Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward looking statements. Such statements are not historical facts and include expressions about management's confidence and strategies and management's expectations about new and existing programs and products, relationships, opportunities, taxation, technology and market conditions. When used in this and in our future filings with the SEC in our press releases and in oral statements made with the approval of an authorized executive officer, the words or phrases "will," "will likely result," "could," "anticipates," "believes," "continues," "expects," "plans," "will continue," "is anticipated," "estimated," "project" or "outlook" or similar expressions (including confirmations by one of our authorized executive officers of any such expressions made by a third party with respect to us) are intended to identify forward-looking statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, each of which speaks only as of the date made, even if subsequently made available on our website or otherwise. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected.

Factors that may cause actual results to differ from those results, expressed or implied, include, but are not limited to, those discussed under "Business", "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2011 Form 10-K, under this Item 2, and in our other filings with the SEC.

Although management has taken certain steps to mitigate any negative effect of these factors, significant unfavorable changes could severely impact the assumptions used and have an adverse effect on profitability. The Company undertakes no obligation to publicly revise any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.

The following information should be read in conjunction with the consolidated financial statements and the related notes thereto included in the 2011 Form 10-K and in this Form 10-Q.

Critical Accounting Policies and Estimates

The following discussion is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

Note 1 to our audited consolidated financial statements included in the 2011
Form 10-K contains a summary of the Company's significant accounting policies. Management believes the following critical accounting policies encompass the more significant judgments and estimates used in the preparation of our consolidated financial statements.

Allowance for Loan Losses. Management believes our policy with respect to the methodology for the determination of the allowance for loan losses ("ALLL") involves a high 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 the results of operations. This critical policy and its application are reviewed quarterly with our audit committee and Board of Directors.

Management is responsible for preparing and evaluating the ALLL on a quarterly basis in accordance with Bank policy, and the Interagency Policy Statement on the ALLL released by the Board of Governors of the Federal Reserve System on December 13, 2006 as well as GAAP. We believe that our allowance for loan losses is adequate to cover specifically identifiable loan losses, as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable. The allowance for loan losses is based upon management's evaluation of the adequacy of the allowance account, 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 utilizes the best information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short term change. Various regulatory agencies may require us and our banking subsidiaries to make additional provisions for loan losses based upon information available to them at the time of their examination. The majority of our loans are secured by real estate in New Jersey, primarily in Monmouth and Union counties. The Company has also expanded its lending efforts into Middlesex County. Accordingly, the collectability of a substantial portion of the carrying value of our loan portfolio is susceptible to changes in local market conditions and may be adversely affected should real estate values decline or the New Jersey and/or our local market areas experience economic shock.

Stock Based Compensation. Stock based compensation cost has been measured using the fair value of an award on the grant date and is recognized over the service period, which is usually the vesting period. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the option and each vesting date. The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option pricing model. The model requires the use of numerous assumptions, many of which are highly subjective in nature.

Goodwill Impairment. Although goodwill is not subject to amortization, the Company must test the carrying value for impairment at least annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Impairment testing requires that the fair value of our reporting unit be compared to the carrying amount of its net assets, including goodwill. Our reporting unit was identified as our community bank operations. If the fair value of the reporting unit exceeds the book value, no write-down of recorded goodwill is necessary. If the fair value of a reporting unit is less than book value, an expense may be required on the Company's books to write-down the related goodwill to the proper carrying value.

Investment Securities Impairment Valuation. Securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. The analysis of other-than-temporary impairment requires the use of various assumptions including, but not limited to, the length of time the investment's book value has been greater than fair value, the severity of the investment's decline and the credit deterioration of the issuer. For debt securities, management assesses whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment.

In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, the other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

Other Real Estate Owned ("OREO"). OREO includes real estate acquired through foreclosure. Real estate owned is initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. When a property is acquired, the excess of the loan balance over fair value is charged to the allowance for loan losses. Operating results from real estate owned including rental income, operating expenses, and gains and losses realized from the sales of real estate owned are recorded as incurred. OREO is periodically reviewed to ensure that the fair value of the property supports the carrying value.

Deferred Tax Assets and Liabilities. We recognize deferred tax assets and liabilities for future tax effects of temporary differences, net operating loss carry forwards and tax credits. Deferred tax assets are subject to management's judgment based upon available evidence that future realization is more likely than not. If management determines that we may be unable to realize all or part of net deferred tax assets in the future, a direct charge to income tax expense may be required to reduce the recorded value of the net deferred tax asset to the expected realizable amount.

