Community Partners Bancorp (Form: 10-Q, Received: 05/15/2012 15:03:10)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number: 000-51889

	COMMUNITY PARTNERS BANCORP
	(Exact Name of Registrant as Specified in Its Charter)

New Jersey		20-3700861
(State of Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1250 Highway 35 South, Middletown, New Jersey		07748
(Address of Principal Executive Offices)		(Zip Code)

	(732) 706-9009
	(Registrant’s Telephone Number, Including Area Code)


	(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer (Do not check if a smaller reporting company)	o	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 4, 2012, there were 7,957,743 shares of the registrant’s common stock, no par value, outstanding.

COMMUNITY PARTNERS BANCORP

FORM 10-Q

INDEX

PART I.			FINANCIAL INFORMATION	Page

	Item 1.	Financial Statements		3

			Consolidated Balance Sheets (unaudited) at March 31, 2012 and December 31, 2011	3

			Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2012 and 2011	4

			Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2012 and 2011	5

			Consolidated Statements of Shareholders’ Equity (unaudited) for the three months ended March 31, 2012 and 2011	6

			Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2012 and 2011	7

			Notes to Consolidated Financial Statements (unaudited)	8

	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

	Item 3.		Quantitative and Qualitative Disclosures About Market Risk	50

	Item 4.		Controls and Procedures	50

PART II.			OTHER INFORMATION

	Item 6.		Exhibits	51

SIGNATURES				52

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

COMMUNITY PARTNERS BANCORP

CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands, except share data)

	March 31,			December 31,
	2012			2011
ASSETS
Cash and due from banks	$	8,172		$	7,597
Interest-bearing deposits in bank		37,534			30,425

Cash and cash equivalents		45,706			38,022

Securities available-for-sale		45,306			47,455
Securities held-to-maturity (fair value of $12,375 and $13,222 at March 31, 2012 and December 31, 2011, respectively)		12,216			13,105
Restricted investments, at cost		2,232			2,237
Loans		536,679			530,130
Allowance for loan losses		(7,026	)		(7,310	)
Net loans		529,653			522,820

Other real estate owned		7,281			7,765
Bank-owned life insurance		13,116			12,998
Premises and equipment, net		2,510			2,640
Accrued interest receivable		1,927			1,928
Goodwill		18,109			18,109
Other intangible assets, net of accumulated amortization of $1,723 and $1,675 at March 31, 2012 and December 31, 2011, respectively		383			431
Other assets		6,458			7,044

TOTAL ASSETS	$	684,897		$	674,554

LIABILITIES
Deposits:
Non-interest bearing	$	94,436		$	88,209
Interest bearing		466,409			465,703

Total Deposits		560,845			553,912

Securities sold under agreements to repurchase		18,680			16,218
Accrued interest payable		61			107
Long-term debt		13,500			13,500
Other liabilities		3,528			3,683

Total Liabilities		596,614			587,420

SHAREHOLDERS' EQUITY
Preferred stock, no par value; 6,500,000 shares authorized;
Preferred stock, Series B, none issued or outstanding		-			-
Preferred stock, Series C, $12,000,000 liquidation preference; 12,000 shares authorized; 12,000 issued and outstanding at March 31, 2012, and December 31, 2011, respectively		12,000			12,000
Common stock, no par value; 25,000,000 shares authorized; 7,955,416 and 7,942,218 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively		71,279			71,179
Retained earnings		4,711			3,693
Accumulated other comprehensive income		293			262
Total Shareholders' Equity		88,283			87,134

TOTAL LIABILITIES and SHAREHOLDERS’ EQUITY	$	684,897		$	674,554

See notes to the unaudited consolidated financial statements.

COMMUNITY PARTNERS BANCORP

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

For the Three Months Ended March 31, 2012 and 2011

(in thousands, except per share data)

		Three Months Ended March 31,
		2012			2011

INTEREST INCOME:
Loans, including fees	$	7,307		$	7,251
Securities:
Taxable		303			289
Tax-exempt		97			86
Federal funds sold and interest bearing deposits		21			19
Total Interest Income		7,728			7,645
INTEREST EXPENSE:
Deposits		1,086			1,174
Securities sold under agreements to repurchase		28			31
Borrowings		108			107
Total Interest Expense		1,222			1,312
Net Interest Income		6,506			6,333
PROVISION FOR LOAN LOSSES		350			525
Net Interest Income after Provision for Loan Losses		6,156			5,808
NON-INTEREST INCOME:
Service fees on deposit accounts		137			124
Other loan fees		186			109
Earnings from investment in life insurance		118			93
Net loss on sale of OREO properties		(28	)		(5	)
Other income		127			115
Total Non-Interest Income		540			436
NON-INTEREST EXPENSES:
Salaries and employee benefits		2,700			2,621
Occupancy and equipment		779			833
Professional		195			187
Insurance		92			99
FDIC insurance and assessments		141			227
Advertising		60			50
Data processing		161			154
Outside services fees		127			96
Amortization of identifiable intangibles		48			58
OREO expenses, OREO impairment and loan workout expenses		181			129
Other operating		390			332
Total Non-Interest Expenses		4,874			4,786
Income before Income Taxes		1,822			1,458
INCOME TAX EXPENSE		667			535
Net Income		1,155			923
Preferred stock dividend and discount accretion		(137	)		(143	)
Net income available to common shareholders	$	1,018		$	780
EARNINGS PER COMMON SHARE:
Basic	$	0.13		$	0.10
Diluted	$	0.13		$	0.10
Weighted average common shares outstanding:
Basic		7,956			7,854
Diluted		8,111			8,035

See notes to the unaudited consolidated financial statements.

COMMUNITY PARTNERS BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

For the Three Months Ended March 31, 2012 and 2011

(in thousands)

		Three Months Ended March 31,
		2012			2011


Net income	$	1,155		$	923
Other comprehensive income:
Unrealized holdings gains on securities available for sale, net of deferred income tax 2012: $24; 2011: $7		39			14
Unrealized gain (loss) on securities for which a portion of the impairment has been recognized in income, net of deferred income tax (benefit) 2012: $(6); 2011: $26		(8	)		40

Other comprehensive income		31			54

Total comprehensive income	$	1,186		$	977

See notes to the unaudited consolidated financial statements.

COMMUNITY PARTNERS BANCORP

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

For the Three Months Ended March 31, 2012 and 2011

(dollar amounts in thousands)

			Common Stock									Accumulated
	Preferred Stock		Outstanding shares			Amount			Retained Earnings			Other Comprehensive Income		Total Shareholders’ Equity
Balance, January 1, 2012	$	12,000		7,942,218		$	71,179		$	3,693		$	262	$	87,134

Comprehensive income:
Net income		-		-			-			1,155			-		1,155

Other comprehensive income		-		-			-			-			31		31

Total comprehensive income														$	1,186

Dividends on preferred stock, Series C		-		-			-			(137	)		-		(137	)

Options exercised		-		14,975			49			-			-		49

Restricted stock awards - forfeiture		-		(4,133	)		(8	)		-			-		(8	)

Tax-benefit-exercised non-qualified stock options		-		-			2			-			-		2

Employee stock purchase program		-		2,356			11			-			-		11

Stock option compensation expense		-		-			46			-			-		46

Balance, March 31, 2012	$	12,000		7,955,416		$	71,279		$	4,711		$	293	$	88,283

Balance January 1, 2011	$	8,628		7,620,929		$	70,067		$	1,325		$	168	$	80,188

Comprehensive income:
Net income		-		-			-			923			-		923

Other comprehensive income		-		-			-			-			54		54

Total comprehensive income														$	977

Dividends on preferred stock, Series A		-		-			-			(112	)		-		(112	)

Preferred stock, Series A discount accretion		31		-			-			(31	)		-		-

Options exercised		-		12,864			43			-			-		43

Tax-benefit-exercised non-qualified stock options		-		-			5			-			-		5

Stock option compensation expense		-		-			39			-			-		39

Balance, March 31, 2011	$	8,659		7,633,793		$	70,154		$	2,105		$	222	$	81,140

See notes to the unaudited consolidated financial statements

COMMUNITY PARTNERS BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Three Months Ended March 31, 2012 and 2011

	Three Months Ended March 31,
	2012			2011
	(in thousands)
Cash flows from operating activities:
Net income	$	1,155		$	923
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		165			194
Provision for loan losses		350			525
Intangible amortization		48			58
Net amortization of securities premiums and discounts		66			35
Earnings from investment in life insurance		(118	)		(93	)
Net realized loss on sale of other real estate owned		28			5
Impairment on other real estate owned		90			-
Stock option and awards compensation expense		38			39
Decrease (increase) in assets:
Accrued interest receivable		1			(34	)
Other assets		569			66
(Decrease) increase in liabilities:
Accrued interest payable		(46	)		(7	)
Other liabilities		(155	)		73
Net cash provided by operating activities		2,191			1,784
Cash flows from investing activities:
Purchase of securities available-for-sale		-			(5,750	)
Purchase of securities held-to-maturity		-			(938	)
Proceeds from repayments, calls and maturities of securities available-for-sale		2,135			1,942
Proceeds from repayments, calls and maturities of securities held to maturity		885			3,422
Proceeds from restricted investments		5			-
Net increase in loans		(7,442	)		(9,222	)
Purchases of premises and equipment		(35	)		(74	)
Construction advances on other real estate owned		(66	)		-
Proceeds from sale of other real estate owned		691			407
Net cash used in investing activities		(3,827)			(10,213	)
Cash flows from financing activities:
Net increase in deposits		6,933			12,197
Net increase in securities sold under agreements to repurchase		2,462			2,618
Cash dividends paid on preferred stocks		(137	)		(112	)
Proceeds from employee stock purchase plan		11			-
Proceeds from exercise of stock options		49			43
Tax benefit of options exercised		2			5
Net cash provided by financing activities		9,320			14,751
Net increase in cash and cash equivalents		7,684			6,322
Cash and cash equivalents – beginning		38,022			34,443
Cash and cash equivalents - ending	$	45,706		$	40,765
Supplementary cash flow information:
Interest paid	$	1,268		$	1,319
Income taxes paid	$	100		$	200
Supplementary schedule of non-cash activities:
Other real estate acquired in settlement of loans	$	259		$	-

See notes to the unaudited consolidated financial statements.

COMMUNITY PARTNERS BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include the accounts of Community Partners Bancorp (the “Company” or “Community Partners”), a bank holding company, and its wholly-owned subsidiary, Two River Community Bank (“Two River” or the “Bank”), and Two River’s wholly-owned subsidiaries, TRCB Investment Corporation, TRCB Holdings One LLC, TRCB Holdings Two LLC, TRCB Holdings Three LLC, TRCB Holdings Four LLC, TRCB Holdings Five LLC, TRCB Holdings Six LLC and wholly-owned trust, Two River Community Bank Employer’s Trust. All inter-company balances and transactions have been eliminated in the consolidated financial statements.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for full year financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal, recurring nature. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2011 included in the Community Partners Annual Report on Form 10-K filed with the SEC on March 30, 2012 (the “2011 Form 10-K”). For a description of the Company’s significant accounting policies, refer to Note 1 of the Notes to Consolidated Financial Statements in the 2011 Form 10-K.

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of March 31, 2012 for items that should potentially be recognized or disclosed in these consolidated financial statements.

Certain amounts in the Consolidated Statements of Operations for the three months ended March 31, 2011 have been reclassified to conform to the presentation used in the Consolidated Statement of Operations for the three months ended March 31, 2012. These reclassifications had no effect on net income.

NOTE 2 – NEW ACCOUNTING STANDARDS

ASU 2011-04; This ASU amends FASB ASC Topic 820, Fair Value Measurements, to bring U.S. GAAP for fair value measurements in line with International Accounting Standards. The ASU clarifies existing guidance for items such as: the application of the highest and best use concept to non-financial assets and liabilities; the application of fair value measurement to financial instruments classified in a reporting entity’s stockholder’s equity; and disclosure requirements regarding quantitative information about unobservable inputs used in the fair value measurements of level 3 assets. The ASU also creates an exception to Topic 820 for entities which carry financial instruments within a portfolio or group, under which the entity is now permitted to base the price used for fair valuation upon a price that would be received to sell the net asset position or transfer a net liability position in an orderly transaction. The ASU also allows for the application of premiums and discounts in a fair value measurement if the financial instrument is categorized in level 2 or 3 of the fair value hierarchy. Lastly, the ASU contains new disclosure requirements regarding fair value amounts categorized as level 3 in the fair value hierarchy such as: disclosure of the valuation process used; effects of and relationships between unobservable inputs; usage of nonfinancial assets for purposes other than their highest and best use when that is the basis of the disclosed fair value; and categorization by level of items disclosed at fair value, but not measured at fair value for financial statement purposes. For public entities, this ASU is effective for interim and annual periods beginning after December 15, 2011. For nonpublic entities, the ASU is effective for annual periods beginning after December 15, 2011. Early adoption is not permitted. The adoption of this ASU did not have a material impact on our financial position or results of operation and resulted in expanded fair value disclosures.

ASU 2011-05; The provisions of this ASU amend FASB ASC Topic 220, Comprehensive Income, to facilitate the continued alignment of U.S. GAAP with International Accounting Standards. The ASU prohibits the presentation of the components of comprehensive income in the statement of stockholder’s equity. Reporting entities are allowed to present either: a statement of comprehensive income, which reports both net income and other comprehensive income; or separate, but consecutive, statements of net income and other comprehensive income. Under previous GAAP, all 3 presentations were acceptable. Regardless of the presentation selected, the Reporting Entity is required to present all reclassifications between other comprehensive and net income on the face of the new statement or statements. The provisions of this ASU are effective for fiscal years and interim periods beginning after December 31, 2011 for public entities. For nonpublic entities, the provisions are effective for fiscal years ending after December 31, 2012, and for interim and annual periods thereafter. As the two remaining options for presentation existed prior to the issuance of this ASU, early adoption is permitted. The adoption of this ASU did not have a material impact on our financial position or results of operation and resulted in the Consolidated Statements of Comprehensive Income.

NOTE 2 – NEW ACCOUNTING STANDARDS (Continued)

ASU 2011-08; In September, 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment. The purpose of this ASU is to simplify how entities test goodwill for impairment by adding a new first step to the preexisting goodwill impairment test under ASC Topic 350, Intangibles – Goodwill and Other. This amendment gives the entity the option to first assess a variety of qualitative factors such as economic conditions, cash flows, and competition to determine whether it was more likely than not that the fair value of goodwill has fallen below its carrying value. If the entity determines that it is not likely that the fair value has fallen below its carrying value, then the entity will not have to complete the original two-step test under Topic 350. The amendments in this ASU are effective for impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The Company does not expect the adoption of this ASU to have an impact on its consolidated financial statements.

ASU 2011-12; In December, 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05. In response to stakeholder concerns regarding the operational ramifications of the presentation of these reclassifications for current and previous years, the FASB has deferred the implementation date of this provision to allow time for further consideration. The requirement in ASU 2011-05, Presentation of Comprehensive Income, for the presentation of a combined statement of comprehensive income or separate, but consecutive, statements of net income and other comprehensive income is still effective for fiscal years and interim periods beginning after December 15, 2011 for public companies, and fiscal years ending after December 15, 2011 for nonpublic companies. The implementation of ASU 2011-12 is not expected to have a material impact on our financial position or results of operation.

NOTE 3 – GOODWILL

The Company’s goodwill was recognized in connection with the acquisition of The Town Bank (“Town Bank”) in April 2006. GAAP requires that goodwill be tested for impairment annually or more frequently if impairment indicators arise utilizing a two-step methodology. Step one requires the Company to determine the fair value of the reporting unit and compare it to the carrying value, including goodwill, of such reporting unit. The reporting unit was determined to be our community banking operations, which is our only operating segment. If the fair value of the reporting unit exceeds the carrying value, goodwill is not impaired. If the carrying value exceeds fair value, there is an indication of impairment and the second step is performed to determine the amount of impairment, if any. The second step compares the fair value of the reporting unit to the aggregate fair values of its individual assets, liabilities and identified intangibles.

The Company performed its annual step one goodwill impairment analysis as of September 30, 2011. Based on the results of the step one goodwill impairment analysis, the Company concluded that the potential for goodwill impairment existed and therefore a step two test was required to determine if there was goodwill impairment and the amount of goodwill that might be impaired. Based on the results of that analysis, the Company determined that there was no impairment on the current goodwill balance of $18,109,000.

NOTE 4 – EARNINGS PER COMMON SHARE

Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share reflects additional shares of common stock that would have been outstanding if dilutive potential shares of common stock had been issued relating to outstanding stock options and warrants. Potential shares of common stock issuable upon the exercise of stock options and warrants are determined using the treasury stock method.

All 2011 share and per share data has been retroactively adjusted to reflect the 3% stock dividend declared on November 10, 2011 and payable on December 30, 2011 to shareholders of record as of December 13, 2011.

