UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q








[X]
            QUARTERLY REPORT UNDER SECTION
      13 OR 15(d)
              OF THE SECURITIES
      EXCHANGE ACT OF 1934For the
      quarterly period ended March 31, 2008[ 
       ]
            TRANSITION REPORT UNDER SECTION
      13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT
      OF 1934







For the
transition period from         to
______





Commission
file number 000-1330039





AMERICAN
BANCORP OF NEW JERSEY, INC.


(Exact
name of registrant as specified in its charter)








New
      Jersey
            
            55-0897507(State or other
      jurisdiction
              of incorporation or
      organization)
            
            (I.R.S.
      EmployerIdentification Number)







365 Broad Street,
Bloomfield, New Jersey 07003


(Address
of Principal Executive Offices)








(973)
748-3600


(Registrant's
telephone number, including area code)











Indicate
by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or 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  [   ]





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 definition of “large accelerated filer", "accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.  (Check one):





Large  accelerated
              filer
      [   ]
            Accelerated
              filer
      [ X ]
            Non-accelerated
              filer
      [   ]
              (Do
      not check if a smaller reporting company)
            Smaller
      reporting
              company
      [  ]





As of May
9, 2008, there were 11,139,046 outstanding shares of the Registrant's Common
Stock.








AMERICAN
BANCORP OF NEW JERSEY, INC.





Table
of Contents





PART
      I – FINANCIAL INFORMATION (UNAUDITED)Item
      1.
              Financial
      Statements
              3Notes
      to Financial Statements
              9Item
      2.
              Management's
      Discussion and Analysis of Financial Condition andResults
      of Operations
              14Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              35Item
      4.
              Controls
      and Procedures
              40PART
      II – OTHER INFORMATIONItem
      1.
              Legal
      Proceedings
              41Item
      1A.
              Risk
      Factors
              41Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              41Item
      3.
              Defaults
      Upon Senior Securities
              41Item
      4.
              Submission
      of Matters to a Vote of Securities Holders
              42Item
      5.
              Other
      Information
              42Item
      6.
              Exhibits
              42FORM
      10-Q SIGNATURE PAGE
              43CERTIFICATIONS


2


ITEM
      1.
            FINANCIAL
      STATEMENTS





American
Bancorp of New Jersey, Inc.


Statements
of Financial Condition


(in
thousands, except share data)


(unaudited)


March
      31,
              2008
            
            
            September
      30,
              2007ASSETSCash
      and cash equivalentsCash and due from
      banks
            
            $
            10,498
            
            
            $
            9,983Interest-bearing
      deposits
            
            
            2,208
            
            
            
            14,638Federal funds
    sold
            
            
            15,532
            
            
            
            12,800Total cash and cash
      equivalents
            
            
            28,238
            
            
            
            37,421Securities
      available-for-sale
            
            
            94,312
            
            
            
            58,093Securities
      held-to-maturity (fair value, March 31, 2008 - $7,248
              September
      30, 2007 - $6,671)
            
            
            7,200
            
            
            
            6,730Loans
      held for sale
            
            
            -
            
            
            
            1,243Loans
      receivable, net of allowance for loan losses (March 31, 2008 -
      $2,843,
              September
      30, 2007 - $2,568)
            
            
            459,659
            
            
            
            437,883Premises
      and equipment
            
            
            12,093
            
            
            
            10,856Federal
      Home Loan Bank stock, at cost
            
            
            3,182
            
            
            
            2,553Cash
      surrender value of life insurance
            
            
            13,480
            
            
            
            13,214Accrued
      interest receivable
            
            
            2,473
            
            
            
            2,212Other
      assets
            
            
            3,769
            
            
            
            3,533Total assets
            
            $
            624,406
            
            
            $
            573,738LIABILITIES
      AND EQUITYDepositsNon-interest-bearing
            
            $
            31,167
            
            
            $
            30,494Interest-bearing
            
            
            405,863
            
            
            
            398,106Total deposits
            
            
            437,030
            
            
            
            428,600Advance
      payments by borrowers for taxes and insurance
            
            
            2,812
            
            
            
            2,702Borrowings
            
            
            86,580
            
            
            
            37,612Accrued
      expenses and other liabilities
            
            
            4,571
            
            
            
            4,231Total liabilities
            
            $
            530,993
            
            
            $
            473,145Commitments
      and contingent liabilitiesEquityPreferred stock,
      $.10 par value, 10,000,000 shares authorized
              at
      March 31, 2008 and September 30, 2007;
            
            
            -
            
            
            
            -Common stock, $.10
      par value, 20,000,000 shares authorized,
              14,527,953
      shares issued at March 31, 2008 and September 30, 2007;
              11,142,501
      and 11,946,190 outstanding
              at March 31,
      2008 and September 30, 2007;
            
            
            1,453
            
            
            
            1,453Additional paid in
      capital
            
            
            114,828
            
            
            
            113,607Unearned ESOP
      shares
            
            
            (7,874
            )
            
            
            (8,099
            )Retained
    earnings
            
            
            23,499
            
            
            
            24,258Treasury Stock; 3,385,452 and
      2,581,763 shares
              at March 31,
      2008 and September 30, 2007
            
            
            (38,732
            )
            
            
            (30,353
            )Accumulated other
      comprehensive gain (loss)
            
            
            239
            
            
            
            (273
            )Total equity
            
            
            93,413
            
            
            
            100,593Total liabilities and
      equity
            
            $
            624,406
            
            
            $
            573,738





See
accompanying notes to unaudited consolidated financial statements
 3


American
Bancorp of New Jersey, Inc.


Statements
of Income


(in
thousands, except share data)


(unaudited)


Six
      Months Ended
              March 31,
            
            
            Three
      Months Ended
              March 31,2008
            
            
            2007
            
            
            2008
            
            
            2007Interest
      and dividend incomeLoan,
      including fees
            
            $
            13,423
            
            
            $
            11,906
            
            
            $
            6,685
            
            
            $
            6,127Securities
            
            
            1,328
            
            
            
            1,608
            
            
            
            683
            
            
            
            767Federal
      funds sold and other
            
            
            673
            
            
            
            353
            
            
            
            222
            
            
            
            265Total
      interest income
            
            
            15,424
            
            
            
            13,867
            
            
            
            7,590
            
            
            
            7,159Interest
      expenseNOW
      and money market
            
            
            2,131
            
            
            
            1,067
            
            
            
            917
            
            
            
            829Savings
            
            
            1,121
            
            
            
            1,397
            
            
            
            516
            
            
            
            685Certificates
      of deposit
            
            
            4,850
            
            
            
            3,942
            
            
            
            2,430
            
            
            
            2,045Borrowings
            
            
            1,015
            
            
            
            1,235
            
            
            
            521
            
            
            
            543Total
      interest expense
            
            
            9,117
            
            
            
            7,641
            
            
            
            4,384
            
            
            
            4,102Net
      interest income
            
            
            6,307
            
            
            
            6,226
            
            
            
            3,206
            
            
            
            3,057Provision
      for loan losses
            
            
            309
            
            
            
            243
            
            
            
            171
            
            
            
            193Net
      interest income after provision for loan losses
            
            
            5,998
            
            
            
            5,983
            
            
            
            3,035
            
            
            
            2,864Noninterest
      incomeDeposit
      service fees and charges
            
            
            442
            
            
            
            335
            
            
            
            216
            
            
            
            175Income
      from cash surrender value of life insurance
            
            
            266
            
            
            
            210
            
            
            
            133
            
            
            
            126Gain
      on sale of loans
            
            
            9
            
            
            
            12
            
            
            
            2
            
            
            
            10Loss
      on sales of securities available-for-sale
            
            
            (5
            )
            
            
            (11
            )
            
            
            -
            
            
            
            (11
            )Other
            
            
            121
            
            
            
            97
            
            
            
            87
            
            
            
            55Total
      noninterest income
            
            
            833
            
            
            
            643
            
            
            
            438
            
            
            
            355Noninterest
      expenseSalaries
      and employee benefits
            
            
            4,556
            
            
            
            4,092
            
            
            
            2,414
            
            
            
            2,127Occupancy
      and equipment
            
            
            908
            
            
            
            462
            
            
            
            454
            
            
            
            246Data
      processing
            
            
            384
            
            
            
            358
            
            
            
            204
            
            
            
            183Advertising
      and marketing
            
            
            131
            
            
            
            166
            
            
            
            46
            
            
            
            47Professional
      and consulting
            
            
            198
            
            
            
            203
            
            
            
            96
            
            
            
            102Legal
            
            
            119
            
            
            
            83
            
            
            
            68
            
            
            
            40Other
            
            
            548
            
            
            
            549
            
            
            
            286
            
            
            
            277Total
      noninterest expense
            
            
            6,844
            
            
            
            5,913
            
            
            
            3,568
            
            
            
            3,022Income
      before provision for income taxes
            
            
            (13
            )
            
            
            713
            
            
            
            (95
            )
            
            
            197Provision
      (benefit) for income taxes
            
            
            (93
            )
            
            
            234
            
            
            
            (82
            )
            
            
            47Net
      income
            
            $
            80
            
            
            $
            479
            
            
            $
            (13
            )
            
            $
            150Comprehensive
      income
            
            $
            592
            
            
            $
            808
            
            
            $
            298
            
            
            $
            303Earnings
      per share:Basic
            
            $
            0.01
            
            
            $
            0.04
            
            
            $
            0.00
            
            
            $
            0.01Diluted
            
            $
            0.01
            
            
            $
            0.04
            
            
            $
            0.00
            
            
            $
            0.01











See
accompanying notes to unaudited consolidated financial statements
 4


American
Bancorp of New Jersey, Inc.


Statements
of Stockholders' Equity


Six
months ended March 31, 2007


(in
thousands)


(unaudited)





Common
              Stock
            
            
            Additional
              Paid-In
              Capital
            
            
            Unearned
              ESOP
              Shares
            
            
            Retained
              Earnings
            
            
            Accumulated
              Other
              Comprehensive
              Loss
            
            
            Treasury
              Stock
            
            
            Total
              Equity
            
            
            Compre-
              hensive
              Income
              (Loss)Balance
      at
              September 30,
      2006
            
            $
            1,453
            
            
            $
            111,780
            
            
            $
            (8,549
            )
            
            $
            25,438
            
            
            $
            (881
            )
            
            $
            (4,380
            )
            
            $
            124,861Cumulative
      effect of
              adoption
      of SAB 108
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            130
            
            
            
            -
            
            
            
            -
            
            
            
            130Balance
      at
              October
      1, 2006
            
            
            1,453
            
            
            
            111,780
            
            
            
            (8,549
            )
            
            
            25,568
            
            
            
            (881
            )
            
            
            (4,380
            )
            
            
            124,991RSP
      stock grants (6,249
              shares
      issued)
            
            
            -
            
            
            
            (76
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            76
            
            
            
            -RSP
      shares earned
              including
      tax benefit
              of
      vested awards
            
            
            -
            
            
            
            629
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            629Share
      purchases
              (1,416,322
      shares)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (17,213
            )
            
            
            (17,213
            )Stock
      options earned
            
            
            -
            
            
            
            281
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            281ESOP
      shares earned
            
            
            -
            
            
            
            92
            
            
            
            225
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            317Cash
      dividends paid –
              $0.08
      per share
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (958
            )
            
            
            -
            
            
            
            -
            
            
            
            (958
            )Comprehensive
      incomeNet
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            479
            
            
            
            -
            
            
            
            -
            
            
            
            479
            
            
            $
            479Change in
      unrealized
              loss on
      securities
              available-for-sale,  net
              of
      taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            329
            
            
            
            -
            
            
            
            329
            
            
            
            329Total  comprehensive
              income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            808Balance
      at
              March
      31, 2007
            
            $
            1,453
            
            
            $
            112,706
            
            
            $
            (8,324
            )
            
            $
            25,089
            
            
            $
            (552
            )
            
            $
            (21,517
            )
            
            $
            108,855


See
accompanying notes to unaudited consolidated financial statements
 5


American
Bancorp of New Jersey, Inc.


Statements
of Stockholders' Equity


Six
months ended March 31, 2008


(in
thousands)


(unaudited)





Common
              Stock
            
            
            Additional
              Paid-In
              Capital
            
            
            Unearned
              ESOP
              Shares
            
            
            Retained
              Earnings
            
            
            Accumulated
              Other
              Comprehensive
              Loss
            
            
            Treasury
              Stock
            
            
            Total
              Equity
            
            
            Compre-
              hensive
              Income
              (Loss)Balance
      at
              September 30,
      2007
            
            $
            1,453
            
            
            $
            113,607
            
            
            $
            (8,099
            )
            
            $
            24,258
            
            
            $
            (273
            )
            
            $
            (30,353
            )
            
            $
            100,593RSP
      shares earned
              including
      tax benefit
              of
      vested awards
            
            
            -
            
            
            
            770
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            770Tax
      benefit on dividends
              paid
      on unvested RSP
              shares
            
            
            -
            
            
            
            61
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            61Share
      purchases
              (807,855
      shares)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (8,427
            )
            
            
            (8,427
            )Stock
      options earned
            
            
            
            
            
            
            356
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            356Stock
      options exercised
            
            
            -
            
            
            
            (19
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            48
            
            
            
            29ESOP
      shares earned
            
            
            -
            
            
            
            53
            
            
            
            225
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            278Cash
      dividends paid –
              $0.08
      per share
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (839
            )
            
            
            -
            
            
            
            -
            
            
            
            (839
            )Comprehensive
      incomeNet
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            80
            
            
            
            -
            
            
            
            -
            
            
            
            80
            
            
            $
            80Change in
      unrealized
              loss on
      securities
              available-for-sale,  net
              of
      taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            512
            
            
            
            -
            
            
            
            512
            
            
            
            512Total  comprehensive
              income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            592Balance
      at
              March
      31, 2008
            
            $
            1,453
            
            
            $
            114,828
            
            
            $
            (7,874
            )
            
            $
            23,499
            
            
            $
            239
            
            
            $
            (38,732
            )
            
            $
            93,413


See
accompanying notes to unaudited consolidated financial statements
 6


American
Bancorp of New Jersey, Inc.


