Disclosure of the Company's significant accounting policies is included in Note 1 to the consolidated financial statements of the Company for the year ended December 31, 2008 included in its Annual Report Form 10-K filed under the Securities Exchange Act of 1934. Some of these policies are particularly sensitive, requiring significant judgments, estimates and assumptions to be made by management. Management believes the Company'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 is periodically reviewed with the Audit Committee and the Board of Directors of the Company. The allowance 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 collectability 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 Company's allowance for loan losses. Such agencies may require the Company to make additional provisions for loan losses based upon information available to them at the time of their examination. Furthermore, the majority of the Company's loans are secured by real estate in the state of New Jersey. Accordingly, the collectability of a substantial portion of the carrying value of the Company's loan portfolio is susceptible to changes in local market conditions and may be adversely affected should real estate values decline or the Company's market area experience an adverse economic shock. Future adjustments to the allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Company's control. Additional information is contained on pages 13 and 15 of this Form 10-Q for the provision and allowance for loan losses.

Overview. For the three months ended March 31, 2009, net income was $619 thousand or $0.10 basic and diluted earnings per share compared to $444 thousand or $0.09 basic and $0.08 diluted earnings per share for the same period in 2008.

The results reflect a substantial increase in non interest income due primarily to the increase in bank owned life insurance partially off-set by an increase in provision for loan losses. We also recognized an increase in non interest expense. The increases in income on bank owned life insurance and non-interest expense were substantially related to the death of our founding Chief Financial Officer, Gerard Riker, in the first quarter.

At March 31, 2009, total assets were $316.4 million, an increase of $16.7 million from total assets of $299.7 million at year end 2008. The increase primarily reflects an increase of $39.2 million in interest bearing deposits at other banks. This increase was partially off-set by decreases of $3.9 million in loans receivable, a decrease of $12.7 million in cash and due from banks, a decrease of $3.6 million in investment securities available for sale and a decrease of $1.5 million in federal funds sold. The increase in assets was funded primarily by $8.4 million in deposit growth.

Interest Income. Total interest income decreased $487 thousand, or 12.3%, to $3.5 million for the quarter ended March 31, 2009 from $4.0 million for the same period in 2008. The decrease reflects a decrease of 131 basis points, from 6.26% during the first quarter of 2008 to 4.95% in the first quarter of 2009, in the rate earned on average interest earning assets, partially offset by an increase of $30.1 million in average first quarter interest earning assets, from $253.8 million in 2008 to $283.9 million in 2009. The average rate earned on interest bearing deposits at other banks decreased by 274 basis points to 0.24% in the first quarter of 2009 from 2.98% during the first quarter of 2008, reflecting interest rate reductions by the Federal Reserve. The rate earned on federal funds sold decreased 235 basis points to 0.35% in the first quarter of 2009 from 2.70% during the first quarter of 2008. The average rate earned on investment securities decreased 19 basis points to 4.80% for the first quarter of 2009 from 4.99% in the first quarter of 2008. The average rate earned on loans held for sale decreased 108 basis points to 5.45% for the first quarter of 2009 from 6.53% for the first quarter of 2008. The average rate earned on loans decreased by 117 basis points for the first quarter of 2009 to 5.43%, from 6.60% for the first quarter of 2008. The decrease in rates earned reflects the current market trend of lower interest rates. The decrease in rates was off set by increases in volume as average interest bearing deposits at other banks increased from $821 thousand to $18.2 million from the first quarter 2008 to first quarter 2009. Average investment securities increased 26.2% from $37.4 million to $47.2 million from the first quarter 2008 to first quarter 2009. The average balance of federal funds sold decreased by $3.5 million, or 66.0%, to $1.8 million in the first quarter of 2009 from $5.3 million in the first quarter of 2008. The average balance of loans increased $5.3 million, or 2.6%, to $210.6 million during the first quarter of 2009 compared to $205.3 million during the first quarter of 2008.

