the net proceeds can be reinvested at a rate of return that is expected to recover the loss within a reasonable period of time.

Income Tax Accounting. Income tax expense recorded in the Company's consolidated statements of income involves management's interpretation and application of certain accounting pronouncements and federal and state tax codes. As such, the Company has identified income tax accounting as a critical accounting policy. The Company is subject to examination by various regulatory taxing authorities. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management's current assessment of tax liabilities, the impact of which could be significant to the consolidated results of operations and reported earnings. Management believes the tax liabilities are adequately and properly recorded in the Company's consolidated financial statements.

Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table provides information regarding (i) the Company's interest
income recognized from interest-earning assets and their related average yields;
(ii) the amount of interest expense realized on interest-bearing liabilities and
their related average rates; (iii) net interest income; (iv) interest rate
spread; and (v) net interest margin. Information is based on average daily
balances during the periods indicated.

                                                                             Three Months Ended March 31,
                                                              2009                                                   2008
                                                                               Average                                                Average
                                        Average Balance       Interest        Yield/Cost       Average Balance       Interest        Yield/Cost
                                                                                (Dollars in thousands)
Interest-earning assets:
Loans receivable
(1)                                    $         751,910     $     9,945             5.36 %   $         786,877     $    12,788             6.54 %
Securities
(2)                                              244,224           3,043             4.98               238,942           3,079             5.10
Other interest-earning assets (3)                 33,492             243             2.94                46,454             447             3.87
Total interest-earning assets                  1,029,626          13,231             5.21             1,072,273          16,314             6.12

Non-interest earning assets                       84,881                                                 89,627
Total
assets                                 $       1,114,507                                      $       1,161,900

Interest-bearing liabilities:
Deposits:
Checking
accounts                               $         111,664              92             0.33     $         103,685             188             0.73
Money market
accounts                                         161,770             332             0.83               181,692           1,253             2.77
Savings
accounts                                         116,620             102             0.35               125,020             180             0.58
Certificates of
deposit                                          369,580           2,570             2.82               386,038           4,067             4.24
Total deposits                                   759,634           3,096             1.65               796,435           5,688             2.87

Borrowed money:
Other short-term borrowings (4)                   17,458              33             0.77                17,478             114             2.62
FHLB borrowings
(5)(6)                                           147,231             927             2.52               137,689           1,947             5.59
Total borrowed
money                                            164,689             960             2.33               155,167           2,061             5.25
Total interest-earning liabilities               924,323           4,056             1.78               951,602           7,749             3.28
Non-interest bearing deposits                     63,849                                                 62,025
Non-interest bearing liabilities                  13,888                                                 16,027
Total
liabilities                                    1,002,060                                              1,029,654
Shareholders'
equity                                           112,447                                                132,246
Total liabilities and shareholders'
equity                                 $       1,114,507                                      $       1,161,900
Net interest-earning assets            $         105,303                                      $         120,671
Net interest income / interest rate
spread                                                       $     9,175             3.43 %                         $     8,565             2.84 %
Net interest
margin                                                                               3.61 %                                                 3.21 %
Ratio of average interest-earning
assets
to average interest-bearing
liabilities                                                                        111.39 %                                               112.68 %

(1) The average balance of loans receivable includes non-performing loans, interest on which is recognized on a cash basis.

(2) Average balances of securities are based on amortized cost.

(3) Includes Federal Home Loan Bank (FHLB) stock, money market accounts, federal funds sold and interest-earning bank deposits.

(4) Includes federal funds purchased and repurchase agreements (Repo Sweeps).

(5) The 2009 period includes an average of $147.4 million of contractual FHLB borrowings reduced by an average of $142,000 of unamortized deferred premium on the early extinguishment of debt. Interest expense on borrowed money includes $72,000 of amortization of the deferred premium on the early extinguishment of debt. The amortization of the deferred premium increased the average cost of borrowed money by 18 basis points to 2.33%.

(6) The 2008 period includes an average of $156.6 million of contractual FHLB borrowings reduced by an average of $1.4 million of unamortized deferred premium on the early extinguishment of debt. Interest expense on borrowed money includes $527,000 of amortization of the deferred premium on the early extinguishment of debt. The amortization of the deferred premium increased the average cost of borrowed money as reported to 5.25% compared to an average contractual rate of 4.09%.

The following table details the effects of changing rates and volumes on the Company's net interest income. Information is provided with respect to (i) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume); (ii) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate); and (iii) changes in rate/volume (changes in rate multiplied by changes in volume).

                                                          Three Months Ended March 31,
                                                              2009 compared to 2008
                                                           Increase (decrease) due to
                                                                                          Total Net
                                                                          Rate /         Increase /
                                             Rate          Volume         Volume         (Decrease)
                                                             (Dollars in thousands)
Interest-earning assets:
Loans
receivable                                 $  (2,381 )   $     (568 )   $      106     $        (2,843 )
Securities                                      (102 )           68             (2 )               (36 )
Other interest-earning
assets                                          (110 )         (125 )           31                (204 )
Total net change in income on interest-
earning assets                                (2,593 )         (625 )          135              (3,083 )
Interest-bearing liabilities:
Deposits:
Checking
accounts                                        (102 )           14             (8 )               (96 )
Money market
accounts                                        (881 )         (137 )           97                (921 )
Savings
accounts                                         (71 )          (12 )            5                 (78 )
Certificates of
deposit                                       (1,383 )         (173 )           59              (1,497 )
Total deposits                                (2,437 )         (308 )          153              (2,592 )
Borrowed money:
Other short-term
borrowings                                       (81 )            -              -                 (81 )
FHLB
borrowings                                    (1,080 )          135            (75 )            (1,020 )
Total borrowed
money                                         (1,161 )          135            (75 )            (1,101 )
Total net change in expense on interest-
bearing
liabilities                                   (3,598 )         (173 )           78              (3,693 )
Net change in net interest
income                                     $   1,005     $     (452 )   $       57     $           610

Analysis of Statements of Income

Net Interest Margin. The Company's net interest margin for the three months ended March 31, 2009 increased 40 basis points to 3.61% from 3.21% for the comparable 2008 period. The Company was able to expand its margin through a decrease in the cost of the Company's interest-bearing deposits and its borrowed money for the 2009 period. In addition, interest expense was favorably impacted by the decrease in the amount of interest expense related to the amortization of the deferred premium on the early extinguishment of Federal Home Loan Bank (FHLB) debt.

Interest Income. The Company's interest income decreased 18.9% to $13.2 million for first quarter of 2009 from $16.3 million for the comparable 2008 period. The weighted-average yield on the Company's interest-earning assets for the 2009 period decreased 91 basis points to 5.21% from 6.12% for the comparable 2008 period. The decrease was primarily due to the repricing of variable rate loans due to lower interest rates earned on the Bank's loans receivable coupled with a $35.0 million, or 4.4%, decrease in the average balance of loans receivable. In addition, the average balance of other interest-earning assets decreased $13.0 million, or 27.9%, during the first quarter of 2009 when compared to the first quarter of 2008. The Company utilized excess funds to repay FHLB borrowings during 2009.

Interest Expense. The Company's interest expense decreased 47.7% to $4.1 million for the first quarter of 2009 compared to $7.7 million for the first quarter of . . .