Forward-Looking Statements

This Quarterly Report on Form 10-Q and other reports issued by the Company, including reports filed with the Securities and Exchange Commission, contain "forward-looking statements" that deal with future results, expectations, plans and performance. In addition, the Company's management may make forward-looking statements orally to the media, securities analysts, investors or others. These forward-looking statements might include one or more of the following:

* Projections of income, loss, revenues, earnings or losses per share, dividends, capital expenditures, capital structure, tax benefit or other financial items.

* Descriptions of plans or objectives of management for future operations, products or services, transactions, investments and use of subordinated debentures payable to trusts.

* Forecasts of future economic performance.

* Use and descriptions of assumptions and estimates underlying or relating to such matters.

Forward-looking statements can be identified by the fact they do not relate strictly to historical or current facts. They often include words such as "optimism," "look-forward," "bright," "pleased," "believe," "expect," "anticipate," "intend," "plan," "estimate" or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could" or "may."

Forward-looking statements about the Company's expected financial results and other plans are subject to certain risks, uncertainties and assumptions. These include, but are not limited to, the risks discussed in Part I, Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K for Fiscal 2008 and the following: possible legislative changes and adverse economic, business and competitive conditions and developments (such as shrinking interest margins and continued short-term rate environments); deposit outflows; reduced demand for financial services and loan products; changes in accounting policies or guidelines, or in monetary and fiscal policies of the federal government; changes in credit and other risks posed by the Company's loan and lease portfolios; the ability or inability of the Company to manage interest rate and other risks; unexpected, continuing or excessive claims against the Company's self-insured health plan; the Company's use of trust preferred securities; the ability or inability of the Company to successfully enter into a definitive agreement for and close anticipated transactions; technological, computer-related or operational difficulties; adverse changes in securities markets; results of litigation; or other significant uncertainties.

Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. Although the Company believes its expectations are reasonable, it can give no assurance that such expectations will prove to be correct. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in any forward-looking statements.

Executive Summary

The Company's net income available for common shareholders for the third quarter of Fiscal 2009 was $1.8 million, or $0.45 in diluted earnings per common share, compared to $1.6 million, or $0.40 in diluted earnings per common share, for the third quarter of Fiscal 2008. The Company's net income available for common shareholders for the nine months ended March 31, 2009 was $5.7 million, or $1.40 in diluted earnings per common share, compared to $4.2 million, or $1.05 in diluted earnings per common share, for the first nine months of Fiscal 2008. Return on average total equity was 10.16% for the first nine months of Fiscal 2009 as compared to 8.80% in the prior year comparable period. Return on common equity, based upon net income available to common shareholders divided by equity excluding preferred equity, was 12.08% for the first nine months of Fiscal 2009 as compared to 8.80% in the prior year comparable period.

The net interest margin on a fully taxable equivalent basis for the nine months ended March 31, 2009 was 3.37%, compared to 3.08% for the same period a year ago, an increase of 29 basis points. The increase over the same period last year is primarily attributable to lower costs on interest-bearing liabilities and a higher volume of earning assets.

Net interest income for the first nine months of Fiscal 2009 was $26.8 million, an increase of $5.5 million, or 25.7%, over the same period a year ago. For the nine months ended March 31, 2009, average interest-earning assets and average interest-bearing liabilities increased 14.1% and 12.8%, respectively, compared to the same period a year ago. Yields on earning assets decreased to 5.76% in the first nine months of Fiscal 2009, compared to 6.74% a year ago, a decrease of 98 basis points. For the same period, interest-bearing cost of funds decreased to 2.75%, compared to 4.16%, a decrease of 141 basis points.

Net interest margin ratio may vary due to many factors, including Federal Reserve policies for short-term interest rates, competitive and economic factors and customer preferences for various products and services. In the second quarter of Fiscal 2009, the Federal Reserve decreased the Fed Funds Target Rate by a total of 175 basis points on three separate increments, the first decrease in short-term interest rates since April 30, 2008. For Fiscal 2008, Fed Funds rates were cut seven times between September 2007 and April 2008 for a total of 325 basis points.