The following table sets forth the computations of basic and diluted earnings per common share:

	Three Months Ended March 31,
	2012			2011
	(dollars in thousands, except per share data)
Net income	$	1,155		$	923

Preferred stock dividend and discount accretion		(137	)		(143	)

Net income applicable to common shareholders	$	1,018		$	780

Weighted average common shares outstanding		7,956,061			7,854,098

Effect of dilutive securities, stock options and warrants		154,989			181,029

Weighted average common shares outstanding used to calculate diluted earnings per share		8,111,050			8,035,127

Basic earnings per common share	$	0.13		$	0.10
Diluted earnings per common share	$	0.13		$	0.10

Dilutive securities in the table above exclude common stock options and warrants with exercise prices that exceed the average market price of the Company’s common stock during the periods presented. Inclusion of these common stock options and warrants would be anti-dilutive to the diluted earnings per common share calculation. Stock options and warrants that had no intrinsic value because their effect would be anti-dilutive and therefore would not be included in the diluted earnings per common share calculation were 330,000 for the three-month period ended March 31, 2012, as compared to 341,000 for the three-month period ended March 31, 2011, respectively.

NOTE 5 – SECURITIES

The amortized cost, gross unrealized gains and losses, and fair values of the Company’s securities are summarized as follows:

			Gross		Gross Unrealized Losses
(in thousands)	Amortized Cost		Unrealized Gains		Noncredit OTTI			Other			Fair Value

March 31, 2012:

Securities available for sale:
U.S. Government agency securities	$	2,249	$	6	$	-		$	-		$	2,255
Municipal securities		1,260		36		-			-			1,296
U.S. Government-sponsored enterprises (“GSE”) – Residential mortgage-backed securities		20,154		580		-			(12	)		20,722
Collateralized residential mortgage obligations		15,804		316		-			-			16,120
Corporate debt securities, primarily financial institutions		3,063		3		(197	)		(305	)		2,564

		42,530		941		(197	)		(317	)		42,957
Community Reinvestment Act (“CRA”)
mutual fund		2,290		59		-			-			2,349

	$	44,820	$	1,000	$	(197	)	$	(317	)	$	45,306

Securities held to maturity:
Municipal securities	$	10,406	$	540	$	-		$	(3	)	$	10,943
Corporate debt securities, primarily financial institutions		1,810		-		-			(378	)		1,432

	$	12,216	$	540	$	-		$	(381	)	$	12,375

NOTE 5 – SECURITIES (Continued)

			Gross		Gross Unrealized Losses
(in thousands)	Amortized Cost		Unrealized Gains		Noncredit OTTI			Other			Fair Value

December 31, 2011:

Securities available for sale:
U.S. Government agency securities	$	2,250	$	8	$	-		$	-		$	2,258
Municipal securities		1,261		46		-			-			1,307
GSE – Residential mortgage-backed securities		21,317		581		-			(20	)		21,878
Collateralized residential mortgage obligations		16,865		298		-			-			17,163
Corporate debt securities, primarily financial institutions		3,067		-		(183	)		(356	)		2,528

		44,760		933		(183	)		(376	)		45,134

CRA mutual fund		2,258		63		-			-			2,321

	$	47,018	$	996	$	(183	)	$	(376	)	$	47,455

Securities held to maturity:
Municipal securities	$	11,296	$	613	$	-		$	(2	)	$	11,907
Corporate debt securities, primarily financial institutions		1,809		-		-			(494	)		1,315

	$	13,105	$	613	$	-		$	(496	)	$	13,222

The amortized cost and fair value of the Company’s debt securities at March 31, 2012, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in thousands)

Due in one year or less	$	1,505	$	1,509	$	3,008	$	3,019
Due in one year through five years		1,292		1,246		1,132		1,203
Due in five years through ten years		1,673		1,687		4,037		4,287
Due after ten years		2,102		1,673		4,039		3,866

		6,572		6,115		12,216		12,375

GSE – Residential mortgage-backed securities		20,154		20,722		-		-
Collateralized residential mortgage obligations		15,804		16,120		-		-

	$	42,530	$	42,957	$	12,216	$	12,375

The Company had no securities sales during the three months ended March 31, 2012 and 2011, respectively.

Certain of the Company’s GSE residential mortgage-backed securities and collateralized residential mortgage obligations, totaling $26,041,000 and $27,412,000 at March 31, 2012 and December 31, 2011, respectively, were pledged as collateral to secure securities sold under agreements to repurchase and public deposits as required or permitted by law.

NOTE 5 – SECURITIES (Continued)

The tables below indicate the length of time individual securities have been in a continuous unrealized loss position at March 31, 2012 and December 31, 2011:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
March 31, 2012:	(in thousands)

Municipal securities	$	567	$	(3	)	$	-	$	-		$	567	$	(3	)
GSE – Residential mortgage-backed securities	$	3,229	$	(12	)	$	-	$	-		$	3,229	$	(12	)
Corporate debt securities, primarily financial institutions		284		(3	)		2,701		(877	)		2,985		(880	)

Total Temporarily
Impaired Securities	$	4,080	$	(18	)	$	2,701	$	(877	)	$	6,781	$	(895	)

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2011:	(in thousands)

Municipal securities	$	969	$	(2	)	$	-	$	-		$	969	$	(2	)
GSE – Residential mortgage-backed securities		3,490		(20	)		-		-			3,490		(20	)
Corporate debt securities, primarily financial institutions		1,252		(50	)		2,591		(983	)		3,843		(1,033	)

Total Temporarily
Impaired Securities	$	5,711	$	(72	)	$	2,591	$	(983	)	$	8,302	$	(1,055	)

The Company had 12 securities in an unrealized loss position at March 31, 2012. In management’s opinion, the unrealized losses in municipal securities and GSE residential mortgage-backed securities reflect changes in interest rates subsequent to the acquisition of specific securities. The unrealized loss for corporate debt securities also reflects a widening of spreads due to the liquidity and credit concerns in the financial markets. The Company does not intend to sell these debt securities prior to recovery and it is more likely than not that the Company will not have to sell these debt securities prior to recovery.

Included in corporate debt securities are four individual trust preferred securities issued by large financial institutions with Moody’s ratings from A2 to Baa3. These single issue securities are from large money center banks. Any decline in fair value is due in large part to changes in market credit spreads and rating agency downgrades. As of March 31, 2012, all of these securities are current with their scheduled interest payments and are expected to continue to perform in accordance with their respective contractual terms and conditions. As such, management concluded that these securities were not other-than-temporarily impaired as of March 31, 2012. There can be no assurance that future deterioration in the cash flow of these securities or the credit quality of the financial institutions could require the recognition of other-than-temporary impairment charges in the future.

NOTE 5 – SECURITIES (Continued)

The Company also has one pooled trust preferred security with a Moody’s rating of Ca included in corporate debt securities with an amortized cost basis of $272,000 at March 31, 2012. This pooled trust preferred security has been remitting reduced amounts of interest as some individual participants of the pool have deferred interest payments. The pooled instrument consists of securities issued by financial institutions and insurance companies and we hold the mezzanine tranche of such security. Senior tranches generally are protected from defaults by over-collateralization and cash flow default protection provided by subordinated tranches, with senior tranches having the greatest protection and mezzanine tranches subordinated to the senior tranches. For the pooled trust preferred security, management reviewed expected cash flows and credit support and determined it was not probable that all principal and interest would be repaid. The most significant unobservable input to the expected cash flow model was the assumed default rate for each pooled trust preferred security. Financial metrics, such as capital ratios and non-performing asset ratios, of each individual financial institution issuer that comprises the pooled trust preferred securities were evaluated to estimate the expected default rates for each security. In this pooled trust preferred security, there are 35 out of 42 banks that are performing at March 31, 2012. The deferrals and defaults as a percentage of original collateral at March 31, 2012 was 24.6%. Total other-than-temporary impairment on this security was $425,000 at March 31, 2012, of which $228,000 was determined to be a credit loss and charged to operations in previous years and $197,000 was determined to be non-credit related and recognized in the other comprehensive income component. There was no other-than-temporary impairment charges to earnings during the three months ended March 31, 2012 and 2011. Future deterioration in the cash flow of these instruments or the credit quality of the financial institution issuers could result in additional impairment charges in the future.

The following roll forward reflects the amounts related to other-than-temporary credit losses recognized in earnings for the three month period ended March 31, 2012 and 2011 (in thousands):


Beginning balance, January 1, 2011	$	228

Additional increases to the amount related to the credit loss
for which an other-than-temporary impairment was
previously recognized		-

Ending balance, March 31, 2011	$	228

Beginning balance, January 1, 2012	$	228

Additional increases to the amount related to the credit loss
for which an other-than-temporary impairment was
previously recognized		-

Ending balance, March 31, 2012	$	228

NOTE 6 – LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Company is generally amortizing these amounts over the contractual life of the loan.

The loans receivable portfolio is segmented into commercial and consumer loans. Commercial loans consist of the following classes: commercial and industrial, real estate-construction and real estate-commercial. Consumer loans consist of the following classes: real estate-residential and consumer.

NOTE 6 – LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Continued)

For all classes of loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status when the loan is 90 days or more past due if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest previously accrued on these loans is reversed from income. Interest received on nonaccrual loans including impaired loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet, which at March 31, 2012 and December 31, 2011, the Company had no such reserves. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectable are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management’s performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’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 revision as more information becomes available.

The allowance consists of specific, general and unallocated components. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of the loan. The specific component relates to loans that are classified as impaired. When a loan is impaired, there are three acceptable methods under ASC 310-10-35 for measuring the impairment:

The loan’s observable market price;

The fair value of the underlying collateral; or

The present value (PV) of expected future cash flows.

Loans that are considered “collateral-dependent” should be evaluated under the “Fair market value of collateral.” Loans that are still expected to be supported by repayment from the borrower should be evaluated under the “Present value of future cash flows.” At a minimum, most if not all Troubled Debt Restructures should be evaluated in this way, as these are loans in which the terms have been modified or restructured and repayment of a portion of the outstanding principal is expected.

For the most part, the Company measures impairment under the “Fair market value of collateral” for any loan that would rely on the value of collateral for recovery in the event of default. The individual impairment analysis for each loan is clearly documented as to the chosen valuation method.

The general component covers pools of loans by loan class including commercial and industrial, real estate-construction and real estate-commercial not considered impaired as well as smaller balance homogeneous loans such as real estate-residential and consumer.

These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include:

Changes in lending policy and procedures, including changes in underwriting standards and collection practices not previously considered in estimating credit losses.

Changes in relevant economic and business conditions.

Changes in nature and volume of the loan portfolio and in the terms of loans.

Changes in experience, ability and depth of lending management and staff.

NOTE 6 – LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Continued)

Changes in the volume and severity of past due loans, the volume of non-accrual loans and the volume and severity of adversely classified loans.

Changes in the quality of the loan review system.

Changes in the value of underlying collateral for collateral-dependent loans.

The existence and effect of any concentration of credit and changes in the level of such concentrations.

The effect of other external forces such as competition, legal and regulatory requirements on the level of estimated credit losses in the existing portfolio.

Each factor is assigned a risk value to reflect low, moderate or high risk assessments based on management’s best judgment using current market, macro and other relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation in each factor and accompany the allowance for loan loss calculation.

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information events, it is probable that the Company 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 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 industrial, real estate-commercial, real estate-construction, real estate-residential and consumer loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral.

For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

For commercial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable aging or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial and consumer loans. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans criticized special mention, have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristics that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectable and are charged to the allowance for loan losses. Loans not classified are rated pass.

NOTE 6 – LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Continued)

In addition, Federal and State regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

The components of the loan portfolio at March 31, 2012 and December 31, 2011 are as follows:

	March 31, 2012			December 31, 2011
	(In Thousands)

Commercial and industrial	$	132,822		$	136,869
Real estate – construction		58,753			51,180
Real estate – commercial		275,041			270,688
Real estate – residential		20,034			19,201
Consumer		50,656			52,853

		537,306			530,791
Allowance for loan losses		(7,026	)		(7,310	)
Unearned fees		(627	)		(661	)

Net Loans	$	529,653		$	522,820

The performance and credit quality of the loan portfolio is monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the past due status as of March 31, 2012 and December 31, 2011:

	30-59 Days Past Due		60-89 Days Past Due		90 Days & Greater		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing
March 31, 2012					(In Thousands)

Commercial and industrial	$	699	$	1,200	$	1,586	$	3,485	$	129,337	$	132,822	$	482
Real estate – construction		-		-		292		292		58,461		58,753		-
Real estate – commercial		5,990		836		145		6,971		268,070		275,041		-
Real estate – residential		-		-		846		846		19,188		20,034		-
Consumer		128		205		2,130		2,463		48,193		50,656		-

Total	$	6,817	$	2,241	$	4,999	$	14,057	$	523,249	$	537,306	$	482

NOTE 6 – LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Continued)

	30-59 Days Past Due		60-89 Days Past Due		90 Days & Greater		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing
December 31, 2011					(In Thousands)

Commercial and industrial	$	538	$	1,776	$	2,349	$	4,663	$	132,206	$	136,869	$	-
Real estate – construction		-		-		292		292		50,888		51,180		-
Real estate – commercial		5,499		-		145		5,644		265,044		270,688		-
Real estate – residential		-		998		263		1,261		17,940		19,201		-
Consumer		375		50		2,191		2,616		50,237		52,853		-

Total	$	6,412	$	2,824	$	5,240	$	14,476	$	516,315	$	530,791	$	-

The following table presents non-accrual loans by classes of the loan portfolio at March 31, 2012 and December 31, 2011:

	March 31, 2012		December 31, 2011
	(In Thousands)

Commercial and industrial	$	1,104	$	2,349
Real estate – construction		292		292
Real estate – commercial		145		145
Real estate – residential		846		263
Consumer		2,130		2,191

Total	$	4,517	$	5,240

Loans whose terms are modified are classified as troubled debt restructurings if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as troubled debt restructurings are designated as impaired.

Modifications involving troubled borrowers may include extension of maturity date, reduction in the stated interest rate, rescheduling of future cash flows, and reduction in the face amount of the debt or reduction of past accrued interest.

The Company’s troubled debt restructured modifications are made on short terms (12 month terms) in order to aggressively monitor and track performance. The short-term modifications performance is monitored for continued payment performance for an additional period of time after the expiration of the concession. Balance reductions and annualized loss rates are also important metrics that are monitored. The main objective of the modification programs is to reduce the payment burden for the borrower and improve the net present value of the Company’s expected cash flows.

NOTE 6 – LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Continued)

The following table presents newly troubled debt restructured loans that occurred during the three months ended March 31, 2012 and 2011:

	Three months ended March 31, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructuring:	(Dollars in Thousands)

Commercial and industrial		3	$	2,011	$	2,011
Real estate – construction		-		-		-
Real estate – commercial		1		196		196
Real estate – residential		-		-		-
Consumer		-		-		-

Total		4	$	2,207	$	2,207

Three months ended March 31, 2011

Number of

Contracts

Pre-Modification

Outstanding

Recorded

Investment

Post-Modification

Outstanding

Recorded

Investment

Troubled Debt Restructuring:

(Dollars in Thousands)

Commercial and industrial

Real estate – construction

Real estate – commercial

Real estate – residential

Consumer

Total

The Company classifies all troubled debt restructurings as impaired loans and risk rated as substandard. Impaired loans are individually assessed to determine that the loan’s carrying value is not in excess of the estimated fair value of the collateral (less cost to sell), if the loan is collateral dependent, or the present value of the expected future cash flows, if the loan is not collateral dependent. Management performs a detailed evaluation of each impaired loan and generally obtains updated appraisals as part of the evaluation. In addition, management adjusts estimated fair value down to appropriately consider recent market conditions, our willingness to accept a lower sales price to effect a quick sale, and costs to dispose of any supporting collateral.

As a result of our impairment evaluation, there were $82,000 in reserves established against two loans that are current loans classified as troubled debt restructurings as of March 31, 2012. Our troubled debt restructured loans are generally agreed to a short-term payment plan. The extent of these plans is generally limited to twelve-month payments and all the loans identified as troubled debt restructured as of March 31, 2012, were rate modifications. The Company will not extend maturities, recast legal documents and/or forgive any interest or principal.

As of March 31, 2012, loans modified in a troubled debt restructuring totaled $9.8 million, including $6.2 million that are current, $3.1 million that are 30-59 days past due and $478,000 that is 60-89 days past due. There were no loans 90 days or more past due. All loans modified in a troubled debt restructuring as of March 31, 2012, were current at the time of the modifications.

The Company had no financing receivables modified as troubled debt restructurings and with a payment default, with the payment default occurring within 12 months of the restructure date, and the payment default occurring during the three month periods ended March 31, 2012 and 2011.

During the three months ended March 31, 2012 and 2011, there were no loans placed on non-accrual status that were troubled debt restructured loans.

