Management's Discussion and Analysis of Financial Condition and Results of Operations

Financial Condition

Total assets increased by $19.3 million or 3.3% to $597.9 million at March 31, 2009 from $578.6 million at December 31, 2008. The Bank continued to grow assets, funded primarily through cash flow provided by retail deposit growth, and repayments and prepayments of loans and mortgage backed securities. During the first quarter the Company's balance in interest earning assets increased primarily as a result of an increase in cash and cash equivalents, partially offset by a decrease in loans receivable and a decrease in investment securities categorized as held-to-maturity. Asset growth stabilized as management is concentrating on controlled balance sheet growth and maintaining adequate liquidity in the anticipation of funding loans in the loan pipeline as well as seeking opportunities in the secondary market that provide reasonable returns absent the invocation of undue levels of various forms of risk. During the first quarter, the composition of the Bank's assets has increased to cash and cash equivalents reflecting management's desire to maintain higher than usual liquid investments during the current recessionary and low interest rate period. This decision reflects the lower return available to the Bank in the current environment versus the risk of aggressive lending or investment activity during the current economic downturn. We intend to continue to grow at a measured pace consistent with our capital levels and as business opportunities permit.

Total cash and cash equivalents increased by $35.8 million or 526.5% to $42.6 million at March 31, 2009 from $6.8 million at December 31, 2008. Investment securities classified as held-to-maturity decreased by $10.6 million or 7.5% to $130.7 million at March 31, 2009 from $141.3 million at December 31, 2008. This decrease was primarily attributable to call options exercised on $8.5 million of callable agency securities during the three months ended March 31, 2009 and $2.1 million in repayments and prepayments in the mortgage backed security portfolio. These proceeds were allocated to cash and cash equivalents in an effort to accumulate liquidity in anticipation of future loan closings or investment security purchase opportunities.

Loans receivable decreased by $5.7 million or 1.4% to $401.1 million at March 31, 2009 from $406.8 million at December 31, 2008. The decrease resulted primarily from a $5.5 million decrease in real estate mortgages comprising residential, commercial, construction and participation loans with other financial institutions, net of amortization, and a $771,000 decrease in consumer loans, net of amortization, partially offset by a $1.7 million increase in commercial loans comprising business loans and commercial lines of credit, net of amortization and a $338,000 increase in the allowance for loan losses. The balance in the loan pipeline as of March 31, 2009 stood at $13.0 million. At March 31, 2009, the allowance for loan losses was $5.6 million or 205.46% of non-performing loans.

Deposit liabilities increased by $20.5 million or 5.0% to $431.0 million at March 31, 2009 from $410.5 million at December 31, 2008. The increase resulted primarily from an increase of $15.6 million in time deposit accounts, a $2.8 million increase in transaction accounts, and a $2.1 million increase in savings and club accounts. During the three months ended March 31, 2009, the Federal Open Market Committee, (FOMC) has continued its philosophy of keeping short term interest rates at historically low levels in an effort to lessen the recession in the American economy. This has resulted in a steepening of the yield curve, helping decrease short term time deposit account yields which in turn has had the effect of decreasing interest expense.

The balance of borrowed money decreased by $2.0 million or 1.8% to $114.1 million at March 31, 2009 from $116.1 million at December 31, 2008. The decrease resulted primarily from the repayment of an overnight line of credit at the Federal Home Loan Bank of New York during the three months ended March 31, 2009 utilizing the increase in retail deposits to facilitate the borrowing reduction. The purpose of the borrowings reflects the use of long term Federal Home Loan Bank advances to augment deposits as the Bank's funding source for originating loans and investing in Government Sponsored Enterprise, (GSE) investment securities.

Stockholders' equity increased by $552,000 or 1.1% to $50.3 million at March 31, 2009 from $49.7 million at December 31, 2008. The increase in stockholders' equity is primarily attributable to net income of the Company for the three months ended March 31, 2009 of $1.36 million, partially offset by the payment of a quarterly cash dividend totaling $558,000 representing a $0.12/share payment during the three months ended March 31, 2009, a $231,000 decrease in the market value of our available-for-sale securities portfolio, net of tax, and $25,000 paid to repurchase 2,515 shares of common stock. At March 31, 2009 the Bank's Tier 1, Tier 1 Risk-Based and Total Risk Based Capital Ratios were 9.37%, 13.49% and 14.75% respectively.