Statements
of Cash Flows


(in
thousands)


(unaudited)


Six
      Months Ended
              March 31,2008
            
            
            2007Cash
      flows from operating activitiesNet Income
            
            $
            80
            
            
            $
            479Adjustments to reconcile net
      income to net cash
              provided by
      operating activitiesDepreciation and
      amortization
            
            
            252
            
            
            
            167Net amortization and accretion of
      premiums and discounts
            
            
            (43
            )
            
            
            (5
            )Losses on sales of securities
      available-for-sale
            
            
            5
            
            
            
            11ESOP compensation
      expense
            
            
            278
            
            
            
            317RSP compensation
      expense
            
            
            715
            
            
            
            554SOP compensation
      expense
            
            
            356
            
            
            
            281Provision for loan
      losses
            
            
            309
            
            
            
            243Increase in cash surrender value
      of life insurance
            
            
            (266
            )
            
            
            (210
            )Gain on sale of
    loans
            
            
            (7
            )
            
            
            (12
            )Proceeds from sales of
      loans
            
            
            1,869
            
            
            
            2,479Origination of loans held for
      sale
            
            
            (619
            )
            
            
            (2,884
            )Decrease (increase) in accrued
      interest receivable
            
            
            (261
            )
            
            
            (134
            )Decrease (increase) in other
      assets
            
            
            (83
            )
            
            
            1,209Change in deferred income
      taxes
            
            
            (448
            )
            
            
            (362
            )Increase (decrease) in other
      liabilities
            
            
            340
            
            
            
            235Net cash provided by operating
      activities
            
            
            2,477
            
            
            
            (50
            )Cash
      flows from investing activitiesNet increase in loans
      receivable
            
            
            (22,085
            )
            
            
            (24,508
            )Purchases
      of securities held-to-maturity
            
            
            (1,108
            )
            
            
            -Principal
      paydowns on securities held-to-maturity
            
            
            631
            
            
            
            906Purchases of securities
      available-for-sale
            
            
            (54,841
            )
            
            
            (4,990
            )Sales of securities
      available-for-sale
            
            
            11,510
            
            
            
            3,227Maturities of securities
      available-for-sale
            
            
            -
            
            
            
            11,000Principal paydowns on
      securities available-for-sale
            
            
            7,964
            
            
            
            8,473Purchase of Federal Home Loan
      Bank stock
            
            
            (675
            )
            
            
            (1,971
            )Redemption of Federal Home
      Loan Bank stock
            
            
            46
            
            
            
            2,575Purchase of bank-owned life
      insurance
            
            
            -
            
            
            
            (4,000
            )Purchase of premises and
      equipment
            
            
            (1,489
            )
            
            
            (2,836
            )Net cash used in investing
      activities
            
            
            (60,047
            )
            
            
            (12,124
            )Cash
      flows from financing activitiesNet increase in
      deposits
            
            
            8,430
            
            
            
            69,025Net change in advance payments
      by borrowers for taxes and
              insurance
            
            
            110
            
            
            
            292Proceeds from
      borrowings
            
            
            50,000
            
            
            
            -Repayment of
      borrowings
            
            
            (1,032
            )
            
            
            (3,031
            )Net change in Federal Home
      Loan Bank of New York overnight
              lines
      of credit
            
            
            -
            
            
            
            (10,400
            )RSP tax benefit of vested
      awards
            
            
            55
            
            
            
            75Tax benefit on dividends paid
      on unvested RSP shares
            
            
            61
            
            
            
            -Proceeds from stock option
      exercises
            
            
            29
            
            
            
            -Cash dividends
      paid
            
            
            (839
            )
            
            
            (958
            )RSP and treasury share
      purchases
            
            
            (8,427
            )
            
            
            (17,213
            )Net cash provided by (used in)
      financing activities
            
            
            48,387
            
            
            
            37,790Net change in cash and cash
      equivalents
            
            
            (9,183
            )
            
            
            25,616Cash and cash equivalents at
      beginning of year
            
            
            37,421
            
            
            
            7,165Cash
      and cash equivalents at end of period
            
            $
            28,238
            
            
            $
            32,781


(Continued)
 7


American
Bancorp of New Jersey, Inc.


Statements
of Cash Flows


(in
thousands)


(unaudited)




Six
      Months Ended
              March 31,2008
            
            
            2007Supplemental
      cash flow information:
              Cash paid during the period
      forInterest
            
            $
            9,114
            
            
            $
            7,741Income
      taxes, net of refunds
            
            
            485
            
            
            
            803Supplemental
      disclosures of non-cash financing transaction:Cumulative effect of adoption of SAB 108
            
            
            -
            
            
            
            130


















See
accompanying notes to unaudited financial statements
 8


American
Bancorp of New Jersey, Inc.


Notes
To Unaudited Financial Statements


(in
thousands)





Note 1 -
Basis of Presentation





American
Bancorp of New Jersey, Inc. (the "Company") is a New Jersey chartered
corporation organized in May 2005 that was formed for the purpose of acquiring
all of the capital stock of American Bank of New Jersey (the "Bank"), which was
previously owned by ASB Holding Company ("ASBH").  ASBH was a
federally chartered corporation organized in June 2003 that was formed for the
purpose of acquiring all of the capital stock of the Bank, which was previously
owned by American Savings, MHC (the "MHC"), a federally chartered mutual holding
company.  The Bank had previously converted from a mutual to a stock
savings bank in a mutual holding company reorganization in 1999 in which no
stock was issued to any person other than the MHC.





On
October 3, 2003, ASB Holding Company, the predecessor of American Bancorp of New
Jersey, Inc., completed a minority stock offering and sold 1,666,350 shares of
common stock in a subscription offering at $10 per share and received proceeds
of $16,060,000, net of offering costs of $603,000.  ASBH contributed
$9,616,000, or approximately 60% of the net proceeds, to the Bank in the form of
a capital contribution.  ASBH loaned $1,333,080 to the Bank's employee
stock ownership plan (“ESOP”) and the ESOP used those funds to acquire 133,308
shares of common stock at $10 per share.





After the
sale of the stock, the MHC held 70%, or 3,888,150 shares, of the outstanding
stock of ASBH with the remaining 30% or, 1,666,350 shares, held by persons other
than the MHC.  ASBH held 100% of the Bank's outstanding common
stock.





On
October 5, 2005, the Company completed a second step conversion in which the
3,888,150 shares of ASB Holding Company held by the MHC were converted and sold
in a subscription offering.  Through this transaction, ASBH ceased to
exist and was supplanted by American Bancorp of New Jersey, Inc. as the holding
company for the Bank.  A total of 9,918,750 shares of common stock
were sold in the offering at $10 per share through which the Company received
proceeds of $97,524,302, net of offering costs of $1,663,198.  The
Company contributed $48,762,151 or approximately 50% of the net proceeds to the
Bank in the form of a capital contribution.  The Company loaned
$7,935,000 to the Bank's ESOP which used those funds to acquire 793,500 shares
of common stock at $10 per share.





As part
of the second step conversion, each of the 1,666,350 outstanding shares of ASBH
held by public shareholders was exchanged for 2.55102 of the Company's
shares.  This exchange resulted in an additional 4,250,719 shares of
the Company being issued, for a total of 14,169,469 outstanding
shares.





The
accompanying unaudited consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, the Bank and ASB Investment Corp.
(the "Investment Corp.") as of March 31, 2008 and September 30, 2007 and for the
six months ended March 31, 2008 and March 31, 2007.  Significant
intercompany accounts and transactions have been eliminated in
consolidation.  References in this Quarterly Report on Form 10-Q to
the Company generally refer to the Company and the Bank, unless the context
indicates otherwise.  References to "we," "us," or "our" refer to the
Bank or Company, or both, as the context indicates.





The primary business of the Company is
the ownership of the Bank and the Investment Corp.  The Bank provides
a full range of banking services to individual and corporate customers located
primarily in the New Jersey and New York metropolitan area.  The Bank
is subject to competition from other financial institutions and to the
regulations of certain federal and state agencies and undergoes periodic
examinations by those regulatory authorities.  The Investment Corp.
was organized for the purpose of selling insurance and investment products,
including annuities, to customers of the Bank and the general public, with
initial activities limited to the sale of fixed rate annuities.  The
Investment Corp. has had limited activity to date.






9





The
accompanying unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X.  Accordingly, they do not include
all the information and notes required by accounting principles generally
accepted in the United States of America for complete financial
statements.  These interim statements should be read in conjunction
with the consolidated financial statements and notes included in the Company’s
Annual Report on Form 10-K for the year ended September 30, 2007.  The
September 30, 2007 balance sheet presented herein has been derived from the
audited financial statements included in the consolidated financial statements
and notes included in the Annual Report on Form 10-K filed with the Securities
and Exchange Commission, but does not include all disclosures required by
accounting principles generally accepted in the United States of
America.





To
prepare financial statements in conformity with accounting principles generally
accepted in the United States of America, management makes estimates and
assumptions based on available information.  These estimates and
assumptions affect the amounts reported in the financial statements and the
disclosures provided, and future results could differ.  The allowance
for loan losses, prepayment speeds on mortgage–backed securities, and status of
contingencies are particularly subject to change.





Interim
statements are subject to possible adjustment in connection with the annual
audit of the Company for the year ending September 30, 2008.  In the
opinion of management of the Company, the accompanying unaudited interim
consolidated financial statements reflect all of the adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of the
consolidated financial position and consolidated results of operations for the
periods presented.





The
results of operations for the six months ended March 31, 2008 are not
necessarily indicative of the results to be expected for the full year or any
other period.





Note 2 -
Earnings Per Share (EPS)





Amounts
reported as basic earnings per share of common stock reflect earnings available
to common stockholders for the period divided by the weighted average number of
common shares outstanding during the period less unearned ESOP and restricted
stock plan shares.  Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock (such as
stock awards and options) were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity.  Diluted EPS is computed by dividing income by the
weighted-average number of shares outstanding for the period plus
common-equivalent shares computed using the treasury stock method.





10


The
factors used in the earnings per share computation follow.


Six
      Months Ended
              
              
              Three
      Months EndedMarch 31,
              
              
              March 31,2008
              
              
              2007
              
              
              2008
              
              
              2007BasicNet income
              
              $
              80
              
              
              $
              479
              
              
              $
              (13
              )
              
              $
              150Weighted
      average common shares
                outstanding
              
              
              10,318,852
              
              
              
              11,957,811
              
              
              
              10,110,546
              
              
              
              11,582,993Basic earnings per common
      share
              
              $
              0.01
              
              
              $
              0.04
              
              
              $
              0.00
              
              
              $
              0.01DilutedNet income
              
              $
              80
              
              
              $
              479
              
              
              $
              (13
              )
              
              $
              150Weighted
      average common shares
                outstanding  for
      basic earnings per
                common
      share
              
              
              10,318,852
              
              
              
              11,957,811
              
              
              
              10,110,546
              
              
              
              11,582,993Add:  Dilutive
      effects of assumed
                exercises
      of  stock options
              
              
              139,706
              
              
              
              166,342
              
              
              
              142,214
              
              
              
              164,132Add:  Dilutive
      effects of full vesting
                of
      stock  awards
              
              
              17,075
              
              
              
              38,569
              
              
              
              15,425
              
              
              
              34,151Average
      shares and dilutive
                potential  common
      shares
              
              
              10,475,633
              
              
              
              12,162,722
              
              
              
              10,268,185
              
              
              
              11,781,276Diluted
      earnings per common share
              
              $
              0.01
              
              
              $
              0.04
              
              
              $
              0.00
              
              
              $
              0.01





Note 3 -
Other Stock-Based Compensation





At March
31, 2008, all shares and options available under the 2005 Restricted Stock Plan,
2005 Stock Option Plan and the 2006 Equity Incentive Plan had been awarded to
participants.





11


A summary
of the activity in the Company’s stock option plans for the six months ended
March 31, 2008 and 2007 is as follows.





For
      the six months endedMarch 31, 2008
            
            
            March 31, 2007Shares
            
            
            Weighted
      Average Exercise
              Price
            
            
            Shares
            
            
            Weighted
      Average Exercise
              PriceOutstanding
      at beginning of
              period
            
            
            1,416,948
            
            
            $
            9.26
            
            
            
            1,397,854
            
            
            $
            9.23Granted
            
            
            -
            
            
            
            -
            
            
            
            19,094
            
            
            
            11.87Exercised
            
            
            (
      4,166
            )
            
            
            6.80
            
            
            
            -
            
            
            
            -Forfeited
      or expired
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Outstanding
      at end of period
            
            
            1,412,782
            
            
            $
            9.27
            
            
            
            1,416,948
            
            
            $
            9.26Options
      exercisable at period
              end
            
            
            590,622
            
            
            $
            8.21
            
            
            
            266,327
            
            
            $
            6.80Weighted
      average remaining
              contractual
      life
            
            
            
            
            
            7.2
      years
            
            
            
            
            
            
            7.8
      years








A summary
of the status of the Company’s nonvested restricted stock plan shares as of
March 31, 2008 and 2007 and changes during the six months ended March 31, 2008
and 2007 are as follows.





For
      the six months endedMarch 31, 2008
            
            
            March 31, 2007Shares
            
            
            Weighted
      Average Grant Date Fair Value
            
            
            Shares
            
            
            Weighted
      Average Grant Date Fair ValueOutstanding
      at beginning of
              period
            
            
            414,281
            
            
            $
            10.13
            
            
            
            520,126
            
            
            $
            10.04Granted
            
            
            -
            
            
            
            -
            
            
            
            6,249
            
            
            
            11.87Vested
            
            
            (58,915
            )
            
            
            8.05
            
            
            
            (37,909
            )
            
            
            6.80Forfeited
      or expired
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Outstanding
      at end of period
            
            
            355,366
            
            
            $
            10.47
            
            
            
            488,466
            
            
            $
            10.31








Note 4 –
Recent Accounting Pronouncements





In July
2006, the FASB released Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes."  This Interpretation revises the recognition tests for
tax positions taken in tax returns such that a tax benefit is recorded only when
it is more likely than not that the tax position will be allowed upon
examination by taxing authorities.  The amount of such a tax benefit
to record is the largest amount that is more likely than not to be
allowed.   Any reduction in deferred tax assets or increase in
tax liabilities upon adoption will correspondingly reduce retained
earnings.  The adoption of Interpretation No. 48 on October 1, 2007
did not have a material impact on the Company’s consolidated financial
statements.






12





In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157 “Fair Value Measurements” (“SFAS No. 157”), which defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements.  SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007.  In
February 2008, the FASB issued Staff Position (FSP) 157-2, Effective Date of
FASB Statement No. 157.  This FSP delays the effective date of FAS 157
for all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years.  The adoption of SFAS No. 157 when it becomes
effective for the Company on October 1, 2008 is not expected to have a material
impact on the Company’s consolidated financial statements.





In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159 “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS No. 159”), SFAS No. 159 permits entities to choose to measure certain
financial assets and financial liabilities at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions.  SFAS No. 159 is effective for financial statements issued
for fiscal years beginning after November 15, 2007.  The Company has
not yet determined the effect of adopting SFAS No. 159, which is effective for
it on October 1, 2008.