NOTE 6 – LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Continued)

The following tables summarize information in regards to impaired loans by loan portfolio class at or for the three months ended March 31, 2012 and at or for the year ended December 31, 2011:

	At or for the three months ended March 31, 2012
	Recorded Investment, Net of Charge-offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
March 31, 2012	(In Thousands)

With no related allowance recorded:
Commercial and industrial	$	5,316	$	5,316	$	-	$	5,346	$	39
Real estate – construction		-		-		-		-		-
Real estate – commercial		3,704		3,704		-		3,704		70
Real estate – residential		585		585		-		586		3
Consumer		575		575		-		575		3

With an allowance recorded:
Commercial and industrial	$	2,479	$	2,760	$	226	$	2,535	$	28
Real estate – construction		292		292		90		292		-
Real estate – commercial		1,823		1,823		61		1,823		32
Real estate – residential		263		263		60		263		-
Consumer		1,781		1,938		440		1,884		-

Total:
Commercial and industrial	$	7,795	$	8,076	$	226	$	7,881	$	67
Real estate – construction		292		292		90		292		-
Real estate – commercial		5,527		5,527		61		5,527		102
Real estate – residential		848		848		60		849		3
Consumer		2,356		2,513		440		2,459		3

	$	16,818	$	17,256	$	877	$	17,008	$	175

NOTE 6 – LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Continued)

	At or for the year ended December 31, 2011
	Recorded Investment, Net of Charge-offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(In Thousands)
December 31, 2011

With no related allowance recorded:
Commercial and industrial	$	3,423	$	3,423	$	-	$	3,436	$	139
Real estate – construction		-		-		-		-		-
Real estate – commercial		3,510		3,510		-		3,529		160
Real estate – residential		225		225		-		225		4
Consumer		251		251		-		251		8

With an allowance recorded:
Commercial and industrial	$	2,914	$	3,161	$	928	$	2,876	$	55
Real estate – construction		292		292		63		414		20
Real estate – commercial		4,228		4,228		188		4,265		244
Real estate – residential		263		263		15		263		5
Consumer		1,938		1,938		254		1,938		-

Total:
Commercial and industrial	$	6,337	$	6,584	$	928	$	6,312	$	194
Real estate – construction		292		292		63		414		20
Real estate – commercial		7,738		7,738		188		7,794		404
Real estate – residential		488		488		15		488		9
Consumer		2,189		2,189		254		2,189		8

	$	17,044	$	17,291	$	1,448	$	17,197	$	635

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of March 31, 2012 and December 31, 2011:

	Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2012	(In Thousands)

Commercial and industrial	$	112,721	$	6,678	$	13,423	$	-	$	132,822
Real estate – construction		54,077		-		4,676		-		58,753
Real estate – commercial		257,827		3,982		13,232		-		275,041
Real estate – residential		19,188		-		846		-		20,034
Consumer		47,863		144		2,649		-		50,656

Total:	$	491,676	$	10,804	$	34,826	$	-	$	537,306

NOTE 6 – LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Continued)

	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2011	(In Thousands)

Commercial and industrial	$	119,531	$	4,683	$	12,655	$	-	$	136,869
Real estate – construction		50,346		-		834		-		51,180
Real estate – commercial		255,877		4,300		10,511		-		270,688
Real estate – residential		18,938		-		263		-		19,201
Consumer		49,973		144		2,736		-		52,853

Total:	$	494,665	$	9,127	$	26,999	$	-	$	530,791

The following tables present the balance in the allowance for loan losses at March 31, 2012 and December 31, 2011 disaggregated on the basis of the Company’s impairment method by class of loans receivable along with the balance of loans receivable by class disaggregated on the basis of the Company’s impairment methodology:

	Allowance for Loan Losses						Loans Receivable
	Balance		Balance Related to Loans Individually Evaluated for Impairment		Balance Related to Loans Collectively Evaluated for Impairment		Balance		Balance Individually Evaluated for Impairment		Balance Collectively Evaluated for Impairment
March 31, 2012					(In Thousands)

Commercial and industrial	$	1,791	$	226	$	1,565	$	132,822	$	7,795	$	125,027
Real estate – construction		1,524		90		1,434		58,753		292		58,461
Real estate – commercial		2,203		61		2,142		275,041		5,527		269,514
Real estate – residential		293		60		233		20,034		848		19,186
Consumer		1,111		440		671		50,656		2,356		48,300
Unallocated		104		-		104		-		-		-

Total:	$	7,026	$	877	$	6,149	$	537,306	$	16,818	$	520,488

	Allowance for Loan Losses						Loans Receivable
	Balance		Balance Related to Loans Individually Evaluated for Impairment		Balance Related to Loans Collectively Evaluated for Impairment		Balance		Balance Individually Evaluated for Impairment		Balance Collectively Evaluated for Impairment
December 31, 2011					(In Thousands)

Commercial and industrial	$	2,448	$	928	$	1,520	$	136,869	$	6,337	$	130,532
Real estate – construction		1,222		63		1,159		51,180		292		50,888
Real estate – commercial		2,412		188		2,224		270,688		7,738		262,950
Real estate – residential		256		15		241		19,201		488		18,713
Consumer		880		254		626		52,853		2,189		50,664
Unallocated		92		-		92		-		-		-

Total:	$	7,310	$	1,448	$	5,862	$	530,791	$	17,044	$	513,747

NOTE 6 – LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Continued)

The following table presents the change in the allowance for loan losses by classes of loans for the three months ended March 31, 2012 and 2011:

Allowance for Credit Losses	Commercial and Industrial			Real Estate - Commercial			Real Estate - Construction		Real Estate - Residential		Consumer			Unallocated		Total
							(In Thousands)

Beginning balance, January 1, 2012	$	2,448		$	2,412		$	1,222	$	256	$	880		$	92	$	7,310
Charge-offs		(629	)		-			-		-		(26	)		-		(655	)
Recoveries		2			-			18		-		1			-		21
Provision		(30	)		(209	)		284		37		256			12		350

Ending balance, March 31, 2012	$	1,791		$	2,203		$	1,524	$	293	$	1,111		$	104	$	7,026

Allowance for Credit Losses	Commercial and Industrial			Real Estate - Commercial		Real Estate - Construction			Real Estate - Residential			Consumer		Unallocated		Total
						(In Thousands)

Beginning balance, January 1, 2011	$	2,081		$	2,193	$	895		$	276		$	793	$	8	$	6,246
Charge-offs		(235	)		-		-			-			-		-		(235	)
Recoveries		5			-		-			-			-		-		5
Provision		74			229		(32	)		(17	)		268		3		525

Ending balance, March 31, 2011	$	1,925		$	2,422	$	863		$	259		$	1,061	$	11	$	6,541

NOTE 7 – STOCK BASED COMPENSATION PLANS

Both Two River and Town Bank had stock option plans for the benefit of their employees and directors outstanding at the time of their acquisition by Community Partners. The plans provided for the granting of both incentive and non-qualified stock options. All stock options outstanding at the time of acquisition, April 1, 2006, became fully vested. There were no shares available for grant under these prior plans at the time of the acquisition.

On March 20, 2007, the Board of Directors adopted the Community Partners Bancorp 2007 Equity Incentive Plan (the “Plan”), subject to shareholder approval. The Plan, which was approved by the Company’s shareholders at the 2007 annual meeting of shareholders held on May 15, 2007, provides that the Compensation Committee of the Board of Directors (the “Committee”) may grant to those individuals who are eligible under the terms of the Plan stock options, shares of restricted stock, or such other equity incentive awards as the Committee may determine. As of March 31, 2012, the number of shares of Company common stock remaining and available for future issuance under the Plan is 290,612 after adjusting for subsequent stock dividends.

Options awarded under the Plan may be either options that qualify as incentive stock options (“ISOs”) under section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or options that do not, or cease to, qualify as incentive stock options under the Code (“nonqualified stock options” or “NQSOs”). Awards may be granted under the Plan to directors and employees.

Shares reserved under the Plan will be issued out of authorized and unissued shares, or treasury shares, or partly out of each, as determined by the Board. The exercise price per share purchasable under either an ISO or a NQSO may not be less than the fair market value of a share of stock on the date of grant of the option. The Committee will determine the vesting period and term of each option, provided that no ISO may have a term in excess of ten years after the date of grant.

Restricted stock is stock which is subject to certain transfer restrictions and to a risk of forfeiture. The Committee will determine the period over which any restricted stock which is issued under the Plan will vest, and will impose such restrictions on transferability, risk of forfeiture and other restrictions as the Committee may in its discretion determine. Unless restricted by the Committee, a participant granted restricted stock will have all of the rights of a shareholder, including the right to vote the restricted stock and the right to receive dividends with respect to that stock.

Unless otherwise provided by the Committee in the award document or subject to other applicable restrictions, in the event of a Change in Control (as defined in the Plan) all non-forfeited options and awards carrying a right to exercise that was not previously exercisable and vested will become fully exercisable and vested as of the time of the Change in Control, and all restricted stock and awards subject to risk of forfeiture will become fully vested.

On December 12, 2011, the Committee granted stock options to purchase an aggregate of 133,179 shares, after adjusting for the 3% stock dividend declared in November 2011, of Company common stock under the Plan to directors and officers of the Company, as follows:

The Company granted to directors non-qualified stock options to purchase an aggregate of 61,800 shares of Company common stock. These options are scheduled to vest 20% per year over five years beginning December 12, 2012. These options were granted with an exercise price of $5.19 per share based upon the $4.69 trading price of Company’s common stock on the grant date.

The Company granted to employees incentive stock options to purchase an aggregate of 71,379 shares of Company common stock. These options are scheduled to vest 20% per year over five years beginning December 12, 2012. The options were granted with an exercise price of $5.19 per share based upon the $4.69 trading price of Company’s common stock on the grant date.

Stock based compensation expense related to the stock option grants, was approximately $39,000 and $30,000 during the three months ended March 31, 2012 and 2011, respectively, and is included in salaries and employee benefits on the statement of operations.

Total unrecognized compensation cost related to non-vested options under the Plan was $413,000 as of March 31, 2012 and will be recognized over the subsequent 3.0 years.

NOTE 7 – STOCK BASED COMPENSATION PLANS (Continued)

The following table presents information regarding the Company’s outstanding stock options at March 31, 2012:

	Number of Shares			Weighted Average Price		Weighted Average Remaining Life	Aggregate Intrinsic Value
Options outstanding, December 31, 2011		917,581		$	6.82
Options exercised		(14,975	)		3.30
Options forfeited		(2,676	)		4.28
Options outstanding, March 31, 2012		899,930		$	6.89	5.3 years	$	1,050,473
Options exercisable, March 31, 2012		609,938		$	8.15	4.0 years	$	618,672
Option price range at March 31, 2012		$3.01 to $14.17

The total intrinsic value of options exercised during the three months ended March 31, 2012 was $22,000. Cash received from such exercises was $49,000. The total intrinsic value of options exercised during the three months ended March 31, 2011, was $19,000. Cash received from such exercises was $43,000. There was a $2,000 tax benefit recognized during the three months ended March 31, 2012 as compared to a tax benefit of $5,000 during the three month period ended March 31, 2011, respectively.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

Restricted stock is valued at the market value on the date of grant and expense is evenly attributed to the period in which the restrictions lapse.

Total unrecognized compensation cost related to restricted stock options under the Plan was $30,000 as of March 31, 2012 and will be recognized over the subsequent 1.5 years. As of March 31, 2012, all restricted stock shares were unvested.

For the three month period ended March 31, 2012, the Company recorded a $1,000 credit for compensation expense related to the reversal of $8,000 of previously recorded compensation expense due to the forfeiture of restricted stock as compared to a $9,000 expense for the three month period ended March 31, 2011, respectively, and is included in salaries and employee benefits on the statement of operations. There was no deferred tax benefit recognized during the three month period ended March 31, 2012 and 2011 related to the restricted stock compensation.

The following table summarizes information about restricted stock at March 31, 2012 (share amounts in thousands):

	Number of Shares			Weighted Average Price
Unvested at December 31, 2011		22,042		$	3.93
Forfeited		(4,133	)		3.93
Unvested at March 31, 2012		17,909		$	3.93

All 2011 share and per share data have been retroactively adjusted to reflect the 3% stock dividend declared on November 10, 2011 and payable on December 30, 2011 to shareholders of record on December 13, 2011.

NOTE 8 – GUARANTEES

The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued, have expiration dates within one year. The credit risks involved in issuing letters of credit are essentially the same as those that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. As of March 31, 2012, the Company had $4,709,000 of commercial and similar letters of credit. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. Management believes that the current amount of the liability as of March 31, 2012 for guarantees under standby letters of credit issued is not material.

NOTE 9 – BORROWINGS

Borrowings consist of long-term debt fixed rate advances from the FHLB. Information concerning long-term borrowings at March 31, 2012 and December 31, 2011, respectively, as follows:

Amount

Rate

Original

Term

Maturity

(dollars in thousands)

Convertible Note

$ 7,500

3.97%

10 years

November 2017

Fixed Rate Note

1,500

1.67%

4 years

August 2014

Fixed Rate Note

1,500

2.00%

5 years

August 2015

Fixed Rate Note

1,500

2.41%

6 years

August 2016

Fixed Rate Note

1,500

2.71%

7 years

August 2017

$ 13,500

3.18%

The $7.5 million convertible note contains an option which allows the FHLB to adjust the rate on the note in November 2012 to the then current market rate offered by the FHLB. The Company has the option to repay this advance, if converted, without penalty.

The Company has unsecured lines of credit totaling $17,000,000 with two financial institutions that bear interest at a variable rate and are renewed annually. There were no borrowings under these lines of credit at March 31, 2012 and December 31, 2011.

The Company has a remaining borrowing capacity with the FHLB of approximately $43,315,000 based on $56,815,000 loans pledged at March 31, 2012. There were no short-term borrowings from the FHLB at March 31, 2012. Advances from the FHLB are secured by qualifying assets of the Bank.

NOTE 10 – FAIR VALUE MEASUREMENTS

Accounting guidance establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 :

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 :

Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 :

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).

An assets or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

NOTE 10 – FAIR VALUE MEASUREMENTS (Continued)

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2012 and December 31, 2011 are as follows:

Description	(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs		Total
At March 31, 2012	(in thousands)

Securities available for sale:
U.S. Government agency securities	$	-	$	2,255	$	-	$	2,255
Municipal securities		-		1,296		-		1,296
GSE: Residential mortgage-backed securities		-		20,722		-		20,722
Collateralized residential mortgage obligations		-		16,120		-		16,120
Corporate debt securities, primarily financial institutions		-		2,489		75		2,564
CRA mutual Fund		2,349		-		-		2,349

Total	$	2,349	$	42,882	$	75	$	45,306

At December 31, 2011

Securities available for sale:
U.S. Government agency securities	$	-	$	2,258	$	-	$	2,258
Municipal securities		-		1,307		-		1,307
GSE: Residential mortgage-backed securities		-		21,878		-		21,878
Collateralized residential mortgage obligations		-		17,163		-		17,163
Corporate debt securities, primarily financial institutions		-		2,439		89		2,528
CRA mutual Fund		2,321		-		-		2,321

Total	$	2,321	$	45,045	$	89	$	47,455

NOTE 10 – FAIR VALUE MEASUREMENTS (Continued)

The following table presents a reconciliation of the securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods presented:

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Securities available for sale
	2012			2011
		(in thousands)

Beginning balance, January 1,	$	89		$	29
Gains/(losses) for the period:
Included in other comprehensive income		(14	)		66

Ending balance, March 31,	$	75		$	95

For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2012 and December 31, 2011 are as follows:

Description	(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs		Total
	(in thousands)

At March 31, 2012
Impaired loans	$	-	$	-	$	5,761	$	5,761
Other real estate owned		-		-		7,281		7,281


At December 31, 2011
Impaired loans	$	-	$	-	$	8,187	$	8,187
Other real estate owned		-		-		7,765		7,765
Property held for sale		-		-		1,000		1,000

The Company’s policy is to recognize transfers between levels as of the beginning of the period. There were no transfers between levels 1, 2 and 3 for the three months ended March 31, 2012.

The following valuation techniques were used to measure fair value of assets in the tables above:

Impaired loans – Impaired loans measured at fair value are those loans in which the Company has measured impairment generally based on the fair value of the loan’s collateral. This method of fair value measurement is used on all of the Company’s impaired loans. Fair value is generally determined based upon either independent third party appraisals of the properties or discounted cash flows based upon the expected proceeds. The appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The discount range for appraisal and liquidation expenses is -2.5% to -10.0%. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Other Real Estate Owned (“OREO”) – Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and carried at fair value less cost to sell. Fair value is based upon the appraised value of the collateral, adjusted by management for factors such as economic conditions and other market factors. The discount range for collateral adjustment to OREO is -2.5% to -40.0%. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement. At March 31, 2012, properties totaling $7,281,000 as compared to $7,765,000 at December 31, 2011, were acquired through foreclosure and are carried at fair value less estimated selling costs based on current appraisals.

NOTE 10 – FAIR VALUE MEASUREMENTS (Continued)

Property held for sale – This real estate property is carried in other assets as property held for sale at fair value based upon the appraised value of the property.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at March 31, 2012 and December 31, 2011:

Cash and Cash Equivalents (carried at cost ):

The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets’ fair values.