Interest Expense. The Company's interest expense for the first quarter of 2009 decreased $408 thousand, or 31.7%, to $881 thousand from $1.3 million in the first quarter of 2008. This decrease was the result of a decrease in the average rate paid on interest bearing liabilities of 101 basis points to 1.69% during the first quarter of 2009 from 2.70% in the same period of 2008. The average balance of interest bearing liabilities increased $19.3 million to $211.0 million for the first quarter of 2009 from $191.7 million in the first quarter of 2008. Interest expense on interest bearing demand deposits decreased $515 thousand, or 67.0%, to $254 thousand in the first quarter of 2009 from $769 thousand in the first quarter in 2008, while the average interest rate paid decreased 155 basis points from 2.43% to 0.88% during the same period. Interest expense on money market deposits decreased $62 thousand or 71.3% while average money market deposits increased $2.3 million, or 13.4%, and the average rate paid decreased 154 basis points from 2.07% in the first quarter of 2008 to 0.53% in the first quarter of 2009. Interest expense on time deposits increased $174 thousand or 52.4% in the first quarter of 2009 compared to the same period in 2008 as the average rate decreased to 3.55% in the current period from 4.15% in the first quarter of 2008 and the average volume of time deposits increased by $25.6 million to $57.8 million for the quarter ended March 31, 2009 compared to $32.2 million in the prior year's first quarter. The decline in rates reflects the repricing of deposits to lower rates. NOW deposit average balances decreased $10.6 million, or 8.3%, from $127.5 million during the first quarter of 2008 to $116.9 million in the first quarter of 2009. Average borrowed funds increased $308 thousand in the first quarter of 2009 to $11.0 million from $10.7 million in the first quarter of 2008. The

                              Comparative Average
                                 Balance Sheets
                          Three Months Ended March 31,

                                 2009                                   2008
                  ----------------------------------     -----------------------------------
                                             Average                                 Average
                                Interest      Rates                     Interest      Rates
                   Average      Income/      Earned/      Average       Income/      Earned/
                   Balance      Expense       Paid        Balance       Expense       Paid
                  ---------     --------     -------     ----------     --------     -------
Assets                                      (Dollars in Thousands)

     Interest
bearing deposits
at other banks    $  18,168      $    11       0.24%     $      821     $      6       2.98%
     Loans          210,581        2,818       5.43%        205,349        3,370       6.60%
     Loans held
for sale              5,253           70       5.45%          4,132           67       6.53%
     Investment
securities           47,194          559       4.80%         37,386          464       4.99%
     Restricted
stock                   871            4       2.01%            813            8       3.71%
     Fed funds
sold                  1,794            2       0.35%          5,288           36       2.70%
                  ---------     --------     -------     ----------     --------     -------
 Total interest
earning assets     $283,861       $3,464       4.95%       $253,789       $3,951       6.26%

  Non-interest
earning assets       22,813                                  25,260
  Allowance for
loan losses         (2,642)                                 (3,208)
                  ---------                              ----------
Total Assets       $304,032                                $275,841
                  ---------                              ----------

Liabilities and
Equity

     Interest
bearing demand
deposits           $116,914       $  254       0.88%       $127,471       $  769       2.43%
     Savings          6,066            5       0.31%          4,396           11       1.00%
     Money Market    19,226           25       0.53%         16,949           87       2.07%
     Certificates
of deposits          57,756          506       3.55%         32,199          332       4.15%
     FHLB
advances/ other
borrowings           11,000           91       3.37%         10,692           90       3.38%
                  ---------     --------     -------     ----------     --------     -------
         Total
interest bearing
liabilities         210,962          881       1.69%        191,707        1,289       2.70%

  Non-Interest
Bearing
Liabilities:
     Non-interest
bearing deposits     48,189                                  46,108
     Other
liabilities           1,164                                     970
                  ---------                              ----------
  Total
Liabilities         260,315                                 238,785
  Stockholders'
Equity               43,717                                  37,056
                  ---------                              ----------
Total Liabilities
and Stockholders'
Equity             $304,032                                $275,841
                  ---------                              ----------
Net Interest
Income                            $2,583                                  $2,662
                                --------                                --------
Net Interest
Spread                                         3.26%                                   3.56%
Net Interest
Margin                                         3.69%                                   4.22%

Net-Interest Income. Net interest income for the 2009 first quarter declined by $79 thousand from the same period last year. The net interest margin declined to 3.69% in the current quarter from 4.22% in the prior year quarter, while interest-earning assets increased by 11.8% over the same period. The largest component of the increase in the Company's interest earning assets was lower yielding interest bearing deposits at other banks, which increased to $18.2 million in the current quarter from $821 thousand a year ago, and which was funded by higher levels of time deposits that increased to $57.8 million in the current quarter versus $32.2 million a year ago. The increases in the balances of interest bearing deposits at other banks and time deposits was anticipated due to management's strategic decision in the latter half of 2008 to remain more liquid than normal due to increasingly difficult general economic conditions. Management will continue to assess the Company's overall liquidity position in the context of market conditions as many of the Bank's higher rate time deposits, which carry interest rates at or above 4%, mature beginning in June and throughout the second half of 2009.

