GENERAL: The following discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's view of future interest income and net loans, management's confidence and strategies and management's expectations about new and existing programs and products, relationships, opportunities and market conditions. These statements may be identified by such forward-looking terminology as "expect", "look", "believe", "anticipate", "may", "will", or similar statements or variations of such terms. Actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, those risk factors identified in the Corporation's Form 10-K for the year ended December 31, 2008.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES: "Management's Discussion and Analysis of Financial Condition and Results of Operations" is based upon the Corporation's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Corporation to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Corporation's Audited Consolidated Financial Statements included in the December 31, 2008 Annual Report on Form 10-K, contains a summary of the Corporation's significant accounting policies. Management believes the Corporation's policy with respect to the methodology for the determination of the allowance for loan losses involves a higher degree of complexity and requires management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact results of operations. This critical policy and its application are periodically reviewed with the Audit Committee and the Board of Directors.

The provision for loan losses is based upon management's evaluation of the adequacy of the allowance, including an assessment of known and inherent risks in the portfolio, giving consideration to the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, detailed analysis of individual loans for which full collectibility may not be assured, the existence and estimated net realizable value of any underlying collateral and guarantees securing the loans, and current economic and market conditions. Although management uses the best information available, the level of the allowance for loan losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's provision for loan losses. Such agencies may require the Corporation to make additional provisions for loan losses based upon information available to them at the time of their examination. Furthermore, the majority of the Corporation's loans are secured by real estate in the State of New Jersey. Accordingly, the collectibility of a substantial portion of the carrying value of the Corporation's loan portfolio is susceptible to changes in local market conditions and may be adversely affected should real estate values decline or should New Jersey experience adverse economic conditions. Future adjustments to the provision for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Corporation's control.

Securities are evaluated on at least a quarterly basis to determine whether a decline in their value is other-than-temporary. To determine whether a loss in value is other-than-temporary, Management utilizes criteria such as the reasons underlying the decline, the magnitude and the duration of the decline and the intent and ability of the Corporation to retain its investment in the security for a period of time sufficient to allow for an anticipated recovery in the fair value. "Other-than-temporary" is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable

value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized. No other-than-temporary impairment charges have been recognized for the three months ended March 31, 2009 and 2008. However, impairment charges of $56.1 million were recognized for the fourth quarter of 2008.

EXECUTIVE SUMMARY: For the first quarter of 2009, the Corporation recorded net income of $2.5 million as compared to $3.5 million for the same quarter of 2008, a decline of $981 thousand, or 28.3 percent. Diluted earnings per common share (after declaration of the preferred dividend) were $0.27 in the first quarter of 2009 as compared to $0.41 per diluted share for the first quarter of 2008. The decrease in 2009 earnings was primarily due to an increase in the provision for loan losses as the Corporation recorded $2.0 million in the first quarter of 2009 compared to $430 thousand for the same period in 2008. Annualized return on average assets for the quarter was 0.71 percent and annualized return on average common equity was 10.45 percent for the first quarter of 2009.

Net interest income, on a fully tax-equivalent basis, was $12.1 million in the first quarter of 2009, an increase of $1.3 million or 11.9 percent from the same quarter last year and a decrease of $424 thousand or 3.4 percent from the fourth quarter of 2008. On a fully tax-equivalent basis, the net interest margin was 3.70 percent for the first quarter of 2009 as compared to 3.34 percent for the same period last year and 3.84 percent for the fourth quarter of 2008.

Average loans increased $65.3 million or 6.6 percent to $1.05 billion for the first quarter of 2009. The average commercial mortgage loan portfolio grew $31.5 million or 13.0 percent and the average commercial construction loan portfolio grew $12.3 million or 21.6 percent. The home equity portfolio averaged $32.1 million, increasing $13.7 million or 74.7 percent, while the mortgage loan portfolio averaged $501.9 million, increasing $5.3 million or 1.1 percent. The yield on loans declined 55 basis points from the first quarter of 2008 to 5.44 percent for the first quarter of 2009.

Average deposits grew $39.8 million or 3.3 percent to $1.24 billion in the first quarter of 2009 over the levels of the same quarter in 2008. Deposit gathering remains highly competitive as short-term market rates have continued to decline from last year's rates. Average costs of interest-bearing deposits were 1.78 percent and 2.95 percent in the first quarters of 2009 and 2008, respectively, a decline of 117 basis points.

On January 9, 2009, as part of the U.S. Department of the Treasury Capital Purchase Program, the Corporation sold 28,685 shares of the Corporation's Fixed Rate Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share, and a ten-year warrant to purchase up to 143,139 shares of the Corporation's common stock, no par value at an exercise price of $30.06 per share, for an aggregate purchase price of $28,685,000 in cash.