Securities :

The fair value of securities available-for-sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). At March 31, 2012 and December 31, 2011, the Company determined that no active market existed for our pooled trust preferred security. This security is classified as a Level 3 investment. Management’s best estimate of fair value consists of both internal and external support on the Level 3 investment. Internal cash flow models project expected future interest and principal receivables due to our security based on the application of assumptions, including default probabilities, on the underlying preferred securities. The models then apply the resulting distributions from the underlying securities through the liability model, according to the deal’s “priority of payments.” For fair value purposes, a present value formula is then applied to our security’s cash flows, steeply discounting the cash flows in accordance with the level of risk a reasonable market participant may demand for an investment such as ours. Due to the subordination of the security, discount margins contemplated in the valuation at March 31, 2012 ranged from Libor +15% to Libor +25%, with a midpoint of Libor +20%. The resultant fair values have been validated by means of comparison to indicative exit pricing obtained from broker/dealers (where available) were used to support the fair value of the Level 3 investment.

Restricted Investment in Federal Home Loan Bank Stock, ACBB Stock and Solomon Hess SBA Loan Fund:

The carrying amount of restricted investment in Federal Home Loan Bank stock, Atlantic Central Bankers Bank stock and Solomon Hess SBA Loan Fund approximates fair value, and considers the limited marketability of such securities.

Loans Receivable (carried at cost) :

The fair values of loans, excluding collateral dependent impaired loans, are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans, including liquidity. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. The valuation of the loan portfolio reflects discounts that the Company believes are consistent with transactions occurring in the marketplace for both performing and distressed loan types. The carrying value that fair value is compared to is net of the allowance for loan losses and other associated premiums and discounts. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Due to the significant judgment involved in evaluating credit quality, loans are classified within level 3 of the fair value hierarchy.

Accrued Interest Receivable and Payable (carried at cost) :

The carrying amount of accrued interest receivable and accrued interest payable approximates their respective fair values.

NOTE 10 – FAIR VALUE MEASUREMENTS (Continued)

Deposit Liabilities (carried at cost) :

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Securities Sold Under Agreements to Repurchase (carried at cost) :

The carrying amounts of these short-term borrowings approximate their fair values.

Long-term Debt (carried at cost) :

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Off-balance Sheet Financial Instruments (disclosed at cost) :

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing. The fair values of such fees are not material at March 31, 2012 and December 31, 2011.

The estimated fair values of the Company’s financial instruments at March 31, 2012 were as follows :

	Fair Value Measurements at March 31, 2012
(in thousands)	Carrying Amount		Estimated Fair Value		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs

Financial assets:
Cash and cash equivalents	$	45,706	$	45,706	$	45,706	$	-	$	-
Securities available for sale		45,306		45,306		2,349		42,882		75
Securities held to maturity		12,216		12,375		-		12,375		-
Restricted stock		2,232		2,232		-		-		2,232
Loans receivable		529,653		530,104		-		-		530,104
Accrued interest receivable		1,927		1,927		1,927		-		-

Financial liabilities:
Deposits		560,845		562,949		452,501		110,448		-
Securities sold under agreements to repurchase		18,680		18,680		18,680		-		-
Long-term debt		13,500		14,940		-		14,940		-
Accrued interest payable		61		61		61		-		-

Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

NOTE 10 – FAIR VALUE MEASUREMENTS (Continued)

The estimated fair values of the Company’s financial instruments at December 31, 2011 were as follows:

	December 31, 2011
	Carrying Amount		Estimated Fair Value
(in thousands)

Financial assets:
Cash and cash equivalents	$	38,022	$	38,022
Securities available for sale		47,455		47,455
Securities held to maturity		13,105		13,222
Restricted stock		2,237		2,237
Loans receivable		522,820		516,174
Accrued interest receivable		1,928		1,928

Financial liabilities:
Deposits		553,912		556,442
Securities sold under agreements to repurchase		16,218		16,218
Long-term debt		13,500		14,950
Accrued interest payable		107		107

Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-

NOTE 11 – SHAREHOLDERS’ EQUITY

On August 11, 2011, the Company received $12 million under the Small Business Lending Fund (“SBLF”). The SBLF was created in the fall of 2010 as part of the Small Business Jobs Act. The SBLF provides Tier 1 capital to community banks with assets of $10 billion or less, and provides incentives for making small business loans, defined as certain loans of up to $10 million to businesses with up to $50 million in annual revenues. In exchange for the $12 million, the Company issued to the U.S. Department of the Treasury (“Treasury”) 12,000 shares of its Non-Cumulative Perpetual Preferred Stock, Series C, having a $1,000 liquidation preference per share (the “SBLF Preferred Shares”). The SBLF Preferred Shares qualify as Tier 1 capital.

Dividend rates on the SBLF Preferred Shares will be determined by the bank’s lending practices with small business loans. The Company used a portion of the proceeds of the SBLF funds to redeem the full $9.0 million of its outstanding shares of Senior Preferred Stock, Series A, (the “TARP Preferred Shares”), previously issued to the Treasury under the Troubled Asset Relief Program Capital Purchase Plan (“TARP CPP”). The TARP Preferred Shares, issued under TARP CPP qualified as Tier 1 capital and paid cumulative dividends at a rate of 5% per annum for the first five years.

The terms of the SBLF Preferred Shares impose limits on the ability of the Company to pay dividends and repurchase shares of common stock. Under the terms of the SBLF Preferred Shares, no repurchases may be effected, and no dividends may be declared or paid on preferred shares ranking pari passu with the SBLF Preferred Shares, junior preferred shares, or other junior securities (including the common stock) during the current quarter and for the next three quarters following the failure to declare and pay dividends on the SBLF Preferred Shares, except that, in any such quarter in which the dividend is paid, dividend payments on shares ranking pari passu may be paid to the extent necessary to avoid any resulting material covenant breach.

Under the terms of the SBLF Preferred Shares, the Company may only declare and pay a dividend on the common stock or other stock junior to the SBLF Preferred Shares, or repurchase shares of any such class or series of stock, if, after payment of such dividend, the dollar amount of the Company’s Tier 1 Capital would be at least 90% of the Signing Date Tier 1 Capital, which is approximately $54.4 million, excluding any subsequent net charge-offs and any redemption of the SBLF Preferred Shares (the “Tier 1 Dividend Threshold”). Beginning on the first day of the eleventh dividend period, the amount of the Tier 1 Dividend Threshold will be reduced by 10% for each one percent increase in qualified small business lending from the baseline level through the ninth dividend period.

NOTE 11 – SHAREHOLDERS’ EQUITY (Continued)

The noncumulative dividend rate on the SBLF Preferred Shares will be adjusted to reflect the amount of a change in the Company’s qualified small business lending from its baseline, determined based upon the Company’s qualified small business lending for each of the four full quarters ending June 30, 2010. Accordingly, the dividend rate will change as follows:

	Dividend Rate Following Investment Date
Increase in Qualified Small Business Lending from the Baseline	First 9 Quarters*	Quarter 10 to Year 4.5	After Year 4.5
0% or less	5%	7%	9%
More than 0%, but less than 2.5%	5%	5%	9%
2.5% or more, but less than 5%	4%	4%	9%
5% or more, but less than 7.5%	3%	3%	9%
7.5% or more, but less than 10%	2%	2%	9%
10% or more	1%	1%	9%
* For the first nine quarters, the dividend rate will be adjusted quarterly.

After 10 years, if the SBLF Preferred Shares are not redeemed, the dividend rate will increase to the highest possible dividend rate as permitted by the Company’s regulators. Dividends are payable quarterly on January 1, April 1, July 1 and October 1 of each year. During the three months ended March 31, 2012, the dividend rate was 5% and will be unchanged for the second and third quarters of 2012.

On August 1, 2011, the Company distributed a dividend of one right (a "Right") for each outstanding share of the Company's common stock, to shareholders of record at the close of business on August 1, 2011 (the “Record Date”). Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series B Junior Participating Preferred Stock, at a purchase price of $25.00, subject to adjustment, (as so adjusted, the “Exercise Price”). The Rights are designed to protect shareholders from abusive takeover tactics and attempts to acquire control of the Company at an inadequate price. The Rights are not exercisable or transferable unless certain specified events occur.

Additionally, on October 31, 2011, the Company redeemed the TARP CPP warrant issued to the U.S. Treasury for $460,000.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 March 31, 2012								Three Months Ended March 31, 2011
(dollars in thousands)	Average Balance			Interest Income/ Expense		Average Rate			Average Balance			Interest Income/ Expense		Average Rate
ASSETS
Interest Earning Assets:
Interest bearing deposits in banks	$	32,984		$	21		0.25	%	$	24,004		$	15		0.25	%
Federal funds sold		-			-		0.00	%		7,000			4		0.23	%
Investment securities		61,161			400		2.62	%		46,829			375		3.20	%
Loans, net of unearned fees (1) (2)		530,163			7,307		5.54	%		515,080			7,251		5.71	%

Total Interest Earning Assets		624,308			7,728		4.98	%		592,913			7,645		5.23	%

Non-Interest Earning Assets:
Allowance for loan losses		(7,238	)							(6,263	)
All other assets		64,154								58,017

Total Assets	$	681,224							$	644,667

LIABILITIES & SHAREHOLDERS' EQUITY
Interest-Bearing Liabilities:
NOW deposits	$	61,837			63		0.41	%	$	52,289			58		0.45	%
Savings deposits		211,237			414		0.79	%		193,806			442		0.92	%
Money market deposits		84,054			96		0.46	%		92,074			153		0.67	%
Time deposits		111,526			513		1.85	%		110,701			521		1.91	%
Repurchase agreements		18,370			28		0.61	%		15,249			31		0.82	%
FHLB-term borrowings		13,500			108		3.22	%		13,500			107		3.21	%

Total Interest Bearing Liabilities		500,524			1,222		0.98	%		477,619			1,312		1.11	%

Non-Interest Bearing Liabilities:
Demand deposits		89,146								81,530
Other liabilities		3,746								4,753

Total Non-Interest Bearing Liabilities		92,892								86,283

Shareholders' Equity		87,808								80,765

Total Liabilities and Shareholders' Equity	$	681,224							$	644,667

NET INTEREST INCOME				$	6,506							$	6,333

NET INTEREST SPREAD (3)							4.00	%							4.12	%

NET INTEREST MARGIN(4)							4.19	%							4.33	%

(1)	Included in interest income on loans are loan fees.

(2)	Includes non-performing loans.

(3)	The interest rate spread is the difference between the weighted average yield on average interest earning assets and the weighted average cost of average interest bearing liabilities.

(4)	The interest rate margin is calculated by dividing annualized net interest income by average interest earning assets.

Analysis of Changes in Net Interest Income

The following table sets forth for the periods indicated a summary of changes in interest earned and interest paid resulting from changes in volume and changes in rates:

	Three Months Ended March 31, 2012
	Compared to Three Months Ended
	March 31, 2011

	Volume			Rate			Net
	(in thousands)
Interest Earned On:
Interest bearing deposits in banks	$	6		$	-		$	6
Federal funds sold		-			(4	)		(4	)
Investment securities		114			(89	)		25
Loans		214			(158	)		56

Total Interest Income		334			(251	)		83

Interest Paid On:
NOW deposits		11			(6	)		5
Savings deposits		40			(68	)		(28	)
Money market deposits		(13	)		(44	)		(57	)
Time deposits		4			(12	)		(8	)
Repurchase agreements		6			(9	)		(3	)
Long-term debt		-			1			1

Total Interest Expense		48			(138	)		(90	)

Net Interest Income	$	286		$	(113	)	$	173

The change in interest due to both volume and rate has been allocated proportionally to both, based on their relative absolute values.

Provision for Loan Losses

The provision for loan losses for the three months ended March 31, 2012 decreased to $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 partially offset by loan growth. The $350,000 provision for 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, and allowances related to impaired loans and loan activity. The provision for the comparable 2011 period considered the same factors. The provision for loan losses is determined by an allocation process whereby an estimated allowance is allocated to the specific allowance for impaired loans and the general allowance for pools of loans. The allocation reflects management’s assessment of economic conditions, credit quality and other risk factors inherent in the loan portfolio. The allowance for loan losses totaled $7.0 million, or 1.31% of total loans at March 31, 2012, as compared to $7.3 million, or 1.38% at December 31, 2011. The decrease of $284,000 in the allowance for loan losses is primarily due to loan charge-offs and partial write-downs of $655,000, partially offset by recoveries of $21,000 and the additional provision of $350,000 recorded during the first quarter of 2012.

In management’s opinion, the allowance for loan losses, totaling $7.0 million at March 31, 2012, is adequate to cover losses inherent in the portfolio. In the current interest rate and credit quality environment, our prudent risk management philosophy has been to stay within our established credit culture. We anticipate continued loan volume during 2012 as we continue to target credit worthy customers that have become dissatisfied with their relationships with larger institutions. Management will continue to review the need for additions to its allowance for loan losses based upon its ongoing review of the loan portfolio, the level of delinquencies and general market and economic conditions.

Non-Interest Income

For the three months ended March 31, 2012, non-interest income amounted to $540,000 compared to $436,000 for the corresponding period in 2011. The increase of $104,000 was primarily due to an increase of $77,000 in origination fees resulting from higher loan volume in our residential mortgage department, a $25,000 increase in bank-owned life insurance income resulting from increased purchases of such investments during the fourth quarter of 2011, a $13,000 increase in service fees on deposit accounts and a $15,000 increase in debit card fees. These increases were partially offset by a $28,000 loss recorded from the sale of two OREO properties during the three months ended March 31, 2012 as compared to the $5,000 loss recorded on the sale of one OREO property during the three months ended March 31, 2011.

Non-Interest Expenses

Non-interest expenses for the three months ended March 31, 2012 increased $88,000, or 1.8%, to $4.9 million compared to $4.8 million for the three months ended March 31, 2011. This increase was primarily due to an increase of $79,000 in salaries and benefits resulting primarily from annual increases, a $31,000 increase in outside service fees and a $52,000 increase in OREO and impaired net loan expense primarily as a result of the $90,000 write-down on an existing OREO property. These increases were partially offset by a decrease in FDIC insurance and assessments of $86,000, or 37.9%, primarily due to the change in assessment calculation from a deposit based calculation to an asset based less Tier 1 capital calculation. Occupancy and equipment expenses declined by $54,000, or 6.5%, primarily due to lower depreciation on capitalized expenditures. Amortization of intangible assets, which was the result of The Town Bank acquisition in 2006, amounted to $48,000 for the first quarter of 2012 compared to $58,000 for the corresponding period in 2011.

Income Taxes

The Company recorded income tax expense of $667,000 for the three months ended March 31, 2012 compared to $535,000 for the three months ended March 31, 2011. The effective tax rate for the three months ended March 31, 2012 and 2011 was 36.6% and 36.7%, respectively.

FINANCIAL CONDITION

Assets

At March 31, 2012, our total assets were $684.9 million, an increase of $10.3 million, or 1.5%, over total assets of $674.6 million at December 31, 2011. At March 31, 2012, our total loans were $536.7 million, an increase of $6.6 million, or 1.2%, from the $530.1 million reported at December 31, 2011. Investment securities were $59.8 million at March 31, 2012 as compared to $62.8 million at December 31, 2011, a decrease of $3.0 million, or 4.8%. At March 31, 2012, cash and cash equivalents totaled $45.7 million compared to $38.0 million at December 31, 2011, an increase of $7.7 million, or 20.2%, as our liquidity position continues to remain strong at March 31, 2012. Goodwill totaled $18.1 million at both March 31, 2012 and December 31, 2011.

Liabilities

Total deposits increased $6.9 million, or 1.2%, to $560.8 million at March 31, 2012, from $553.9 million at December 31, 2011. Deposits are the Company’s primary source of funds. The deposit increase during the three month period ending March 31, 2012 was primarily attributable to the Company’s strategic initiative to continue to grow market share through core deposit relationships. The Company anticipates continued loan demand increases during 2012 and beyond and will depend on the expansion and maturation of our branch network as the primary funding source. As a secondary funding source, the Company intends to utilize borrowed funds at opportune times during changing rate cycles. The Company continues to experience change in the mix of the deposit products through its branch sales efforts, which are targeted to gain market penetration. In order to fund future quality loan demand, the Company intends to raise the most cost-effective funding available within the market area.

Securities Portfolio

Investment securities, including restricted stock, totaled $59.8 million at March 31, 2012 compared to $62.8 million at December 31, 2011, a decrease of $3.0 million, or 4.8%. During the three months ended March 31, 2012, there were no investment securities purchases, while repayments, calls and maturities amounted to $3.0 million. There were no sales of securities available for sale during the three months ended March 31, 2012 and 2011.