Provision for Loan Losses. The Company's asset quality metrics, including the level of nonperforming loans, have improved recently. Notwithstanding these positive indications, management believes there are potentially increased risks in certain segments of the loan portfolio due to a significantly weakened National economy, the negative effects of which have begun to extend into the communities we serve. As a result, the Company increased its provision for loan losses to $450 thousand in the first quarter of 2009 from $70 thousand in the first quarter of 2008. Management reviews the adequacy of its allowance on an ongoing basis and will provide for additional provisions in future periods, as management may deem necessary.

Non-Interest Expense. For the quarter ended March 31, 2009, non-interest expense increased $229 thousand, or 9.4%, from the same period last year. The increase in non-interest expense in the first quarter 2009 was primarily attributable to a $183 thousand charge for retirement plan liability due to Mr. Riker's death, $24 thousand in occupancy expense, $46 thousand in other operating expense and $22 thousand in stationery and supplies for the comparable period. These increases were offset by a decrease of $19 thousand in advertising and business promotion expense and $19 thousand in data processing.

Income Taxes. Income tax expense decreased $257 thousand to a benefit of $81 thousand for the three months ended March 31, 2009 as compared to a tax provision $176 for the same period in 2008. The decrease is a result of the Company receiving a tax free payment of $583 thousand from bank owned life insurance during the quarter ended March 31, 2009.

March 31, 2009 as compared to December 31, 2008

Total assets at March 31, 2009 increased $16.7 million to $316.4 million from $299.7 million at December 31, 2008. The increase is primarily attributable to an increase of $26.4 million in interest bearing deposits at other banks. This increase was due to several factors, including management's strategic decision to remain liquid by issuing higher rate time deposits as well as the Company's receipt on January 16, 2009 of $7.4 million, net of issuance costs, resulting from the issuance of securities to the U.S. Treasury under the Capital Purchase Program (discussed further below). The net proceeds from the sale of these securities was originally held in cash pending increased loan demand, and is now being held to fund the redemption of the securities issued to the U.S. Treasury. The Company's redemption notice was approved on May 8, 2009, and the company expects to complete the redemption soon. The increase in interest bearing deposits at other banks was partially offset by decreases of $3.9 million in loans receivable, $3.6 million in investment securities available for sale and $1.5 million in federal funds sold. The decline in most asset categories reflects the continued soft economy in our trade area, as credit demand from our customers has weakened and competition for credit worthy borrowers remains strong. Total deposits increased $8.4 million from $249.8 million at year-end 2008 to $258.2 million on March 31, 2009.

Total loans at March 31, 2009 decreased $3.9 million to $207.2 million from $211.1 million at year-end 2008. The changes in and composition of the loan portfolio, by category, as of March 31, 2009 from December 31, 2008 is as follows: Commercial loans decreased by $6.6 million or 10.1% to $58.9 million, consumer and installment loans decreased $45 thousand, or 4.3%, home equity loans decreased by $701 thousand, or 1.5% to $47.5 million and commercial real estate loans increased by $4.0 million, or 4.8%, to $88.6 million. Residential mortgage loans decreased $1.6 million, or 12.4%, to $11.1 million since year end.

The following schedule presents the components of loans, net of unearned income, for each period presented:

                                      March 31, 2009        December 31, 2008
                                    -------------------    -------------------
                                     Amount     Percent     Amount     Percent
                                    --------    -------    --------    -------
                                              (Dollars In Thousands)
                                    ------------------------------------------
Commercial and industrial            $58,911      28.4%     $65,545      30.6%
Commercial real estate properties     88,647      42.8%      84,578      40.1%
Residential properties (1-4 Family)   11,141       5.4%      12,718       6.0%
Consumer and installment                 990       0.5%       1,035       0.5%
Home equity                           47,538      22.9%      48,239      22.8%
                                    --------    -------    --------    -------
Gross loans                          207,227     100.0%     211,115     100.0%
                                                -------                -------
Less: Net deferred costs                 117                    131
                                    --------               --------
Total loans                          207,344                211,246
Less: Allowance for loan losses        2,623                  2,819
                                    --------               --------
Net Loans                           $204,721               $208,427
                                    --------               --------

Securities available for sale decreased $3.6 million, or 9.8%, from $36.8 million at year-end 2008 to $33.2 million at March 31, 2009. Securities held to maturity stayed constant at $12.3 million at December 31, 2008 and March 31, 2009. The Company did not purchase securities in the first three months of 2009 and $3.9 million in securities matured, were called or were prepaid. There were $662 thousand in recorded unrealized gains in the available for sale portfolio at March 31, 2009 and $11 thousand in net amortization expenses during the first three months of 2009.