The allowance for loan and lease losses increased to $8.1 million at March 31, 2009, compared to $5.6 million at March 31, 2008, an increase of $2.6 million or 46.1%. The ratio of allowance for loan and lease losses to total loans and leases was 0.97% as of March 31, 2009 compared to 0.72% at March 31, 2008. Total nonperforming assets at March 31, 2009 were $5.2 million as compared to $4.3 million a year ago, an increase of $913,000 or 21.2%. The ratio of nonperforming assets to total assets increased to 0.45% at March 31, 2009, compared to 0.40% at March 31, 2008. The allowance for loan and lease losses is calculated based on loan and lease levels, loan and lease loss history, credit quality of the loan and lease portfolio, and environmental factors such as economic health of the region and management experience. This risk rating analysis is designed to give the Company a consistent and systematic methodology to determine proper levels for the allowance at a given time.

As referenced in our Form 8-K filed October 27, 2008, the Company was involved in a lawsuit as plaintiff which was settled for $2.8 million inclusive of the remaining amount of receivables from certain loan participation interests in the amount of $223,000. The settlement amount, less attorney fees of $292,000, was recorded as a recovery of loan and lease losses in the second quarter of Fiscal 2009.

Total deposits at March 31, 2009 were $804.2 million, an increase of $20.0 million, or 2.5%, from June 30, 2008. During the nine month period, public fund account balances increased $7.4 million which are categorized in multiple categories of deposits. In-market and out-of-market certificates of deposit increased a total of $67.4 million from $353.3 million to $420.6 million for the nine month period, due in part to customer preference for higher yielding term deposit products. The primary factors affecting interest expense was the decrease in the average rates paid on total deposits for the nine month period ended March 31, 2008 of 3.92% compared to 2.38% for the nine month period ended March 31, 2009.

During the second quarter of Fiscal 2009, an increase in equity occurred with participation in the U.S. Treasury Department Capital Purchase Program ("CPP"). As referenced in our Form 8-K filed November 21, 2008, the Company entered into an agreement with the U.S. Department of the Treasury pursuant to which the Company issued and sold to the Treasury Department (i) 25,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share and having a liquidation preference of $1,000 per share, and (ii) a ten-year warrant to purchase up to 302,419 shares of the Company's common stock, par value $0.01 per share, at an initial exercise price of $12.40 per share, for an aggregate purchase price of $25.0 million in cash. The securities were issued and sold in a private placement exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended. Cumulative dividends on the Preferred Stock will accrue on the liquidation preference at a rate of 5.00% per annum for the first five years, and at a rate of 9.00% per annum thereafter, but will be paid only if, as and when declared by the Company's Board of Directors. Since the transaction closing date, the Bank has continued to lend money on a prudent basis to businesses, farmers and individuals within its marketplace. New volume and renewals of existing credit since the closing of the CPP transaction totaled $190.8 million through March 31, 2009.

In April 2009, the Company announced that it has filed notice with the U.S. Treasury Department to repurchase all of the 25,000 outstanding shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share. The repurchase price of the preferred stock is $25.0 million plus a final accrued dividend. According to the American Recovery and Reinvestment Act of 2009, the Treasury must consult with the Company's primary Federal Regulator before approving the repurchase of the preferred stock. The Company believes it has sufficient cash funds to complete the repurchase. After the completion of this transaction, the Company's Total Risk-Based Capital Ratio will continue to exceed the standard for a "well-capitalized" financial institution.

In April 2009, the Company announced it will pay a quarterly cash dividend of 11.25 cents per common share for the third quarter of Fiscal 2009. The dividend will be paid on May 15, 2009 to stockholders of record on May 8, 2009.

The Company also announced in April 2009, a quarterly cash dividend on its Fixed Rate Cumulative Perpetual Preferred Stock (Series A) issued to the U.S. Treasury Department under the CPP. The dividend amount is equal to $12.50 per preferred share. This amount is based on a rate per annum of 5.00%, and is payable for the three month period of February 15, 2009 through May 15, 2009, using 30-day months.