At  its  September  2006  meeting,  the
Emerging Issues Task Force (“EITF”)
reached  a  final  consensus  on  Issue  06-04,  “Accounting  for  Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life
Insurance Arrangements.” The consensus stipulates that an agreement by
an  employer  to share a portion of the proceeds of a life
insurance policy
with  an  employee  during  the  postretirement  period
is a postretirement
benefit  arrangement  required  to  be  accounted
for under SFAS No. 106 or
Accounting  Principles  Board  Opinion  (“APB”)  No.
12, “Omnibus Opinion –
1967.”  The  consensus  concludes  that
the purchase of a split-dollar life insurance  policy  does
not constitute a settlement under SFAS No. 106 and, therefore, a liability for
the postretirement obligation must be recognized
under  SFAS  No.  106  if  the
benefit is offered under an arrangement that
constitutes  a  plan or under APB No. 12 if it is not part
of a plan. Issue 06-04  is effective for annual or interim reporting
periods beginning after December  15, 2007. The provisions of Issue
06-04 should be applied through
either  a  cumulative  effect  adjustment  to  retained  earnings
as of the beginning of the year of adoption or retrospective application. The
Company is currently assessing the financial statement impact of implementing
EITF 06-04.





On
November 5, 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan
Commitments Recorded at Fair Value through Earnings (“SAB 109”). Previously, SAB
105, Application of Accounting Principles to Loan Commitments, stated that in
measuring the fair value of a derivative loan commitment, a company should not
incorporate the expected net future cash flows related to the associated
servicing of the loan. SAB 109 supersedes SAB 105 and indicates that the
expected net future cash flows related to the associated servicing of the loan
should be included in measuring fair value for all written loan commitments that
are accounted for at fair value through earnings.  SAB 105 also
indicated that internally-developed intangible assets should not be recorded as
part of the fair value of a derivative loan commitment, and SAB 109 retains that
view.  SAB 109 is effective for derivative loan commitments issued or
modified in fiscal quarters beginning after December 15, 2007.  The
Company does not expect the impact of this standard to be material.











13


ITEM 2.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS




Forward-Looking
Statements





This
report contains certain 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 Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995 as amended and is including this statement for purposes of these
safe harbor provisions.  Forward-looking statements, which are based
on certain assumptions and describe future plans, strategies, and expectations
of the Company, are generally identifiable by use of the words "believe,"
"expect," "intend," "anticipate," "estimate," "project," or similar
expressions.  The Company's ability to predict results or the actual
effect of future plans or strategies is inherently uncertain.  Factors
that could have a material adverse affect on the operations and future prospects
of the Company and its wholly-owned subsidiaries include, but are not limited
to, changes in:  interest rates; general economic conditions;
legislative/regulatory provisions; monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board; the quality or composition of the loan or investment portfolios; demand
for loan products; deposit flows; competition; and demand for financial services
in the Company's market area.  These risks and uncertainties should be
considered in evaluating forward-looking statements, and undue reliance should
not be placed on such statements.





Business
Strategy





Our
business strategy has been to operate as a well-capitalized independent
financial institution dedicated to providing convenient access and quality
service at competitive prices.  During recent years, we have
experienced significant loan and deposit growth.  Our current strategy
seeks to continue that growth while we evolve from a traditional thrift
institution into a full service, community bank.   Our key
business strategies are highlighted below accompanied by a brief overview of our
progress in implementing each of these strategies:





·
            Grow
      and diversify the deposit mix by emphasizing non-maturity account
      relationships acquired through de novo branching and existing deposit
      growth.  Our current business plan calls for us to open up to
      three de novo branches over approximately the next five
    years.





Having
opened three full service branches located in Verona, Nutley and Clifton, New
Jersey during fiscal 2007, the Company currently has no plans or commitments to
open additional de novo deposit branches during fiscal 2008.  Rather,
the Company expects to direct significant strategic effort toward achieving
profitability within each of these three branches while revisiting additional
branching opportunities after fiscal 2008.  Notwithstanding this
current focus, the Company would consider additional branching projects during
fiscal 2008 if appropriate opportunities were to arise.





·
            Grow
      and diversify the loan mix by increasing commercial loan origination
      volume while increasing the balance of such loans as a percentage of total
      loans.





For the
fiscal year ended September  30, 2007, our commercial loans, including
multi-family, nonresidential real estate, construction and business loans, grew
$45.7 million, or 47.5%, from $96.2 million to $141.9 million.  This
increase resulted in commercial loans growing from 24.1% to 32.4% of loans
receivable, net for fiscal 2007.  Such growth continued during the six
months ended March 31, 2008 when our commercial loans grew an additional $22.2
million, or 15.6%, from $141.9 million to $164.1 million increasing the
percentage of commercial loans from 32.4% to 35.7% of loans receivable,
net.  We expect to continue our strategic emphasis on commercial
lending throughout the remainder of fiscal 2008 and thereafter.






14







·
            Continue
      to implement or enhance alternative delivery channels for the origination
      and servicing of loan and deposit
products.





In
support of this objective, during fiscal 2007, we completed a significant
overhaul of our Internet website which serves as a portal through which our
customers access a growing menu of online services.  While enhancing
our online services for retail customers, we are concurrently addressing the
growth in business demand for such services.  Toward that end, we have
expanded our business online banking product and service offerings to now
include remote check deposit, online cash management and online bill payment
services for business.





·
            Broaden
      and strengthen customer relationships by bolstering cross marketing
      strategies and tactics with a focus on multiple account/service
      relationships.





We will
continue to cross market other products and services to promote multiple
account/service relationships and the retention of long term customers and core
deposits.  These efforts are expected to be directed to customers
within all five of the Bank’s branches.





·
            Utilize
      capital markets tools to effectively manage capital and enhance
      shareholder value.





Toward
that end, during the quarter ended December 31, 2007, the Company completed its
third share repurchase program through which it repurchased five percent of its
outstanding shares.  The Company had completed two previous share
repurchase plans during fiscal 2007 through which it repurchased ten percent and
five percent, respectively, of its outstanding shares.  A fourth share
repurchase plan for an additional five percent of its outstanding shares was
announced in January 2008 and remains ongoing.





A number
of the strategies outlined above have had a detrimental impact on near term
earnings.  Notwithstanding, we expect to continue to execute these
growth and diversification strategies designed to enhance future earnings and
their resiliency to changes in market conditions toward the goal of enhancing
shareholder value.   Toward that end, we expect that our deposit
pricing strategy during fiscal 2008 will continue to reduce interest costs by
continuing to incrementally lower interest rates paid on de novo branch deposits
acquired during fiscal 2007 from the higher promotional rates initially
offered.  Additionally, we would expect that continued reductions in
market interest rates and further steepening of the yield curve during fiscal
2008 may also have a beneficial impact on earnings.  The resiliency of
the Bank’s de novo branch deposits to further interest rate reductions and
movements in market interest rates and their respective impact on earnings,
however, can not be assured.





15


Executive
Summary





The
Company's results of operations depend primarily on its net interest
income.  Net interest income is the difference between the interest
income we earn on our interest-earning assets and the interest we pay on our
interest-bearing liabilities.  It is a function of the average
balances of loans and investments versus deposits and borrowed funds outstanding
in any one period and the yields earned on those loans and investments versus
the cost of those deposits and borrowed funds.  Our loans consist
primarily of residential mortgage loans, comprising first and second mortgages
and home equity lines of credit, and commercial loans, comprising multi-family
and nonresidential real estate mortgage loans, construction loans and business
loans.  Our investments primarily include U.S. Agency residential
mortgage-related securities and U.S. Agency debentures.  Our
interest-bearing liabilities consist primarily of retail deposits, advances from
the Federal Home Loan Bank of New York and other borrowings associated with
reverse repurchase agreement transactions with institutional counterparties
..





During
the first six months of fiscal 2008, the Company’s net interest spread increased
16 basis points to 1.60% in comparison to 1.44% for all of fiscal
2007.  The increase in net interest spread resulted, in part, from a
0.09% increase in the yield on earning assets to 5.73% for the six months ended
March 31, 2008 from 5.64% for all of fiscal 2007.  For those same
comparative periods, the Company’s cost of interest-bearing liabilities
decreased 0.08% to 4.13% from 4.21%.  This widening of our net
interest spread reversed the trend of spread compression previously reported
during fiscal 2007 when the Company’s net interest spread decreased 36 basis
points from 1.80% during fiscal 2006.  In large part, the improvements
in net interest spread for the six months ended March 31, 2008 resulted from
continued increases in the yield on loans, attributable primarily to the
Company’s commercial lending strategies, complemented by a decrease in the cost
of retail deposits.  The decrease in retail deposit interest costs
continues to reflect the overall reduction in market interest rates coupled with
the downward adjustment of interest rates paid on deposits acquired through the
de novo branches opened during fiscal 2007 on which the Company originally paid
higher, promotional interest rates.





The
factors resulting in the widening of the Company’s net interest spread also
positively impacted the Company’s net interest margin.  However, the
impact of improved net interest spread was more than offset by the impact of the
Company’s share repurchase program on the Company’s net interest
margin.  The foregone interest income on the earning assets used to
fund share repurchases contributed significantly to the 5 basis point reduction
in the Company’s net interest margin to 2.34% for the six months ended March 31,
2008 from 2.39% for all of fiscal 2007.





Our net
interest spread and margin may be adversely affected throughout several possible
interest rate environments.  The risks presented by movements in
interest rates is addressed more fully under Item 3. Quantitative and
Qualitative Disclosures About Market Risk found later in this
report.





Our
results of operations are also affected by our provision for loan
losses.  For the six months ended March 31, 2008, the Company recorded
a net loan loss provision of $309,000.  As  reported for
fiscal 2007, the provision for loan losses for the six months ended March 31,
2008 generally reflected the Bank’s increased strategic emphasis in commercial
lending and the comparatively higher rate of growth in such loan balances than
in earlier years.  The expense for the more recent period also
reflected a provision of $34,000 attributable to one impaired construction loan,
that portion of which was deemed uncollectible by management and was therefore
charged off in the second quarter ended March 31, 2008.  No other
additions to the allowance for loan losses were required during the six months
ended March 31, 2008 for nonperforming loans which decreased as a percentage of
total assets to 0.16% at March 31, 2008 from 0.22% at September 30,
2007.  Net loan loss provision expense, reflected as a percentage of
average earning assets, increased two basis points to 0.11% for the six months
ended March 31, 2008 from 0.09% reported for fiscal 2007.






16






Our
results of operations also depend on our noninterest income and noninterest
expense.  Noninterest income includes deposit service fees and
charges, income on the cash surrender value of life insurance, gains on sales of
loans and securities, gains on sales of other real estate owned and loan related
fees and charges.  Excluding gains and losses on sale of assets,
noninterest income as a percentage of average assets increased 0.04% to 0.29%
for the six months ended March 31, 2008 from 0.25% for all of fiscal 2007
primarily due to increases in deposit services fees and charges.  Such
increases were  attributable, in part, to deposit service fees and
charges at the Bank’s de novo branches opened during fiscal
2007.  However, the reported increase was primarily due to growth in
deposit-related fees and charges within the Bank’s other branches.





Gains and
losses on sale of assets, excluded in the comparison above, typically resulted
from the Company selling long term, fixed rate mortgage loan originations into
the secondary market.  Demand for such loans typically fluctuates with
market interest rates.  As interest rates rise, market demand for long
term, fixed rate mortgage loans diminishes in favor of hybrid ARMs which the
Company has historically retained in its portfolio rather than selling into the
secondary market.  Consequently, the gains and losses on sale of loans
reported by the Company have fluctuated with market
conditions.  Additionally, such gains and losses also reflected the
impact of infrequent investment security sales for asset/liability management
purposes.  As a percentage of average total assets, gains and losses
on asset sales for the six months ended March 31, 2008  totaled less
than 0.01% which was relatively unchanged from the 0.01% reported for all of
fiscal 2007.





Noninterest
expense includes salaries and employee benefits, occupancy and equipment
expenses, data processing and other general and administrative expenses. As a
percentage of average total assets, noninterest expense for the six months ended
March 31, 2008 totaled 2.39% representing an increase of 8 basis points from
2.31% reported for all of fiscal 2007.





The
noninterest expense reported above for the first six months of fiscal 2008 fully
reflects the ongoing costs of the three full service branches opened during the
prior fiscal year.  In general, management expects occupancy and
equipment expense to increase in the future as we continue to implement our de
novo branching strategy to expand our branch office network.  However,
the Company currently has no plans or commitments to open additional de novo
branches during fiscal 2008.  Rather, the Company expects to direct
significant strategic effort toward achieving profitability within each of these
three branches while revisiting additional branching opportunities after fiscal
2008.  Notwithstanding the expected de novo branching hiatus for
fiscal 2008, our current business plan targets the opening of up to three
additional de novo branches over approximately the next five
years.  The costs for land purchases or leases, branch construction
costs and ongoing operating costs for additional branches will impact future
earnings.





The
Company also expects occupancy expense to increase in future periods as a result
of the relocation of the Bank’s Bloomfield branch.  This relocation
will significantly upgrade and modernize the Bloomfield branch facility
supporting the Company’s deposit growth and customer service enhancement
objectives.  The relocation will also support potential expansion of
the administrative and lending office space within the Company’s existing
headquarters facility where the branch is currently located should such
expansion be required to support the Company’s business plan.  The
noninterest expense reported above for the first six months of fiscal 2008
includes the land lease costs associated with that forthcoming branch relocation
which opened in April 2008.





In an
effort to reduce ongoing operating expenses, the Company enacted a reduction in
workforce during the first quarter of fiscal 2008 resulting in the elimination
of five managerial and administrative support positions.  Salary and
employee benefit expense reductions resulting from this strategy are expected to
total approximately $388,000 per year which began during the second quarter of
fiscal 2008, equal to annual after-tax earnings of approximately $0.02 per share
based upon the Company’s outstanding shares at March 31, 2008. This action, in
conjunction with other staffing adjustment opportunities, has enabled the
Company to reduce the number of full time equivalent employees by over 8.0%
during fiscal 2008.






17





The
effect of these compensation expense reduction measures during the first six
months of fiscal 2008 has been somewhat muted by an offsetting increase in
expense attributable to the death of a Director Emeritus of the Company during
the second fiscal quarter.  Under the terms of the Company’s
restricted stock and stock option plans, the vesting of the remaining unearned
benefits accruing to the director through these plans was automatically
accelerated.  As such, the Company incurred an acceleration of the
remaining pre-tax expenses associated with these benefits totaling approximately
$254,000 during that period.





Notwithstanding,
the Company will continue to monitor its employee staffing levels in relation to
the goals and objectives of its business plan and may consider further
opportunities to adjust such staffing levels, as appropriate, to support the
achievement of  those goals and objectives.





In total,
our annualized return on average assets decreased seven basis points to 0.03%
for the six months ended March 31, 2008 from 0.10% for all of fiscal 2007, while
annualized return on average equity decreased 34 basis points to 0.17% from
0.51% for the same comparative periods.





Comparison
of Financial Condition at March 31, 2008 and September 30, 2007





Our total
assets increased by $50.7 million, or 8.8%, to $624.4 million at March 31, 2008
from $573.7 million at September 30, 2007.  The increase primarily
reflected comparatively higher balances of investment securities and loans
receivable, net partially offset by lower balances of cash and cash equivalents
and loans held for sale.





