This discussion and analysis reflects the Company's consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations. You should read the information in this section in conjunction with the Company's consolidated financial statements and accompanying notes thereto beginning on page F-1 following Item 15 of this Form 10-K.

Overview

Our primary business is attracting retail deposits from the general public and using those deposits, together with funds generated from operations, principal repayments on securities and loans and borrowed funds, for our lending and investing activities. Our loan portfolio consists of one- to four-family residential real estate mortgages, commercial real estate mortgages, construction loans, commercial loans, home equity loans and lines of credit, and other consumer loans. We also invest in U.S. government obligations and mortgage-backed securities.

We reported net income of $212,000 for the fiscal year ended June 30, 2009 as compared to net income of $612,000 for fiscal 2008.

Net interest income for fiscal 2009 was up approximately 15.4% as compared to fiscal 2008 while non-interest expense was up approximately 15.3%. The interest rate spread increased in fiscal 2009

Total assets were $352.3 million at June 30, 2009, a 14.3% increase compared to $308.1 million at June 30, 2008. The increase in assets occurred primarily as the result of a $21.8 million increase in loans receivable, net and an increase of $15.9 million in securities held to maturity. Deposits were $272.3 million at June 30, 2009, compared to $225.4 million at June 30, 2008. FHLB advances were $36.2 million at June 30, 2009, down slightly from $37.1 million at June 30, 2008.

Stockholders' equity at June 30, 2009 was $41.0 million compared to our stockholders' equity at the prior year-end of $43.4 million, primarily due to the repurchase of treasury stock during the fiscal year 2009, offset by net income from the period. Our return on average equity for fiscal 2009 was 0.50%, compared to 1.39% for fiscal 2008. The decrease in return on average equity for 2009 reflects the reduction in net income for the fiscal year ended June 30, 2009 as compared the year ended June 30, 2008.

The Bank experienced considerable deposit growth during the months of January, February and March 2009. During this period deposit balances grew by approximately $33.6 million, or 14.3%. The increase in deposits was attributed to customers seeking a safe harbor for their funds due to the declining interest rate environment and stock market uncertainty. This "flight to safety" resulted in the Bank not having to borrow overnight funds since January 26, 2009. During this period, deposit growth exceeded continued loan demand resulting in the purchase of investment securities. Management had explored the option of paying down its longer-term borrowings however it was deemed not to be cost effective.

Critical Accounting Policies

Our accounting policies are integral to understanding the results reported and are described in Note 2 to our consolidated financial statements beginning on page F-1. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates. A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses.

The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level by management which represents the evaluation of known and inherent risks in the loan portfolio at the consolidated balance sheet date that are both probable and reasonable to estimate. Management's periodic evaluation of the adequacy of the allowance is based on the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans.

The allowance consists of specific and general components. The specific component related to loans that are classified as doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential mortgage loans for impairment disclosures.

Although specific and general loan loss allowances are established in accordance with management's best estimate, actual losses are dependent upon future events and, as such, further provisions for loan losses may be necessary in order to increase the level of the allowance for loan losses. For example, our evaluation of the allowance includes consideration of current economic conditions, and a change in economic conditions could reduce the ability of our borrowers to make timely repayments of their loans. This could result in increased delinquencies and increased non-performing loans, and thus a need to make increased provisions to the allowance for loan losses, which would be a charge to income during the period the provision is made, resulting in a reduction to our earnings. A change in economic conditions could also adversely affect the value of the properties collateralizing our real estate loans, resulting in increased charge-offs against the allowance and reduced recoveries, and thus a need to make increased provisions to the allowance for loan losses. Furthermore, a change in the composition of our loan portfolio or growth of our loan portfolio could result in the need for additional provisions.

Comparison of Financial Condition at June 30, 2009 and 2008

General. Total assets reached $352.3 million at June 30, 2009, compared to $308.1 million at June 30, 2008. The increase was fueled by loan originations and purchase of securities, the funding for which was provided primarily by a $46.9 million or 20.8% increase in deposits, to $272.3 million at June 30, 2009, compared to $225.4 million at June 30, 2008.

Total assets grew $44.2 million or 14.3% between years while total liabilities increased by $46.6 million or 17.6%, and the ratio of average interest-earning assets to average-interest bearing liabilities decreased to 112.42% for fiscal 2009 as compared to 115.73% for fiscal 2008.

