Ocean City, New Jersey, is located in northern Cape May County on the coast of the Atlantic Ocean.

The Company’s primary lending activity is the origination of mortgage loans to enable borrowers to purchase or refinance existing homes in the Company’s market area. The Company offers fixed-rate and adjustable-rate mortgage loans with terms up to 30 years.

The Company offers fixed-rate loans with terms of either 10, 15, 20, 25 or 30 years. The Company’s adjustable-rate mortgage loans are based on either a 15, 20, 25 or 30 year amortization schedule. Interest rates and payments on the Company’s adjustable-rate mortgage loans generally adjust annually after an initial fixed period that ranges from one to ten years. Interest rates and payments on the Company’s adjustable-rate loans generally are adjusted to a rate typically equal to 2.75% to 3.25% above the one-, three- or ten-year constant maturity Treasury index. The maximum amount by which the interest rate may be increased or decreased is generally 1 or 2% per adjustment period and the lifetime interest rate cap is generally 5 or 6% over the initial interest rate of the loan.

The Company offers fixed-rate and adjustable-rate mortgage loans secured by commercial real estate. In the past, the Company originated loans secured by multi-family properties and the Company still has a few in its portfolio; although it has not made multi-family mortgage loans in recent years, the Company may offer these loans in the future. The Company’s commercial real estate loans are generally secured by condominiums, small office buildings and owner-occupied properties located in the Company’s market area and used for businesses.

The Company originates loans to individuals, and to a lesser extent, builders, to finance the construction of residential dwellings. The Company also makes construction loans for commercial development projects, including condominiums, apartment buildings and owner-occupied properties used for businesses. The Company’s construction loans generally provide for the payment of interest only during the construction phase, which is usually 12 months. At the end of the construction phase, the loan generally converts to a permanent mortgage loan. Loans generally can be made with a maximum loan to value ratio of 90% on residential construction and 80% on commercial construction.

The Company makes commercial business loans to a variety of professionals, sole proprietorships and small businesses in the Company’s market area. The Company’s largest commercial loan relationship was a $2.0 million loan secured by business assets.

The Company’s consumer loans are primarily home equity loans and lines of credit. Also included in the Company’s consumer loan portfolio are loans secured by passbook or certificate accounts, automobile loans, secured and unsecured personal loans and home improvement loans.

The Company has legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, mortgage-backed securities and certificates of deposit of federally insured institutions.

Net interest income increased $423,000, or 6.8%, to $6.7 million for the six months ended June 30, 2004.

Total interest and dividend income decreased $292,000, or 2.6%, to $11.1 million for the six months ended June 30, 2004.

Total interest expense decreased $688,000, or 13.3%, to $4.5 million for the six months ended June 30, 2004.

Provisions for loan losses remained unchanged at $180,000 for the six months ended June 30, 2004 and 2003.

Total other expense increased $413,000, or 8.5%, for the six months ended June 30, 2004 compared to the same period in 2003.