Cash and
cash equivalents decreased by $9.2 million, or 24.5%, to $28.2 million at March
31, 2008 from $37.4 million at September 30, 2007.  The net decrease
in cash and cash equivalents primarily reflects cash outflows funding share
repurchases and growth in loans receivable, net partially offset by cash inflows
from investment security maturities and repayments, reductions in the balance of
loans held for sale and continued net growth in deposits.





The
balance of cash and cash equivalents continues to reflect the accumulation of
short term, interest-earning investments which resulted from the net cash
inflows associated with deposit growth during fiscal 2007 and the first six
months of fiscal 2008.  The Company expects to continue reinvesting
the proceeds received through its growth in deposits into the loan portfolio
over time as lending opportunities arise.  To the extent supported by
commercial loan demand and origination volume, the Company expects to reinvest
deposit proceeds into such loans.  However, the net addition of
residential mortgages to the loan portfolio, including longer term, fixed rate
1-4 family mortgages which were historically sold into the secondary market, is
expected to continue augmenting the growth in loans as a reinvestment
alternative for a portion of the accumulated balance of cash and cash
equivalents.  (See further discussion in the subsequent section titled
“Quantitative and Qualitative Disclosures About Market Risk”.)





Securities
classified as available-for-sale increased $36.2 million, or 62.3%, to $94.3
million at March 31, 2008 from $58.1 million at September 30, 2007 while
securities held-to-maturity increased approximately $470,000, or 7.0% to $7.2
million from $6.7 million for those same comparative periods.





The net
increase in available-for-sale securities was largely attributable to a
wholesale growth transaction in March 2008 through which the Company purchased
approximately $50.0 million of mortgage-related investment securities funded by
an equivalent amount of borrowings.  The ongoing net interest income
resulting from this transaction is intended to augment the Company’s earnings as
it continues to incur the near term costs associated with executing its business
plan.  Through this transaction, the Company took advantage of the
opportunity presented by recent turmoil in the mortgage securities markets to
acquire agency, AAA-rated mortgage-related securities at historically wide
interest rate spreads in relation to the cost of wholesale funding
sources.  The growth in available-for-sale securities associated with
this transaction was partially offset by the continued reinvestment of a
significant portion of the funds received from maturing debentures and other
mortgage-related security repayments into the loan portfolio.






18





The
following table compares the composition of the Company's investment securities
portfolio by security type as a percentage of total assets at March 31, 2008
with that of September 30, 2007.  Amounts reported exclude unrealized
gains and losses on the available for sale portfolio.





March 31, 2008
            
            
            September 30, 2007Type of
      Securities
            
            Amount
            
            
            Percent
      of
              Total Assets
            
            
            Amount
            
            
            Percent
      of
              Total Assets(Dollars in thousands)Fixed
      rate MBS
            
            $
            51,127
            
            
            
            8.19
            %
            
            $
            11,454
            
            
            
            2.00
            %ARM
      MBS
            
            
            11,472
            
            
            
            1.84
            
            
            
            14,470
            
            
            
            2.52Fixed
      rate CMO
            
            
            34,596
            
            
            
            5.54
            
            
            
            35,280
            
            
            
            6.14Floating
      rate CMO
            
            
            1,938
            
            
            
            0.31
            
            
            
            2,047
            
            
            
            0.36Fixed
      rate agency debentures
            
            
            2,000
            
            
            
            0.32
            
            
            
            2,000
            
            
            
            0.35Total
            
            $
            101,133
            
            
            
            16.20
            %
            
            $
            65,251
            
            
            
            11.37
            %





Assuming
no change in interest rates, the estimated average life of the investment
securities portfolio was 4.30 years and 2.24 years, respectively, at March 31,
2008 and September 30, 2007.  Assuming a hypothetical immediate and
permanent increase in interest rates of 300 basis points, the estimated average
life of the portfolio would have extended to 6.03 years and 2.65 years at March
31, 2008 and September 30, 2007, respectively.





Loans
receivable, net increased by $21.8 million, or 5.0%, to $459.7 million at March
31, 2008 from $437.9 million at September 30, 2007.  The growth was
comprised of net increases in commercial loans totaling $22.2 million or
15.6%.  Such loans include multi-family, nonresidential real estate,
construction and business loans.  The increase in loans receivable,
net also included net increases in home equity loans and home equity lines of
credit totaling $469,000 and net increases in consumer loans of
$198,000.  Offsetting the growth in these categories was an $801,000
decrease in the balance of 1-4 family first mortgages resulting from reduced
strategic emphasis on the origination of such loans and net increases to the
allowance for loan losses totaling $275,000.





One- to
four-family mortgage loans are generally grouped by the Bank into one of three
categories based upon underwriting criteria: “Prime”, “Alt-A” and “Sub-prime”
mortgages.  Sub-prime loans are generally defined by the Bank as loans
to borrowers with deficient credit histories and/or higher debt-to-income
ratios.  Loans falling within the Alt-A category, as defined by the
Bank, include loans to borrowers with blemished credit credentials that are less
severe than those characterized by Sub- prime loans but otherwise preclude the
loan from being considered Prime.  Alt-A loans may also be
characterized by other underwriting or documentation exceptions such as reduced
or limited loan documentation.  Loans without the deficiencies or
exceptions characterizing Sub-prime and Alt-A loans are considered Prime and
comprise the significant majority of the one-to four-family mortgages originated
and retained by the Bank.





The Bank
does not currently offer Sub-prime loan programs.  Prior to fiscal
2007, the Bank had offered a limited number of one-to four-family loan programs
through which it originated and retained Sub-prime loans to borrowers with
deficient credit histories or higher debt-to-income ratios.  At March
31, 2008 and September 30, 2007, the remaining balance of these loans was
approximately $1.2 million  and $1.4 million, respectively, comprising
10 and 11 loans, respectively, for each period.  All such loans were
current for the periods reported.






19





Through
fiscal 2007, the Bank offered an Alt-A stated income loan program by which it
originated and retained loans to borrowers whose  income was
affirmatively stated at the time of application, but not verified by the
Bank.  The Bank discontinued that program in the first quarter of
fiscal 2008.  At March 31, 2008 and September 30, 2007, the remaining
balance of these loans was approximately $7.9 million and $8.6 million,
respectively, comprising 28 and 29 loans, respectively, for each
period.  All such loans were current for the periods
reported.





The Bank
continues to offer a limited Alt-A program through which it originates and sells
all such loans to FNMA under its Expanded Approval program on a non-recourse,
servicing retained basis.  A significant portion of the loans
originated under this remaining Alt-A program support the procurement of
mortgage financing for first time home buyers.





The
following two tables compare the composition of the Company's loan portfolio by
loan type as a percentage of total assets at March 31, 2008 with that of
September 30, 2007.  Amounts reported exclude allowance for loan
losses and net deferred origination costs.





The table
below generally defines loan type by loan maturity and/or repricing
characteristics:





March 31, 2008
            
            
            September 30, 2007Type of
      Loans
            
            Amount
            
            
            Percent
      of
              Total Assets
            
            
            Amount
            
            
            Percent
      of
              Total Assets(Dollars in thousands)Construction
      (1)
            
            $
            38,797
            
            
            
            6.21
            %
            
            $
            32,592
            
            
            
            5.68
            %Prime-indexed
      Land
            
            
            2,547
            
            
            
            0.41
            
            
            
            -
            
            
            
            -1/1
      and 3/3 ARMs
            
            
            7,617
            
            
            
            1.22
            
            
            
            7,642
            
            
            
            1.333/1
      and 5/1 ARMs
            
            
            141,795
            
            
            
            22.71
            
            
            
            142,254
            
            
            
            24.805/5
      and 10/10 ARMs
            
            
            46,616
            
            
            
            7.47
            
            
            
            46,017
            
            
            
            8.027/1
      and 10/1 ARMs
            
            
            5,368
            
            
            
            0.86
            
            
            
            3,500
            
            
            
            0.6115
      year fixed or less
            
            
            137,503
            
            
            
            22.02
            
            
            
            129,158
            
            
            
            22.52Greater
      than 15 year fixed
            
            
            52,212
            
            
            
            8.36
            
            
            
            52,012
            
            
            
            9.07Prime-indexed
      HELOC
            
            
            20,466
            
            
            
            3.28
            
            
            
            19,756
            
            
            
            3.44Consumer
      (2)
            
            
            853
            
            
            
            0.14
            
            
            
            655
            
            
            
            0.11Business
      (3)
            
            
            7,700
            
            
            
            1.23
            
            
            
            7,024
            
            
            
            1.22Total
            
            $
            461,474
            
            
            
            73.91
            %
            
            $
            440,610
            
            
            
            76.80
            %(1)Construction
      loans are generally floating rate with original maturities of two years or
      less
              (2)Consumer
      loans are generally fixed rate with original maturities of less than five
      years
              (3)Business
      loans are generally fixed or floating rate with original maturities of
      five years or less








At March
31, 2008 and September 30, 2007, respectively, the balance of one-to four-family
mortgage loans included $26.4 million and $22.6 million of thirty year
adjustable rate loans with initial fixed interest rate periods of three to five
years during which time monthly loan payments comprise interest
only.  After the initial period, the monthly payments on such loans
are adjusted to reflect the collection of both interest and principal over the
loan’s remaining term to maturity.





20


The table
below generally defines loan type by collateral or purpose:





March 31, 2008
            
            
            September 30, 2007Type of
      Loans
            
            Amount
            
            
            Percent
      of
              Total Assets
            
            
            Amount
            
            
            Percent
      of
              Total Assets(Dollars in thousands)Construction
      (1)
            
            $
            38,797
            
            
            
            6.21
            %
            
            $
            32,592
            
            
            
            5.68
            %1-4
      family mortgage
            
            
            275,939
            
            
            
            44.20
            
            
            
            278,183
            
            
            
            48.50Multifamily
      (5+) mortgage
            
            
            31,797
            
            
            
            5.09
            
            
            
            30,585
            
            
            
            5.33Nonresidential
      mortgage
            
            
            80,038
            
            
            
            12.82
            
            
            
            68,474
            
            
            
            11.94Land
            
            
            5,884
            
            
            
            0.94
            
            
            
            3,341
            
            
            
            0.581-4
      family HELOC
            
            
            20,466
            
            
            
            3.28
            
            
            
            19,756
            
            
            
            3.44Consumer
      (2)
            
            
            853
            
            
            
            0.14
            
            
            
            655
            
            
            
            0.11Business
      (3)
            
            
            7,700
            
            
            
            1.23
            
            
            
            7,024
            
            
            
            1.22Total
            
            $
            461,474
            
            
            
            73.91
            %
            
            $
            440,610
            
            
            
            76.80
            %(1)Construction
      loans generally include loans collateralized by land and 1-4 family,
      multifamily and commercial buildings in process of
      construction(2)Consumer
      loans generally include secured account loans and unsecured overdraft
      protection balances(3)Business
      loans generally include secured and unsecured business lines of credit and
      term notes.








Total
deposits increased by $8.4 million, or 2.0%, to $437.0 million at March 31, 2008
from $428.6 million at September 30, 2007.  This net growth reflected
increases in certificates of deposit and noninterest-bearing checking accounts
of $23.1 million and $674,000, respectively, offset by reductions in the balance
of interest-bearing checking, including money market checking, and savings
accounts of $13.0 million and $2.3 million, respectively.  These net
changes reflect, in part, the disintermediation of a portion of the non-maturity
deposits generated through the three branches opened during fiscal 2007 on which
interest rates have been reduced from the higher, promotional levels originally
paid.





The
following table compares the composition of the Company's deposit portfolio by
category as a percentage of total assets at March 31, 2008 with that of
September 30, 2007.




March 31, 2008
              
              
              September 30, 2007Deposit
      category
              
              Amount
              
              
              Percent
      of
                Total Assets
              
              
              Amount
              
              
              Percent
      of
                Total Assets(Dollars
      in thousands)Noninterest
      bearing checking
              
              $
              31,167
              
              
              
              4.99
              %
              
              $
              30,494
              
              
              
              5.31
              %Money
      market checking
              
              
              78,815
              
              
              
              12.62
              
              
              
              92,550
              
              
              
              16.13Interest
      bearing checking
              
              
              20,003
              
              
              
              3.20
              
              
              
              19,245
              
              
              
              3.35Money
      market savings
              
              
              8,909
              
              
              
              1.43
              
              
              
              10,263
              
              
              
              1.79Other
      savings
              
              
              81,539
              
              
              
              13.06
              
              
              
              82,515
              
              
              
              14.38Certificates
      of deposit
              
              
              216,597
              
              
              
              34.69
              
              
              
              193,533
              
              
              
              33.74Total
              
              $
              437,030
              
              
              
              69.99
              %
              
              $
              428,600
              
              
              
              74.70
              %


21


The
following table compares the composition of the Company's deposit portfolio by
branch as a percentage of total assets at March 31, 2008 with that of September
30, 2007.




March 31, 2008
              
              
              September 30, 2007Branch
              
              Amount
              
              
              Percent
      of
                Total Assets
              
              
              Amount
              
              
              Percent
      of
                Total Assets(Dollars
      in thousands)Bloomfield
              
              $
              230,546
              
              
              
              36.92
              %
              
              $
              223,557
              
              
              
              38.97
              %Cedar
      Grove
              
              
              109,023
              
              
              
              17.46
              
              
              
              111,030
              
              
              
              19.35Verona
              
              
              49,973
              
              
              
              8.00
              
              
              
              55,193
              
              
              
              9.62Nutley
              
              
              24,019
              
              
              
              3.85
              
              
              
              23,534
              
              
              
              4.10Clifton
              
              
              23,469
              
              
              
              3.76
              
              
              
              15,286
              
              
              
              2.66Total
              
              $
              437,030
              
              
              
              69.99
              %
              
              $
              428,600
              
              
              
              74.70
              %






The
reported reduction in the Verona branch deposit balances largely reflects the
outflow of a portion of the deposits generated through this branch during the
prior fiscal year on which interest rates have been reduced from the higher,
promotional levels originally paid.





Borrowings
increased $49.0 million, or 130.2%, to $86.6 million at March 31, 2008 from
$37.6 million at September 30, 2007.  The growth in borrowings was
primarily attributable to the additions to FHLB advances and reverse repurchase
agreements associated with the $50 million wholesale growth transaction noted
earlier partially offset by the repayment of a maturing fixed rate $1.0 million
FHLB term advance.





The
following table compares the composition of the Company's borrowing portfolio by
remaining term to maturity as a percentage of total assets at March 31, 2008
with that of September 30, 2007.  Scheduled principal payments on
amortizing borrowings are reported as maturities.





