FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Bank's market area, changes in real estate market values in the Bank's market area, and changes in relevant accounting principles and guidelines. Additional factors that may affect the Company's results are discussed in the Company's Annual Report on Form 10-K under "Item 1A. Risk Factors." These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

CRITICAL ACCOUNTING POLICIES

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider the following to be our critical accounting policies: allowance for loan losses and deferred income taxes.

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover probable credit losses in the loan portfolio at the statement of financial condition date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impacted loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance on a quarterly basis and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectibility of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Office of Thrift Supervision, as an integral part of its examination process, periodically reviews our allowance for loan losses. The Office of Thrift Supervision could require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings. For additional discussion, see note 1 of the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for 2008.

Deferred Income Taxes. We use the asset and liability method of accounting for income taxes as prescribed in Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance would result in additional income tax expense in the period, which would negatively affect earnings.

Second Quarter Performance Highlights

Several one-time and extraordinary items contributed to the Company recording a loss for the second quarter of 2009 of $135,000, its first quarterly loss in 13 years. In particular, non-interest expenses increased $1.0 million to $3.9 million for the second quarter primarily as a result of our branch expansion plans. During the quarter, the Company opened two full service branches in Danvers and Plymouth, Massachusetts. Expenses related to staffing, marketing and furnishing these branches contributed significantly to the net loss for the quarter.

Our second quarter 2009 earnings were further reduced by an FDIC special assessment, which increased our non-interest expenses by $210,000 from the 2008 second quarter. The special assessment was imposed by the FDIC in order to cover the losses of the Deposit Insurance Fund that were incurred from failed financial institutions as well as anticipated future losses.

Our 2009 second quarter performance was positively impacted by a $289,000, 8.9% increase in net interest income to $3.5 million resulting primarily from increases in average balances of our loans, securities and other interest earning assets. The benefit of the rise in net interest income was reduced by a $336,000 provision for loan losses, which exceeded the year-earlier level by $257,000 due to the continuing decline in the local real estate markets and an increase in non-accrual loans to $5.0 million at June 30, 2009 from $1.9 million at December 31, 2008. Reflecting the impact of the recession on certain of our borrowers, net charge-offs rose to $166,000 during the quarter from $0 in the year-earlier three months. The increase was due to charge-offs on two non-performing non-residential mortgage loans totaling $1.5 million.

Comparison of Financial Condition at June 30, 2009 and December 31, 2008

Total assets increased by $93.2 million, or 22.0%, to $517.4 million at June 30, 2009 from $424.2 million at December 31, 2008. The increase in total assets was primarily due to increases of $40.5 million in cash and cash equivalents, $29.5 million in loans receivable, net, $15.4 million in certificates of deposits at other financial institutions, $3.9 million in premises and equipment, $2.1 million in other assets, and $1.4 million in bank owned life insurance. These increases were funded by increases of $88.4 million in deposits and $10.0 million in FHLB of New York advances, partially offset by a decrease of $3.5 million in advance payments by borrowers for taxes and insurance.

Cash and cash equivalents increased by $40.5 million, or 110.8%, to $77.0 million at June 30, 2009, from $36.5 million at December 31, 2008. In addition, certificates of deposits at other financial institutions increased by $15.4 million, or 3,100.0%, to $15.9 million at June 30, 2009, from $498,000 at December 31, 2008. The increase in short-term liquidity was primarily the result of deposit growth outpacing loan demand. The Company expects that balances of cash and cash equivalents and certificates of deposit will decrease over time primarily through the shrinkage in the national CD market certificates of deposit program.

Loans receivable, net, increased by $29.5 million, or 8.1%, to $393.1 million at June 30, 2009 from $363.6 million at December 31, 2008, due to loan originations and purchases aggregating $35.4 million and increases in commercial business loans of $805,000 that exceeded loan repayments of $8.5 million.

Bank owned life insurance increased by $1.4 million, or 15.7%, to $10.3 million at June 30, 2009 from $8.9 million at December 31, 2008 due primarily to the additional purchase of $1.2 million of bank owned life insurance.

Premises and equipment increased by $3.9 million, or 88.7%, to $8.2 million at June 30, 2009 from $4.4 million at December 31, 2008 due to the purchases of the premises and equipment for, and renovation of, the two new branch offices located in Massachusetts, both of which opened in the second quarter of 2009.

Real estate owned decreased by $201,000, or 24.2%, to $631,000 at June 30, 2009 from $832,000 at December 31, 2008 due to the sale of a foreclosed multi-family property located in Hampton, New Hampshire that resulted in net proceeds of $283,000 and a loss of $86,000. The decrease in real estate owned was partially offset by capitalized cost of $168,000 to renovate a foreclosed multi-family building located in Newark, New Jersey.