EARNINGS ANALYSIS

NET INTEREST INCOME: For the first quarter of 2009, net interest income, on a tax-equivalent basis, and before the provision for loan losses, was $12.1 million as compared to $10.8 million for the same quarter of 2008, an increase of $1.3 million or 11.9 percent. On a fully tax-equivalent basis, the net interest margin was 3.70 percent and 3.34 percent in the first quarters of 2009 and 2008, respectively, an increase of 36 basis points. Net interest income for the first quarter of 2009, declined $424 thousand, or 3.4 percent, from $12.5 million on a tax-equivalent basis for the fourth quarter of 2008. On a fully tax equivalent basis, the net interest margin, decreased from 3.84 percent in the fourth quarter of 2008, to 3.70 percent in the first quarter of 2009.

For the first quarter of 2009, loans averaged $1.05 billion, an increase of $65.3 million or 6.6 percent from $982.6 million for the first quarter of 2008. Average commercial mortgages grew by $31.5 million or 13.0 percent in the first quarter of 2009 compared to the same period last year.

For the three months ended March 31, 2009, average deposits were $1.24 billion as compared to $1.20 billion for the same period in 2008, an increase of $39.8 million, or 3.3 percent. Average non-interest bearing demand deposits increased $6.3 million, or 3.4 percent, to $192.2 million for the first quarter of 2009, from the same quarter in 2008. For the first quarter of 2009, average interest-bearing checking accounts increased to $168.0 million, rising $31.6 million or 23.2 percent from the same period in 2008 due to the introduction of the Ultimate Checking product. Money market accounts averaged $381.5 million for the first quarter of 2009, a decrease of $24.5 million or 6.0 percent from the first quarter in 2008 due to competitive pressure on rates and deposits migrating to the new checking product. Average certificates of deposit rose $23.1 million or 5.7 percent. Average borrowings increased slightly for the first quarters of 2009 and 2008 at $41.6 million and $41.0 million, respectively, an increase of $632 thousand or 1.5 percent.

On a tax-equivalent basis, average yields on interest-earning assets declined 53 basis points to 5.23 percent for the first quarter of 2009 from 5.76 percent for the same quarter of 2008. Average yields earned on loans and investment securities declined 55 basis points to 5.44 percent and 34 basis points to 4.87 percent, respectively, for the first three months of 2009 as compared to the same period in 2008. Adjustable rates on the commercial portfolios have declined due to the decline of the federal funds rate.

Average costs of interest-bearing deposits for the first quarter of 2009 declined 117 basis points to 1.78 percent as compared to 2.95 percent for the first quarter of 2008. For the first quarter of 2009, costs of money market products averaged 1.23 percent, declining 138 basis points, while certificates of deposit costs averaged 2.89 percent, declining 157 basis points, from the same quarter of 2008. Overnight rates on borrowings have also declined 351 basis points since the first quarter of 2008 to 0.47 percent for the first quarter in 2009.

The cost of funds decreased to 1.56 percent for the first quarter of 2009 from 2.53 percent for the first quarter of 2008, a decline of 97 basis points. Net interest income and the net interest margin have increased due to the reduction of rates paid on interest-bearing deposits, offset in part by the reduction of rates earned on investments and loans.

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

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

                                         March 31, 2009                           March 31, 2008
                                Average       Income/                    Average       Income/
                                Balance       Expense       Yield        Balance       Expense       Yield
ASSETS:
Interest-earnings assets:
  Investments:
   Taxable (1)                $   179,304     $  2,139        4.77 %   $   231,715     $  2,983        5.15 %
   Tax-exempt (1) (2)              49,976          653        5.24          56,821          776        5.46
  Loans (2) (3)                 1,047,911       14,258        5.44         982,625       14,704        5.99
  Federal funds sold                  200            -        0.20          13,153          107        3.26
  Interest-earning deposits        28,054            9        0.13           7,819           48        2.45
  Total interest-earning
assets                          1,305,445     $ 17,059        5.23 %     1,292,133     $ 18,618        5.76 %
Noninterest -earning
assets:
  Cash and due from banks          19,697                                   20,809
  Allowance for loan losses        (9,612 )                                 (7,463 )
  Premises and equipment           26,854                                   26,473
  Other assets                     54,654                                   28,436
  Total noninterest-earning
assets                             91,593                                   68,255
Total assets                  $ 1,397,038                              $ 1,360,388