Overview

The Company reported net income to common shareholders of $1.0 million for the three months ended March 31, 2012, compared to $780,000, for the same period in 2011, an increase of 30.5%. Basic and diluted earnings per common share after preferred stock dividends and accretion were $0.13 for the quarter ended March 31, 2012 compared to $0.10 for the same period in 2011. Dividends related to the preferred stock, Series C reduced earnings for the first quarter of 2012 by $137,000, or $0.01 per fully diluted common share. Dividends and accretion related to the preferred stock, Series A reduced earnings for the first quarter of 2011 by $143,000, or $0.01 per fully diluted common share. The annualized return on average assets increased to 0.68% for the three months ended March 31, 2012 as compared to 0.57% for the same period in 2011. The annualized return on average shareholders' equity increased to 5.26% for the three month period ended March 31, 2012 as compared to 4.57% for the three month period ended March 31, 2011. Tangible book value per common share rose to $7.26 at March 31, 2012 as compared to $6.84 at March 31, 2011, as disclosed in the Non-GAAP Financial Measures table.

Net interest income increased by $173,000, or 2.7%, for the quarter ended March 31, 2012 from the same period in 2011, primarily due to the increase of our average earning assets which totaled $624.3 million, an increase of $31.4 million, or 5.3%, from the quarter ended March 31, 2011. On a linked quarter basis, net interest income increased by $44,000, or 0.7%, from the fourth quarter of 2011. The Company reported a net interest margin of 4.19% for the quarter ended March 31, 2012, a decrease of 14 basis points when compared to the 4.33% reported for the quarter ended March 31, 2011 and an increase of 7 basis points when compared to the 4.12% for the quarter ended December 31, 2011. The decline in the year to year comparison was primarily due to lower interest rates on our interest earning assets. The increase in the quarter ended March 31, 2012 as compared to the quarter ended December 31, 2011 was primarily due to an improvement in the mix of our interest-bearing liabilities led by an increase in core checking deposits, as well as lower funding costs.

The provision for loan losses for the three months ended March 31, 2012 was $350,000, as compared to a provision for loan losses of $525,000 for the corresponding 2011 period. The decrease in our provision was primarily due to lesser allowance requirements for certain identified impaired loans. The $350,000 provision for the three months ended March 31, 2012 considered a number of factors, including our assessment of the current state of the economy, prolonged high levels of unemployment in our market, allowances related to impaired loans and loan growth. The provision for the comparable 2011 period considered the same factors.

Non-interest income for the quarter ended March 31, 2012 totaled $540,000, an increase of $104,000, or 23.9%, compared to the same period in 2011. The increase was primarily due to the increase in fees generated by our residential mortgage department and higher bank-owned life insurance income resulting from increased purchases of such investments during the fourth quarter of 2011.

Non-interest expense for the quarter ended March 31, 2012 totaled $4.9 million, an increase of $88,000, or 1.8%, from the same period in 2011. The increase was primarily due to annual salary and benefit increases and an increase in OREO and impaired net loan expenses primarily as a result of a $90,000 write-down on an existing OREO property.

Total assets at March 31, 2012 were $684.9 million, up 1.5% from total assets of $674.6 million at December 31, 2011. Total loans at March 31, 2012 were $536.7 million, an increase of 1.3% compared to $530.1 million at December 31, 2011. Total deposits were $560.8 million at March 31, 2012, an increase of 1.2% from total deposits of $553.9 million at December 31, 2011. Core checking deposits at March 31, 2012 increased $4.2 million, or 2.8%, when compared to year-end 2011, resulting primarily from increased business and consumer activity, while savings accounts, inclusive of money market deposits, increased 2.8%. Conversely, higher cost time deposits decreased 4.7% over this same period.

At March 31, 2012, the Company's allowance for loan losses was $7.0 million, compared with $7.3 million at December 31, 2011. The allowance for loan losses as a percentage of total loans at March 31, 2012 was 1.31%, compared with 1.38% at December 31, 2011. Non-performing assets at March 31, 2012, as a percentage of total assets were 1.79%, down from 1.93% at December 31, 2011. Non-performing assets decreased to $12.3 million at March 31, 2012 as compared to $13.0 million at December 31, 2011.

