COMPENSATION COMMITTE REPORT 2005

Board Compensation Committee Report on Executive Compensation

The Compensation Committee of the Board of Directors, consisting entirely of independent directors, is responsible for establishing and overseeing policies governing annual and long-term compensation and benefits for the executive officers and other members of senior management of the Company and the Bank. The Compensation Committee approves compensation levels and the Board of Directors ratifies their recommendations. The Compensation Committee’s specific responsibilities include:

The overall objectives of the Company’s executive compensation program are to attract and retain the highest quality executives to manage and lead the Company, and to provide annual and long term incentives to management, based on both Company performance and individual performance, in order to build and sustain value for shareholders.

Compensation decisions for the Company’s named executive officers, including the Chief Executive Officer, for the 2004 fiscal year were reviewed and determined by the Compensation Committee.

The Company’s executive compensation program for fiscal 2004 was reviewed and approved by the Compensation Committee. A compensation consultant was retained by the Compensation Committee to assist in reviewing competitive compensation programs for the Company in connection with the Company’s senior officers, including the Chief Executive Officer and the other named executive officer as well as other members of the management group. The Compensation Committee may consider organizations that differ from the banking organizations included in the industry group because, in the view of the Compensation Committee and its compensation consultant, the companies in the index are not necessarily the most representative group for purposes of determining competitive compensation pay practices for the senior executives. The Compensation Committee regularly reviews the competitiveness of the Company’s executive compensation practices.

Annual Base Salary. Annual base salaries for the named executive officers, including the Chief Executive Officer, are reviewed annually based upon survey data and increases through fiscal 2004 made by the Compensation Committee are based on appropriate competitive annual base salary levels for such executives. Actual total remuneration levels may range below or above target in any one year and over a period of years based on performance against annual and long-term goals as well as market price of the Company’s shares.

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Stock Based and Long Term Incentive Compensation. The Board of Directors and the Compensation Committee are of the view that stock ownership or its equivalent by management aligns the interest of management with the Company’s shareholders. Stock options are granted at fair market value and are intended to align executive compensation opportunities with shareholder returns. Stock options and awards granted during fiscal 2004 were part of the Compensation Committee’s customary annual review and these grants were made at levels which the Compensation Committee determined to be appropriate long term equity-based incentives to such executives. In determining the specific levels of individual stock option and awards for fiscal 2004 for the Company’s executive officers, including the Company’s Chief Executive Officer, the Compensation Committee considered and weighed a number of factors, including the duties and responsibilities of the officer in question, the performance of the Company and of the particular officer in 2004, the performance anticipated from the officer in 2005 and future years and certain competitive factors.

Chief Executive Officer Compensation. Mr. Mangano’s base salary for 2004 was established by the Compensation Committee following and based on a performance review for 2004 conducted by the Compensation Committee. His annual incentive compensation award as set forth in the Summary Compensation Table was based on the Compensation Committee’s review of the net earnings performance of the Company against target goals. Mr. Mangano’s stock award was based on the Compensation Committee’s consideration of the factors discussed above. The Compensation Committee determined that each element and the aggregate of Mr. Mangano’s compensation for 2004 were fair and reasonable and within the range of compensation for chief executive officers of companies comparable to the Company.

SERP. Since 2002, the Company has had in effect a supplemental executive retirement program (“SERP”). The SERP is intended to provide a retirement benefit for the participants. Currently, the Company’s Chief Executive Officer and the Company’s Senior Vice President and Treasurer are the only participants, although one or more future participants could be added to the SERP by future action of the Compensation Committee.

Compliance With Internal Revenue Code Section 162(m). Section 162(m) of the Internal Revenue Code generally allows a deduction to publicly traded companies for certain qualifying performance-based compensation. Section 162(m) disallows a deduction to the extent certain non-performance based compensation over $1 million paid to the Chief Executive Officer or to any other named executive officer. The Company believes that Section 162(m) deduction limits for fiscal 2005 will not be applicable or, if applicable, would not be material in terms of net financial effect. Therefore the Company does not intend to seek to change any fiscal 2005 compensation arrangements. The Company and the Compensation Committee will continue to monitor this matter.

Conclusion. The Compensation Committee believes that the compensation provided to the Company’s executive officers is reasonable and appropriate. The Compensation Committee also believes that such compensation is structured to promote high levels of individual and Company performance and to create the appropriate alignment among individual achievement, Company financial performance and the interests of the Company’s shareholders.

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-- Proxy Statement April 2005