GENERAL

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 and the exhibits thereto), in its reports to stockholders 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 that 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, inflation, interest rate, market and monetary fluctuations; 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 willingness of users to substitute competitors' products and services for the Company's products and services; the success of the Company in gaining regulatory approval of its products and services, when required; the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes, acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing.

The Company cautions that the foregoing list of important factors is 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 Company.

Financial Position

The Company's total assets at March 31, 2009 and December 31, 2008 were $723.9 million and $733.7 million, respectively, a decrease of $9.8 million, or 1.3% during the three-month period. Investment securities available for sale decreased $3.1 million due to the sale of a debt security. Mortgage-backed securities available for sale decreased by $6.1 million due to principal repayments received of $7.2 million, offset by an increase in the fair value of the securities of $1.0 million and net discount accretion of $0.1 million. Mortgage-backed securities held to maturity decreased by $0.2 million mainly as a result of principal repayments.

Loans receivable decreased by $3.3 million during the first three months of 2009. Consumer and single-family residential mortgage loans of $15.0 million and commercial loans of $8.0 were originated during the first quarter of 2009. Principal repayments of loans receivable totaled $23.4 million. During the first quarter of 2009, the Company increased the allowance for loan losses by $665,000 and also transferred $2.2 million from loans to real estate owned as a result of real estate acquired through foreclosure. Loans originated for sale during the first three months of 2009 totaled $12.3 million, and there was $12.5 million in proceeds from the sale of loans in the secondary market during this period.

Total liabilities decreased by $11.0 million during the first quarter of 2009. Deposit balances grew by $14.7 million due to an increase of $6.2 million in retail certificates of deposit and an increase in money market and interest checking accounts of $12.3 million during this time period. Non-interest checking and savings accounts decreased by $3.8 million. Advances from the Federal Home Loan Bank decreased by $26.6 million in the first three months of 2009, the result of a $13.6 million decrease in short-term borrowings and scheduled amortization payments of $13.0 million.

Total consolidated stockholder's equity of the Company was $68.9 million or 9.5% of total assets at March 31, 2009. During the first three months of 2009, the Company repurchased 4,377 shares of its common stock and issued 5,000 shares pursuant to the exercise of stock options. At March 31, 2009, there were approximately 102,000 shares available for repurchase under the previously announced share repurchase plan.

Asset Quality

At the end of the first quarter of 2009, the Company completed foreclosure proceedings on three parcels of real estate which have been recorded as real estate owned totaling $2.2 million and are included in other assets in the consolidated balance sheet at March 31, 2009. These loans were non-performing at December 31, 2008. As a result of these foreclosures, the Bank recorded a charge-off in the amount of $94,000. One property with a carrying value of $750,000 has been sold at a sheriff's sale and the Company is currently awaiting distribution of the proceeds which are in excess of the carrying value of the property. During the first three months of 2009 and 2008, the Company's provision for loan losses was $665,000 and $0, respectively. With respect to each of the remaining non-performing loans, all of which are real estate secured, the Bank is taking appropriate steps to resolve the individual situations.

The following table sets forth information regarding the Company's asset quality (dollars in thousands):

                                                March 31,      December 31,      March 31,
                                                   2009            2008             2008

Non-performing loans                           $      3,486    $       5,279    $      3,144
Ratio of non-performing loans to gross
loans                                                  0.64 %           0.96 %          0.58 %
Ratio of non-performing loans to total
assets                                                 0.48 %           0.72 %          0.44 %
Ratio of total non-performing assets to
total assets                                           0.78 %           0.72 %          0.48 %
Ratio of allowance for loan losses to total
loans                                                  0.81 %           0.70 %          0.46 %
Ratio of allowance for loan losses to
non-performing loans                                 126.94 %          73.03 %         79.61 %

Management maintains an allowance for loan losses at levels that are believed to be adequate; however, there can be no assurances that further additions will not be necessary or that losses inherent in the existing loan portfolio will not exceed the allowance. The following table sets forth the activity in the allowance for loan losses during the periods indicated (in thousands):

                                 2009      2008
Beginning balance, January 1,   $ 3,855   $ 2,842
Provision                           665         -
Less: charge-off's, net              95       339
Ending balance, March 31,       $ 4,425   $ 2,503

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

Net Income. The Company recorded net income of $1,020,000, or $0.41 per diluted share, for the three months ended March 31, 2009 as compared to net income of $1,281,000, or $0.48 per diluted share, for the three months ended March 31, 2008.