The Company maintains an investment portfolio to fund increased loans and liquidity needs (resulting from decreased deposits or otherwise) and to provide an additional source of interest income. The portfolio is composed of obligations of the U.S. Government agencies and U.S. Government-sponsored entities, municipal securities and a limited amount of corporate debt securities. All of our mortgage-backed investment securities are collateralized by pools of mortgage obligations that are guaranteed by privately managed, U.S. Government-sponsored enterprises (“GSE”), such as Fannie Mae, Freddie Mac and Government National Mortgage Association. Due to these GSE guarantees, these investment securities are susceptible to less risk of non-performance and default than other corporate securities which are collateralized by private pools of mortgages. At March 31, 2012, the Company maintained $20.7 million of GSE mortgage-backed securities in the investment portfolio and $16.1 million of collateralized residential mortgage obligations, all of which are current as to payment of principal and interest and are performing in accordance with the terms set forth in their respective prospectuses.

Included within the Company’s investment portfolio are trust preferred securities, which consists of four single issue securities and one pooled issue security. These securities have an amortized cost value of $3.1 million and a fair value of $2.2 million at March 31, 2012. The unrealized loss on these securities is related to general market conditions, the widening of interest rate spread and downgrades in credit ratings. The single issue securities are from large money center banks. The pooled instrument consists of securities issued by financial institutions and insurance companies, and we hold the mezzanine tranche of such security. Senior tranches generally are protected from defaults by over-collateralization and cash flow default protection provided by subordinated tranches, with senior tranches having the greatest protection and mezzanine tranches subordinated to the senior tranches. For the pooled trust preferred security, management reviewed expected cash flows and credit support and determined it was not probable that all principal and interest would be repaid. In this pooled trust preferred security, there are 35 out of 42 banks that are performing at March 31, 2012. The deferrals and defaults as a percentage of original collateral at March 31, 2012 was 24.6%. As the Company does not intend to sell this security and it is more likely than not that the Company will not be required to sell this security, the total other-than-temporary impairment on this security was $425,000 at March 31, 2012, of which $228,000 was determined to be a credit loss and charged to operations in previous years and $197,000 was determined to be non-credit related and included in the other comprehensive income component. There was no other-than-temporary charges to earnings recorded during the three month period ended March 31, 2012 and 2011.

Management evaluates all securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic and market concerns warrant such evaluations. As of March 31, 2012, all of these securities are current with their scheduled interest payments, with the exception of the one pooled trust preferred security with an amortized cost basis of $272,000 at March 31, 2012, which has been remitting reduced amounts of interest as some individual participants of the pool have deferred interest payments. Future deterioration in the cash flow of these instruments or the credit quality of the financial institution issuers could result in additional impairment charges in the future.

The Company accounts for its investment securities as available for sale or held to maturity. Management determines the appropriate classification at the time of purchase. Based on an evaluation of the probability of the occurrence of future events, we determine if we have the ability and intent to hold the investment securities to maturity, in which case we classify them as held to maturity. All other investments are classified as available for sale.

Securities classified as available for sale must be reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders’ equity, net of taxes. Gains or losses on the sales of securities available for sale are recognized upon realization utilizing the specific identification method. The net effect of unrealized gains or losses, caused by marking our available for sale portfolio to fair value, could cause fluctuations in the level of shareholders’ equity and equity-related financial ratios as changes in market interest rates cause the fair value of fixed-rate securities to fluctuate.

Securities classified as held to maturity are carried at cost, adjusted for amortization of premium and accretion of discount over the terms of the maturity in a manner that approximates the interest method.

Loan Portfolio

The following table summarizes total loans outstanding, by loan category and amount as of March 31, 2012 and December 31, 2011.

	March 31,						December 31,
	2012						2011
	Amount			Percent			Amount			Percent
	(in thousands, except for percentages)

Commercial and industrial	$	132,822			24.8	%	$	136,869			25.8	%
Real estate – construction		58,753			11.0	%		51,180			9.6	%
Real estate – commercial		275,041			51.2	%		270,688			51.1	%
Real estate – residential		20,034			3.7	%		19,201			3.6	%
Consumer		50,656			9.4	%		52,853			10.0	%
Unearned fees		(627	)		(0.1	%)		(661	)		(0.1	%)
Total loans	$	536,679			100.0	%	$	530,130			100.0	%

For the three months ended March 31, 2012, total loans increased by $6.6 million, or 1.2%, to a new high of $536.7 million from $530.1 million at December 31, 2011. While the overall economy has been restrictive and somewhat constrained by the fragile economic environment, our local economy seems to reflect some strengthening in certain sectors. However, we anticipate continued increased loan volume to be a major challenge during 2012, as we continue to target credit worthy customers. Adverse credit conditions have created a difficult environment for both borrowers and lenders. The low rate environment has created a higher than anticipated level of prepayments and payoffs by borrowers looking to deleverage portions of their business and personal debts.

Real estate commercial loans increased $4.3 million, or 1.6%, to $275.0 million at March 31, 2012 from $270.7 million at December 31, 2011. Real estate construction loans increased by $7.6 million, or 14.8%, to $58.8 million at March 31, 2012 from $51.2 million at December 31, 2011. This increase is primarily due to increased draws on existing commercial real estate construction loans as well as construction loans, which require initial draws on projects. Real estate residential increased by $833,000, or 4.3%, to $20.0 million at March 31, 2012 from $19.2 million at December 31, 2011. These increases were partially offset by decreases in commercial and industrial loans, which decreased $4.1 million, or 3.0%, to $132.8 million at March 31, 2012 from $136.9 million at December 31, 2011, and consumer loans which decreased $2.2 million, or 4.2%, to $50.7 million at March 31, 2012 from $52.9 million at December 31, 2011.

Other Real Estate Owned (“OREO”)

OREO represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at the lower of cost or fair value less estimated selling costs. When a property is acquired, the excess of the loan balance over fair value, less selling costs, 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. At March 31, 2012, the Bank had $7.3 million in other real estate owned as compared to $7.8 million in other real estate owned at December 31, 2011.

The decrease of $484,000 is primarily due to the sale of two OREO properties with a carrying value of $719,000, for which the Company recorded a loss of $28,000. Additionally, the Company recorded a $90,000 impairment on an existing OREO property, primarily due to a decrease in collateral values which was supported by current appraisals. These decreases were partially offset by the addition of one OREO property totaling $259,000 as well as $66,000 of capitalized construction costs. Our OREO balance at March 31, 2012 includes our single largest OREO asset in the amount of $3.5 million, a commercial construction loan taken into OREO as a result of Deeds-in-Lieu. Our second largest OREO is related to a $1.2 million multi-unit apartment complex located in Union County. The remaining $2.6 million is comprised principally of real estate construction and residential real estate properties obtained through sheriff sales or Deeds-in-Lieu.

All of our OREO are being aggressively marketed, and are monitored on a regular basis to ensure valuations are in line with current fair market values.

Asset Quality

One of our key operating objectives has been, and continues to be, to maintain a high level of credit quality. We continually analyze our asset quality through a variety of strategies, we have been proactive in addressing problem and non-performing assets and management believes our allowance for loan losses are adequate to cover known and potential losses. These strategies, as well as our prudent maintenance of sound credit standards for new loan originations, have resulted in relatively low levels of non-performing loans and charge-offs. Our loan portfolio composition generally consists of loans secured by commercial real estate, development and construction of real estate projects in the Union and Monmouth County New Jersey area. We continue to have lending success and growth in the medical markets through our Private Banking Department. Since the later part of 2008, the financial and capital markets have been faced with significant disruptions and volatility. The weakened economy has contributed to an overall challenge in building loan volume and we continue to be faced with declines in real estate values, which tend to reduce the collateral coverage of our existing loans. Efficient and effective asset-management strategies reflect the type and quality of assets being originated.

We continue to note positive signs in asset quality trends as the number of troubled loans continued to decrease over the course of 2011 and through the first quarter of 2012. These disruptions have been exacerbated by the continued weakness in the real estate and housing markets as well as the prolonged high unemployment rate. We closely monitor local and regional real estate markets and other factors related to risks inherent in our loan portfolio. The improvement in our asset quality trends is reflective of the Company’s efforts in identifying troubled credits early enough to correct problems, to record charge-offs promptly based on realistic assessments of current collateral values, and to maintain an adequate allowance for loan losses at all times.

At March 31, 2012, commercial and industrial loans accounted for 24.8% of total loans, real estate - construction loans accounted for 11.0% of total loans and real estate - commercial loans accounted for 51.2% of total loans. Real estate - residential accounted for 3.7% of total loans and consumer loans accounted for 9.4% of total loans. These percentages are well below our policy limits.

The Bank does not originate or purchase loans with payment options, negative amortization loans or sub-prime loans. We evaluate the classification of all our loans and the financial results of some of those loans may be adversely affected by changes in the prevailing economic conditions, either nationally or in our local Union and Monmouth County areas, including decreases in real estate values, adverse employment conditions, the monetary and fiscal policies of the federal and state government and other significant external events. For loans involved in a workout situation, a new or updated appraisal or evaluation, as appropriate, is ordered to address current project plans and market conditions that were considered in the development of the workout plan. The consideration include whether there has been material deterioration in the following factors: the performance of the project; conditions for the geographic market and property type; variances between actual conditions and original appraisal assumptions; changes in project specifications (e.g., changing a planned condominium project to an apartment building); loss of a significant lease or a take-out commitment; or increases in pre-sales fallout. A new appraisal may not be necessary in instances where an internal evaluation is used and appropriately updates the original appraisal assumptions to reflect current market conditions and provides an estimate of the collateral’s fair value for impairment analysis.

Non-Performing Assets

Non-performing assets include loans that are not accruing interest (non-accrual loans) as a result of principal or interest being in default for a period of 90 days or more, loans past due 90 days or more and still accruing and other real estate owned, which consists of real estate acquired as the result of a defaulted loan. A loan is placed on non-accrual status when collection of all principal or interest is considered unlikely or when principal or interest is past due for 90 days or more, unless the loan is well-secured and in the process of collection, in which case, the loan will continue to accrue interest. Any unpaid interest previously accrued on those loans is reversed from income. Interest income on other non-accrual loans is recognized only to the extent of interest payments received. During 2011, the Bank adopted Financial Accounting Standards Board (“FASB”) – Receivables (Topic 310) guidance on determination of whether a restructuring is a troubled debt restructuring (“TDR”). The guidance was applicable to restructurings on or after January 1, 2011. A TDR is a loan in which the contractual terms have been modified resulting in the Bank granting a concession to a borrower who is experiencing financial difficulties in order for the Bank to have a greater opportunity of collecting the indebtedness from the borrower. Non-accruing TDR’s are included in non-performing loans.

At March 31, 2012 and December 31, 2011, the Company had $4.5 million and $5.2 in non-accrual loans, respectively. All of the non-performing loans are secured by real estate. At March 31, 2012, there was one loan totaling $482,000 past due 90 days or more and still accruing, as this loan is well secured and is in the process of collection. At December 31, 2011, the Company had no loans past due 90 days or more and still accruing.

The following table summarizes our non-performing assets as of March 31, 2012 and December 31, 2011.

(dollars in thousands)	March 31, 2012			December 31, 2011

Non-Performing Assets:

Non-Accrual Loans:
Commercial and industrial	$	1,104		$	2,349
Real estate-construction		292			292
Real estate-commercial		145			145
Real estate – residential		846			263
Consumer		2,130			2,191

Total Non-Accrual Loans		4,517			5,240

Loans 90 days or more past due and still accruing		482			-

Total Non-Performing Loans		4,999			5,240

Other Real Estate Owned		7,281			7,765

Total Non-Performing Assets	$	12,280		$	13,005

Ratios:

Non-Performing loans to total loans		0.93	%		0.99	%

Non-Performing assets to total assets		1.79	%		1.93	%

Troubled Debt Restructured Loans	$	9,781		$	7,579

Total non-performing loans decreased by $241,000 from March 31, 2012 from December 31, 2012. Twelve loans comprise the $5.0 million of non-performing loans at March 31, 2012 compared to twelve loans which comprised the $5.2 million at December 31, 2011. At March 31, 2012, the Company believes it has a manageable level of non-performing loans, many of which are in the final stages of loss mitigation or legal resolution.

At March 31, 2012, non-performing commercial and industrial loans decreased by $1.2 million from December 31, 2011, due to the settlement payoff of one loan totaling $517,000 wherein the Company received full principal including fees. A full charge-off of one loan totaling $113,000 and a partial charge-off on one loan totaling $280,000, both of which were previously reserved for, and the transfer of one loan to OREO totaling $335,000. This property was subsequently sold in the second quarter, in which the Company recorded a gain of $7,000 .

At March 31, 2012, non-performing real estate construction loans totaling $292,000 was unchanged from December 31, 2011. The loan is expected to be taken into OREO via Deed-in-Lieu during the second quarter and subsequently sold.

At March 31, 2012, non-performing real-estate commercial loans totaling $145,000 was unchanged from December 31, 2011.

At March 31, 2012, non-performing real estate residential loans increased by $583,000 from December 31, 2011, due to the addition of two residential loans.

At March 31, 2012, non-performing consumer loans decreased by $61,000 from December 31, 2011, due to the partial charge-off of $158,000 on one loan, which was previously reserved for and the pay-off including fees, of two loans totaling $253,000. These decreases were partially offset by the addition of one loan totaling $350,000 during the three month period ending March 31, 2012.

At March 31, 2012, the Company had one commercial and industrial loan totaling $482,000 that was 90 days or more past due and still accruing as it is well secured and is in the process of collection.

At March 31, 2012, OREO balance was at $7.3 million as compared to $7.8 million at December 31, 2011. Our single largest OREO asset in the amount of $3.5 million, which was a commercial construction loan taken into OREO as a result of Deeds-in-Lieu. Our second largest OREO is related to a $1.2 million commercial time note, a multi-unit apartment complex. The remaining $2.6 million is comprised principally of real estate construction and residential real estate properties obtained in partial or total satisfaction of loan obligations. Subsequent to March 31, 2012, there has been approximately $3.7 million in OREO sales that have either occurred or are scheduled to close during the second quarter.

The Company’s troubled debt restructured modifications are made on short terms (12 month terms) in order to aggressively monitor and track performance. The short-term modifications performances are monitored for continued payment performance for an additional period of time after the expiration of the concession. Balance reductions and annualized loss rates are also important metrics that are monitored. The main objective of the modification programs is to reduce the payment burden for the borrower and improve the net present value of the Company’s expected cash flows.

As of March 31, 2012, loans modified in a troubled debt restructuring totaled $9.8 million, including $6.2 million that are current, $3.1 million that are 30-59 days past due and $478,000 that are 60-89 days past due. There were no loans 90 days or more past due. All loans modified in a troubled debt restructuring as of March 31, 2012, were current at the time of the modifications.

Potential Problem Loans

The Company’s commitment to asset quality continues to follow our strategic imperatives. Overall credit quality in the portfolio remains strong even though the economic weakness has impacted several potential problem loans. Potential problem loans consist of special mention and substandard loans that continue to accrue interest. As of the three months ended March 31, 2012, the Company had $45.6 million in loans that were risk rated as special mention or substandard. This is an increase of approximately $9.5 million from year ended December 31, 2011, which totaled $36.1 million. The change in risk rated loans was attributable to certain loan which were downgraded due to a variety of changing conditions, including general economic conditions and/or conditions applicable to the specific borrower. All loans which were downgraded during the three month period ended March 31, 2012, are currently performing and management believes that the continued success in aggressively monitoring the issues surrounding these loans can be cured. It is believed that the remediation of a majority of these loans represented in the increase may warrant a risk rating upgrade within the near future.

At March 31, 2012, other than the loans set forth above, the Company is not aware of any loans which present serious doubts as to the ability of its borrowers to comply with present loan repayment terms and which are expected to fall into one of the risk categories set forth in the description herein.

Allowance for Loan Losses

The following table summarizes our allowance for loan losses for the three months ended March 31, 2012 and 2011 and for the year ended December 31, 2011.

	March 31,						December 31,
	2012			2011			2011
	(in thousands, except percentages)

Balance at beginning of year	$	7,310		$	6,246		$	6,246
Provision charged to expense		350			525			2,205
Loans charged off, net		(634	)		(230	)		(1,141	)
Balance of allowance at end of period	$	7,026		$	6,541		$	7,310

Ratio of net charge-offs to average loans outstanding (annualized)		0.48	%		0.18	%		0.22	%
Balance of allowance as a percent of loans at period-end		1.31	%		1.25	%		1.38	%
Ratio of allowance at period-end to non-performing loans		140.55	%		105.19	%		139.50	%

At March 31, 2012, the Company’s allowance for loan losses was $7.0 million, compared with $7.3 million at December 31, 2011. Loss allowance as a percentage of total loans at March 31, 2012 was 1.31%, compared with 1.38% at December 31, 2011. The Company had total provisions to the allowance for loan losses for the three month period ended March 31, 2012 in the amount of $350,000 as compared to $ 525,000 for the comparable period in 2011. There was $634,000 in net charge-offs for the three months ended March 31, 2012, compared to $230,000 for the same period in 2011. During the three months period ended March 31, 2012, the Company recorded gross charge-offs of $655,000, which represents four commercial and industrial loans totaling $472,000 and two consumer loans totaling $183,000. All loans which the Company charged-off or had a direct write-down had been previously identified and specific reserves were applied. Non-performing loans at March 31, 2012 are either well-collateralized or adequately reserved for in the allowance for loan losses.