Results of Operations

Net income increased by $59,000 or 4.5% to $1.36 million for the three months ended March 31, 2009 from $1.30 million for the three months ended March 31, 2008. The increase in net income primarily reflects an increase in net interest income and a decrease in non-interest expense, partially offset by a decrease in non-interest income and increases in the provision for loan losses and income taxes. Net interest income increased by $244,000 or 5.2% to $4.9 million for the three months ended March 31, 2009 from $4.7 million for the three months ended March 31, 2008. This increase resulted primarily from an increase in average earning assets of $21.6 million or 3.9% to $571.6 million for the three months ended March 31, 2009 from $550.0 million for the three months ended March 31, 2008, funded primarily through an increase in average interest bearing liabilities of $24.4 million or 5.1% to $501.5 million for the three months ended March 31, 2009 from $477.1 million for the three months ended March 31, 2008 and an increase in the net interest margin to 3.44% for the three months ended March 31, 2009 from 3.40% for the three months ended March 31, 2008. Our results have been positively

affected by the steepening yield curve over the past year as our cost of interest bearing liabilities has decreased faster than our yield on interest earning assets.

Interest income on loans receivable increased by $244,000 or 3.7% to $6.89 million for the three months ended March 31, 2009 from $6.65 million for the three months ended March 31, 2008. The increase was primarily attributable to an increase in the balance of average loans receivable of $36.4 million or 9.7% to $410.3 million for the three months ended March 31, 2009 from $373.9 million for the three months ended March 31, 2008, partially offset by a decrease in the average yield on loans receivable to 6.72% for the three months ended March 31, 2009 from 7.08% for the three months ended March 31, 2008. The increase in average loans reflects management's philosophy to deploy funds in higher yielding assets, specifically commercial real estate loans in an effort to achieve higher returns. The decrease in average yield reflects the competitive pricing environment for attracting quality loan product in an increasingly challenging lending landscape.

Interest income on securities held-to-maturity decreased by $359,000 or 15.4% to $1.98 million for the three months ended March 31, 2009 from $2.34 million for the three months ended March 31, 2008. The decrease was primarily attributable to a decrease in the average balance of securities held-to-maturity of $21.1 million or 13.0% to $141.7 million for the three months ended March 31, 2009 from $162.8 million for the three months ended March 31, 2008, and a decrease in the average yield on securities to 5.59% for the three months ended March 31, 2009 from 5.75% for the three months ended March 31, 2008. The decrease in average balance was primarily attributable to call options exercised on a select number of GSE investment securities. The decrease in the average yield reflects the reduction in yield on the remaining investment portfolio subsequent to the higher yielding securities having had their call options exercised by the issuing Government agency.

Interest income on other interest-earning assets decreased by $69,000 or 94.5% to $4,000 for the three months ended March 31, 2009 from $73,000 for the three months ended March 31, 2008. The decrease was primarily due to a decrease in the average yield on other interest-earning assets to 0.08% for the three months ended March 31, 2009 from 2.56% for the three months ended March 31, 2008, partially offset by an increase in the average balance of other interest earning assets of $8.2 million or 71.9% to $19.6 million for the three months ended March 31, 2009 from $11.4 million for the three months ended March 31, 2008. The decrease in the average yield reflects the lower short-term interest rate environment for overnight deposits in 2009 as compared to 2008. The increase in the average balance primarily reflects management's philosophy to have greater liquidity in anticipation of future loan closings or investment security purchase opportunities as the current environment offers limited risk/reward opportunities.

Total interest expense decreased by $428,000 or 9.8% to $3.95 million for the three months ended March 31, 2009 from $4.38 million for the three months ended March 31, 2008. The decrease resulted primarily from a decrease in the average cost of interest bearing liabilities to 3.15% for the three months ended March 31, 2009 from 3.67% for the three months ended March 31, 2008, partially offset by an increase in average interest

bearing liabilities of $24.4 million or 5.1% to $501.5 million for the three months ended March 31, 2009 from $477.1 million for the three months ended March 31, 2008. The decrease in average yield reflects the continuing easing philosophy adopted by the Federal Open Market Committee for the three months ended March 31, 2009 and the ability of the Company to reduce pricing on a select number of retail deposit products thereby reducing interest expense.