Average Balance Sheet

The following table sets forth information (dollars in thousands) relating to the Company's average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. Yield and cost are computed by dividing income or expense by the average daily balance of interest-earning assets or interest-bearing liabilities, respectively, for the three-month periods indicated.

                                                       March 31,
                                       2009                                 2008
                          Average                 Average      Average                 Average
                          balance     Interest    yld/cost     balance     Interest    yld/cost
ASSETS
Interest-earning
assets:
Loans receivable(1)      $ 545,097   $    7,655       5.70 %  $ 528,865   $    8,183       6.22 %
Mortgage-backed
securities                 109,377        1,385       5.14 %    102,223        1,231       4.84 %
Investment
securities(2)               39,458          379       3.90 %     41,783          519       5.00 %
Other interest-earning
assets(3)                      501            - *        - %        971            6       2.49 %
Total interest-earning
assets                     694,433        9,419       5.50 %    673,842        9,939       5.93 %
Non interest-earning
assets                      34,984                               34,879
Total assets             $ 729,417                            $ 708,721
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Deposits                   494,969        2,513       2.06 %    473,160        3,286       2.79 %
Borrowings from the
FHLB and other
borrowings                 157,928        1,285       3.30 %    159,051        1,632       4.13 %
Total interest-bearing
liabilities                652,897        3,798       2.36 %    632,211        4,918       3.13 %
Non interest-bearing
liabilities                  8,471                                8,531
Total liabilities          661,368                              640,742
Stockholders' equity        68,049                               67,979
Total liabilities and
stockholders' equity     $ 729,417                            $ 708,721
Net interest
income-tax equivalent
basis                                $    5,621                           $    5,021
Interest rate
spread(4)-tax
equivalent basis                                      3.14 %                               2.80 %
Net yield on
interest-earning
assets(5) -tax
equivalent basis                                      3.28 %                               3.00 %
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities                                         106.36 %                             106.58 %
Less: tax-equivalent
interest adjustment                        (102 )                               (106 )
Net interest income                  $    5,519                           $    4,915
Interest rate
spread(4)                                             3.08 %                               2.74 %
Net yield on
interest-earning
assets(5)                                             3.23 %                               2.93 %

Rate/Volume Analysis

The following table presents, for the periods indicated, the change in interest income and interest expense (in thousands) attributed to (i) changes in volume (changes in the weighted average balance of the total interest earning asset and interest bearing liability portfolios multiplied by the prior year rate), and
(ii) changes in rate (changes in rate multiplied by prior year volume). Changes attributable to the combined impact of volume and rate have been allocated proportionately based on the absolute value of changes due to volume and changes due to rate.

                                                    Three months ended March 31,
                                                            2009 vs 2008
                                                     Increase (decrease) due to
                                                  Volume          Rate         Net
Interest income:
Loans receivable, net                           $    1,343    $     (1,871 ) $  (528 )
Mortgage-backed securities                              83              71       154
Investment securities (1)                              (28 )          (112 )    (140 )
Other interest-earning assets                           (2 )            (4 )      (6 )
Total interest-earning assets                        1,396          (1,916 )    (520 )
Interest expense:
Deposits                                               921          (1,694 )    (773 )
Borrowings from the FHLB and other borrowings          (12 )          (335 )    (347 )
Total interest-bearing liabilities                     909          (2,029 )  (1,120 )
Net change in net interest income               $      487    $        113   $   600

Total Interest Income. Total interest income, on a tax equivalent basis, decreased by $520,000 for the quarter ended March 31, 2009 compared with the first quarter of 2008. The average balance of loans outstanding increased by $16.2 million between the two periods as a result of loan originations added to the portfolio during the intervening period. However, the average yield on loans decreased 52 basis points primarily as a result of the Bank's reduction of its prime rate four times during the last three quarters of 2008 by a combined 200 basis points mirroring the action taken by the Federal Open Market Committee (FOMC) when it acted to reduce the fed funds rate. Interest income from mortgage-backed securities was higher in the first quarter of 2009 versus the same period of 2008 as security purchases in excess of principal repayments during the intervening period resulted in higher average balances of these securities. Interest income from investment securities decreased as a result of the suspension of dividends paid during the first quarter of 2009 on the Company's $9.9 million required holdings of FHLB stock.