Management maintains the allowance for credit losses at a level estimated to absorb probable loan losses of the loan portfolio. The allowance is based on ongoing evaluations of the probable estimated losses inherent in the loan portfolio. Our methodology for evaluating the appropriateness of the allowance includes segmentation of the loan portfolio into its various asset components, tracking the historical levels of criticized loans and delinquencies, and assessing the nature and trend of loan charge-offs. Additionally, the volume of non-performing loans, concentration risks by size, type, and geography, new products and markets, collateral adequacy, credit policies and procedures, staffing, underwriting consistency, and economic conditions are taken into consideration. Risks within the loan portfolio are analyzed on a continuous basis by the Bank’s senior management, outside independent loan review auditors, directors’ loan committee, and board of directors. A risk system, consisting of multiple grading categories, is utilized as an analytical tool to assess risk and set appropriate reserves.

While there are some signs of economic stability in our market areas, the economy continues to remain sluggish, and as such, prudent risk management practices must be maintained. Along with this conservative approach, we have further stressed our qualitative and quantitative allowance factors to primarily reflect the current state of the economy, the weak housing market and prolonged high levels of unemployment. We apply this process and methodology in a consistent manner and reassess and modify the estimation methods and assumptions on a regular basis.

We attempt to maintain an allowance for loan losses at a sufficient level to provide for probable losses inherent in the loan portfolio. Risks within the loan portfolio are analyzed on a continuous basis by the Bank’s senior management, outside independent loan review consultants, directors’ loan committee, and board of directors. The level of the allowance is determined by assigning specific allowances to impaired loans and general allowances on all other loans. The portion of the allowance that is allocated to impaired loans is determined by estimating the inherent loss on each credit after giving consideration to the value of the underlying collateral or collateral dependent loans and cash flow on cash flow dependent loans. A risk system, consisting of multiple grading categories, is utilized as an analytical tool to assess risk and set appropriate reserves. Along with the risk system, senior management evaluates risk characteristics of the loan portfolio under current economic conditions and considers such factors as the financial condition of the borrower, past and expected loss experience, and other factors management feels deserve recognition in establishing an appropriate allowance. These estimates are reviewed at least quarterly, and as adjustments become necessary, they are realized in the periods in which they become known. Although management attempts to maintain the allowance at a level deemed adequate to cover any losses, future additions to the allowance may be necessary based upon changes in market conditions, either generally or specific to our area, or changes in the circumstances of particular borrowers. In addition, various regulatory agencies periodically review our allowance for loan losses. These agencies may require the Company to take additional provisions based on their judgments about information available to them at the time of their examination.

Bank-Owned Life Insurance

In November of 2004, the Company invested in $3.5 million of bank-owned life insurance as a source of funding for additional life insurance benefits for officers and employee benefit expenses related to the Company’s non-qualified Supplemental Executive Retirement Plan (“SERP”) for certain executive officers implemented in 2004 that provides for payments upon retirement, death or disability. In 2009, 2010 and 2011, the Company purchased an additional $3.5 million, $1.0 million and $3.5 million, respectively, of bank-owned life insurance in order to provide additional life insurance benefits for additional officers upon death or disability and to provide a source of funding for future enhancements of the benefits under the SERP. Expenses related to the SERP were approximately $54,000 and $23,000 for the three months ended March 31, 2012 and 2011. Bank-owned life insurance involves our purchase of life insurance on a selected group of officers. The Company is the owner and beneficiary of the policies. Increases in the cash surrender values of this investment are recorded in other income in the statement of operations. Income on bank-owned life insurance amounted to $118,000 and $93,000 for the three months ended March 31, 2012 and 2011, respectively.

Premises and Equipment

Premises and equipment totaled approximately $2.5 million and $2.6 million at March 31, 2012 and December 31, 2011, respectively. The Company purchased premises and equipment amounting to $35,000 primarily to replace fully depreciated and un-repairable equipment, while depreciation expenses totaled $165,000 and $194,000 for the three months ended March 31, 2012 and 2011, respectively.

Goodwill and Other Intangible Assets

Intangible assets totaled $18.5 million at March 31, 2012 and December 31, 2011. The Company’s intangible assets at March 31, 2012 were comprised of $18.1 million of goodwill and $383,000 of core deposit intangibles, net of accumulated amortization of $1.7 million. The Company performed its annual goodwill impairment analysis as of September 30, 2011. Based on the results of the step one goodwill impairment analysis, the Company concluded that the potential for goodwill impairment existed and therefore a step two test was required to determine if there was goodwill impairment and the amount of goodwill that might be impaired. Based on the results of that analysis, the Company determined that there was no impairment on the current goodwill balance of $18.1 million. At December 31, 2011, the Company’s intangible assets were comprised of $18.1 million of goodwill and $431,000 of core deposit intangibles, net of accumulated amortization of $1.7 million.

Deposits

Deposits are the primary source of funds used by the Company in lending and for general corporate purposes. In addition to deposits, the Company may derive funds from principal repayments on loans, the sale of loans and securities designated as available for sale, maturing investment securities and borrowing from financial intermediaries. The level of deposit liabilities may vary significantly and is dependent upon prevailing interest rates, money market conditions, general economic conditions and competition. The Company’s deposits consist of checking, savings and money market accounts along with certificates of deposit and individual retirement accounts. Deposits are obtained from individuals, partnerships, corporations, unincorporated businesses and non-profit organizations throughout the Company’s market area. We attempt to control the flow of deposits primarily by pricing our deposit offerings to be competitive with other financial institutions in our market area, but not necessarily offering the highest rate.

At March 31, 2012, total deposits amounted to $560.8 million, reflecting an increase of $6.9 million, or 1.3%, from December 31, 2011. Core checking deposits increased $4.2 million, or 2.8%, savings accounts, inclusive of money market deposits, increased $8.1 million, or 2.8%, and time deposits decreased $5.4 million, or 4.7%, during the three month period ended March 31, 2012. The Bank has continued to focus on building non-interest-bearing deposits, as this lowers the institution’s costs of funds. Additionally, our savings accounts and other interest-bearing deposit products, excluding high-cost certificates of deposit, provide an efficient and cost-effective source to fund our loan originations.

One of the primary strategies is the accumulation and retention of core deposits. Core deposits consist of all deposits, except certificates of deposit in excess of $100,000. Core deposits at March 31, 2012 accounted for 91.1% of total deposits, unchanged from December 31, 2011. The balance in our certificates of deposit (“CD’s”) over $100,000 at March 31, 2012 totaled $50.0 million as compared to $52.8 million at December 31, 2011. During the first quarter of 2011, the Company placed $5.0 million in brokered CD’s. The term on these CD’s ranged from 54 to 66 months with interest rates ranging from 2.15% to 2.25%. During the first quarter of 2012, $3.5 million in brokered CD’s were called and $2.7 million of new brokered CD’s were placed at substantially lower rates for similar terms. At March 31, 2012, the Company has $4.2 million in brokered CD’s, with rates ranging from 1.15% to 1.90% with terms ranging from 41 to 58 months. The Company found this strategy was able to provide a more cost-effective source of longer-term funding as the rates paid for these brokered CD’s were lower than current fixed rate term advances at the FHLB of New York .

Borrowings

The Bank utilizes its account relationship with Atlantic Central Bankers Bank to borrow funds through its Federal funds borrowing line in an aggregate amount up to $10.0 million. The Bank also established a $7.0 million credit facility with another correspondent bank during the first quarter of 2011. These borrowings are priced on a daily basis. There were no outstanding borrowings under these lines at March 31, 2012 and December 31, 2011. The Bank also has a remaining borrowing capacity with the FHLB of approximately $43.3 million based on the current loan collateral pledged of $56.8 million at March 31, 2012. At March 31, 2012 and December 31, 2011, the Bank had no short-term borrowings outstanding under this line.

Long-term debt consisted of the following FHLB fixed rate advances at March 31, 2012 and at December 31, 2011:

Amount

Rate

Original

Term

Maturity

(dollars in thousands)

Convertible Note

$ 7,500

3.97%

10 years

November 2017

Fixed Rate Note

1,500

1.67%

4 years

August 2014

Fixed Rate Note

1,500

2.00%

5 years

August 2015

Fixed Rate Note

1,500

2.41%

6 years

August 2016

Fixed Rate Note

1,500

2.71%

7 years

August 2017

$ 13,500

3.18%

Repurchase Agreements

Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature within one to four days after the transaction date. Securities sold under agreements to repurchase are reflected as the amount of cash received in connection with the transaction. The Company may be required to provide additional collateral based on the fair value of the underlying securities. Securities sold under agreements to repurchase increased to $18.7 million at March 31, 2012 from $16.2 million at December 31, 2011, an increase of $2.5 million, or 15.4%.

Liquidity

Liquidity defines the Company’s ability to generate funds to support asset growth, meet deposit withdrawals, maintain reserve requirements and otherwise operate on an ongoing basis. An important component of the Company’s asset and liability management structure is the level of liquidity available to meet the needs of our customers and requirements of our creditors. The liquidity needs of the Bank are primarily met by cash on hand, Federal funds sold position, maturing investment securities and short-term borrowings on a temporary basis. The Bank invests the funds not needed to meet its cash requirements in overnight Federal funds sold and an interest bearing account with the Federal Reserve Bank of New York. With adequate deposit inflows coupled with the above-mentioned cash resources, management is maintaining short-term assets which we believe are sufficient to meet our liquidity needs.

At March 31, 2012, the Company had $45.7 million in cash and cash equivalents as compared to $38.0 million at December 31, 2011. Cash and cash equivalent balances consisted of no Federal funds sold at March 31, 2012 and December 31, 2011, and $37.5 million and $30.4 million at the Federal Reserve Bank of New York at March 31, 2012 and December 31, 2011, respectively. It was determined by management during 2010 to transfer most of the Bank’s investable funds out of the Federal funds sold position and into the interest bearing deposit account at the Federal Reserve Bank of New York due primarily to a higher rate of return, which averages approximately 10 basis points higher. During the second quarter of 2011, the remaining $7.0 million in Federal funds sold was transferred to the Federal Reserve Bank of New York primarily due to the above-mentioned reasons. Additionally, balances at the Federal Reserve Bank of New York provide the highest level of safety for our investable funds.

Off-Balance Sheet Arrangements

The Company’s financial statements do not reflect off-balance sheet arrangements that are made in the normal course of business. These off-balance sheet arrangements consist of unfunded loans and letters of credit made under the same standards as on-balance sheet instruments. These instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk to the Company.

Management believes that any amounts actually drawn upon these commitments can be funded in the normal course of operations. The following table sets forth the Bank’s off-balance sheet arrangements as of March 31, 2012 and December 31, 2011:

	March 31, 2012		December 31, 2011
	(dollars in thousands)

Home equity lines of credit	$	27,980	$	27,524
Commitments to fund commercial real estate and construction loans		64,563		72,409
Commitments to fund commercial and industrial loans		55,479		56,272
Commercial and financial letters of credit		4,709		5,066
	$	152,731	$	161,271

Capital

Shareholders’ equity increased by approximately $1.2 million, or 1.3%, to $88.3 million at March 31, 2012 compared to $87.1 million at December 31, 2011. Net income for the three month period ended March 31, 2012 added $1.2 million to shareholders’ equity. Stock option compensation expense of $38,000, options exercised of $49,000 and net unrealized gains on securities available for sale, net of tax, of $31,000, all contributed to the increase. These increases were partially offset by decreases of $137,000 relating to the dividends on the preferred stock Series C.

The Company and the Bank are subject to various regulatory and capital requirements administered by the Federal banking agencies. Our federal banking regulators, the Board of Governors of the Federal Reserve System (which regulates bank holding companies) and the Federal Deposit Insurance Corporation (which regulates the Bank), have issued guidelines classifying and defining capital. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification of the Company and the Bank is also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios, set forth in the following tables of Tier 1 Capital to Average Assets (Leverage Ratio), Tier 1 Capital to Risk Weighted Assets and Total Capital to Risk Weighted Assets. Management believes that, at March 31, 2012, the Company and the Bank met all capital adequacy requirements to which they are subject.

As of March 31, 2012, the Bank met all regulatory requirements for classification as well-capitalized under the regulatory framework for prompt corrective action. Management believes that there are no conditions or events that have changed the Bank’s categories

The capital ratios of the Company and the Bank, at March 31, 2012 and December 31, 2011, are presented below.

	Tier I Capital to Average Assets Ratio (Leverage Ratio)						Tier I Capital to Risk Weighted Assets Ratio						Total Capital to Risk Weighted Assets Ratio
	Mar. 31, 2012			Dec. 31, 2011			Mar. 31, 2012			Dec. 31, 2011			Mar. 31, 2012			Dec. 31, 2012

Community Partners		10.49	%		10.39	%		12.09	%		12.01	%		13.31	%		13.26	%
Two River		10.48	%		10.38	%		12.08	%		12.00	%		13.30	%		13.25	%

“Adequately capitalized” institution (under Federal regulations)		4.00	%		4.00	%		4.00	%		4.00	%		8.00	%		8.00	%

“Well capitalized” institution (under Federal regulations)		5.00	%		5.00	%		6.00	%		6.00	%		10.00	%		10.00	%

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 4. Controls and Procedures.

The Company has established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

The Company’s principal executive officer and principal financial officer, with the assistance of other members of the Company’s management, have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon such evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.

The Company’s principal executive officer and principal financial officer have also concluded that there was no change in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 6 .


10.1	*	Supplemental Executive Retirement Agreement, effective January 1, 2012, between Two River Community Bank and A. Richard Abrahamian

10.2	*	Supplemental Executive Retirement Agreement, effective January 1, 2012, between Two River Community Bank and Robert C. Werner

10.3	*	Third Amendment to the Two River Community Bank Supplemental Executive Retirement Agreement dated and effective as of January 19, 2012 by and between Two River Community Bank and William D. Moss

10.4	*	First Amendment to the Change in Control Agreement, effective as of January 19, 2012, by and between Community Partners Bancorp, Two River Community Bank and A. Richard Abrahamian

10.5	*	First Amendment to the Change in Control Agreement, effective as of January 19, 2012, by and between Community Partners Bancorp, Two River Community Bank and Robert C. Werner

10.6	*	Second Amendment to the Change in Control Agreement, effective as of January 19, 2012, by and between Community Partners Bancorp, Two River Community Bank and Alan B. Turner

31.1	*	Certification of principal executive officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a)

31.2	*	Certification of principal financial officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a)

32	*	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by the principal executive officer of the Company and the principal financial officer of the Company

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase

101.DEF**		XBRL Taxonomy Extension Definition Linkbase

101.LAB**		XBRL Taxonomy Extension Label Linkbase

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase
* Filed herewith.
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	COMMUNITY PARTNERS BANCORP


Date: May 15, 2012	By:	/s/ WILLIAM D. MOSS
		William D. Moss
		President and Chief Executive Officer
		(Principal Executive Officer)


Date: May 15, 2012	By:	/s/ A. RICHARD ABRAHAMIAN
		A. Richard Abrahamian
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

Exhibit 10.1

TWO RIVER COMMUNITY BANK

SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT

This Supplemental Executive Retirement Agreement (the “Agreement”), by and between Two River Community Bank, located in Middletown, New Jersey (the “Employer”), and A. Richard Abrahamian (the “Executive”), effective as of the 1st day of January, 2012, formalizes the agreements and understanding between the Employer and the Executive.

WITNESSETH :

WHEREAS, the Executive is employed by the Employer;

WHEREAS, the Employer recognizes the valuable services the Executive has performed for the Employer and wishes to encourage the Executive’s continued employment and to provide the Executive with additional incentive to achieve corporate objectives;

WHEREAS, the Employer wishes to provide the terms and conditions upon which the Employer shall pay additional retirement benefits to the Executive;

WHEREAS, the Employer and the Executive intend this Agreement shall at all times be administered and interpreted in compliance with Code Section 409A; and

WHEREAS, the Employer intends this Agreement shall at all times be administered and interpreted in such a manner as to constitute an unfunded nonqualified deferred compensation arrangement, maintained primarily to provide supplemental retirement benefits for the Executive, a member of select group of management or highly compensated employee of the Employer.

NOW THEREFORE, in consideration of the premises and of the mutual promises herein contained, the Employer and the Executive agree as follows:

ARTICLE 1

DEFINITIONS

For the purpose of this Agreement, the following phrases or terms shall have the indicated meanings:

1.1 “Accrued Benefit” means the dollar value of the liability that should be accrued by the Employer, under Generally Accepted Accounting Principles, for the Employer’s obligation to the Executive under this Agreement, calculated by applying by applying Accounting Standards Codification 710-10 and the Discount Rate.

1.2 “Administrator” means the Board or its designee.