March 31, 2008
            
            
            September 30, 2007Remaining
      Term
            
            Amount
            
            
            Percent
      of
              Total Assets
            
            
            Amount
            
            
            Percent
      of
              Total Assets(Dollars in thousands)Overnight
            
            $
            -
            
            
            
            -
            %
            
            $
            -
            
            
            
            -
            %One
      year or less
            
            
            19,067
            
            
            
            3.05
            
            
            
            12,065
            
            
            
            2.10One
      to two years
            
            
            17,513
            
            
            
            2.80
            
            
            
            7,547
            
            
            
            1.32Two
      to three years
            
            
            6,000
            
            
            
            0.96
            
            
            
            6,000
            
            
            
            1.05Three
      to four years
            
            
            6,000
            
            
            
            0.96
            
            
            
            6,000
            
            
            
            1.05Four
      to five years
            
            
            3,000
            
            
            
            0.48
            
            
            
            5,000
            
            
            
            0.87More
      than five years(1)
            
            
            35,000
            
            
            
            5.62
            
            
            
            1,000
            
            
            
            0.17Total
            
            $
            86,580
            
            
            
            13.87
            %
            
            $
            37,612
            
            
            
            6.56
            %





(1)Borrowing category includes
two reverse repurchase agreements totaling $35.0 million originally drawn in
March 2008 and maturing in March 2018 whose terms enable the counterparty, at
their option, to require full repayment of the borrowing at par prior to
maturity.  Early repayment may be required on one $25.0 million
borrowing on or after the two year anniversary of its original
funding.  Similarly, early repayment may be required on the remaining
$10.0 million borrowing on or after the four year anniversary of its original
funding.





22


Equity
decreased $7.2 million, or 7.1% to $93.4 million at March 31, 2008 from $100.6
million at September 30, 2007.  The reported decrease in equity was
primarily attributable to an $8.4 million increase in Treasury stock resulting
from the Company’s share repurchases during the first six months of fiscal
2008.





Comparison
of Operating Results for the Three Months Ended March 31, 2008 and March 31,
2007





General.  The
Company recorded a net loss of $13,000 for the three months ended March 31,
2008, a decrease of $163,000, or 108.7% from the three months ended March 31,
2007 when the Company reported net income of $150,000.  The decrease
in net income resulted from increases in noninterest expense partially offset by
increases in net interest income and noninterest income and decreases in the
provision for loan losses and provision for income taxes.





Interest
Income.  Total interest income increased 6.0% or $431,000 to
$7.6 million for the three months ended March 31, 2008 from $7.2 million for the
three months ended March 31, 2007.  For those same comparative
periods, the average yield on interest-earning assets decreased one basis point
to 5.63% from 5.64% while the average balance of interest-earning assets
increased $30.9 million to $539.1 million from $508.2 million.





Interest
income on loans increased $558,000 or 9.1%, to $6.7 million for the three months
ended March 31, 2008 from $6.1 million for the three months ended March 31,
2007.  This increase was due, in part, to a $39.9 million increase in
the average balance of loans receivable, including loans held for sale, to
$455.7 million for the three months ended March 31, 2008 from $415.8 million for
the three months ended March 31, 2007.  The impact of the higher
average balance was partially offset by a reduction in the average yield on
loans which decreased two basis points to 5.87% from 5.89% for those same
comparative periods.  The increase in the average balance on loans
receivable was primarily attributable to the Company’s strategic emphasis on
commercial lending while the reduction in average yield on loans generally
reflects the effect of lower market interest rates on the floating rate portion
of the portfolio.





The rise
in interest income on loans was partially offset by lower interest income on
securities, which decreased $84,000 or 11.0% to $683,000 for the three months
ended March 31, 2008 from $767,000 for the three months ended March 31,
2007.  The decrease was due, in part, to a $14.1 million decline in
the average balance of investment securities, excluding the available for sale
mark to market adjustment, to $60.7 million for the three months ended March 31,
2008 from $74.9 million for the three months ended March 31,
2007.  The impact on interest income attributable to this decrease was
partially offset by a 40 basis point increase in the average yield on securities
which grew to 4.50% from 4.10% for the same comparative periods.  The
increase in yield primarily resulted from the maturity and repayment of lower
yielding investment securities coupled with higher yields on newly purchased
securities, including those relating to the $50.0 million wholesale growth
transaction completed in March 2008.   The increase in yield also
reflects the repricing of adjustable rate securities in accordance with the
general upward movement of market interest rates during the prior fiscal
year.  Such securities are expected to reprice downward in the coming
months to reflect the reduction in market interest rates during the current
year.





Further,
interest and dividend income on federal funds sold, other interest-bearing
deposits and FHLB stock decreased $43,000 to $222,000 for three months ended
March 31, 2008 from $265,000 for the three months ended March 31,
2007.  This reduction in income was due primarily to a decline in the
average yield of these assets which decreased 214 basis points to 3.92% from
6.06% for the same comparative periods reflecting reductions in short term
market interest rates.  The impact in the decline in yield was
partially offset by a $5.2 million increase in the average balance of these
assets to $22.7 million for the three months ended March 31, 2008 from $17.5
million for the three months ended March 31, 2007.  The average
balances reported and used for yield calculations reflect, where appropriate,
the reduction for outstanding checks issued against such
accounts.  This has the effect of increasing the reported yield on
such assets.






23





Interest
Expense.  Total interest expense increased by $282,000 or 6.9%
to $4.4 million for the three months ended March 31, 2008 from $4.1 million for
the three months ended March 31, 2007.  For those same comparative
periods, the average cost of interest-bearing liabilities decreased 26 basis
points from 4.19% to 3.93%, while the average balance of interest-bearing
liabilities increased $54.2 million or 13.8% to $445.8 million for the three
months ended March 31, 2008 from $391.6 million for the three months ended March
31, 2007.





Interest
expense on deposits increased $305,000 or 8.6% to $3.9 million for the three
months ended March 31, 2008 from $3.6 million for the three months ended March
31, 2007.  This increase was due largely to growth in the average
balance of interest-bearing deposits which grew $52.1 million to $400.7 million
for the three months ended March 31, 2008 from $348.5 million for the three
months ended March 31, 2007.  The reported net growth in average
interest-bearing deposits comprised $29.8 million and $34.6 million of growth in
the average balance of interest-bearing checking accounts and certificates of
deposit, respectively.  Offsetting this growth was a net decline in
the average balance of savings accounts totaling $12.3 million primarily
reflecting the disintermediation of such deposits into higher yielding time
deposits.





The
overall growth in the average balance of interest-bearing deposits for the more
recent period was primarily attributable to the Bank’s three de novo branches
which opened during fiscal 2007.  The growth in deposits at these
branches contributed significantly to the reported increase in deposit interest
expense.  However, the impact of such growth was partially offset by a
reduction in the Company’s overall cost of interest-bearing deposits which
decreased 22 basis points to 3.86% for the three months ended March 31, 2008
from 4.08% for the three months ended March 31, 2007.  The components
of this decrease include a 97 basis point reduction in the average cost of
interest-bearing checking accounts to 3.55% from 4.52%, a 39 basis point
reduction in the average cost of savings accounts to 2.29% from 2.68% and a 4
basis point reduction in the average cost of certificates of deposit to 4.69%
from 4.73%.  This decrease in the cost of interest-bearing deposits
was primarily attributable to two related factors.  First, the Company
continued to reduce the interest rates paid on deposits generated through the
three full service branches opened during the prior fiscal year on which
promotional interest rates had originally been paid.  Second,
reductions in market interest rates enabled the Company to reduce rates paid on
many interest-bearing deposit types across all branches.





Interest
expense on borrowings decreased $22,000 to $521,000 for the three months ended
March 31, 2008 from $543,000 for the three months ended March 31,
2007.  This decrease was due, in part, to a 43 basis point decrease in
the cost of borrowings to 4.62% for the three months ended March 31, 2008 from
5.05% for the three months ended March 31, 2007.  The impact of this
decrease in cost was partially offset by growth in the average balance of
borrowings which increased $2.1 million to $45.1 million for the three months
ended March 31, 2008 from $43.0 million for the three months ended March 31,
2007.  The changes in the average cost and average balance of
borrowings between the two comparative periods generally reflects the addition
of $50.0 million of comparatively lower costing borrowings relating to the
wholesale growth transaction noted earlier, partially offset by the repayment of
all maturing FHLB term advances since the close of the earlier comparative
period.





Net Interest
Income.  Net interest income increased by $148,000 or 4.8%, to
$3.2 million for the three months ended March 31, 2008 from $3.1 million for the
three months ended March 31, 2007.  The Company’s net interest spread
widened 26 basis points to 1.70% from 1.44% for the same comparative periods,
while the net interest margin decreased 3 basis points to 2.38% from
2.41%.  As noted earlier, the change in the Company’s net interest
margin was significantly impacted by the Company’s share repurchase
plans.  The average balance of Company’s treasury stock increased
$18.0 million to $36.7 million for the three months ended March 31, 2008 from
$18.7 million for the three months ended March 31, 2007. Based upon that growth
in the average balance of the Company’s treasury stock account and its average
yield on earning assets reported for the earlier comparative period, the Company
estimates that the net increase of $148,000 in net interest income was reduced
by approximately $254,000 attributable to interest earned during the earlier
comparative period on the earning assets that were subsequently utilized to fund
share repurchases.






24





Provision for Loan
Losses.Using the loan loss allowance methodology described
under Critical Accounting Policies found later in this discussion, the provision
for loan losses totaled $171,000 for the three months ended March 31, 2008,
representing a decrease of $22,000 from the three months ended March 31,
2007.  The expense for the quarter ended March 31, 2008 reflected a
provision of $34,000 attributable to one impaired construction loan, that
portion of which was deemed uncollectible by management during its asset quality
review conducted at March 31, 2008 and therefore charged off.  The
remaining balance of the impaired loan at March 31, 2008, after the charge off,
was approximately $146,000.  Excluding this adjustment, the provision
for loan losses for both comparative periods resulted from the application of
historical and environmental loss factors against the net growth in loans in
accordance with the Bank’s loan loss methodology.





In total,
the allowance for loan losses as a percentage of gross loans outstanding
increased to 0.61% at March 31, 2008 representing an increase of 5 basis points
from 0.56% at March 31, 2007.  These ratios reflect allowance for loan
loss balances of $2.8 million and $2.4 million, respectively.  The
overall increase in the ratio of allowance to gross loans reported continues to
reflect the changing composition of the portfolio with greater strategic
emphasis on loans with higher risk factors.  As noted earlier,
nonperforming loans decreased to 0.16% of total assets at March 31, 2008
compared with 0.25% at March 31, 2007.  The level of the allowance is
based on estimates and the ultimate losses may vary from those
estimates.





Noninterest
Income.  Noninterest income increased $83,000 to $438,000 for
the three months ended March 31, 2008 from $355,000 for the three months ended
March 31, 2007.  The growth in noninterest income was partly the
result of comparative increases in deposit service fees and charges of
$40,000.  Such increases were  attributable, in part, to
deposit service fees and charges at the Bank’s de novo branches opened during
fiscal 2007.  However, the reported increase was primarily due to
growth in deposit-related fees and charges within the Bank’s other
branches.  The Company also reported a $32,000 increase in other
noninterest income attributable primarily to increases in loan fees and charges
including, but not limited to, increases in prepayment penalties and late
charges.  The increase in noninterest income also reflected the
absence, in the current period, of an $11,000 loss of sale of investment
securities recorded during in the earlier comparative period.





Noninterest
Expense.  Noninterest expense increased $546,000 to $3.6
million for the three months ended March 31, 2008 from $3.0 million for the
three months ended March 31, 2007.  Significant components of this
growth in operating costs include comparative increases in salaries and employee
benefit expense of $287,000 and occupancy and equipment expense of $208,000 with
additional increases of $21,000 and $27,000 in data processing and legal
expenses, respectively.





The net
increase in salaries and employee benefits for the comparative periods was
largely the result of the death of a director emeritus of the Company, during
the quarter ended March 31, 2008. Under the terms of the Company’s restricted
stock and stock option plans, the vesting of the remaining unearned benefits
accruing to the former director through these plans was automatically
accelerated.  As such, the Company incurred an acceleration of the
remaining pre-tax expenses associated with these benefits totaling approximately
$254,000 during the quarter ended March 31, 2008 resulting in an increase in
such expenses of approximately $232,000 between the comparative
quarters.





The
remaining increase in compensation expense was attributable to several other
offsetting factors.  First, a portion of the growth in compensation
expense relates to the increase in staffing costs associated with the two
branches opened in the latter half of fiscal 2007.  However, such
increases have been partially offset by cost reductions associated with
previously enacted workforce reduction efforts which reduced the Company’s
number of full time equivalent employees by over eight percent during fiscal
2008.  As such, employee wages and salaries, including bonuses and
payroll taxes, increased by approximately $68,000 for the comparative
periods.  These same factors similarly effected employee benefits
costs which increased approximately $28,000.  However, the increase to
benefit costs also reflects the growing level of health care costs per
employee.  Additionally, expenses associated with the Bank’s
supplemental executive retirement program increased approximately $34,000 due
largely to updated assumptions used in benefit accrual
calculations.






25





Offsetting
these increases was a $58,000 net reduction in director compensation costs due
largely to the absence in the current period of the changes in retirement plan
benefit accrual assumptions that had increased the related expenses during the
earlier comparative period.  Additionally, ESOP expense decreased by
$18,000 due to the comparatively lower average price of the Company’s shares
during the more recent comparative period.





The costs
of the two additional branches opened in the latter half of fiscal 2007 was a
significant contributor to the reported net increase in occupancy and equipment
expense for the three months ended March 31, 2008.  However, the
reported increase also reflects the land lease costs to date associated with the
relocation of the Bank’s Bloomfield branch which opened in April
2008.  Additionally, the increase includes the costs associated with
outsourcing a significant portion of the Company’s information technology
infrastructure support services.  The reported increase resulted from
the Bank’s decision to consolidate the provision of a variety of information
technology administration support services under a single outsourced service
provider.  Such services had previously been rendered by a combination
of other outsourced and in-house resources.  This decision resulted in
the elimination of one managerial position within the Bank’s MIS department
during the fourth quarter of fiscal 2007.





The
reported increase in data processing charges was also partly attributable to the
associated costs of the two additional branches opened in the latter half of
fiscal 2007 including increases to both core processing and item processing
expenses.  However, the increase also included “one time” expenses
associated with converting the Bank’s official check processing to an in-house
system during the quarter and implementing additional commercial deposit
services on its core processing system.





Finally,
the reported increase in legal expense was attributable to several matters
including, but not limited to, services associated with expanded SEC disclosure
requirements regarding the Company’s annual meeting proxy material and
forthcoming revisions to benefit plan agreements as required by the Internal
Revenue Service.





Provision for Income
Taxes.  The provision for income taxes decreased $128,000 for
the three months ended March 31, 2008 compared with the three months ended March
31, 2007.  For the more recent period, the Company’s effective income
tax benefit rate was 86.3% compared with an effective income tax rate of 23.6%
for the earlier comparative period.  The tax benefit and expense in
the current and prior period, respectively, reflects the comparative levels of
pre-tax loss or income coupled with the level of “tax favored” income reported
by the Company during each period.   “Tax favored” income arises
from revenue sources on which the Company pays income taxes at a comparatively
lower effective tax rate than it generally pays on other sources of
income.