Loans. Loans receivable, net, rose to $276.1 million at June 30, 2009 from $254.3 million at June 30, 2008, an increase of $21.8 million, or 8.6%. As a percentage of assets, loans decreased to 78.4% from 82.5%. The Bank experienced strong demand for its one-to-four family residential loans in its market area; the one-to-four family portfolio grew by $9.3 million or 6.4% during the year. Home equity loans grew by $7.4 million, a 13.5% increase, while commercial real estate loans increased by $4.0 million, or 13.5%, construction loans increased by $3.2 million, or 18.0%, and commercial business loans increased

Securities. Our portfolio of securities held to maturity was at $44.7 million at June 30, 2009 as compared to $28.7 million at June 30, 2008. Maturities, calls and principal repayments during the year totaled $10.3 million as compared to $20.6 million during the prior year. We purchased $26.3 million of new securities during the year ended June 30, 2009 compared to $20.0 million during the year ended June 30, 2008.

Deposits. Total deposits at June 30, 2009 were $272.3 million, a $46.9 million increase as compared to $225.4 million at June 30, 2008. Savings and club accounts increased by $42.4 million, certificate of deposit accounts increased by $5.4 million, and demand accounts, in the aggregate, decreased by $874,000.

Borrowings. Total borrowings at June 30, 2009 amounted to $36.2 million, compared to $37.1 million at June 30, 2008. The Bank did not make any long term borrowings during 2009 and did not have short-term borrowings at June 30, 2009 and 2008.

Equity. Stockholders' equity was $41.0 million at June 30, 2009 as compared to $43.4 million at June 30, 2008, reflecting a decrease of $2.4 million for the period ended June 30, 2009. The decrease in equity was primarily attributed to the repurchase of $2.6 million in treasury stock, along with $254,000 in cash dividends declared on our common stock, offset by $212,000 in net income, $166,000 in stock based compensation and $162,000 in ESOP shares earned.

Comparison of Operating Results for the Two Years Ended June 30, 2009

General. Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. It is a function of the average balances of loans and investments versus deposits and borrowed funds outstanding in any one period and the yields earned on those loans and investments and the cost of those deposits and borrowed funds. Our results of operations are also affected by our provision for loan losses, non-interest income and non-interest expense. Non-interest income includes service fees and charges, including income on bank owned life insurance. Non-interest expense includes salaries and employee benefits, occupancy and equipment expense and other general and administrative expenses such as service bureau fees and advertising costs.

Our net income for the year ended June 30, 2009 was $212,000, a 65.4% decrease compared to net income of $612,000 for the year ended June 30, 2008. A $1.2 million or 15.4% increase in net interest income and a $185,000 decrease in income tax expense were offset by an increase of $648,000 in the provision for loan losses, a decrease of $22,000 or 3.9% in other non-interest income, and a $1.1 million or 15.3% increase in non-interest expense for the year ended June 30, 2009.

Net Interest Income. Net interest income for the year ended June 30, 2009 amounted to $8.8 million, 15.4% higher than net interest income for the year ended June 30, 2008 of $7.6 million. A $1.3 million, or 13.9% decrease in interest expense for the year ended June 30, 2009 was partially offset by a $90,000 or 0.5% decrease in interest income.

Average earning assets increased by $27.8 million or 10.0% for the year ended June 30, 2009, compared to the year ended June 30, 2008, whereas the average rate on earning assets decreased by 57 basis points to 5.40% for the year ended June 30, 2009, resulting in a decrease of $90,000 or 0.5% in total interest income compared to the year ended June 30, 2008. Interest income on loans decreased slightly by