Other assets increased by $2.1 million to $3.3 million at June 30, 2009 from $1.1 million at December 31, 2008 due primarily to an increase in current tax assets.

Advances from the FHLB increased by $10.0 million or 25.0% to $50.0 million at June 30, 2009 from $40.0 million at December 31, 2008. The increase in borrowings occurred during the first quarter of 2009 and was used to fund loan originations. The Bank did not incur any new borrowings during the quarter ended June 30, 2009.

Deposits increased by $88.4 million, or 33.8%, to $349.8 million at June 30, 2009 from $261.4 million at December 31, 2008. The increase in deposits was primarily attributable to an effort by the Bank to increase deposits through the opening of two new branch offices in Massachusetts during the second quarter of 2009 and the offering of competitive interest rates in our retail branches. During this period, the Bank decreased its reliance on two nationwide certificate of deposit listing services. As a result, our retail branches attracted $98.9 million in additional deposits that were offset by a decrease of $10.5 million in certificates of deposits obtained through the deposit listing services.

Advance payments by borrowers for taxes and insurance decreased by $3.5 million, or 52.2%, to $3.2 million at June 30, 2009 from $6.6 million at December 31, 2008 due primarily to an unusual remittance delay at December 31, 2008 that was resolved in January 2009.

Stockholders' equity increased by $155,000, or 0.1%, to $110.7 million at June 30, 2009, from $110.5 million at December 31, 2008. This increase was primarily the result of net income of $371,000 and the amortization of $102,000 for ESOP shares earned the period, partially offset by a cash dividends declared of $331,000.

Comparison of Operating Results for the Three Months Ended June 30, 2009 and 2008

General. Net income decreased by $580,000, or 130.3%, resulting in a net loss of $135,000 for the quarter ended June 30, 2009, from net income of $445,000 for the quarter ended June 30, 2008. The decrease was primarily the result of increases in additional non-interest expenses associated with the opening of two new branch locations in Massachusetts, the provision for loan losses and FDIC deposit insurance premiums, including a special assessment as of June 30, 2009. These increases were partially offset by an increase in net interest income and a decrease in the provision for income taxes.

Net Interest Income. Net interest income increased by $289,000, or 9.0%, to $3.5 million for the three months ended June 30, 2009 from $3.2 million for the three months ended June 30, 2008. The increase in net interest income resulted primarily from an increase in interest income due primarily to increased loan originations that exceeded an increase in interest expense resulting from increased certificates of deposit and borrowings. The increase in net interest income was partially offset by a decrease of $7.1 million in average net interest-earning assets.

The net interest spread decreased by 16 basis points to 2.42% for the three months ended June 30, 2009 from 2.58% for the three months ended June 30, 2008. The decrease in the interest rate spread in the second quarter of 2009 compared to the same period in 2008 was due to the yield on our interest-earning assets decreasing more than a corresponding decrease in the cost of our interest-bearing liabilities. The yield on our interest-bearing assets decreased by 45 basis points to 5.36% for the three months ended June 30, 2009 from 5.81% for the three months ended June 30, 2008. The cost of our interest-bearing liabilities decreased by 29 basis points to 2.94% for the three months ended June 30, 2009 from 3.23% for the three months ended June 30, 2008. The decrease in both the yield on our interest-earning assets and the cost of our interest-bearing liabilities was due to the decreasing interest rate environment.

The net interest margin decreased by 46 basis points between these periods from 3.52% for the quarter ended June 30, 2008 to 3.06% for the quarter ended June 30, 2009. The increase in the net interest income, despite the declines in net interest spread and net interest margin, was due to an increase in loan volume.

The following table summarizes average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the three months ended June 30, 2009 and 2008.

                                                         Three Months Ended June 30,
                                               2009                                       2008
                                             Interest                                   Interest
                               Average          and          Yield/       Average          and          Yield/
                               Balance       Dividends        Cost        Balance       Dividends        Cost
                                                           (Dollars in thousands)
Assets:
Interest-earning assets:
  Loans                       $ 389,627     $     6,050         6.21 %   $ 318,364     $     5,043         6.34 %
  Securities (including
FHLB stock)                       5,090              58         4.56         3,951              50         5.06
  Other interest-earning
assets                           62,950              27         0.17        43,095             211         1.96
   Total interest-earning
assets                          457,667           6,135         5.36       365,410           5,304         5.81
Allowance for loan losses        (1,919 )                                   (1,489 )
Non-interest-earning assets      29,313                                     20,439
   Total assets               $ 485,061                                  $ 384,360