1.3 “Affiliate” means any business entity with whom the Employer would be considered a single employer under Section 414(b) and 414(c) of the Code. Such term shall be interpreted in a manner consistent with the definition of “service recipient” contained in Code Section 409A.

1.4 “Beneficiary” means the person or persons designated in writing by the Executive to receive benefits hereunder in the event of the Executive’s death.

1.5 “Board” means the Board of Directors of Two River Community Bank.

1.6 “Cause” means any of the following acts or circumstances: (i) the willful and continued failure by the Executive to perform his duties for the employer after at least one warning from the Board or its designee specifically identifying such failure, (ii) willful misconduct of any type by the Executive, including, but not limited to, the disclosure or improper use of confidential information which causes material injury to the Employer, as specified to the Executive in a written notice from the Board or its designee; or (iii) the Executive’s conviction of a crime (other than traffic violations), habitual drunkenness, drug abuse, or excessive absenteeism (other than for illness), after a warning (with respect to drunkenness or absenteeism only) in writing from the Board or its designee to refrain from such behavior. No act or failure to act on the part of the Executive shall be considered to be willful for purposes of this Section 1.6 unless done, or omitted by the Executive not in good faith and without reasonable belief that the action or omission was in the best interests of the Employer.

1.7 “Change in Control” means a change in the ownership or effective control of the Employer, or in the ownership of a substantial portion of the assets of the Employer, as such change is defined in Code Section 409A and regulations thereunder.

1.8 “Claimant” means a person who believes that he or she is being denied a benefit to which he or she is entitled hereunder.

1.9 “Code” means the Internal Revenue Code of 1986, as amended.

1.10 “Disability” means a condition of the Executive whereby the Executive either: (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Employer. The Administrator will determine whether the Executive has incurred a Disability based on its own good faith determination and may require the Executive to submit to reasonable physical and mental examinations for this purpose. The Executive will also be deemed to have incurred a Disability if determined to be totally disabled by the Social Security Administration or in accordance with a disability insurance program, provided that the definition of disability applied under such disability insurance program complies with the initial sentence of this Section.

1.11 “Discount Rate” means the rate used by the Administrator for determining the Accrued Benefit. The initial Discount Rate is six per cent (6.0%). The Administrator may adjust the Discount Rate to maintain the rate within reasonable standards according to Generally Accepted Accounting Principles and applicable bank regulatory guidance.

1.12 “Early Termination” means Separation from Service before Normal Retirement Age except when such Separation from Service occurs following a Change in Control or due to termination for Cause.

1.13 “Effective Date” means January 1, 2012.

1.14 “Employer” means, for all purposes of this Agreement, Two River Community Bank and all of those entities, including Community Partners Bancorp, which are within the same controlled group of corporations within the meaning of Code Section 1563(a) as is Two River Community Bank and which are, with Two River Community Bank, deemed to be a single employer by the application of Code Section 414(b), all of which entities (including Two River Community Bank) shall be conclusively deemed for all purposes of this Agreement to be a single entity and a single recipient of services provided by the Executive to any such entity, or combination of such entities.

1.15 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

1.16 “Normal Retirement Age” means the date the Executive attains age sixty-five (65).

1.17 “Plan Year” means each twelve (12) month period commencing on January 1 and ending on December 31 of each year.

1.18 “Schedule A” means the schedule attached hereto and made a part hereof. Schedule A shall be updated upon a change to any of the benefits described in Article 2 hereof.

1.19 “Separation from Service” means a termination of the Executive’s employment with the Employer and its Affiliates for reasons other than death or Disability. A Separation from Service may occur as of a specified date for purposes of the Agreement even if the Executive continues to provide some services for the Employer or its Affiliates after that date, provided that the facts and circumstances indicate that the Employer and the Executive reasonably anticipated at that date that either no further services would be performed after that date, or that the level of bona fide services the Executive would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed over the immediately preceding thirty-six (36) month period (or the full period during which the Executive performed services for the Employer, if that is less than thirty-six (36) months). A Separation from Service will not be deemed to have occurred while the Executive is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six (6) months or, if longer, the period for which a statute or contract provides the Executive with the right to reemployment with the Employer. If the Executive’s leave exceeds six (6) months but the Executive is not entitled to reemployment under a statute or contract, the Executive incurs a Separation of Service on the next day following the expiration of such six (6) month period. In determining whether a Separation of Service occurs the Administrator shall take into account, among other things, the definition of “service recipient” and “employer” set forth in Treasury regulation §1.409A-1(h)(3). The Administrator shall have full and final authority, to determine conclusively whether a Separation from Service occurs, and the date of such Separation from Service.

1.20 “Specified Employee” means an individual that satisfies the definition of a “key employee” of the Employer as such term is defined in Code §416(i) (without regard to Code §416(i)(5)), provided that the stock of the Employer is publicly traded on an established securities market or otherwise, as defined in Code §1.897-1(m). If the Executive is a key employee at any time during the twelve (12) months ending on December 31, the Executive is a Specified Employee for the twelve (12) month period commencing on the first day of the following April.

ARTICLE 2

PAYMENT OF BENEFITS

2.1 Normal Retirement Benefit. Upon Normal Retirement Age, the Employer shall pay the Executive an annual benefit in the amount of Seventy-One Thousand Dollars ($71,000). The annual benefit will be paid in equal monthly installments commencing the month following Normal Retirement Age and continuing for fifteen (15) years. This benefit will be in lieu of any other benefit under this Agreement.

2.2 Early Termination Benefit . If Early Termination occurs, the Employer shall pay the Executive the annual benefit shown on Schedule A for the Plan Year ending immediately prior to Separation from Service. The annual benefit will be paid in equal monthly installments commencing the month following Separation from Service and continuing for fifteen (15) years. This benefit will be in lieu of any other benefit under this Agreement.

2.3 Disability Benefit . In the event the Executive suffers a Disability prior to Normal Retirement Age, the Employer shall pay the Executive the annual benefit shown on Schedule A for the Plan Year ending immediately prior to Disability. The annual benefit will be paid in equal monthly installments commencing the month following Normal Retirement Age and continuing for fifteen (15) years. This benefit will be in lieu of any other benefit under this Agreement.

2.4 Change in Control Benefit . If a Change in Control occurs while the Executive is a full-time employee of the Employer, the Employer shall pay the Executive the annual benefit shown on Schedule A for the Plan Year ending immediately prior to Separation from Service. The annual benefit will be paid in equal monthly installments commencing the month following Separation from Service and continuing for fifteen (15) years. This benefit will be in lieu of any other benefit under this Agreement.

2.5 Death Prior to Separation from Service and Normal Retirement Age . In the event the Executive dies prior to Separation from Service and Normal Retirement Age, the Employer shall pay the Beneficiary the annual benefit shown on Schedule A for the Plan Year ending immediately prior to the Executive’s death. The annual benefit will be paid in equal monthly installments commencing the month following the Executive’s death and continuing for fifteen (15) years. This benefit will be in lieu of any other benefit under this Agreement.

2.6 Death Following Disability and Prior to Commencement of Benefit Payments. If the Executive is entitled to benefit distributions under this Agreement but dies prior to the date that said benefit distributions are scheduled to begin, the Employer shall distribute to the Beneficiary the same benefits to which the Executive was entitled prior to death, except that the benefit distributions shall be paid commencing the month following the Executive’s death.

2.7 Death Subsequent to Commencement of Benefit Payments . In the event the Executive dies while receiving payments, but prior to receiving all payments due and owing hereunder, the Employer shall pay the Beneficiary the same amounts at the same times as the Employer would have paid the Executive had the Executive survived.

2.8 Termination for Cause . If the Employer terminates the Executive’s employment for Cause, then the Executive shall not be entitled to any benefits under the terms of this Agreement.

2.9 Restriction on Commencement of Distributions . Notwithstanding any provision of this Agreement to the contrary, if the Executive is considered a Specified Employee at the time of Separation from Service, the provisions of this Section shall govern all distributions hereunder. Distributions which would otherwise be made to the Executive due to Separation from Service shall not be made during the first six (6) months following Separation from Service. Rather, any distribution which would otherwise be paid to the Executive during such period shall be accumulated and paid to the Executive in a lump sum on the first day of the seventh month following Separation from Service, or if earlier, upon the Executive’s death. All subsequent distributions shall be paid as they would have had this Section not applied.

2.10 Acceleration of Payments . Except as specifically permitted herein, no acceleration of the time or schedule of any payment may be made hereunder. Notwithstanding the foregoing, payments may be accelerated, in accordance with the provisions of Treasury Regulation §1.409A-3(j)(4) in the following circumstances: (i) as a result of certain domestic relations orders; (ii) in compliance with ethics agreements with the federal government; (iii) in compliance with the ethics laws or conflicts of interest laws; (iv) in limited cashouts (but not in excess of the limit under Code §402(g)(1)(B)); (v) to pay employment-related taxes; or (vi) to pay any taxes that may become due at any time that the Agreement fails to meet the requirements of Code Section 409A.

2.11 Delays in Payment by Employer . A payment may be delayed to a date after the designated payment date under any of the circumstances described below, and the provision will not fail to meet the requirements of establishing a permissible payment event. The delay in the payment will not constitute a subsequent deferral election, so long as the Employer treats all payments to similarly situated Participants on a reasonably consistent basis.

(a) Payments subject to Code Section 162(m) . If the Employer reasonably anticipates that the Employer’s deduction with respect to any distribution under this Agreement would be limited or eliminated by application of Code Section 162(m), then to the extent deemed necessary by the Employer to ensure that the entire amount of any distribution from this Agreement is deductible, the Employer may delay payment of any amount that would otherwise be distributed under this Agreement. The delayed amounts shall be distributed to the Executive (or the Beneficiary in the event of the Executive’s death) at the earliest date the Employer reasonably anticipates that the deduction of the payment of the amount will not be limited or eliminated by application of Code Section 162(m).

(b) Payments that would violate Federal securities laws or other applicable law . A payment may be delayed where the Employer reasonably anticipates that the making of the payment will violate Federal securities laws or other applicable law provided that the payment is made at the earliest date at which the Employer reasonably anticipates that the making of the payment will not cause such violation. The making of a payment that would cause inclusion in gross income or the application of any penalty provision of the Internal Revenue Code is not treated as a violation of law.

(c) Solvency . Notwithstanding the above, a payment may be delayed where the payment would jeopardize the ability of the Employer to continue as a going concern.

2.12 Treatment of Payment as Made on Designated Payment Date . Solely for purposes of determining compliance with Code Section 409A, any payment under this Agreement made after the required payment date shall be deemed made on the required payment date provided that such payment is made by the latest of: (i) the end of the calendar year in which the payment is due; (ii) the 15 th day of the third calendar month following the payment due date; (iii) if Employer cannot calculate the payment amount on account of administrative impracticality which is beyond the Executive’s control, the end of the first calendar year which payment calculation is practicable; and (iv) if Employer does not have sufficient funds to make the payment without jeopardizing the Employer’s solvency, in the first calendar year in which the Employer’s funds are sufficient to make the payment.

2.13 Facility of Payment . If a distribution is to be made to a minor, or to a person who is otherwise incompetent, then the Administrator may make such distribution: (i) to the legal guardian, or if none, to a parent of a minor payee with whom the payee maintains his or her residence; or (ii) to the conservator or administrator or, if none, to the person having custody of an incompetent payee. Any such distribution shall fully discharge the Employer and the Administrator from further liability on account thereof.

2.14 Excise Tax Limitation . Notwithstanding any provision of this Agreement to the contrary, if the Employer determines in good faith that any payment or benefit received or to be received by the Executive pursuant to this Agreement or otherwise (with all such payments and benefits, including without limitation, salary and bonus payments, being defined as “Total Payments”) would be subject to the excise tax imposed by Code Section 4999 by reason of being considered to be “contingent on a change in ownership or control” of the Employer within the meaning of Code Section 280G, then the Total Payments shall be reduced in the manner reasonably determined by the Employer, in its sole discretion, to the extent necessary so that the Total Payments will be less than three (3) times the Executive’s “base amount” (as defined in Code Section 280G(b)(3)).

2.15 Changes in Form of Timing of Benefit Payments . The Employer and the Executive may, subject to the terms hereof, amend this Agreement to delay the timing or change the form of payments. Any such amendment:

(a) must take effect not less than twelve (12) months after the amendment is made;

(b) must, for benefits distributable due solely to the arrival of a specified date, or on account of Separation from Service or Change in Control, delay the commencement of distributions for a minimum of five (5) years from the date the first distribution was originally scheduled to be made;

(c) must, for benefits distributable due solely to the arrival of a specified date, be made not less than twelve (12) months before distribution is scheduled to begin; and

(d) may not accelerate the time or schedule of any distribution.

2.16 Limitations Imposed by Applicable Laws. The Executive acknowledges that the Employer’s tender of performance under this Agreement may be limited, proscribed or prohibited by the applicable provisions of the Emergency Economic Stabilization Act of 2008, the American Recovery and Reinvestment Act of 2009, the regulations which have been, are, or may be promulgated under either, future statutory law, regulations and administrative pronouncements (collectively, “Limiting Law”). The Executive agrees and acknowledges that only if, for so long as, and to the extent that any provision of Limiting Law is applicable to limit, proscribe or prohibit any payment which would otherwise be tendered to the Executive under this Agreement or any benefit which would otherwise be conferred upon the Executive under this Agreement, the Employer shall be under no actual or implied obligation to, and shall not, tender to the Executive or confer upon the Executive, in the case of a prohibition, such payment or such benefit or, in the case of a limitation or prescription, only such portion of such payment or such benefit as is limited or proscribed. This Agreement shall be without binding effect to the extent of such limitation, proscription or prohibition. The determination as to whether, and the extent to which, any Limiting Law is applicable to limit, proscribe or prohibit any payment which would otherwise be tendered to the Executive or any benefit which would otherwise be conferred upon the Executive under this Agreement shall be made by the Employer in consultation with its professional advisors. The Executive shall execute and deliver and document or correspondence which is deemed by counsel to the Employer to be necessary or in the Employer’s best interest to reaffirm the Executive’s agreement that the provision of Limiting Law, to the extent of their applicability, supersede the terms and enforceability of this Agreement.

ARTICLE 3

BENEFICIARIES

3.1 Designation of Beneficiaries . The Executive may designate any person to receive any benefits payable under the Agreement upon the Executive’s death, and the designation may be changed from time to time by the Executive by filing a new designation. Each designation will revoke all prior designations by the Executive, shall be in the form prescribed by the Administrator, and shall be effective only when filed in writing with the Administrator during the Executive’s lifetime. If the Executive names someone other than the Executive’s spouse as a Beneficiary, the Administrator may, in its sole discretion, determine that spousal consent is required to be provided in a form designated by the Administrator, executed by the Executive’s spouse and returned to the Administrator. The Executive’s beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as Beneficiary and the marriage is subsequently dissolved.

3.2 Absence of Beneficiary Designation . In the absence of a valid Beneficiary designation, or if, at the time any benefit payment is due to a Beneficiary, there is no living Beneficiary validly named by the Executive, the Employer shall pay the benefit payment to the Executive’s spouse. If the spouse is not living then the Employer shall pay the benefit payment to the Executive’s living descendants per stirpes , and if there no living descendants, to the Executive’s estate. In determining the existence or identity of anyone entitled to a benefit payment, the Employer may rely conclusively upon information supplied by the Executive’s personal representative, executor, or administrator.

ARTICLE 4

ADMINISTRATION

4.1 Administrator Duties . The Administrator shall be responsible for the management, operation, and administration of the Agreement. When making a determination or calculation, the Administrator shall be entitled to rely on information furnished by the Employer, Executive or Beneficiary. No provision of this Agreement shall be construed as imposing on the Administrator any fiduciary duty under ERISA or other law, or any duty similar to any fiduciary duty under ERISA or other law.

4.2 Administrator Authority . The Administrator shall enforce this Agreement in accordance with its terms, shall be charged with the general administration of this Agreement, and shall have all powers necessary to accomplish its purposes.

4.3 Binding Effect of Decision . The decision or action of the Administrator with respect to any question arising out of or in connection with the administration, interpretation or application of this Agreement and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having any interest in this Agreement.

4.4 Compensation, Expenses and Indemnity . The Administrator shall serve without compensation for services rendered hereunder. The Administrator is authorized at the expense of the Employer to employ such legal counsel and/or recordkeeper as it may deem advisable to assist in the performance of its duties hereunder. Expense and fees in connection with the administration of this Agreement shall be paid by the Employer.

4.5 Employer Information . The Employer shall supply full and timely information to the Administrator on all matters relating to the Executive’s compensation, death, Disability or Separation from Service, and such other information as the Administrator reasonably requires.

4.6 Termination of Participation . If the Administrator determines in good faith that the Executive no longer qualifies as a member of a select group of management or highly compensated employees, as determined in accordance with ERISA, the Administrator shall have the right, in its sole discretion, to cease further benefit accruals hereunder.