RESULTS OF OPERATIONS

The Company's principal source of revenue is net interest income, which is the difference between interest income on earning assets and interest expense on deposits and borrowings. Interest earning assets consist primarily of loans, investment securities and Federal funds sold. Sources to fund interest-earning assets consist primarily of deposits and borrowed funds. The Company's net income is also affected by its provision for loan losses, other income and other expenses. Other income consists primarily of service charges, commissions and fees, earnings from investment in life insurance and gains on security sales, while other expenses are primarily comprised of salaries and employee benefits, occupancy costs and other operating expenses.

The following table provides information on our performance ratios for the dates indicated.

                                                                      (Annualized)
                                                                         For the
                                                               Three months ended March 31,
                                                                 2012               2011
Return on average assets                                            0.68 %              0.57 %
Return on average tangible assets (1)                               0.70 %              0.59 %
Return on average shareholders' equity                              5.26 %              4.57 %
Return on average tangible shareholders' equity (1)                 6.67 %              5.95 %
Net interest margin                                                 4.19 %              4.33 %
Average equity to average assets                                   12.89 %             12.53 %
Average tangible equity to average tangible assets (1)             10.46 %              9.91 %

(1) The following table provided the reconciliation of Non-GAAP Financial Measures for the dates indicated:

                                                                         For the
                                                               Three months ended March 31,
                                                                 2012                2011

Book value per common share                                $       9.58         $       9.21
Effect of intangible assets                                       (2.32 )              (2.37 )
Tangible book value per common share                               7.26                 6.84

Return on average assets                                           0.68 %               0.57 %
Effect of intangible assets                                        0.02 %               0.02 %
Return on average tangible assets                                  0.70 %               0.59 %

Return on average equity                                           5.26 %               4.57 %
Effect of average intangible assets                                1.41 %               1.38 %
Return on average tangible equity                                  6.67 %               5.95 %

Average equity to average assets                                  12.89 %              12.53 %
Effect of average intangible assets                               (2.43 %)             (2.62 %)
Average tangible equity to average tangible assets                10.46 %               9.91 %

This Report contains certain financial information determined by methods other than in accordance with generally accepted accounting policies in the United States (GAAP). These non-GAAP financial measures are "tangible book value per common share," "return on average tangible assets," "return on average tangible equity," and "average tangible equity to average tangible assets." This non-GAAP disclosure has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. Our management uses these non-GAAP measures in its analysis of our performance because it believes these measures are material and will be used as a measure of our performance by investors.

We anticipate that our earnings will remain challenged for the remainder of 2012 principally due to the sluggish economic conditions in the New Jersey commercial and real estate markets. In addition, should a further general decline in economic conditions in New Jersey continue, the Company may suffer higher default rates on its loans, decreased value of assets it holds as collateral, and potentially lower loan originations due to heightened competition for lending relationships coupled with our higher credit standards and requirements.

Three months ended March 31, 2012 compared to March 31, 2011

Net Interest Income

Net interest income increased by $173,000, or 2.7%, to $6.5 million for the three months ended March 31, 2012 compared to $6.3 million for the corresponding period in 2011, primarily due to the increase in our average interest earning assets, which totaled $624.3 million at March 31, 2012, an increase of $31.4 million, or 5.3%, from $592.9 million at March 31, 2011. The net interest margin and net interest spread decreased to 4.19% and 4.00%, respectively, for the three months ended March 31, 2012 from 4.33% and 4.12%, respectively, for the three months ended March 31, 2011, due primarily to lower interest rates on our interest earning assets.

Total interest income for the three months ended March 31, 2012 increased by $83,000, or 1.1%. The increase in interest income was primarily due to a volume related increase in interest income of $334,000, partially offset by a rate related decrease in interest income of $251,000 for the first quarter of 2012 as compared to the same prior year period.

Interest and fees on loans increased $56,000, or 0.8%, to $7.3 million for the three months ended March 31, 2012 compared to $7.3 million for the corresponding period in 2011. Volume related increases equaled $214,000, partially offset by an interest rate-related decrease of $158,000. The average balance of the loan portfolio for the three months ended March 31, 2012 increased by $15.1 million, or 2.9%, to $530.2 million from $515.1 million for the corresponding period in 2011. The average annualized yield on the loan portfolio was 5.54% for the quarter ended March 31, 2012 compared to 5.71% for the quarter ended March 31, 2011. Additionally, the average balance of non-accrual loans, which amounted to $5.6 million and $6.2 million at March 31, 2012 and 2011, respectively, impacted the Company's loan yield for both periods presented.