Liabilities and equity:
Interest-bearing
liabilities:
  Interest-bearing demand     $  27,066     $        62         0.92 %   $  22,173     $        32         0.58 %
  Savings and club accounts      59,020             120         0.81        58,469             112         0.77
  Certificates of deposit       221,501           2,065         3.73       162,456           1,802         4.44
   Total interest-bearing
deposits                        307,587           2,247         2.92       243,098           1,946         3.20

Borrowings                       50,489             382         3.03        15,637             141         3.61
   Total interest-bearing
liabilities                     358,076           2,629         2.94       258,735           2,087         3.23

Noninterest-bearing demand        6,503                                      4,283
Other liabilities                 9,529                                     11,899
   Total liabilities            374,108                                    274,917

Stockholders' equity            110,953                                    109,443
   Total liabilities and
Stockholders' equity          $ 485,061                                  $ 384,360
Net interest income                         $     3,506                                $     3,217
Interest rate spread                                            2.42 %                                     2.58 %
Net interest margin                                             3.06 %                                     3.52 %
Net interest-earning assets   $  99,591                                  $ 106,675
Interest-earning assets to
interest-bearing
liabilities                      127.81 %                                   141.23 %

Total interest income increased by $831,000, or 15.7%, to $6.1 million for the three months ended June 30, 2009, from $5.3 million for the three months ended June 30, 2008. Interest income on loans increased by $1.0 million, or 20.0%, to $6.0 million for the three months ended June 30, 2009 from $5.0 million for the three months ended June 30, 2008. The average balance of the loan portfolio increased by $71.3 million to $389.6 million for the three months ended June 30, 2009 from $318.4 million for the three months ended June 30, 2008 as originations outpaced repayments. The average yield on loans decreased by 13 basis points to 6.21% for the three months ended June 30, 2009 from 6.34% for the three months ended June 30, 2008.

Interest income on securities increased by $8,000, or 16.0%, to $58,000 for the three months ended June 30, 2009 from $50,000 for the three months ended June 30, 2008. The increase was primarily due to an increase of $1.1 million, or 28.8%, in the average balance of securities to $5.1 million for the three months ended June 30, 2009 from $4.0 million for the three months ended June 30, 2008. The increase in the average balance was due to an increase in FHLB New York stock. The increase in the average balance was offset by a decrease of 50 basis points in the average yield on securities to 4.56% for the three months ended June 30, 2009 from 5.06% for the three months ended June 30, 2008. The decline in the yield was due to the decline in interest rates from June 30, 2008 to June 30, 2009.

Interest income on other interest-earning assets (consisting solely of interest-earning deposits) decreased by $184,000, or 87.2%, to $27,000 for the three months ended June 30, 2009 from $211,000 for the three months ended June 30, 2008. The decrease was primarily the result of a decrease of 179 basis points in the yield to 0.17% for the three months ended June 30, 2009 from 1.96% for the three months ended June 30, 2008, offset by an increase of $19.9 million, or 46.1%, in the average balance of other interest-earning assets to $63.0 million for the three months ended June 30, 2009 from $43.1 million for the three months ended June 30, 2008. The decline in the yield was due to the decline in interest rates from June 30, 2008 to June 30, 2009. The increase in the average balance of other interest-earning assets was due to the increase in cash and cash equivalents and certificates of deposit.

Total interest expense increased by $542,000, or 26.0%, to $2.6 million for the three months ended June 30, 2009 from $2.1 million for the three months ended June 30, 2008. Interest expense on deposits increased by $301,000, or 15.5%, to $2.2 million for the three months ended June 30, 2009 from $1.9 million for the three months ended June 30, 2008. During this same period, the average cost of deposits decreased by 28 basis points to 2.92% for the three months ended June 30, 2009 from 3.20% for the three months ended June 30, 2008.

Due to an effort by the Bank to increase deposits through the opening of two new branch offices in Massachusetts during the second quarter of 2009, the offering of competitive interest rates in our retail branches, and less reliance on two nationwide certificate of deposit listing services, the average balance of certificates of deposits increased by $59.0 million, or 36.4%, to $221.5 million for the three months ended June 30, 2009 from $162.5 million for the three months ended June 30, 2008. Concurrent with the increase in the average balance of certificates of deposits, interest expense on our certificates of deposits increased by $263,000, or 14.6%, to $2.1 million for the three months ended June 30, 2009 from $1.8 million for the three months ended June 30, 2008. The increase in the average balance of certificates of deposits was offset by a decrease in the average cost of our certificates of deposits of 71 basis points to 3.73% for the three months ended June 30, 2009 from 4.44% for the three months ended June 30, 2008.