LIABILITIES:
Interest-bearing deposits:
  Checking                    $   168,041     $    297        0.71 %   $   136,440     $    210        0.62 %
  Money markets                   381,532        1,171        1.23         406,070        2,649        2.61
  Savings                          68,087           78        0.46          64,753           99        0.61
  Certificates of deposit         427,011        3,090        2.89         403,912        4,503        4.46
   Total interest-bearing
deposits                        1,044,671        4,636        1.78       1,011,175        7,461        2.95
  Borrowings                       41,646          351        3.37          41,014          370        3.61
  Total interest-bearing
liabilities                     1,086,317        4,987        1.84       1,052,189        7,831        2.98
Noninterest bearing
liabilities
  Demand deposits                 192,166                                  185,818
  Accrued expenses and
   other liabilities                6,729                                   14,267
  Total noninterest-bearing
   liabilities                    198,895                                  200,085
Shareholders' equity              111,826                                  108,114
  Total liabilities and
   shareholders' equity       $ 1,397,038                              $ 1,360,388
  Net Interest income
   (tax-equivalent basis)                       12,072                                   10,787
   Net interest spread                                        3.39 %                                   2.78 %
   Net interest margin (4)                                    3.70 %                                   3.34 %
Tax equivalent adjustment                         (264 )                                   (273 )
Net interest income                           $ 11,808                                 $ 10,514

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

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

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

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

OTHER INCOME: In the first quarter of 2009, PGB Trust and Investments, the Bank's trust division, generated $2.3 million in fee income as compared to $2.5 million for the first quarter of 2008, a decline of $153 thousand or 6.2 percent. The decrease reflects the lower market values on assets under management on which the investment management fees are based. The market value of trust assets under administration for PGB Trust and Investments was approximately $1.60 billion at March 31, 2009.

Income from Bank Owned Life Insurance declined $55 thousand or 20.5 percent to $214 thousand for the first quarter of 2009 as compared to 2008 due to lower investment income earned. The Corporation recorded net securities gains of $5 thousand and $310 thousand for the first quarters of 2009 and 2008, respectively. For the first quarter of 2009, the Corporation recorded income on the sale of mortgage loans at origination of $93 thousand, included in other income, an increase of $31 thousand or 49.6 percent from the same quarter of 2008. More 30-year mortgages were originated, which are sold for interest rate risk purposes.

OTHER EXPENSES: Other expenses totaled $9.5 million for the first quarter of 2009, as compared to $8.6 million recorded in the same quarter of 2008, an increase of $915 thousand or 10.6 percent. Salaries and benefits, the Corporation's largest non-interest expense, was $5.5 million and $4.9 million for the first quarters of 2009 and 2008, respectively, an increase of $623 thousand or 12.7 percent. In addition to salary increases, the Corporation added staff for two new branches in the second and third quarters of 2008. Stock-based compensation expense of $77 thousand was recorded in the first quarter of 2009 as compared to $101 thousand in the same quarter of 2008.

Premises and equipment expense increased $49 thousand or 2.4 percent to $2.1 million for the first quarter of 2009 when compared to the same quarter in 2008. The addition of the new branches accounted for the majority of the increase.

The Corporation recorded an FDIC assessment of $373 thousand for the first quarter of 2009 as compared to $33 thousand for the same period in 2008 reflecting the FDIC's increased assessment charges. FDIC insurance assessments are expected to increase in future periods. Professional fees increased $59 thousand or 24.9 percent for the first quarter of 2009 when compared to the same quarter last year and includes increased legal expenses related to nonperforming loans and other corporate matters. Advertising expenses were $156 thousand for the first three months of 2009 as compared to $253 thousand for the same quarter in 2008.

The following table presents the components of other expense for the periods indicated:

                                   Three Months Ended
                                        March 31,
(In thousands)                      2009          2008
Salaries and employee benefits   $    5,534      $ 4,911
Premises and equipment                2,089        2,040
FDIC Assessment                         373           33
Professional fees                       296          237
Advertising                             156          253
Trust department expense                136          139
Telephone                               110          111
Stationery and supplies                 100          110
Postage                                  99           91
Other expense                           631          684
  Total other expense            $    9,524      $ 8,609

NON-PERFORMING ASSETS: Other real estate owned (OREO), loans past due in excess of 90 days and still accruing, and non-accrual loans are considered non-performing assets. These assets totaled $12.1 million and $6.6 million at March 31, 2009 and December 31, 2008 respectively. The increase in non-performing loans during the first quarter of 2009 was primarily the result of two construction loans to one borrower, who has been affected by the current economic downturn.