Total deposits increased $8.4 million, or 3.4%, to $258.2million during the first three months of 2009 from $249.8 million at December 31, 2008. NOW deposits increased by $2.5 million, savings deposits decreased by $2.6 million, money market deposits increased $6.5 million and demand deposits increased by $2.1 million. Time deposits remained constant at $57.9 million. Management continues to monitor the shift in deposits through its Investment and Asset/Liability Committee.

ASSET QUALITY

At March 31, 2009 non-accrual loans decreased by $1.2 million from $1.4 million at December 31, 2008 to $127 thousand at March 31, 2009. Management continues to monitor the Company's asset quality and believes that the allowance for loan losses is adequate to provide for losses inherent in the portfolio.
(see "Provision for Loan Losses)

The following table provides information regarding risk elements in the loan portfolio:

                                            March 31, 2009    December 31, 2008
                                            --------------    -----------------
                                                  (dollars in thousands)
                                            -----------------------------------
   Non-accrual loans                            $ 127              $ 1,365
   Non-accrual loans to total loans             0.06%               0.65%
   Non-performing assets to total assets        0.04%               0.46%
   Allowance for loan losses
    as a % of non-performing loans              2,065%              207%
   Allowance for loan losses to total loans     1.27%               1.33%

Non-Performing Assets include non-performing loans and other real estate owned ("OREO"), properties acquired through foreclosure or a deed in lieu. At March 31, 2009, we had no OREO, and our only non-performing assets were $127 thousand in non-accrual loans discussed above.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is maintained at a level considered adequate to provide for probable loan losses. The level of the allowance is based on management's evaluation of estimated losses in the portfolio, after consideration of risk characteristics of the loans and prevailing and anticipated economic conditions. Provisions are charged to expense and the allowance is reduced by charge-offs, net of recoveries, and is increased by the provision. Although management strives to maintain an allowance it deems adequate, future economic changes, deterioration of borrowers' creditworthiness, and the impact of examinations by regulatory agencies all could cause changes to the Company's allowance for loan losses.

At March 31, 2009, the allowance for loan losses decreased $196 thousand to $2.6 million compared to $2.8 million at year-end 2008. There were $646 thousand in charge offs, no recoveries and a $450 thousand provision reported in the first three months of 2009. The allowance for loan losses as a percentage of total loans was 1.27% at March 31, 2009 compared to 1.33% at December 31, 2008.

INTEREST RATE SENSITIVITY ANALYSIS

The principal objective of the Company's asset and liability management function is to evaluate the interest-rate risk included in certain balance sheet accounts; determine the level of risk appropriate given the Company's business focus, operating environment, capital and liquidity requirements; establish prudent asset concentration guidelines; and manage the risk consistent with Board approved guidelines. The Company seeks to reduce the vulnerability of its operations to changes in interest rates and to manage the ratio of interest-rate sensitive assets to interest-rate sensitive liabilities within specified maturities or repricing dates. The Company's actions in this regard are taken under the guidance of the Investment and Asset/Liability Committee (ALCO) of the Board of Directors. The ALCO generally reviews the Company's liquidity, cash flow needs, maturities of investments, deposits and borrowings, and current market conditions and interest rates.

One of the monitoring tools used by the ALCO is an analysis of the extent to which assets and liabilities are interest rate sensitive and measures the Company's interest rate sensitivity "gap". An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. Accordingly, during a period of rising rates, a negative gap may result in the yield on the institution's assets increasing at a slower rate than the increase in its cost of interest-bearing liabilities resulting in a decrease in net interest income. Conversely, during a period of falling interest rates, an institution with a negative gap would experience a repricing of its assets at a slower rate than its interest-bearing liabilities which, consequently, may result in its net interest income growing.

The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at the periods indicated which are anticipated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods presented. Except as noted, the amount of assets and liabilities which reprice or mature during a particular period were determined in accordance with the earlier of the term to repricing or the contractual terms of the asset or liability. Loans with adjustable rates are shown as being due at the end of the next upcoming adjustment period. Certificates of deposit are shown at contractual maturity dates. Interest bearing non-maturity deposit balances are allocated within the first three months of the schedule based on recent rate adjustments relative to Federal Reserve monetary policy changes. Residual balances are placed in the over one year category. In making the "gap" computation, loans are presented based on contractual payments and repricing, and standard assumptions regarding prepayment rates on investments have been used for interest-earning assets. The . . .