Total interest expense decreased $1.3 million or 13.9% for the year ended June 30, 2009, compared to the year ended June 30, 2008. Average interest-bearing liabilities increased $31.8 million or 13.2%, from $240.5 million for the year ended June 30, 2008, to $272.3 million for the year ended June 30, 2009, the effect of which was more than offset by a 90 basis point decrease in the average rate from 3.76% to 2.86%, for the respective periods. Interest expense on deposits decreased $1.3 million or 17.6% for the year ended June 30, 2009, compared to the year ended June 30, 2008, as a result of a 97 basis point reduction to 2.73% in the average rate on interest-bearing deposits, tempered by an increase of $24.4 million or 11.8% in average interest-bearing deposits. The average balance of savings balances increased $39.5 million or 77.3%, whereas average certificates of deposit reflected a decrease of $14.3 million or 11.0%, as did NOW and money market balances with a decrease of $731,000 or 2.7% for the year ended June 30, 2009 compared to the same period ended June 30, 2008. The average rate on savings deposits, certificates of deposit and NOW and money market accounts decreased by 26 basis points, 115 basis points, and 27 basis points, respectively, for the year ended June 30, 2009 compared to the year ended June 30, 2008. Total interest expense on borrowings increased by $91,000 or 6.7% for the year ended June 30, 2009, compared to the same period ended June 30, 2008. Federal Home Loan Bank advance average balances increased $7.4 million or 22.3%, whereas the average rate decreased by 53 basis points, from 4.13% to 3.60%, for the year ended June 30, 2009 compared to the same period ended June 30, 2008.

Our net interest rate spread was 2.54% for the year ended June 30, 2009 and 2.21% for the year ended June 30, 2008. The spread increased during the year ended June 30, 2009 as our average cost of interest-bearing liabilities decreased by 90 basis points to 2.86% from 3.76% during the year ended June 30, 2008. Correspondingly, the average yield on interest-earning assets decreased 57 basis points from 5.97% for the year ended June 30, 2008 to 5.40% for the year ended June 30, 2009.

Provision for Loan Losses. The allowance for loan losses is a valuation account that reflects our estimation of the losses inherent in our loan portfolio to the extent they are both probable and reasonable to estimate. The allowance is established through provisions for loan losses that are charged to income in the period they are established. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. Recoveries on loans previously charged-off are added back to the allowance. The provision for the year ended June 30, 2009 was $783,000 as compared to $135,000 for the year before. The allowance for loan losses as a percentage of non-performing loans was 18.73% at June 30, 2009 compared to 19.79% at June 30, 2008 and the allowance for loan losses as a percentage of total loans was 0.64% at June 30, 2009 compared to 0.40% at June 30, 2008. While at June 30, 2009 non-performing loans increased $4.5 million from the prior year, most of these loans are adequately collateralized by real estate. Of the $9.7 million in non-performing loans at June 30, 2009, $3.2 million required specific loss allowances totaling $579,000.

Income from fees and service charges is the largest regular component of non-interest income and totaled $329,000 and $353,000 for the years ended June 30, 2009 and 2008, respectively.

The unrealized loss on the Bank's trading security portfolio was $45,000 and $32,000 for the years ended June 30, 2009 and 2008, respectively.

Income on bank owned life insurance was $157,000 and $158,000 for the years ended June 30, 2009 and 2008, respectively.

Other non-interest income was $105,000 and $89,000 for the years ended June 30, 2009 and 2008, respectively.

Non-Interest Expenses. Total non-interest expenses grew by $1.1 million or 15.3% during the year ended June 30, 2009 and amounted to $8.2 million and $7.1 million for the years ended June 30, 2009 and 2008, respectively.

Salaries and employee benefits expense totaled $3.6 million for the year ended June 30, 2009 and was $262,000 or 7.8% higher than the prior year. The increase in expense for the year ended June 30, 2009 primarily reflects an increase in personnel with the opening of the Bank's Bernardsville branch in August 2008, and normal salary increases. Salaries and employee benefits are our main non-interest expense and represented 44.4% and 47.5% of non-interest expenses for the years ended June 30, 2009 and 2008, respectively. The $62,000 increase in director's compensation was primarily due to the addition of a stock option plan in May 2008. FDIC assessment expense was $482,000 for the year ended June 30, 2009 compared to $109,000 for the year ended June 30, 2008, representing an increase of $373,000 or 342.2%. The increase in FDIC assessment expense is directly related to increased premiums and an industry-wide special assessment the Bank was charged during the year ended June 30, 2009. The increases in occupancy and equipment, advertising and other miscellaneous expense of $314,000 or 24.5%, $60,000 or 29.1%, and $94,000 or 6.9% respectively, for the year ended June 30, 2009 compared to the year ended June 30, 2008, reflect increases in expenses associated with the August 2008 opening of the Bank's Bernardsville branch. The decrease in service bureau fees of $82,000 or 17.4% for the year ended June 30, 2009 compared to June 30, 2008 was due to the negotiation of a new service contract.