Specifically,
the Company’s  effective tax rate is influenced by the level of
interest income on investment securities held by the Bank's investment
subsidiary, American Savings Investment Corporation ("ASIC").  ASIC is
a wholly owned New Jersey investment subsidiary formed in August 2004 by
American Bank of New Jersey.  The purpose of this subsidiary is to
invest in stocks, bonds, notes and all types of equity, mortgages, debentures
and other investment securities.  Interest income from this subsidiary
is taxed by the state of New Jersey at an effective rate lower than the
statutory corporate state income tax rate.  Additionally, the Company
also recognizes tax exempt income from the cash surrender value of bank owned
life insurance.





The
Company recognized income from these two “tax favored” sources during both
comparative quarters.  However, the comparatively lower pretax net
income reported for the current quarter resulted in the items discussed above
having a proportionally greater net beneficial impact on the Company’s reported
effective tax rate in the current period.






26





Comparison
of Operating Results for the Six Months Ended March 31, 2008 and March 31,
2007





General.  The
Company recorded net income of $80,000 for the six months ended March 31, 2008,
a decrease of $399,000, or 83.3% from the six months ended March 31, 2007 when
the Company reported net income of $479,000.  The decrease in net
income resulted from increases in noninterest expense and provision for loan
losses partially offset by increases in net interest income and noninterest
income and a decrease in the provision for income taxes.





Interest
Income.  Total interest income increased 11.2% or $1.6 million
to $15.4 million for the six months ended March 31, 2008 from $13.9 million for
the six months ended March 31, 2007.  For those same comparative
periods, the average yield on interest-earning assets increased 17 basis points
to 5.73% from 5.56% while the average balance of interest-earning assets
increased $39.0 million to $538.0 million from $499.0 million.





Interest
income on loans increased $1.5 million or 12.7%, to $13.4 million for the six
months ended March 31, 2008 from $11.9 million for the six months ended March
31, 2007.  This increase was due, in part, to a $40.1 million increase
in the average balance of loans receivable, including loans held for sale, to
$449.5 million for the six months ended March 31, 2008 from $409.5 million for
the six months ended March 31, 2007.  The impact of the higher average
balance was augmented by an increase in the average yield on loans which
increased 15 basis points to 5.97% from 5.82% for those same comparative
periods.  The increase in the average balance and yield on loans
receivable was primarily attributable to the Company’s strategic emphasis on
commercial lending.





The rise
in interest income on loans was partially offset by lower interest income on
securities, which decreased $280,000 or 17.4% to $1.3 million for the six months
ended March 31, 2008 from $1.6 million for the six months ended March 31,
2007.  The decrease was due, in part, to a $19.3 million decline in
the average balance of investment securities, excluding the available for sale
mark to market adjustment, to $59.1 million for the six months ended March 31,
2008 from $78.4 million for the six months ended March 31, 2007.  The
impact on interest income attributable to this decrease was partially offset by
a 40 basis point increase in the average yield on securities which grew to 4.50%
from 4.10% for the same comparative periods.  The increase in yield
primarily resulted from the maturity and repayment of lower yielding investment
securities coupled with higher yields on newly purchased securities and existing
adjustable rate securities in the portfolio.  Such adjustable rate
securities had repriced upward in accordance with the general movement of market
interest rates during the prior fiscal year but are expected to reprice downward
in the coming months to reflect the reduction in market interest rates during
the current year.  The $50.0 million wholesale growth transaction
noted earlier, which was completed in March 2008, had a nominal effect on the
average balance, average yield and interest income of investment securities for
the six months ended March 31, 2008.





Further,
interest and dividend income on federal funds sold, other interest-bearing
deposits and FHLB stock increased $320,000 to $673,000 for six months ended
March 31, 2008 from $353,000 for the six months ended March 31,
2007.  This increase in income was due primarily to a $18.3 million
increase in the average balance of these assets to $29.4 million for the six
months ended March 31, 2008 from $11.1 million for the six months ended March
31, 2007.  The impact of the increase in the average balance was
partially offset by a decline in the average yield of these assets which
decreased 180 basis points to 4.57% from 6.37% for the same comparative
periods.  The average balances reported and used for yield
calculations reflect, where appropriate, the reduction for outstanding checks
issued against such accounts.  This has the effect of increasing the
reported yield on such assets.






27





Interest
Expense.  Total interest expense increased by $1.5 million or
19.3% to $9.1 million for the six months ended March 31, 2008 from $7.6 million
for the six months ended March 31, 2007.  For those same comparative
periods, the average cost of interest-bearing liabilities increased 6 basis
points from 4.07% to 4.13%, while the average balance of interest-bearing
liabilities increased $65.8 million or 17.5% to $441.3 million for the six
months ended March 31, 2008 from $375.6 million for the six months ended March
31, 2007.





Interest
expense on deposits increased $1.7 million or 26.4% to $8.1 million for the six
months ended March 31, 2008 from $6.4 million for the six months ended March 31,
2007.  This increase was due largely to growth in the average balance
of interest-bearing deposits which grew $72.9 million to $400.0 million for the
six months ended March 31, 2008 from $327.1 million for the six months ended
March 31, 2007.  The reported net growth in average interest-bearing
deposits comprised $53.9 million and $32.3 million of growth in the average
balance of interest-bearing checking accounts and certificates of deposit,
respectively.  Offsetting this growth was a net decline in the average
balance of savings accounts totaling $13.2 million primarily reflecting the
disintermediation of such deposits into higher yielding time
deposits.





The
overall growth in the average balance of interest-bearing deposits for the more
recent period was primarily attributable to the Bank’s three de novo branches
which opened during fiscal 2007.  The growth in deposits at these
branches contributed significantly to the reported increase in deposit interest
expense.





As noted
in the earlier discussion of the comparative three month periods ended March 31,
2008 and 2007, the Company’s cost of interest-bearing deposits began to decrease
across all categories during the latter half of the six months ended March 31,
2008.  Notwithstanding, the comparative six month periods continue to
reflect higher interest-bearing deposit costs for the more recent
period.  Specifically, the Company’s overall cost of interest-bearing
deposits increased 13 basis points to 4.05% for the six months ended March 31,
2008 from 3.92% for the six months ended March 31, 2007.  The
components of this increase include a 16 basis point increase in the average
cost of certificates of deposit to 4.80% from 4.64%.  Partially
offsetting this increase in certificate interest cost was a 5 basis point
reduction in the average cost of interest-bearing checking accounts to 4.00%
from 4.05% and a 22 basis point reduction in the average cost of savings
accounts to 2.46% from 2.68%.





The
higher overall interest-bearing deposit costs of the more recent six month
period continue to reflect the remaining effect of higher promotional interest
rates originally paid on the deposits generated through the branches opened
during fiscal 2007 coupled with the general upward pressure on deposit interest
rates that was prevalent in the markets serviced by the Bank prior to the recent
reductions in market interest rates.





Interest
expense on borrowings decreased $220,000 to $1.0 million for the six months
ended March 31, 2008 from $1.2 million for the six months ended March 31,
2007.  This decrease was due, in part, to an 18 basis point decrease
in the cost of borrowings to 4.91% for six months ended March 31, 2008 from
5.09% for the six months ended March 31, 2007.  The decrease in
interest expense also reflects the lower average balance of borrowings which
decreased $7.2 million to $41.3 million for the six months ended March 31, 2008
from $48.5 million for the six months ended March 31, 2007.  The
changes in the average cost and average balance of borrowings between the two
comparative periods primarily reflects the repayment of all maturing FHLB term
advances since the close of the earlier comparative period.  The $50.0
million wholesale growth transaction noted earlier, which was completed in March
2008, had a nominal effect on the average balance, average cost and interest
expense of borrowings for the six months ended March 31, 2008.






28





Net Interest
Income.  Net interest income increased by $82,000 or 1.3%, to
$6.3 million for the six months ended March 31, 2008 from $6.2 million for the
six months ended March 31, 2007.  The Company’s net interest spread
widened 11 basis points to 1.60% from 1.49% for the same comparative periods,
while the net interest margin decreased 16 basis points to 2.34% from
2.50%.  As noted earlier, the change in the Company’s net interest
margin was significantly impacted by the Company’s share repurchase
plans.  The average balance of Company’s treasury stock increased
$20.2 million to $34.3 million for the six months ended March 31, 2008 from
$14.1 million for the six months ended March 31, 2007. Based upon that growth in
the average balance of the Company’s treasury stock account and its average
yield on earning assets reported for the earlier comparative period, the Company
estimates that the net increase of $82,000 in net interest income was reduced by
approximately $562,000 attributable to interest earned during the earlier
comparative period on the earning assets that were subsequently utilized to fund
share repurchases.





Provision for Loan
Losses.Using the loan loss allowance methodology described
under Critical Accounting Policies found later in this discussion, the provision
for loan losses totaled $309,000 for the six months ended March 31, 2008,
representing an increase of $66,000 from the six months ended March 31,
2007.  The expense in the current six month period reflected a
provision of $34,000 attributable to one impaired construction loan, that
portion of which was deemed uncollectible by management during its asset quality
review conducted at March 31, 2008 and therefore charged off.  By
contrast, the expense in the earlier comparative period reflected a reversal of
an $86,000 impairment reserve that was no longer required.  Excluding
these adjustments, the provision for loan losses for both comparative periods
resulted from the application of historical and environmental loss factors
against the net growth in loans in accordance with the Bank’s loan loss
methodology.





In total,
the allowance for loan losses as a percentage of gross loans outstanding
increased to 0.61% at March 31, 2008 representing an increase of 5 basis points
from 0.56% at March 31, 2007.  These ratios reflect allowance for loan
loss balances of $2.8 million and $2.4 million, respectively.  The
overall increase in the ratio of allowance to gross loans reported continues to
reflect the changing composition of the portfolio with greater strategic
emphasis on loans with higher risk factors.  As noted earlier,
nonperforming loans decreased to 0.16% of total assets at March 31, 2008
compared with 0.25% at March 31, 2007.  The level of the allowance is
based on estimates and the ultimate losses may vary from those
estimates.





Noninterest
Income.  Noninterest income increased $190,000 to $833,000 for
the six months ended March 31, 2008 from $643,000 for the six months ended March
31, 2007.  The growth in noninterest income was partly the result of
comparative increases in deposit service fees and charges of
$107,000.  Such increases were  attributable, in part, to
deposit service fees and charges at the Bank’s de novo branches opened during
fiscal 2007.  However, the reported increase was primarily due to
growth in deposit-related fees and charges within the Bank’s other
branches.  The Company also reported a $56,000 increase in income from
the cash surrender value of life insurance attributable to a combination of
higher average balances and improved yields on those assets.  Finally,
other noninterest income increased $24,000 resulting from comparatively higher
loan-related fees and charges including, but not limited to, increases in late
charges and prepayment penalties.





Noninterest
Expense.  Noninterest expense increased $931,000 to $6.8
million for the six months ended March 31, 2008 from $5.9 million for the six
months ended March 31, 2008.  Significant components of this growth in
operating costs include comparative increases in salaries and employee benefit
expense of $464,000 and occupancy and equipment expense of $446,000 with
additional increases of $26,000 and $37,000 in data processing and legal
expenses, respectively.  These increases were partially offset by a
reduction in advertising and marketing expense of $34,000.






29





The net
increase in salaries and employee benefits for the comparative periods was
significantly impacted by of the death of a director emeritus of the Company,
during the quarter ended March 31, 2008. Under the terms of the Company’s
restricted stock and stock option plans, the vesting of the remaining unearned
benefits accruing to the former director through these plans was automatically
accelerated.  As such, the Company incurred an acceleration of the
remaining pre-tax expenses associated with these benefits totaling approximately
$254,000 during the quarter ended March 31, 2008 resulting in an increase in
such expenses of approximately $232,000 between comparative six month
periods.





The
remaining increase in compensation expense was attributable to several other
offsetting factors.  First, a portion of the growth in compensation
expense relates to the increase in staffing costs associated with the two
branches opened in the latter half of fiscal 2007.  However, such
increases have been partially offset by cost reductions associated with
previously enacted workforce reduction efforts which reduced the Company’s
number of full time equivalent employees by over eight percent during fiscal
2008.  As such, employee wages and salaries, including bonuses and
payroll taxes, increased by approximately $226,000 for the comparative
periods.  These same factors similarly effected employee benefits
costs which increased approximately $44,000.  However, the increase to
benefit costs also reflects the growing level of health care costs per
employee.  Additionally, expenses associated with the Bank’s
supplemental executive retirement program increased approximately $75,000 due
largely to updated assumptions used in benefit accrual
calculations.





Offsetting
these increases was a $65,000 net reduction in director compensation costs due
largely to the absence in the current period of the changes in retirement plan
benefit accrual assumptions that had increased the related expenses during the
earlier comparative period.  Additionally, ESOP expense decreased by
$39,000 due to the comparatively lower average price of the Company’s shares
during the more recent comparative period.





The costs
of the two additional branches opened in the latter half of fiscal 2007 was a
significant contributor to the reported net increase in occupancy and equipment
expense for the six months ended March 31, 2008.  However, the
reported increase also reflects the land lease costs to date associated with the
relocation of Bank’s Bloomfield branch which opened in April
2008.  Additionally, the increase includes the costs associated with
outsourcing a significant portion of the Company’s information technology
infrastructure support services.  The reported increase resulted from
the Bank’s decision to consolidate the provision of a variety of information
technology administration support services under a single outsourced service
provider.  Such services had previously been rendered by a combination
of other outsourced and in-house resources.  This decision resulted in
the elimination of one managerial position within the Bank’s MIS department
during the fourth quarter of fiscal 2007.





The
reported increase in data processing charges was also partly attributable to the
associated costs of the two additional branches opened in the latter half of
fiscal 2007 including increases to both core processing and item processing
expenses.  However, the increase also included “one time” expenses
associated with converting the Bank’s official check processing to an in-house
system during the quarter and implementing additional commercial deposit
services on its core processing system.





Finally,
the reported increase in legal expense was attributable to several matters
including, but not limited to, services associated with expanded SEC disclosure
requirements regarding the Company’s annual meeting proxy material, forthcoming
revisions to benefit plan agreements as required by the Internal Revenue Service
and various other human resource-related matters.





Provision for Income
Taxes.  The provision for income taxes decreased $327,000 for
the six months ended March 31, 2008 compared with the six months ended March 31,
2007.  For the more recent period, the Company’s effective income tax
benefit rate was 715.4% compared with an effective income tax rate of 32.8% for
the earlier comparative period.  The tax benefit and expense in the
current and prior period, respectively, reflects the comparative levels of
pre-tax loss or income coupled with the level of “tax favored” income reported
by the Company during each period.  “Tax favored” income arises from
revenue sources on which the Company pays income taxes at a comparatively lower
effective tax rate than it generally pays on other sources of
income.