The total risk-based capital ratio of 11.02% at March 31, 2009, increased by 19 basis points from 10.83% at June 30, 2008. This continues to place the Bank in the "well-capitalized" category within OTS regulation at March 31, 2009 and is consistent with the "well-capitalized" OTS category in which the Company plans to operate. The Company historically has been able to manage the size of its assets through secondary market loan sales of single-family mortgages and student loans.

Non-interest income was $9.0 million for the nine months ended March 31, 2009 as compared to $8.6 million for the same period in the prior fiscal year, an increase of $394,000, or 4.6%. Fees on deposits increased $315,000, or 7.8% for the nine months ended March 31, 2009 as compared to the same period in the prior fiscal year primarily due to increased point-of-sale interchange revenue and fee schedule adjustments. Gain on sale of loans increased $124,000, or 13.0%, due to an increase in refinance activity in conjunction with historically low interest rates. Loan servicing income increased $72,000, or 4.4% primarily due to an increase of $31.0 million in the balances of loans serviced by the Bank from $1.03 billion at March 31, 2008 to $1.06 billion at March 31, 2009. Net gain on sale of securities increased $512,000 for the nine months ended March 31, 2009 as compared to the same period in the prior fiscal year primarily due to the sale of securities, which did not occur in the prior year.

Non-interest expense was $26.0 million for the nine months ended March 31, 2009 as compared to $22.4 million for the nine months ended March 31, 2008, an increase of $3.6 million, or 16.0%. Employee compensation increased $741,000, or 8.2%, variable pay relating to employee incentives and commissions increased $242,000, or 15.1% and net healthcare costs increased $1.0 million, or 109.4%. Employee compensation increased due to annual raises awarded and sales-related personnel additions. Variable pay relating to employee incentive programs increased due to higher production activity and increased financial performance outcomes. Healthcare costs increased as a result of higher claim activity in the second and third quarters of Fiscal 2009. The Company has had a self-insured health plan since January 1994. Management continues to believe the current structure is a reasonable alternative to traditional healthcare plans over the long term. The level of healthcare costs which the Company incurs may vary from year to year. The increase in net healthcare costs does not necessarily indicate a trend. FDIC insurance premiums increased $465,000 due to a combination of new deposit guarantee programs and assessment schedule changes initiated by the FDIC and the expiration of credits previously used to lower costs. Other non-interest expenses rose $644,000 largely due to increases in legal and professional expenses of $434,000, and audit and regulatory examination fees of $95,000.

The Bank is a member of the Deposit Insurance Fund (the "DIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"). Deposits are insured up to the applicable limits by the FDIC and such insurance is backed by the full faith and credit of the United States Government. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. Recent bank failures have decreased the DIF to levels below its required reserve ratio. In order to replenish the DIF, the FDIC has increased deposit insurance premiums to a level designed to restore the DIF to required levels within seven years, and has proposed a one-time special assessment of 20 basis points to be collected on September 30, 2009, based upon deposits at June 30, 2009. The FDIC also instituted the Transaction Account Guarantee Program ("TAGP"). The TAGP extended the FDIC's insurance to full coverage of non-interest bearing transaction accounts for participating institutions through the end of 2009 at an annualized rate of 10 basis points on deposit balances in excess of the $250,000 insurance limit currently in place. The Bank is a participant in the TAGP, but does not expect this program to have a material impact on the FDIC assessment. The Bank had previously paid assessments under the Savings Association Insurance Fund ("SAIF") and was eligible for certain credit against deposit insurance assessments when SAIF was merged into the DIF in 2005. This credit had offset the majority of the Bank's FDIC premium expense in past fiscal years but has been fully utilized during the second quarter of Fiscal 2009. As a result of these factors, the Bank is anticipating an increase in deposit insurance premiums in Fiscal 2009 as compared to Fiscal 2008.