Income Taxes. Income tax expense for the year ended June 30, 2009 was $130,000 as compared to $315,000 for the year ended June 30, 2008. The reduction for the year ended June 30, 2009 reflects lower pre-tax income partially offset by an increase in the effective tax rate to 38.0% from 34.0%. The increase in the effective tax rate was due to the increase of qualified stock option expense, which is not tax deductible, and the increase as a percentage of pre-tax income of tax-exempt income from bank owned life insurance.

                                                                                       Year Ended June 30,
                                                   2009                                        2008                                        2007
                                                                                              Interest                                   Interest
                                  Average        Interest        Average         Average      Earned/       Average         Average      Earned/       Average
                                  Balance      Earned/Paid     Yield/ Cost       Balance        Paid      Yield/ Cost       Balance        Paid      Yield/ Cost
                                                                                    (Dollars in thousands)
Interest-earning assets:
Loans(1)                         $  266,164   $       14,837     5.57 %         $  243,879   $   14,974     6.14 %         $  228,069   $   14,527     6.37 %
Securities                           30,303            1,569     5.18 %             28,178        1,383     4.91 %             27,690        1,214     4.38 %
Other interest-earning
assets(2)                             9,656              130     1.35 %              6,260          269     4.30 %              8,539          390     4.57 %
Total interest-earning assets       306,123           16,536     5.40 %            278,317       16,626     5.97 %            264,298       16,131     6.10 %
Non-interest-earning assets          21,289                                         17,008                                     16,555
Total assets                     $  327,412                                     $  295,325                                 $  280,853
Interest-bearing liabilities:
NOW & money market               $   26,175              166     0.63 %         $   26,906          241     0.90 %         $   29,056          279     0.96 %
Savings and club deposits            90,512            2,009     2.22 %             51,048        1,267     2.48 %             48,248          896     1.86 %
Certificates of deposit             115,210            4,154     3.61 %            129,506        6,170     4.76 %            119,364        5,552     4.65 %
Total interest-bearing
deposits                            231,897            6,329     2.73 %            207,460        7,678     3.70 %            196,668        6,727     3.42 %
Federal Home Loan Bank
advances                             40,403            1,455     3.60 %             33,035        1,364     4.13 %             41,297        2,086     5.05 %
Total interest-bearing
liabilities                         272,300            7,784     2.86 %            240,495        9,042     3.76 %            237,965        8,813     3.70 %
Non-interest-bearing deposits        10,101                                          8,540                                      9,804
Other non-interest-bearing
liabilities                           2,916                                          2,300                                      1,879
Total liabilities                   285,317                                        251,335                                    249,648
Stockholder's equity                 42,095                                         43,990                                     31,205
Total liabilities and
stockholder's equity             $  327,412                                     $  295,325                                 $  280,853

Net interest rate spread(3)                   $        8,752     2.54 %                      $    7,584     2.21 %                      $    7,318     2.40 %
Net interest margin(4)                                           2.86 %                                     2.72 %                                     2.77 %
Ratio of interest-earning
assets to
Interest-bearing liabilities         112.42                                         115.73                                     111.07 %

(1) Non-accruing loans have been included, and the effect of such inclusion was not material. The allowance for loan losses is excluded, while construction loans in process and deferred fees are included.

(2) Includes Federal Home Loan Bank stock at cost and term deposits with other financial institutions.

(3) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(4) Net interest margin represents net interest income as a percentage of average interest-earning assets.

                                  Year Ended June 30,                  Year Ended June 30,
                                     2009 vs. 2008                        2008 vs. 2007
                                  Increase (Decrease)                  Increase (Decrease)
                                        Due to                               Due to
                            Volume      Rate         Net          Volume     Rate       Net
                                                     (In thousands)
Interest and dividend
income:
Loans                       $ 1,311     (1,448)       (137)       $   984   $ (537 )   $  447
Securities                      108          78         186            21      148        169
Other interest-earning
assets                          102       (241)       (139)           (99 )    (22 )     (121 )
Increase (decrease) in
total interest income         1,521     (1,611)        (90)           906     (411 )      495

Interest expense:
NOW and money market
accounts                        (6)        (69)        (75)           (20 )    (18 )      (38 )
Savings and club                887       (145)         742            55      316        371
Certificates of deposit       (632)     (1,384)     (2,016)           483      135        618
. . .