4.7 Compliance with Code Section 409A . The Employer and the Executive intend that the Agreement comply with the provisions of Code Section 409A to prevent the inclusion in gross income of any amounts deferred hereunder in a taxable year prior to the year in which amounts are actually paid to the Executive or Beneficiary. This Agreement shall be construed, administered and governed in a manner that affects such intent, and the Administrator shall not take any action that would be inconsistent therewith.

ARTICLE 5

CLAIMS AND REVIEW PROCEDURES

5.1 Claims Procedure . A Claimant who has not received benefits under this Agreement that he or she believes should be distributed shall make a claim for such benefits as follows.

(a) Initiation – Written Claim . The Claimant initiates a claim by submitting to the Administrator a written claim for the benefits. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within sixty (60) days after such notice was received by the Claimant. All other claims must be made within one hundred eighty (180) days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.

(b) Timing of Administrator Response . The Administrator shall respond to such Claimant within ninety (90) days after receiving the claim. If the Administrator determines that special circumstances require additional time for processing the claim, the Administrator can extend the response period by an additional ninety (90) days by notifying the Claimant in writing, prior to the end of the initial ninety (90) day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Administrator expects to render its decision.

(c) Notice of Decision . If the Administrator denies part or all of the claim, the Administrator shall notify the Claimant in writing of such denial. The Administrator shall write the notification in a manner calculated to be understood by the Claimant. The notification shall set forth: (i) the specific reasons for the denial; (ii) a reference to the specific provisions of this Agreement on which the denial is based; (iii) a description of any additional information or material necessary for the Claimant to perfect the claim and an explanation of why it is needed; (iv) an explanation of this Agreement’s review procedures and the time limits applicable to such procedures; and (v) a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

5.2 Review Procedure . If the Administrator denies part or all of the claim, the Claimant shall have the opportunity for a full and fair review by the Administrator of the denial as follows.

(a) Initiation – Written Request . To initiate the review, the Claimant, within sixty (60) days after receiving the Administrator’s notice of denial, must file with the Administrator a written request for review.

(b) Additional Submissions – Information Access . The Claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Administrator shall also provide the Claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant’s claim for benefits.

(c) Considerations on Review . In considering the review, the Administrator shall take into account all materials and information the Claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

(d) Timing of Administrator Response . The Administrator shall respond in writing to such Claimant within sixty (60) days after receiving the request for review. If the Administrator determines that special circumstances require additional time for processing the claim, the Administrator can extend the response period by an additional sixty (60) days by notifying the Claimant in writing, prior to the end of the initial sixty (60) day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Administrator expects to render its decision.

(e) Notice of Decision . The Administrator shall notify the Claimant in writing of its decision on review. The Administrator shall write the notification in a manner calculated to be understood by the Claimant. The notification shall set forth: (a) the specific reasons for the denial; (b) a reference to the specific provisions of this Agreement on which the denial is based; (c) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant’s claim for benefits; and (d) a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a).

ARTICLE 6

AMENDMENT AND TERMINATION

6.1 Agreement Amendment Generally . Except as provided in Section 6.2, this Agreement may be amended only by a written agreement signed by both the Employer and the Executive.

6.2 Amendment to Insure Proper Characterization of Agreement . Notwithstanding anything in this Agreement to the contrary, the Agreement may be amended by the Employer at any time, if found necessary in the opinion of the Employer, i) to ensure that the Agreement is characterized as plan of deferred compensation maintained for a select group of management or highly compensated employees as described under ERISA, ii) to conform the Agreement to the requirements of any applicable law or iii) to comply with the written instructions of the Employer’s auditors or banking regulators.

6.3 Agreement Termination Generally . Except as provided in Section 6.4, this Agreement may be terminated only by a written agreement signed by the Company and the Director. Such termination shall not cause a distribution of benefits under this Agreement. Rather, upon such termination benefit distributions will be made at the earliest distribution event permitted under Article 2.

6.4 Effect of Complete Termination . Notwithstanding anything to the contrary in Section 6.3, and subject to the requirements of Code Section 409A and Treasury Regulations §1.409A-3(j)(4)(ix), at certain times the Employer may completely terminate and liquidate the Agreement. In the event of such a complete termination, the Employer shall pay the Deferral Account balance to the Executive. Such complete termination of the Agreement shall occur only under the following circumstances and conditions.

(a) Corporate Dissolution or Bankruptcy . The Employer may terminate and liquidate this Agreement within twelve (12) months of a corporate dissolution taxed under Code Section 331, or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A), provided that all benefits paid under the Agreement are included in the Executive’s gross income in the latest of: (i) the calendar year which the termination occurs; (ii) the calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which the payment is administratively practicable.

(b) Change in Control . The Employer may terminate and liquidate this Agreement by taking irrevocable action to terminate and liquidate within the thirty (30) days preceding or the twelve (12) months following a Change in Control. This Agreement will then be treated as terminated only if all substantially similar arrangements sponsored by the Employer which are treated as deferred under a single plan under Treasury Regulations §1.409A-1(c)(2) are terminated and liquidated with respect to each participant who experienced the Change in Control so that the Executive and any participants in any such similar arrangements are required to receive all amounts of compensation deferred under the terminated arrangements within twelve (12) months of the date the Employer takes the irrevocable action to terminate the arrangements.

(c) Discretionary Termination . The Employer may terminate and liquidate this Agreement provided that: (i) the termination does not occur proximate to a downturn in the financial health of the Employer; (ii) all arrangements sponsored by the Employer and Affiliates that would be aggregated with any terminated arrangements under Treasury Regulations §1.409A-1(c) are terminated; (iii) no payments, other than payments that would be payable under the terms of this Agreement if the termination had not occurred, are made within twelve (12) months of the date the Employer takes the irrevocable action to terminate this Agreement; (iv) all payments are made within twenty-four (24) months following the date the Employer takes the irrevocable action to terminate and liquidate this Agreement; and (v) neither the Employer nor any of its Affiliates adopt a new arrangement that would be aggregated with any terminated arrangement under Treasury Regulations §1.409A-1(c) if the Executive participated in both arrangements, at any time within three (3) years following the date the Employer takes the irrevocable action to terminate this Agreement.

ARTICLE 7

MISCELLANEOUS

7.1 No Effect on Other Rights . This Agreement constitutes the entire agreement between the Employer and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein. Nothing contained herein will confer upon the Executive the right to be retained in the service of the Employer nor limit the right of the Employer to discharge or otherwise deal with the Executive without regard to the existence hereof.

7.2 State Law . To the extent, not governed by ERISA, the provisions of this Agreement shall be construed and interpreted according to the internal law of the State of New Jersey without regard to its conflicts of laws principles.

7.3 Validity . In case any provision of this Agreement shall be illegal or invalid for any reason, said illegality or invalidity shall affect the remaining parts hereof, but this Agreement shall be construed and enforced as if such illegal or invalid provision had never been inserted herein.

7.4 Nonassignability . Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.

7.5 Unsecured General Creditor Status . Payment to the Executive or any Beneficiary hereunder shall be made from assets which shall continue, for all purposes, to be part of the general, unrestricted assets of the Employer and no person shall have any interest in any such asset by virtue of any provision of this Agreement. The Employer’s obligation hereunder shall be an unfunded and unsecured promise to pay money in the future. In the event that the Employer purchases an insurance policy insuring the life of the Executive to recover the cost of providing benefits hereunder, neither the Executive nor the Beneficiary shall have any rights whatsoever in said policy or the proceeds therefrom.

7.6 Life Insurance . If the Employer chooses to obtain insurance on the life of the Executive in connection with its obligations under this Agreement, the Executive hereby agrees to take such physical examinations and to truthfully and completely supply such information as may be required by the Employer or the insurance company designated by the Employer.

7.7 Unclaimed Benefits . The Executive shall keep the Employer informed of the Executive’s current address and the current address of the Beneficiary. If the location of the Executive is not made known to the Employer within three years after the date upon which any payment of any benefits may first be made, the Employer shall delay payment of the Executive’s benefit payment(s) until the location of the Executive is made known to the Employer; however, the Employer shall only be obligated to hold such benefit payment(s) for the Executive until the expiration of three (3) years. Upon expiration of the three (3) year period, the Employer may discharge its obligation by payment to the Beneficiary. If the location of the Beneficiary is not made known to the Employer by the end of an additional two (2) month period following expiration of the three (3) year period, the Employer may discharge its obligation by payment to the Executive’s estate. If there is no estate in existence at such time or if such fact cannot be determined by the Employer, the Executive and Beneficiary shall thereupon forfeit all rights to any benefits provided under this Agreement.

7.8 Suicide or Misstatement . No benefit shall be distributed hereunder if the Executive commits suicide within two (2) years after the Effective Date, or if an insurance company which issued a life insurance policy covering the Executive and owned by the Employer denies coverage (i) for material misstatements of fact made by the Executive on an application for life insurance, or (ii) for any other reason.

7.9 Removal . Notwithstanding anything in this Agreement to the contrary, the Employer shall not distribute any benefit under this Agreement if the Executive is subject to a final removal or prohibition order issued pursuant to Section 8(e) of the Federal Deposit Insurance Act. Furthermore, any payments made to the Executive pursuant to this Agreement shall, if required, comply with 12 U.S.C. 1828, FDIC Regulation 12 CFR Part 359 and any other regulations or guidance promulgated thereunder.

7.10 Notice . Any notice, consent or demand required or permitted to be given to the Employer or Administrator under this Agreement shall be sufficient if in writing and hand-delivered or sent by registered or certified mail to the Employer’s principal business office. Any notice or filing required or permitted to be given to the Executive or Beneficiary under this Agreement shall be sufficient if in writing and hand-delivered or sent by mail to the last known address of the Executive or Beneficiary, as appropriate. Any notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for registration or certification.

7.11 Headings and Interpretation . Headings and sub-headings in this Agreement are inserted for reference and convenience only and shall not be deemed part of this Agreement. Wherever the fulfillment of the intent and purpose of this Agreement requires and the context will permit, the use of the masculine gender includes the feminine and use of the singular includes the plural.

7.12 Alternative Action . In the event it becomes impossible for the Employer or the Administrator to perform any act required by this Agreement due to regulatory or other constraints, the Employer or Administrator may perform such alternative act as most nearly carries out the intent and purpose of this Agreement and is in the best interests of the Employer, provided that such alternative act does not violate Code Section 409A.

7.13 Coordination with Other Benefits . The benefits provided for the Executive or the Beneficiary under this Agreement are in addition to any other benefits available to the Executive under any other plan or program for employees of the Employer. This Agreement shall supplement and shall not supersede, modify, or amend any other such plan or program except as may otherwise be expressly provided herein.

7.14 Inurement . This Agreement shall be binding upon and shall inure to the benefit of the Employer, its successor and assigns, and the Executive, the Executive’s successors, heirs, executors, administrators, and the Beneficiary.

7.15 Tax Withholding . The Employer may make such provisions and take such action as it deems necessary or appropriate for the withholding of any taxes which the Employer is required by any law or regulation to withhold in connection with any benefits under the Agreement. The Executive shall be responsible for the payment of all individual tax liabilities relating to any benefits paid hereunder.

7.16 Aggregation of Agreement . If the Employer offers other non-account balance deferred compensation plans, this Agreement and those plans shall be treated as a single plan to the extent required under Code Section 409A.

IN WITNESS WHEREOF, the Executive and a representative of the Employer have executed this Agreement document as indicated below:

Executive:			Employer:



/s/ A. Richard Abrahamian			By: /s/ William D. Moss
A. Richard Abrahamian			William D. Moss
			Its: Chief Executive Officer

TWO RIVER COMMUNITY BANK

SALARY CONTINUATION AGREEMENT

Beneficiary Designation

I designate the following as Beneficiary under this Agreement:

	Primary

				%

				%

	Contingent

				%

				%

I understand that I may change this beneficiary designation by delivering a new written designation to the Administrator, which shall be effective only upon receipt by the Administrator prior to my death. I further understand that the designation will be automatically revoked if the Beneficiary predeceases me or if I have named my spouse as Beneficiary and our marriage is subsequently dissolved.

Signature:

Date:

SPOUSAL CONSENT (Required only if Administrator requests and someone other than spouse is named Beneficiary)

I consent to the beneficiary designation above. I also acknowledge that if I am named Beneficiary and my marriage is subsequently dissolved, the beneficiary designation will be automatically revoked.

Spouse Name:

Signature:		Date:

Received by the Administrator this ________ day of ___________________, 20__

By: _________________________________

Title: _________________________________

	Supplemental Executive Retirement Plan Add-ons	Plan Year Reporting
	Schedule A

A. Richard Abrahamian

Birth Date: 6/19/1959

Normal Retirement: 6/19/2024, Age 65

		Early Termination	Disability	Change in Control	Pre-retire.
					Death Benefit
		Annual Benefit 2	Annual Benefit 2	Annual Benefit 2
		Amount Payable at	Amount Payable at	Amount Payable at	Lump Sum
		Separation from Service	Normal Retirement Age	Separation from Service	Benefit
		Based On	Based On	Based On	Based On
Values as of	Age	Accrual	Accrual	Benefit	Accrual
	(1)	(2)	(3)	(4)	(5)
Jan 2012 1	52	0	0	43,485	431,576
Dec 2012	53	3,934	7,831	45,225	448,839
Dec 2013	54	8,111	15,206	47,034	466,793
Dec 2014	55	12,546	22,153	48,915	485,465
Dec 2015	56	17,254	28,697	50,872	504,883
Dec 2016	57	22,253	34,860	52,906	525,079
Dec 2017	58	27,560	40,665	55,023	546,082
Dec 2018	59	33,194	46,134	57,224	567,925
Dec 2019	60	39,175	51,284	59,513	590,642
Dec 2020	61	45,526	56,135	61,893	614,268
Dec 2021	62	52,268	60,704	64,369	638,838
Dec 2022	63	59,427	65,008	66,943	664,392
Dec 2023	64	67,026	69,062	69,621	690,968
Jun 2024	65	71,000	71,000	71,000	704,652

1 The first line reflects just the initial values as of January 1, 2012.

2 The annual benefit amount will be distributed in 12 equal monthly payments for a total of 180 monthly payments.

* The purpose of this hypothetical illustration is to show the participant's annual benefit based on various termination assumptions. Actual benefits are based on the terms and provisions of the plan agreement. Consequently, actual benefits may differ from those shown on this Hypothetical Termination Benefits Schedule.

Executive:	Employer:



/s/ Robert C. Werner	By: /s/ William D. Moss
Robert C. Werner	William D. Moss

	Its: Chief Executive Officer

	Supplemental Executive Retirement Plan	Plan Year Reporting
	Schedule A

Birth Date: 12/13/1957		Early Termination	Disability	Change in Control	Pre-retire.
Normal Retirement: 12/13/2022, Age 65					Death Benefit
		Annual Benefit 2	Annual Benefit 2	Annual Benefit 2
		Amount Payable at	Amount Payable at	Amount Payable at	Lump Sum
		Separation from Service	Normal Retirement Age	Separation from Service	Benefit
		Based On	Based On	Based On	Based On
Values	Age	Accrual	Accrual	Benefit	Accrual
	(1)	(2)	(3)	(4)	(5)
Jan 2012 1	54	0	0	46,120	457,728
Dec 2012	55	4,701	8,552	47,965	476,037
Dec 2013	56	9,691	16,608	49,884	495,079
Dec 2014	57	14,989	24,195	51,879	514,882
Dec 2015	58	20,614	31,342	53,954	535,477
Dec 2016	59	26,587	38,073	56,112	556,896
Dec 2017	60	32,927	44,413	58,357	579,172
Dec 2018	61	39,658	50,386	60,691	602,339
Dec 2019	62	46,805	56,011	63,119	626,433
Dec 2020	63	54,392	61,309	65,643	651,490
Dec 2021	64	62,448	66,299	68,269	677,550
Dec 2022	65	71,000	71,000	71,000	704,652

/s/ Nicole Nielsen	/s/ A. Richard Abrahamian
	A. Richard Abrahamian, individually


ATTEST:	COMMUNITY PARTNERS BANCORP
	TWO RIVER COMMUNITY BANK



/s/ Michael W. Kostelnik	By: /s/ William D. Moss
Michael W. Kostelnik, Secretary	William D. Moss
	Chief Executive Officer

/s/ Nicole Nielsen	/s/ Robert C. Werner
	Robert C. Werner, individually


ATTEST:	COMMUNITY PARTNERS BANCORP
	TWO RIVER COMMUNITY BANK



/s/ Michael W. Kostelnik	By: /s/ William D. Moss
Michael W. Kostelnik, Secretary	William D. Moss
	Chief Executive Officer

/s/ Nicole Nielsen	/s/ Alan B. Turner
	Alan Turner, individually


ATTEST:	COMMUNITY PARTNERS BANCORP
	TWO RIVER COMMUNITY BANK



/s/ Michael W. Kostelnik	By: /s/ William D. Moss
Michael W. Kostelnik, Secretary	William D. Moss
	Chief Executive Officer

/s/ WILLIAM D. MOSS
Name:	William D. Moss
Title:	President and Chief Executive Officer