The provision for loan losses totaled $350,000 and $250,000 for the three month periods ended March 31, 2009 and 2008, respectively. The provision for loan losses is established based upon management's review of the Bank's loans and consideration of a variety of factors including, but not limited to, (1) the risk characteristics of the loan portfolio, (2) current economic conditions, (3) actual losses previously experienced, (4) level of loan growth and (5) the existing level of reserves for loan losses that are probable and estimable. During the three months ended March 31, 2009, the Bank experienced $13,000 in net charge-offs (consisting of no recoveries and $13,000 in charge-offs). During the three months ended March 31, 2008, the Bank experienced $57,000 in net charge-offs (consisting of $33,000 in recoveries and $90,000 in charge-offs). The Bank had non-performing loans totaling $2.7 million or 0.67% of gross loans at March 31, 2009, $3.7 million or 0.90% of gross loans at December 31, 2008 and $1.5 million or 0.41% of gross loans at March 31, 2008. The allowance for loan losses stood at $5.6 million or 1.38% of gross loans at March 31, 2009, $5.3 million or 1.28% of gross loans at December 31, 2008 and $4.3 million or 1.13% of gross loans at March 31, 2008. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates. Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in the aforementioned criteria. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require the Bank to recognize additional provisions based on their judgment of information available to them at the time of their examination. Management believes that the allowance for loan losses was adequate at March 31, 2009, December 31, 2008 and March 31, 2008.

Total non-interest income decreased by $67,000 or 27.0% to $181,000 for the three months ended March 31, 2009 from $248,000 for the three months ended March 31, 2008. The decrease in non-interest income resulted primarily from a $38,000 decrease in gains on sales of loans originated for sale to $42,000 for the three months ended March 31, 2009 from $80,000 for the three months ended March 31, 2008 and a $29,000 decrease in general fees, service charges and other income to $139,000 for the three months ended March 31, 2009 from $168,000 for the three months ended March 31, 2008. The decrease in gain on sale of loans originated for sale reflects the softening one- to four-family residential real estate market during the three months ended March 31, 2009.

Total non-interest expense decreased by $41,000 or 1.6% to $2.59 million for the three months ended March 31, 2009 from $2.63 million for the three months ended March 31,

2008. Salaries and employee benefits expense decreased by $52,000 or 3.8% to $1.32 million for the three months ended March 31, 2009 from $1.38 million for the three months ended March 31, 2008. This decrease was primarily attributable to a decrease in the number of full time equivalent employees to 82 for the three months ended March 31, 2009, from 84 for the three months ended March 31, 2008, partially offset by salary increases in conjunction with annual reviews. Equipment expense increased by $17,000 or 3.4% to $515,000 for the three months ended March 31, 2009 from $498,000 for the three months ended March 31, 2008. Occupancy expense increased marginally by $1,000 or 0.4% to $264,000 for the three months ended March 31, 2009 from $263,000 for the three months ended March 31, 2008. Advertising expense decreased by $4,000 or 7.8% to $47,000 for the three months ended March 31, 2009 from $51,000 for the three months ended March 31, 2008. Other non-interest expense decreased by $3,000 or 0.7% to $437,000 for the three months ended March 31, 2009 from $440,000 for the three months ended March 31, 2008. Other non-interest expense is comprised of directors' fees, stationary, forms and printing, professional fees, legal fees, check printing, correspondent bank fees, telephone and communication, shareholder relations and other fees and expenses.

The income tax provision increased $59,000 or 7.9% to $803,000 for the three months ended March 31, 2009 from $744,000 for the three months ended March 31, 2008 reflecting increased income earned during the three month time period ended March 31, 2009. The consolidated effective income tax rate for the three months ended March 31, 2009 was 37.1% as compared to 36.3% the three months ended March 31, 2008.