Total Interest Expense. Total interest expense decreased by $1.1 million to $3.8 million during the quarter ended March 31, 2009 as compared with the first quarter of 2008. Despite an increase in the average outstanding balance of deposits of $21.8 million between the two quarters, interest rates paid on the Bank's deposits were significantly lower during the 2009 period.

Interest expense associated with borrowings from the Federal Home Loan Bank and Federal Reserve Bank was $347,000 lower in the first quarter of 2009 compared to the first quarter of 2008. During the intervening period, the interest rate on short-term advances decreased and advances with a higher cost matured which resulted in an 83 basis point decline in the cost associated with borrowings from the FHLB and other borrowings.

Non-interest income. Total non-interest income was $935,000 for the first quarter of 2009 compared with $1,111,000 for the same period in 2008.Amortization of mortgage servicing rights in the first quarter of 2009 increased thereby reducing loan servicing income between the periods by $39,000. Overdraft fees earned in first three months of 2009 were $60,000 lower than the same period in 2008. The first quarter of 2008 included a $197,000 insurance claim recovery. Additionally, other income during the first quarter of 2008 included $100,000 of non-recurring income recognized due to forfeited deposits on real estate held for development.Offsetting these decreases was a gain on the sale of an investment security of $190,000 in the first quarter of 2009 while there was no such gain in the first quarter of 2008. Also, during 2009, the gain on sale of loans rose $86,000 as a result of the high level of residential loan refinancing activity which occurred in 2009.

Non-interest expense. Total non-interest expense increased by $162,000 to $4.4 million for the three months ended March 31, 2009 compared to the same period in 2008. Employee compensation increased by $217,000 the combined result of annual salary increases and decreased commercial loan originations which lowered the deferral of in-house compensation costs. Also, costs associated with employee benefit plans rose $87,000 between the two quarters. Offsetting these increases was a decrease in compensation expense associated with stock options and grants of $166,000 as a result of substantial completion of the vesting period used for expense recognition in 2008. The decrease in occupancy and equipment costs is due to the closing of the branch office on Quakerbridge Road in Mercer County during the second quarter of 2008. Professional fees increased between the two periods as a result of higher legal costs associated with non-performing loans during the 2009 quarter. Other operating expense during the first quarter of 2009 included an increase in robbery and deposit related losses of $50,000.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

The Company's liquidity is a measure of its ability to fund loans, pay withdrawals of deposits, and other cash outflows in an efficient, cost-effective manner. The Company's short-term sources of liquidity include maturity, repayment and sales of assets, excess cash and cash equivalents, new deposits, broker deposits, other borrowings, and new borrowings from the Federal Home Loan Bank. There has been no material adverse change during the three-month period ended March 31, 2009 in the ability of the Company and its subsidiaries to fund their operations.

At March 31, 2009, the Company had commitments outstanding under letters of credit of $1.3 million, commitments to originate loans of $20.3 million, and commitments to fund undisbursed balances of closed loans and unused lines of credit of $49.1 million. At March 31, 2009, the Bank had $11.2 million outstanding commitments to sell loans. There has been no material change during the three months ended March 31, 2009 in any of the Company's other contractual obligations or commitments to make future payments.

Capital Requirements

The Bank was in compliance with all of its capital requirements as of March 31, 2009.

CRITICAL ACCOUNTING POLICIES

Certain critical accounting policies of the Company require the use of significant judgment and accounting estimates in the preparation of the consolidated financial statements and related data of the Company. These accounting estimates require management to make assumptions about matters that are highly uncertain at the time the accounting estimate is made. Management believes that the most critical accounting policy requiring the use of accounting estimates and judgment is the determination of the allowance for loan losses. If the financial position of a significant amount of debtors should deteriorate more than the Company has estimated, present reserves for loan losses may be insufficient and additional provisions for loan losses may be required. The allowance for loan losses was $4.4 million at March 31, 2009.