The following table sets forth non-performing assets on the dates indicated, in conjunction with asset quality ratios:

                                                          March 31,      December 31,       March 31,
(In thousands)                                              2009             2008             2008
Loans past due in excess of 90 days and still accruing   $         -     $           -     $         -
Non-accrual loans                                             11,139             5,393           4,506
Other real estate owned                                          965             1,211             965
  Total non-performing assets                            $    12,104     $       6,604     $     5,471

Non-performing loans as a % of total loans                      1.07 %            0.51 %          0.46 %
Non-performing assets as a % of total assets                    0.85 %            0.48 %          0.39 %
Non-performing assets as a % of totals loans plus
 other real estate owned                                        1.16 %            0.63 %          0.56 %
Allowance as a % of total loans                                 0.94 %            0.92 %          0.79 %

PROVISION FOR LOAN LOSSES: The provision for loan losses was $2.0 million for the first quarter of 2009 as compared to $430 thousand for the same period of 2008 and $600 thousand for the fourth quarter of 2008. The amount of the loan loss provision and the level of the allowance for loan losses are based upon a number of factors including management's evaluation of probable losses inherent in the portfolio, after consideration of appraised collateral values, financial condition and past credit history of the borrowers as well as prevailing economic conditions. The higher provision reflects the increased percentage of commercial credits in relation to the entire loan portfolio as well as increases in loan delinquencies. Commercial credits carry a higher risk profile, which is reflected in Management's determination of the proper level of the allowance for loan losses. In addition, Management has determined a higher provision is prudent because of continued weakness in the real estate markets.

There were net charge-offs of $1.9 million in the first quarter of 2009 as compared to $153 thousand of net charge-offs in the first quarter of 2008.

A summary of the allowance for loan losses for the periods indicated:

(In thousands)                   2009        2008
Balance, January 1,            $  9,688     $ 7,500
Provision charged to expense      2,000         430
Charge-offs                      (1,926 )      (154 )
Recoveries                            -           1
Balance, March 31,             $  9,762     $ 7,777

INCOME TAXES: Income tax expense as a percentage of pre-tax income was 31.1 percent and 33.5 percent for the quarters ended March 31, 2009 and 2008, respectively. Pre-tax income decreased from $5.2 million for the first quarter in 2008 to $3.6 million for the same period in 2009.

CAPITAL RESOURCES: At March 31, 2009, total shareholders' equity was $114.2 million as compared to $105.7 million at March 31, 2008 and $83.9 million at December 31, 2008. The primary reason for the increase is the Corporation's participation in the U.S. Treasury's Capital Purchase Plan.

The Federal Reserve Board has adopted risk-based capital guidelines for banks. The minimum guideline for the ratio of total capital to risk-weighted assets is 8 percent. Tier 1 Capital consists of common stock, retained earnings, minority interests in the equity accounts of consolidated subsidiaries non-cumulative preferred stock, and cumulative preferred stock issued to the U.S. Treasury in the Capital Purchase Program, less goodwill and certain other intangibles. The remainder may consist of other preferred stock, certain other instruments and a portion of the allowance for loan loss. At March 31, 2009, the Corporation's Tier 1 Capital and Total Capital ratios were 11.73 percent and 12.73 percent, respectively, both in excess of well capitalized standards.

In addition, the Federal Reserve Board has established minimum leverage ratio guidelines. These guidelines provide for a minimum ratio of Tier 1 Capital to average total assets of 3 percent for banks that meet certain specified criteria, including having the highest regulatory rating. All other banks are generally required to maintain a leverage ratio of at least 3 percent plus an additional 100 to 200 basis points. The Corporation's leverage ratio at March 31, 2009, was 8.21 percent.

LIQUIDITY: Liquidity refers to an institution's ability to meet short-term requirements in the form of loan requests, deposit withdrawals and maturing obligations. Principal sources of liquidity include cash, temporary investments and securities available for sale.

Management's opinion is that the Corporation's liquidity position is sufficient to meet future needs. Cash and cash equivalents, interest earning deposits and federal funds sold totaled $79.8 million at March 31, 2009. In addition, the Corporation has $178.7 million in securities designated as available for sale. These securities can be sold in response to liquidity concerns or pledged as collateral for borrowings as discussed below. Carrying value as of March 31, 2009, of investment securities and securities available for sale maturing within one year totals $16.9 million.

The primary source of funds available to meet liquidity needs is the Corporation's core deposit base, which excludes certificates of deposit greater than $100 thousand. As of March 31, 2009, core deposits equaled $1.07 billion.

Another source of liquidity is borrowing capacity. The Corporation has a variety of sources of short-term liquidity available, including federal funds purchased from correspondent banks, short-term and long-term borrowings from the Federal Home Loan Bank of New York, access to the Federal Reserve Bank discount window and loan participations of sales of loans. The Corporation also generates liquidity from the regular principal payments made on its mortgage-backed securities and loan portfolios.

RECENT ACCOUNTING PRONOUNCEMENTS:

In December 2007, the FASB issued FAS No. 141 (revised 2007), Business Combinations ("FAS 141(R)"), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. FAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. Unless the Corporation acquires another entity, the adoption of this standard will not have a material effect on the Corporation's results of operations or financial position.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51" ("SFAS No. 160"), which will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity within the consolidated balance sheets. FAS No. 160 is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. Adoption of FAS No. 160 did not have a significant impact on its results of operations or financial position.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133". FAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 for derivative instruments and hedging activities. FAS No. 161 requires qualitative disclosure . . .