General

The Company is a financial services provider and, as such, has inherent risks that must be managed in order to achieve net income. Primary risks that affect net income include credit risk, liquidity risk, operational risk, regulatory compliance risk and reputation risk. The Company's net income is derived by managing net interest margin, the ability to collect fees from services provided, by controlling the costs of delivering services and the management of loan and lease losses. The primary source of revenues comes from the net interest margin, which represents the difference between income on interest-earning assets (i.e. loans and investment securities) and expense on interest-bearing liabilities (i.e. deposits and borrowed funding). The net interest margin is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. Fees earned include charges for deposit services, trust services and loan services. Personnel costs are the primary expenses required to deliver the services to customers. Other costs include occupancy and equipment and general and administrative expenses.

Financial Condition Data

At March 31, 2009, the Company had total assets of $1.2 billion, an increase of $68.5 million from the level at June 30, 2008. The increase in assets since June 30, 2008 was due primarily to increases in securities available for sale of $25.0 million, net loans and leases receivable of $33.6 million, and loans held for sale of $12.4 million. The increase in liabilities of $38.7 million since June 30, 2008 was primarily due to increases in deposits of $20.0 million and advances from the FHLB and other borrowings of $11.9 million. In addition, stockholders' equity increased $30.0 million to $94.1 million at March 31, 2009 from $64.2 million at June 30, 2008, primarily due to participation in the CPP resulting in a $25.0 million increase to capital. Capital also increased due to the net income available for common shareholders for the nine months ended March 31, 2009 of $5.7 million, but was partially offset by the net increase in accumulated other comprehensive (loss), net of related deferred tax effect, of $438,000.

The increase in net loans and leases receivable of $33.6 million at March 31, 2009 as compared to June 30, 2008, was primarily the result of increases in agricultural loans of $52.9 million to $213.1 million, increases in commercial business and real estate of $9.8 million to $313.2 million, increases of consumer direct loans of $7.5 million to $113.2 million and an increase in construction and development loans of $4.5 million to $10.1 million. These increases were partially offset by decreases in one-to four-family loans of $20.2 million to $80.0 million and decreases in consumer indirect loans of $18.3 million to $26.0 million at March 31, 2009 as compared to June 30, 2008. Loans held for sale increased by $12.4 million at March 31, 2009, as compared to June 30, 2008, due primarily to seasonal fluctuation of student loan activity and increased single family loan production activity.

Cash and cash equivalents decreased $7.4 million at March 31, 2009 as compared to June 30, 2008. See the Consolidated Statement of Cash Flows for an in-depth analysis in the change in cash and cash equivalents for the nine months ended March 31, 2009.

Deposits increased $20.0 million to $804.2 million, while advances from the FHLB and other borrowings increased $11.9 million to $210.3 million. The overall increase in FHLB borrowings was primarily the result of an increase in securities available for sale, an increase in loans and leases receivable, the increase in loans held for sale, the decrease of cash and cash equivalents, and was partially offset by the increase in deposits.

The $20.0 million increase in deposits was due to increases in public funds of $7.4 million which are categorized in multiple categories of deposits. Public funds have increased, from $156.3 million at June 30, 2008 to $163.6 million at March 31, 2009, as a result of seasonal fluctuations typical with these types of municipal deposits. For the same period, out-of-market deposits increased from $27.3 million to $29.8 million, or 9.4%. The in-market certificates of deposit increased since June 30, 2008 in the amount of $64.8 million. This increase was offset by decreases in noninterest bearing and interest bearing checking accounts, money market accounts, and savings accounts of $11.4 million, $28.6 million, and $7.4 million, respectively, when compared to the totals at June 30, 2008.

The following tables show the composition of the Company's loan and lease portfolio and deposit accounts:

Loan and Lease Portfolio Composition



                                                March 31, 2009         June 30, 2008
                                               Amount     Percent    Amount     Percent
                                                       (Dollars in Thousands)

One-to four-family (1)                        $  79,774      9.73 % $  99,989     12.76 %
Commercial business and real estate (2) (3)     313,198     38.22     303,415     38.72
Multi-family real estate                         46,876      5.72      45,093      5.75
Equipment finance leases                         17,240      2.10      19,288      2.46
Consumer direct (4)                             113,238     13.82     105,719     13.49
Consumer indirect (5)                            25,973      3.17      44,294      5.65
Agricultural                                    213,130     26.01     160,267     20.45
Construction and development                     10,101      1.23       5,645      0.72
Total loans and leases receivable (6)         $ 819,530    100.00 % $ 783,710    100.00 %

(2) Includes $2,912 and $3,012 tax exempt leases at March 31, 2009 and June 30, 2008, respectively.