Interest expense on our other deposit products increased by $38,000, or 26.4%, to $182,000 for the three months ended June 30, 2009 from $144,000 for the three months ended June 30, 2008. The increase was due to an increase of 4 basis points in the cost of our savings and holiday club deposits to 0.81% for the three months ended June 30, 2009 from 0.77% for the three months ended June 30, 2008 and an increase of 34 basis points in the cost of our interest-bearing demand deposits to 0.92% for the three months ended June 30, 2009 from 0.58% for the three months ended June 30, 2008. The increase in interest expense was also due to an increase of $4.9 million, or 22.1%, in the average balance of interest-bearing demand deposits to $27.1 million for the three months ended June 30, 2009 from $22.2 million for the three months ended June 30, 2008 and an increase of $551,000, or 0.9%, in the average balance of our savings and holiday club deposits to $59.0 million for the three months ended June 30, 2009 from $58.5 million for the three months ended June 30, 2008.

Interest expense on borrowings increased by $241,000, or 170.9%, to $382,000 for the three months ended June 30, 2009 from $141,000 for the three months ended June 30, 2008. The increase was primarily due to an increase of $34.9 million, or 222.9%, in the average balance of borrowed money to $50.5 million for the three months ended June 30, 2009 from $15.6 million for the three months ended June 30, 2008. Interest expense on borrowed money for the three months ended June 30, 2009 was comprised of $377,000 in interest expense on an average balance of $50.0 million in FHLB advances and $5,000 in interest expense on an average balance of $489,000 on a note payable incurred in connection with the acquisition of the operating assets of Hayden Financial Group LLC (now operating as Hayden Wealth Management Group, the Bank's investment advisory and financial planning service division) in the fourth quarter of 2007. This compared to interest expense from FHLB advances of $133,000 on an average balance of $15.0 million in FHLB advances and $8,000 in interest expense on an average balance of $637,000 on the Hayden acquisition note for the three months ended June 30, 2008.

Provision for Loan Losses. The following table summarizes the activity in the allowance for loan losses and provision for loan losses for the three months ended June 30, 2009 and 2008.

                                                                 Three Months
                                                                Ended June 30,
                                                            2009              2008
                                                            (Dollars in thousands)
Allowance at beginning of
period                                                   $     1,915       $     1,489
Provision for loan
losses                                                           336                79
Charge-offs                                                      166                 -
Recoveries                                                         -                 -
Net
charge-offs                                                      166                 -
Allowance at end of
period                                                   $     2,085       $     1,568

Allowance to nonperforming
loans                                                          39.77 %           57.82 %
Allowance to total loans outstanding at the end of the
period                                                          0.53 %            0.48 %
Net charge-offs to average loans outstanding during
the period (annualized)                                         0.09 %            0.00 %

The allowance for loan losses was $2.09 million at June 30, 2009, $1.87 million at December 31, 2008, and $1.57 million at June 30, 2008. We recorded provisions for loan losses of $336,000 and $79,000 for the three-month periods ended June 30, 2009 and 2008. The primary reason for the increased provision during the first half of 2009 was the continued deterioration of the national and local economies and the deterioration in local real estate markets. Recognizing this deterioration, the Bank slowed loan growth during the first half of the year leading to a modest increase in the total loan portfolio of $8.7 million or 2.3% to $395.2 million at June 30, 2009 from $386.5 million at March 31, 2009. During the three months ended June 30, 2009 we also charged-off $166,000 against two non-performing non-residential mortgage loans totalling $1.5 million. We did not have any recoveries during the three months ended June 30, 2009.

We did not record any loan charge-offs or recoveries during the three months ended June 30, 2008.

Non-interest Income. Non-interest income decreased by $25,000, or 6.3%, to $374,000 for the three months ended June 30, 2009 from $399,000 for the three months ended June 30, 2008. The decrease was primarily due to a $25,000 decrease in other loan fees and service charges and a $21,000 decrease in fee income generated by Hayden Wealth Management Group, the Bank's investment advisory and financial planning services division, offset by a $21,000 increase in earnings on bank owned life insurance.

Non-interest Expense. Non-interest expense increased by $1.1 million, or 36.8%, to $3.9 million for the three months ended June 30, 2009 from $2.8 million for the three months ended June 30, 2008. The increase resulted primarily from increases relating to the opening of two new branch locations in Massachusetts and FDIC deposit insurance premiums. Specifically, the Company recorded increases of $259,000 in other non-interest expense, $226,000 in salaries and employee benefits, $210,000 in FDIC insurance expense, $126,000 in advertising expense, $96,000 in occupancy expense, $63,000 in equipment expense, $35,000 in real estate owned expenses, and $24,000 in outside data processing expense.

. . .