30





Specifically,
the Company’s  effective tax rate is influenced by the level of
interest income on investment securities held by the Bank's investment
subsidiary, American Savings Investment Corporation ("ASIC").  ASIC is
a wholly owned New Jersey investment subsidiary formed in August 2004 by
American Bank of New Jersey.  The purpose of this subsidiary is to
invest in stocks, bonds, notes and all types of equity, mortgages, debentures
and other investment securities.  Interest income from this subsidiary
is taxed by the state of New Jersey at an effective rate lower than the
statutory corporate state income tax rate.  Additionally, the Company
also recognizes tax exempt income from the cash surrender value of bank owned
life insurance.





The
Company recognized income from these two “tax favored” sources during both
comparative periods.  However, the comparatively lower pretax net
income reported for current six month period resulted in the items discussed
above having a proportionally greater net beneficial impact on the Company’s
reported effective tax rate in the current period.





Critical
Accounting Policies





Various elements of our accounting
policies, by their nature, are inherently subject to estimation techniques,
valuation assumptions and other subjective assessments.  The following
is a description of our critical accounting policy and an explanation of the
methods and assumptions underlying its application.





Allowance for Loan
Losses.  Our policy with respect to the methodologies used to
determine the allowance for loan losses is our most critical accounting
policy.  This policy is important to the presentation of our financial
condition and results of operations, and it involves a higher degree of
complexity and requires management to make difficult and subjective judgments,
which often require assumptions or estimates about highly uncertain
matters.  The use of different judgments, assumptions, and estimates
could result in material differences in our results of operations or financial
condition.





In evaluating the level of the
allowance for loan losses, management considers the Company's historical loss
experience as well as various "environmental factors" including the types of
loans and the amount of loans in the loan portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any underlying
collateral, industry condition information, and prevailing economic
conditions.  Large groups of smaller balance homogeneous loans, such
as residential real estate and home equity and consumer loans, are evaluated in
the aggregate using historical loss factors adjusted for current economic
conditions.  Large balance and/or more complex loans, such as
multi-family, nonresidential real estate and construction loans, are evaluated
individually for impairment.  This evaluation is inherently
subjective, as it requires estimates that are susceptible to significant
revision, as more information becomes available or as projected events
change.





Management assesses the allowance for
loan losses quarterly.  While management uses available information to
recognize losses on loans, future loan loss provisions may be necessary based on
changes in economic conditions.  In addition, regulatory agencies, as
an integral part of their examination process, periodically review the allowance
for loan losses and may require the Bank to recognize additional provisions
based on their judgment of information available to them at the time of their
examination.  The allowance for loan losses in the periods presented
was maintained at a level that represented management's best estimate of losses
in the loan portfolio to the extent they were both probable and reasonable to
estimate.





Application
of the Bank's loan loss methodology outlined above results, in part, in
historical and environmental loss factors being applied to the outstanding
balance of homogeneous groups of loans to estimate probable credit
losses.  Both historical and environmental loss factors are reviewed
and updated quarterly, where appropriate, as part of management's assessment of
the allowance for loan losses.  No significant changes to loss factors
used in the Bank’s loss provision calculations were made during the six months
ended March 31, 2008.






31





Management
generally expects provisions for loan losses to continue to increase as a result
of the net growth in loans called for in the Company's business
plan.  Specifically, our business strategy calls for increased
strategic emphasis in commercial lending.  The loss factors used in
the Bank's allowance for loan loss calculations are generally higher for such
loans compared with those applied to one-to-four family mortgage
loans.  Consequently, management expects the net growth in commercial
loans called for in the Company’s strategic business plan to result in required
loss provisions that exceed those recorded in prior years when comparatively
greater strategic emphasis had been placed on growth in 1-4 family mortgage
loans.





Liquidity
and Commitments





We are
required to have enough investments that qualify as liquid assets in order to
maintain sufficient liquidity to ensure a safe and sound
operation.  Liquidity may increase or decrease depending upon the
availability of funds and comparative yields on investments in relation to the
return on loans.  Historically, we have maintained liquid assets above
levels believed to be adequate to meet the requirements of normal operations,
including potential deposit outflows.  Cash flow projections are
regularly reviewed and updated to assure that adequate liquidity is
maintained.





The
Bank's short term liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities.  The
Bank's primary sources of funds are deposits, amortization, prepayments and
maturities of outstanding loans and mortgage-backed securities, maturities of
investment securities and other short-term investments and funds provided from
operations.  While scheduled payments from the amortization of loans
and mortgage-backed securities and maturing investment securities and short-term
investments are relatively predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by the level of market interest rates,
economic conditions, and competition.  In addition, the Bank invests
excess funds in short-term interest-earning assets, which provide liquidity to
meet lending requirements.  The Bank also generates cash through
borrowings.  The Bank utilizes Federal Home Loan Bank advances and
reverse repurchase agreements to leverage its capital base by providing funds
for its lending and investing activities, to enhance its earnings and to assist
in the management of interest rate risk.





Liquidity
management is both a daily and long-term function of business
management.  Excess liquidity is generally invested in short-term
investments such as overnight deposits or U.S. Agency securities.  On
a longer-term basis, the Bank maintains a strategy of investing in various loan
products and in securities collateralized by loans.  The Bank uses its
sources of funds primarily to meet its ongoing commitments, to pay maturing
certificates of deposit and savings withdrawals, to fund loan commitments and to
maintain its portfolio of mortgage-backed securities and investment
securities.  At March 31, 2008, the total approved loan origination
commitments outstanding amounted to $25.4 million.  At the same date,
unused lines of credit were $28.4 million and undisbursed loans in process were
$23.3 million.





Certificates
of deposit scheduled to mature in one year or less at March 31, 2008, totaled
$194.8 million.  Notwithstanding promotional deposit pricing
strategies relating to the Bank’s de novo branches, management's general policy
is to maintain deposit rates at levels that are competitive with other local
financial institutions.  Based on the competitive rates and on
historical experience, management believes that a significant portion of
maturing certificates of deposit will remain with the
Bank.  Additionally, at March 31, 2008 the Bank had $19.1 million of
borrowings maturing in less than one year, all of which were advances from the
FHLB.  Repayment of FHLB advances increases the Bank's unused
borrowing capacity from that source which totaled $104.5 million at March 31,
2008.  In calculating our borrowing capacity, the Bank utilizes the
FHLB's guideline, which generally limits advances secured by residential
mortgage collateral to 25% of the Bank's total assets.






32





The
following tables disclose our contractual obligations and commercial commitments
as of March 31, 2008.  Scheduled principal payments on amortizing
borrowings are reported as maturities.





Total
            
            
            Less
      Than
              1 Year
            
            
            1-3 Years
            
            
            4-5 Years
            
            
            After
              5 Years(In
      thousands)Time
      Deposits
            
            $
            216,597
            
            
            $
            194,802
            
            
            $
            8,383
            
            
            $
            3,668
            
            
            $
            9,744Borrowings(1)
            
            
            86,580
            
            
            
            19,067
            
            
            
            23,513
            
            
            
            9,000
            
            
            
            35,000Total
            
            $
            303,177
            
            
            $
            213,869
            
            
            $
            31,896
            
            
            $
            12,668
            
            
            $
            44,744




(1)
            At
      March 31, 2008, borrowings include FHLB advances of $51.6 million and
      reverse repurchase agreements of $35.0 million.  The total
      collateralized borrowing limit at the FHLB was $156.1 million at March 31,
      2008 of which the $51.6 million of advances were
    outstanding.











Total
              Amounts
              Committed
            
            
            Less
      Than
              1 Year
            
            
            1-3 Years
            
            
            4-5 Years
            
            
            Over
              5 Years(In
      thousands)Lines
      of credit(1)
            
            $
            28,399
            
            
            $
            1,573
            
            
            $
            1,554
            
            
            $
            477
            
            
            $
            24,795Land
      lease - Bloomfield
            
            
            2,307
            
            
            
            86
            
            
            
            277
            
            
            
            284
            
            
            
            1,660Building
      lease - Nutley
            
            
            1,454
            
            
            
            84
            
            
            
            184
            
            
            
            187
            
            
            
            999Loans
      in  process(1)
            
            
            23,345
            
            
            
            17,149
            
            
            
            6,196
            
            
            
            -
            
            
            
            -Other
      commitments to
              extend
      credit(1)
            
            
            25,374
            
            
            
            25,374
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            $
            80,879
            
            
            $
            44,266
            
            
            $
            8,211
            
            
            $
            948
            
            
            $
            27,454





(1)
            Represents
      amounts committed to customers.





In
addition to the commitment included in the table above, the Bank has one
outstanding standby letter of credit totaling $160,714.  The standby
letter of credit, which represents a contingent liability to the Bank, expires
in May 2008.





33


Regulatory
Capital





Consistent
with its goals to operate a sound and profitable financial organization,
American Bank of New Jersey actively seeks to maintain its classification as a
"well capitalized" institution in accordance with regulatory
standards.  The Bank's total equity was $78.8 million at March 31,
2008, or 12.62% of total assets on that date.   As of March 31,
2008, the Bank exceeded all capital requirements of the Office of Thrift
Supervision.  The Bank's regulatory capital ratios at March 31, 2008
were as follows: Core capital, 12.59%; Tier I risk-based capital, 20.24%; and
total risk-based capital, 20.98%.  The regulatory capital requirements
to be considered well capitalized are 5.0%, 6.0% and 10.0%,
respectively.





Impact
of Inflation





The
consolidated financial statements presented herein have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  These principles require the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation.





Our
primary assets and liabilities are monetary in nature.  As a result,
interest rates have a more significant impact on our performance than the
effects of general levels of inflation.  Interest rates, however, do
not necessarily move in the same direction or with the same magnitude as the
price of goods and services, since such prices are affected by
inflation.  In a period of rapidly rising interest rates, the
liquidity and maturity structure of our assets and liabilities are critical to
the maintenance of acceptable performance levels.





The
principal effect of inflation, as distinct from levels of interest rates, on
earnings is in the area of noninterest expense.  Such expense items as
employee compensation, employee benefits and occupancy and equipment costs may
be subject to increases as a result of inflation.  An additional
effect of inflation is the possible increase in the dollar value of the
collateral securing loans that we have made.  We are unable to
determine the extent, if any, to which properties securing our loans have
appreciated in dollar value due to inflation.





Recent
Accounting Pronouncements





See Note
4 - Recent Accounting Pronouncements within the Notes to Unaudited Financial
Statements included in this report.














34


ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Qualitative
Analysis.  Because the income on the majority of our assets and
the cost of the majority of our liabilities are sensitive to changes in interest
rates, a significant form of market risk for us is interest rate
risk.  Changes in interest rates may have a significant, adverse
impact on our net interest income.





Our ability to make a profit largely
depends on our net interest income, which could be negatively affected by
changes in interest rates.  Net interest income is the difference
between:





•
            The
      interest income we earn on our interest-earning assets such as loans and
      securities; and





•
            The
      interest expense we pay on our interest-bearing liabilities such as
      deposits and amounts we borrow.





The rates we earn on our assets and the
rates we pay on our liabilities are generally fixed for a contractual period of
time.  We, like many savings institutions, have liabilities that
generally have shorter contractual maturities than our assets.  This
imbalance can create significant earnings volatility, because market interest
rates change over time.  In a period of rising interest rates, the
interest income earned on our assets may not increase as rapidly as the interest
paid on our liabilities.  In a period of declining interest rates the
interest income earned on our assets may decrease more rapidly, due to
accelerated prepayments, than the interest paid on our liabilities.





The prepayment characteristics of our
loans and mortgage-backed and related securities are greatly influenced by
movements in market interest rates.  For example, a reduction in
interest rates results in increased prepayments of loans and mortgage-backed and
related securities, as borrowers refinance their debt in order to reduce their
borrowing cost.  This causes reinvestment risk, because we are
generally not able to reinvest prepayment proceeds at rates that are comparable
to the rates we previously earned on the prepaid loans or
securities.  By contrast, increases in interest rates reduce the
incentive for borrowers to refinance their debt.  In such cases,
prepayments on loans and mortgage-backed and related securities may decrease
thereby extending the average lives of such assets and reducing the cash flows
that are available to be reinvested by the Company at higher interest
rates.





Tables presenting the composition and
allocation of the Company's interest-earning assets and interest-costing
liabilities from an interest rate risk perspective are set forth in the
preceding section of this report titled "Comparison of Financial Condition at
March 31, 2008 and September 30, 2007."  These tables present the
Company's investment securities, loans, deposits, and borrowings by categories
that reflect certain characteristics of the underlying assets or liabilities
that impact the Company’s interest rate risk.  Shown as a percentage
of total assets, the comparative data presents changes in the composition and
allocation of those interest-earning assets and interest-costing liabilities
that have influenced the level of interest rate risk embedded within the
Company's balance sheet.





Our net
interest margin may be adversely affected throughout several possible interest
rate environments.  For example, during fiscal 2007, the continued
inversion of the yield curve, by which shorter term market interest rates exceed
those of longer term rates, triggered further increases in the Bank's cost of
interest-bearing liabilities that outpaced our increase in yield on earning
assets causing further net interest spread compression.  Such
compression resulted in a 0.36% reduction in our net interest spread to 1.44%
for fiscal 2007 from 1.80% for the fiscal year ended September 30,
2006.






35





As noted
in the Executive Summary discussion earlier, that trend was reversed during
fiscal 2008 when the Company’s net interest spread increased 16 basis points to
1.60% in comparison to 1.44% for fiscal 2007 as the Company increased its yield
on earning assets while decreasing its cost of interest-bearing
liabilities.  In large part, the improvements in net interest spread
for the six months ended March 31, 2008 resulted from continued increases in the
yield on loans, attributable primarily to the Company’s commercial lending
strategies, which were complemented by a decrease in the cost of retail
deposits.  The reduction in retail deposit interest costs reflects the
overall reduction in market interest rates coupled with the continued downward
adjustment of interest rates paid on deposits acquired through the de novo
branches opened during fiscal 2007 on which the Company originally paid higher,
promotional interest rates.





Notwithstanding the reported
improvement in the net interest spread reported for the first six months of
fiscal 2008, our earnings may be impacted by an "earnings squeeze" in the future
resulting from further movements in market interest rates.  For
example, we are vulnerable to an increase in interest rates because the majority
of our loan portfolio consists of longer-term, fixed rate loans and adjustable
rate mortgages, most of which are fixed rate for an initial period of
time.  At March 31, 2008, excluding allowance for loan losses and net
deferred origination costs and including loans held for sale, loans totaled
$461.5 million comprising 73.91% of total assets.  As presented in the
loan-related tables in the preceding section of this report titled "Comparison
of Financial Condition at March 31, 2008 and September 30, 2007", loans reported
as fixed rate mortgages totaled $189.7 million or 30.4% of total assets while
ARMs totaled $201.4 million or 32.2% of total assets. In a rising rate
environment, our cost of funds may increase more rapidly than the interest
earned on our loan portfolio and investment securities portfolio because our
primary source of funds is deposits with substantially greater repricing
sensitivity than that of our loans and investment securities.  Having
interest-bearing liabilities that reprice more frequently than interest-earning
assets is detrimental during periods of rising interest rates and could cause
our net interest spread to shrink because the increase in the rates we would
earn on our securities and loan portfolios would be less than the increase in
the rates we would pay on deposits and borrowings.