(3) Excludes $0 and $223 commercial loans held for sale at March 31, 2009 and June 30, 2008, respectively.

(4) Excludes $5,614 and $614 student loans held for sale at March 31, 2009 and June 30, 2008, respectively.

(5) The Company announced Consumer Indirect originations ceased during the first quarter of Fiscal 2008.

(6) Includes deferred loan fees and discounts and undisbursed portion of loans in process.

Deposit Composition



                                          March 31, 2009         June 30, 2008
                                         Amount     Percent    Amount     Percent
                                                 (Dollars in Thousands)

Noninterest bearing checking accounts   $  81,178     10.08 % $  90,598     11.55 %
Interest bearing checking accounts         88,191     10.97      90,125     11.49
Money market accounts                     143,057     17.79     171,689     21.89
Savings accounts                           71,155      8.85      78,575     10.02
In-market certificates of deposit         390,815     48.60     325,995     41.57
Out-of-market certificates of deposit      29,812      3.71      27,255      3.48
Total deposits                          $ 804,208    100.00 % $ 784,237    100.00 %

Analysis of Net Interest Income

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them.

Average Balances, Interest Rates and Yields. The following table presents for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. The table does not reflect any effect of income taxes, except where noted. Average balances consist of daily average balances for the Bank with simple average balances for all other subsidiaries of the Company. The average balances include nonaccruing loans and leases. The yields on loans and leases include origination fees, net of costs, which are considered adjustments to yield.

                                                Three Months Ended March 31,
                                          2009                                 2008
                             Average      Interest                Average      Interest
                           Outstanding     Earned/    Yield/    Outstanding     Earned/    Yield/
                             Balance        Paid       Rate       Balance        Paid       Rate
                                                   (Dollars in Thousands)
Interest-earning assets:
Loans and leases
receivable (1) (3)         $    837,501   $  12,045      5.83 % $    766,960   $  13,188      6.92 %
Investment securities
(2) (3)                         252,812       2,937      4.71 %      173,835       2,253      5.21 %
FHLB stock                       12,476          26      0.85 %        8,889         101      4.56 %

Total interest-earning
assets                        1,102,789   $  15,008      5.52 %      949,684   $  15,542      6.58 %
Noninterest-earning
assets                           66,679                               70,917
Total assets               $  1,169,468                         $  1,020,601

Interest-bearing
liabilities:
Deposits:
Checking and money
market                     $    214,277   $     310      0.59 % $    262,518   $   1,495      2.29 %
Savings                          70,165          74      0.43 %       54,391         256      1.89 %
Certificates of deposit         397,126       3,131      3.20 %      343,517       3,942      4.61 %
Total interest-bearing
deposits                        681,568       3,515      2.09 %      660,426       5,693      3.47 %
FHLB advances and other
borrowings                      241,338       1,896      3.19 %      159,773       1,660      4.18 %
Subordinated debentures
payable to trusts (4)            27,837         447      6.51 %       27,837         494      7.14 %

Total interest-bearing
liabilities                     950,743       5,858      2.50 %      848,036       7,847      3.72 %
Noninterest-bearing
deposits                         79,969                               79,186
Other liabilities                45,995                               28,217
Total liabilities             1,076,707                              955,439
Equity                           92,761                               65,162
Total liabilities and
equity                     $  1,169,468                         $  1,020,601

Net interest income;
interest rate spread (5)                  $   9,150      3.02 %                $   7,695      2.86 %

Net interest margin
(5) (6)                                                  3.36 %                               3.26 %

Net interest margin, TE
(7)                                                      3.55 %                               3.32 %

(2) Includes federal funds sold.

(3) Yields do not reflect the tax-exempt nature of loans, equipment leases and municipal securities.

. . .