Interest income on Federal funds sold and interest bearing deposits was $21,000 for the three months ended March 31, 2012, representing an increase of $2,000, or 10.5%, from $19,000 for the three months ended March 31, 2011. For the three months ended March 31, 2012, the Bank held no Federal funds sold, as compared to $7.0 million with an average annualized yield of 0.23% for the three months ended March 31, 2011. During the second quarter 2011, in order to maximize earnings on excess liquidity and increase the safety of our funds, the Bank transferred its entire Fed funds sold balance to the Federal Reserve Bank of New York, which paid a higher return than our correspondent banks. For the three months ended March 31, 2012, interest bearing deposits had an average balance of $33.0 million and an average annualized yield of 0.25% as compared to an average balance of $24.0 million and an average annualized yield of 0.25% for the same period in 2011. This average balance increase was primarily due to an increase in deposit growth.

Interest income on investment securities totaled $400,000 for the three months ended March 31, 2012 compared to $375,000 for the three months ended March 31, 2011, an increase of $25,000, or 6.7%. The increase in interest income on investment securities was primarily attributable to new purchases which replaced maturities, calls, principal paydowns and sales of existing securities as well as reinvesting a portion of our cash liquidity position. For the three months ended March 31, 2012, investment securities had an average balance of $61.2 million with an average annualized yield of 2.62% compared to an average balance of $46.8 million with an average annualized yield of 3.20% for the three months ended March 31, 2011. This decline in yield is the result of the lower rate environment.

Interest expense on interest-bearing liabilities amounted to $1.2 million for the three months ended March 31, 2012 compared to $1.3 million for the corresponding period in 2011, a decrease of $90,000, or 6.9%. This decrease in interest expense was comprised of a $138,000 rate-related decrease primarily resulting from lower deposit rates, partially offset by $48,000 in volume-related increases.

During 2011 and into 2012, management continued to focus on developing core deposit relationships at the Bank. Additionally, management continued to restructure the mix of interest-bearing liabilities portfolio by decreasing our funding dependence from high-cost time deposits to lower-cost core checking, money market and savings account deposit products. The average balance of interest-bearing liabilities increased to $500.5 million for the three months ended March 31, 2012 from $477.6 million for the same period last year, an increase of $22.9 million, or 4.8%. Our average NOW accounts increased $9.5 million from $52.3 million with an average annualized yield of 0.45% during the first quarter of 2011, to $61.8 million with an average annualized yield of 0.41% during the first quarter of 2012. Our average savings deposits increased by $17.4 million over this same period while the average annualized yield declined by 13 basis points. Additionally, average certificates of deposit increased by $825,000, or 0.7%, to $111.5 million with an average annualized yield of 1.85% for the first quarter of 2012 from $110.7 million with an average annualized yield of 1.91% for the same period in 2011. These average balance increases were partially offset by a decrease in our money market deposits of $8.0 million over this same period while the average annualized yield declined by 21 basis points. During the first quarter of 2012, our average demand deposits totaled $89.1 million, an increase of $7.6 million, or 9.3%, over the same period last year. For the three months ended March 31, 2012, the average annualized cost for all interest-bearing liabilities was 0.98%, compared to 1.11% for the three months ended March 31, 2011, a decrease of 13 basis points.

Our strategies for increasing and retaining core relationship deposits, managing loan originations within our acceptable credit criteria and loan category concentrations, and our planned branch network growth have combined to meet our liquidity needs. The Company also offers agreements to repurchase securities, commonly known as repurchase agreements, to our customers as an alternative to other insured deposits. Average balances of repurchase agreements for the first quarter of 2012 were $18.4 million, with an average interest rate of 0.61%, compared to $15.2 million, with an average interest rate of 0.82%, for the first quarter of 2011.

The Company also utilizes FHLB term borrowings as an additional funding source. The average balance of such borrowings for the first quarter of 2012 and 2011 remained unchanged at $13.5 million, with an average interest rate of 3.22% and 3.21%, respectively.

The following tables reflect, for the periods presented, the components of our net interest income, setting forth (1) average assets, liabilities, and shareholders' equity, (2) interest income earned on interest-earning assets and interest expenses paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) our net interest spread (i.e., the average yield on interest-earning assets less the average rate on interest-bearing liabilities), and (5) our margin on interest-earning assets. Yields on tax-exempt assets have not been calculated on a fully tax-exempt basis.

                                                       Three Months Ended                       Three Months Ended
                                                         March 31, 2012                           March 31, 2011
                                                            Interest                                 Interest
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