Notwithstanding
the risks presented by the flat to inverted yield curve that was prevalent
during fiscal 2007, or those resulting from increases to short term interest
rates, a significant decrease in market interest rates could, by contrast,
trigger a new wave of loan refinancing that could result in the margin
compression experienced in prior years when rates fell to their historical
lows.





The Bank
also faces the risk of continued disintermediation of our deposits into higher
cost accounts as well as the risk of some amount of additional deposit
outflows.  Specifically, we were successful in growing non-maturity
deposits during fiscal 2007 due, in part, to higher promotional interest rates
paid at the Bank’s three newest branches.  Our ability to retain these
deposits as rates on such accounts are incrementally adjusted to
“non-promotional” levels continues to be rigorously tested.  As
evidenced through the first six months of fiscal 2008, a portion of recently
acquired deposits may be subject to further disintermediation into higher
yielding deposit accounts, such as certificates of deposit, while the most
“price sensitive” of those deposits may be withdrawn.  A portion of
the Bank’s balance of short term liquid assets is attributable to managing the
contingency of that latter risk.








36


Quantitative Aspects of Market
Risk.  The following table presents American Bank of New
Jersey's net portfolio value as of December 31, 2007 – the latest date for which
information is available.  The net portfolio value was calculated by
the Office of Thrift Supervision, based on information provided by the
Bank.





Net Portfolio Value
            
            
            Net
      Portfolio
              Value
      as % of
              Present Value of Assets
            
            
            Board
              Established LimitsChanges
      in
              Rates
            
            
            $
      Amount
            
            
            $
      Change
            
            
            %
      Change
            
            
            Net
              Portfolio
              Value
              Ratio
            
            
            Basis
              Point
              Change
            
            
            Net
              Portfolio
              Value
              Ratio
            
            
            Basis
              Point
              Change(Dollars
      in thousands)+300
            bp
            
            
            68,387
            
            
            
            -22,071
            
            
            
            -24
            %
            
            
            12.28
            %
            
            
            -314
            bp
            
            
            5.00
            %
            
            
            -450
            bp+200
            bp
            
            
            76,350
            
            
            
            -14,107
            
            
            
            -16
            %
            
            
            13.46
            %
            
            
            -196
            bp
            
            
            6.00
            %
            
            
            -300
            bp+100
            bp
            
            
            84,111
            
            
            
            -6,346
            
            
            
            -7
            %
            
            
            14.56
            %
            
            
            -85
            bp
            
            
            7.00
            %
            
            
            -150
            bp0
            bp
            
            
            90,457
            
            
            
            
            
            
            
            
            
            
            
            15.42
            %
            
            
            
            
            
            
            8.00
            %-100
            bp
            
            
            93,816
            
            
            
            3,359
            
            
            
            +4
            %
            
            
            15.81
            %
            
            
            +40
            bp
            
            
            7.00
            %
            
            
            -150
            bp-200
            bp
            
            
            94,904
            
            
            
            4,447
            
            
            
            +5
            %
            
            
            15.88
            %
            
            
            +46
            bp
            
            
            6.00
            %
            
            
            -300
            bp








Future interest rates or their effect
on net portfolio value or net interest income are not
predictable.  Computations of prospective effects of hypothetical
interest rate changes are based on numerous assumptions, including relative
levels of market interest rates, prepayments, and deposit run-offs, and should
not be relied upon as indicative of actual results.  Certain
shortcomings are inherent in this type of computation.  Although
certain assets and liabilities may have similar maturity or periods of
repricing, they may react at different times and in different degrees to changes
in the market interest rates.  The interest rate on certain types of
assets and liabilities such as demand deposits and savings accounts, may
fluctuate in advance of changes in market interest rates, while rates on other
types of assets and liabilities may lag behind changes in market interest
rates.  Certain assets such as adjustable rate mortgages generally
have features, which restrict changes in interest rates on a short-term basis
and over the life of the asset.  In the event of a change in interest
rates, prepayments and early withdrawal levels could deviate significantly from
those assumed in making calculations set forth above.  Additionally,
an increased credit risk may result as the ability of many borrowers to service
their debt may decrease in the event of an interest rate increase.





Strategies for the Management of
Interest Rate Risk and Market Risk.  The Board of Directors has
established an Asset/Liability Management Committee which is responsible for
monitoring interest rate risk.  The committee comprises the Bank's
Chief Executive Officer, the Bank's President and Chief Operating Officer, the
Bank's Senior Vice President and Chief Financial Officer, the Bank's Senior Vice
President and Chief Lending Officer, the Bank's Senior Vice President Commercial
Real Estate, the Bank’s VP Branch Administration and the Bank's Vice President
and Controller.  Management conducts regular, informal meetings,
generally on a weekly basis, to address the day-to-day management of the assets
and liabilities of the Bank, including review of the Bank's short term liquidity
position; loan and deposit pricing and production volumes and alternative
funding sources; current investments; average lives, durations and repricing
frequencies of loans and securities; and a variety of other asset and liability
management topics.  The committee generally meets quarterly to
formally review such matters.  The results of the committee's
quarterly review are reported to the full Board, which makes adjustments to the
Bank's interest rate risk policy and strategies, as it considers necessary and
appropriate.






37






The
qualitative and quantitative interest rate analysis presented above indicate
that various foreseeable movements in market interest rates may have an adverse
effect on our net interest margin and earnings.  The growth and
diversification strategies outlined in the Company’s current business plan are
designed not only to enhance earnings, but also to better support the resiliency
of those earnings throughout various movements in interest
rates.  Toward that end, implementation of the Company’s business plan
over time is expected to result in a better matching of the repricing
characteristics of its interest-earning assets and interest-bearing
liabilities.  Specific business plan strategies to achieve this
objective include:





(1)           Open
up to three de novo branches over the next five years with an emphasis on growth
in non-maturity deposits;





(2)           Attract
and retain lower cost business transaction accounts by expanding and enhancing
business deposit services including online cash management and remote deposit
capture services;





(3)           Attract
and retain lower cost personal checking and savings accounts through expanded
and enhanced cross selling efforts;





(4)           Originate
and retain commercial loans with terms that increase overall loan portfolio
repricing frequency and cash flows while reducing call risk through prepayment
compensation provisions;





(5)           Originate
and retain 1-4 family home equity loans and variable rate lines of credit to
increase loan portfolio repricing frequency and cash flows;





(6)           Originate
both fixed and adjustable rate 1-4 family first mortgage loans eligible for sale
in the secondary market and, if warranted, sell such loans on either a servicing
retained or servicing released basis.  The strategy reduces the
balance of longer duration and/or non-prepayment protected loans while enhancing
non interest income.





At March
31, 2008, the Bank did not have any outstanding contracts to sell mortgage loans
into the secondary market.  In general, the Bank intends to
discontinue the sale of most 1-4 family mortgage loan originations for a period
of time to augment the growth in commercial loans through which the Bank will
reinvest a portion of the balances of cash and cash equivalents accumulated
during fiscal 2007.  As discussed in the preceding section titled
“Comparison of Financial Condition at March 31, 2008 and September 30, 2007”,
such balances resulted from significant growth in deposits acquired through the
Bank’s de novo branches opened during the prior fiscal year.  The Bank
continues to offer a limited Alt-A program through which it originates and sells
all such loans to FNMA under its Expanded Approval program on a non-recourse,
servicing retained basis.  The Bank will carefully monitor the
earnings, liquidity, and balance sheet allocation impact of these strategies and
make interim adjustments, as necessary, to support achievement of the Company’s
business plan goals and objectives.





In
addition to the strategies noted above, we may utilize other strategies aimed at
improving the matching of interest-earning asset maturities to interest-bearing
liability maturities.  Such strategies may include:





(1)           Purchase
short to intermediate term securities and maintain a securities portfolio that
provides a stable cash flow, thereby providing investable funds in varying
interest rate cycles;





(2)           Lengthen
the maturities of our liabilities through utilization of FHLB advances and other
wholesale funding alternatives.






38





The Bank
will also selectively consider certain strategies to enhance net interest income
as opportunities arise to do so in a manner that supports the goals and
objectives of the Company’s business plan.  Notwithstanding the
discussion above, the implementation of these strategies may result in an
acceptable and manageable increase to the level of interest rate risk within the
balance sheet.  Such an opportunity arose during the second quarter of
fiscal 2008 when the Company completed a wholesale growth transaction through
which the Company purchased approximately $50.0 million of mortgage-related
investment securities funded by an equivalent amount of
borrowings.  Through this transaction, the Company took advantage of
the opportunity presented by recent turmoil in the mortgage securities markets
to acquire agency, AAA-rated mortgage-related securities at historically wide
interest rate spreads in relation to the cost of wholesale funding
sources.





The
ongoing net interest income resulting from this transaction is intended to
augment the Company’s earnings as it continues to incur the near term costs
associated with executing its business plan.  However, the
characteristics of the specific investment securities and borrowings underlying
the transaction have added a measurable and manageable degree of interest rate
risk to the Company’s balance sheet.  This additional risk primarily
arises from the potential “mismatch” between the repricing of investment
security cash flows and that of the related borrowings.  For example,
mortgage-related security cash flows are largely determined by market interest
rates and their effect on loan prepayments.   Similarly, market
interest rates will largely determine the likelihood that certain borrowings
underlying the transaction may require full repayment at par prior to maturity –
an option granted to the reverse repurchase agreement counterparty in a portion
of the borrowings utilized in the transaction.





The
Company carefully evaluated the impact of the transaction on the Company’s
overall interest rate risk profile from both an earnings and net portfolio value
perspective.  Through this evaluation, the Company confirmed that
movements in market interest rates may significantly impact the relative market
value of the financial instruments underlying this transaction and the amount of
additional net interest income earned by the Company resulting from
it.  However, the Company concluded that the additional interest rate
risk, as measured and evaluated, was both manageable and appropriate given the
additional net interest income that is expected to be earned by the Company
throughout the various market interest rate scenarios modeled.

















39


ITEM
      4.
            CONTROLS
      AND PROCEDURES





(a)
            Evaluation
      of disclosure controls and procedures: An evaluation of the Company's
      disclosure controls and procedures (as defined in Section 13(a)-15(e) of
      the Securities Exchange Act of 1934 ("the Act") was carried out under the
      supervision and with the participation of the Company's Chief Executive
      Officer, Chief Financial Officer and several other members of the
      Company's senior management.  Based on such evaluation, the
      Company's Chief Executive Officer and Chief Financial Officer concluded
      that the Company's disclosure controls and procedures in effect as of the
      end of the period covered by this quarterly report are effective in
      ensuring that the information required to be disclosed by the Company in
      the reports it files or submits under the Act is (i) accumulated and
      communicated to the Company's management (including the Chief Executive
      Officer and Chief Financial Officer) in a timely manner, and (ii)
      recorded, processed, summarized and reported within the time periods
      specified in the Securities and Exchange Commission rules and
      forms.





(b)
            Changes
      in internal controls: In the six months ended March 31, 2008, there was no
      change in the Company's internal control over financial reporting that has
      materially affected, or is reasonably likely to materially affect, the
      Company's internal control over financial
  reporting.


















40


PART
II - - OTHER INFORMATION








ITEM
1.   LEGAL PROCEEDINGS





At March
31, 2008, the Company and its subsidiaries were not involved in any pending proceedings
other than the legal proceedings occurring in the ordinary course of
business.  Such legal proceedings in the aggregate are believed by
management to be immaterial to the Company's financial condition and results of
operations.





ITEM
1A.   RISK FACTORS





There
have been no material changes to the factors disclosed in Item 1A., Risk
Factors, in our Annual Report on Form 10-K for the year ended September 30,
2007.





ITEM
2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS





The following table summarizes our
share repurchase activity during the three months ended March 31, 2008 and
additional information regarding our share repurchase program.





Period
            (a)
      Total Number
              Of
      Shares (or
              Units)
      Purchased
            (b)
              Average
      Price
              Paid
      per Share
              (or
      Unit)
            (c)
      Total Number
              of
      Shares (or
              Units)
      Purchased
              as
      Part Of Publicly
              Announced
      Plans
              or
      Programs
            (d)
      Maximum Number
              (or
      Approximate Dollar
              Value)
      of Shares (or
              Units)
      that May Yet Be
              Purchased
      Under
              Plans or
      ProgramsRepurchases
      for the Month
              
              January
      1 – January 31, 2008
              February
      1 – February 29, 2008
              March
      1 – March 31, 2008
              
              Total
      repurchases
            6,106
              209,644
              155,631
              
              371,381
            $10.43
              $10.37
              $10.41
              
              $10.39
            6,106
              209,644
              155,631
              
              371,381
            569,379
              359,735
              204,104








ITEM
3.   DEFAULTS UPON SENIOR SECURITIES





None





41


ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS





At the
Company’s Annual Stockholder’s Meeting (the Meeting) held on February 26, 2008
all the nominees for director proposed by the Company were
elected.  The votes cast for each nominee were as
follows:





For
            WithheldFred
      G. Kowal
            9,047,325
            1,375,810Vincent
      S. Rospond
            9,037,563
            1,385,572





Directors
whose terms of office as a director continued after the meeting are: Joseph
Kliminski, H. Joseph North, W. George Parker, Robert A. Gaccione and James H.
Ward III.








At the
Meeting, the shareholders also ratified the appointment of Crowe Chizek and
Company LLC as independent auditors for the fiscal year ending September 30,
2008.  The votes cast for and against and the number of abstentions
were as follows:





For
            Against
            Abstain10,316,186
            78,476
            28,473








ITEM
5.  OTHER INFORMATION





None





ITEM
6.  EXHIBITS





(a)
            Exhibits





31.1
            Certification
      of Chief Executive Officer Pursuant to Rule 13a-14a and
      15d-14a.


31.2
            Certification
      of Chief Financial Officer Pursuant to Rule 13a-14a and
      15d-14a.




32
            Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to
      Section 906 of the Sarbanes-Oxley Act of
  2002.








42


SIGNATURES








In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.







American Bancorp of New Jersey,
      Inc.
                (Registrant)Date: 
      May 12, 2008
              By:
              /s/ Joseph
      KliminskiJoseph
      KliminskiChief
      Executive Officer


Date: 
      May 12, 2008
              By:
              /s/ Eric
      B. HeyerEric
      B. HeyerSenior
      Vice President and Chief Financial Officer