FINANCIAL REVIEW

The principal objective of this Financial Review is to provide an overview of the financial condition and results of operations of OBA Financial Services Inc., and its subsidiary, OBA Bank. The discussion and tabular presentations should be read in conjunction with the accompanying unaudited Consolidated Financial Statements and Notes.

Overview of Income and Expenses

Income

The Company has two primary sources of pre-tax income. Net interest income is the difference between interest income, which is the income the Company earns on its loans and investments, and interest expense, which is the interest the Company pays on its deposits and borrowings.

Non-interest income is received from providing products and services and from other income. The majority of the non-interest income is earned from service charges on deposit accounts, bank owned life insurance income, and loan servicing fees. The Company also earns income from the sale of residential mortgage loans and other fees and charges.

The Company recognizes gains or losses as a result of sales of investment securities, foreclosed property, and premises and equipment. In addition, the Company recognizes losses on its investment securities that are considered other-than-temporarily impaired. Gains and losses are not a regular part of the Company's primary sources of income.

Expenses

The non-interest expenses the Company incurs in operating its business consist primarily of salaries and employee benefits, occupancy and equipment expense, external processing fees, FDIC assessments, Director fees, and other non-interest expenses.

Salaries and employee benefits expense consists primarily of the salaries and wages paid to employees, payroll taxes, and expenses for stock benefit and compensation plans, health care, retirement, and other employee benefits.

Occupancy expenses, which are fixed or variable costs associated with premises and equipment, consist primarily of lease payments, real estate taxes, depreciation charges, maintenance, and cost of utilities.

Equipment expense includes expenses and depreciation charges related to office and banking equipment.

External processing fees are paid to third parties mainly for data processing services.

Other expenses include expenses for professional services, including, but not limited to, attorney, accountant and consultant fees, advertising and marketing, charitable contributions, insurance, office supplies, postage, telephone, and other miscellaneous operating expenses.

Critical Accounting Policies and Estimates

There are no material changes to the critical accounting policies disclosed in OBA Financial Services, Inc.'s Annual Report on Form 10-K for the fiscal year ended June 30, 2011.

Comparison of Financial Condition at December 31, 2011 and June 30, 2011

Assets. Total assets decreased $4.4 million, or 1.1%, to $382.0 million at December 31, 2011 from $386.4 million at June 30, 2011. The decrease was primarily due to a decrease in cash and cash equivalents partially offset by an increase in total securities and interest bearing deposits with other banks.

Cash and Cash Equivalents. At December 31, 2011, cash and cash equivalents decreased $9.5 million, or 25.1%, to $28.4 million from $38.0 million at June 30, 2011 primarily due to a decrease in total deposits and the use of cash to repurchase stock and an increase in securities and interest bearing deposits at other banks partially offset by an increase in short-term Federal Home Loan Bank advances.

Loans. At December 31, 2011, total gross loans were $281.6 million, slightly changed from $281.9 million at June 30, 2011. The commercial loan portfolio increased $3.7 million to $149.5 million at December 31, 2011 from $145.8 million at

June 30, 2011. This increase was offset by decreases of $907 thousand and $3.0 million in the one-to four-family residential and home equity loans and lines of credit loan portfolios, respectively. For further detail, see "Note 4 - Credit Quality of Loans and Allowance for Loan Losses" in the accompanying financial statements.

Allowance for Loan Losses.

The following table summarizes activity in the allowance for loan losses:



                                                    Three Months Ended             Six Months Ended
                                                       December 31,                  December 31,
(in thousands)                                     2011            2010           2011          2010
Balance at beginning of period                   $   2,408        $ 1,925       $  2,246       $ 1,737
Provision for loan losses                              229            245            376           403
Charge-offs                                            (18 )           -             (18 )          -
Recoveries                                              -              -              15            30

Balance at end of period                         $   2,619        $ 2,170       $  2,619       $ 2,170


Ratios:
Net charge-offs (recoveries) to average loans         0.03 %           -  %           -  %       (0.02 )%
Allowance for loan losses to loans                    0.93           0.76           0.93          0.76

At December 31, 2011, the allowance for loan losses was $2.6 million compared with $2.2 million at June 30, 2011, and $2.2 million at December 31, 2010. The allowance for loan losses as a percentage of total loans at December 31, 2011 was 0.93% compared to 0.80% at June 30, 2011, and 0.76% at December 31, 2010. Net charge-offs as a percentage of average loans were 0.03% for the three months ended December 31, 2011 and 0.00% for the six months ended December 31, 2011. At December 31, 2011, the Bank had $7.1 million in impaired loans as compared to $7.7 million at June 30, 2011. Total impaired loans are primarily made up of two loan relationships with not-for-profit entities that have collateral values well in excess of the loan value. Based on the value of the collateral, no specific allowances are required for these loans. For more information on the loan portfolios see "Loans" in "Comparison of Financial Condition at December 31, 2011 and June 30, 2011."

Non-performing Assets. Loans are generally placed on non-accrual status when payment of principal or interest is 90 days or more delinquent unless well secured and in the process of collection. Loans can also be placed on non-accrual status if collection of principal or interest in full is in doubt. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received. The loan may be returned to accrual status if both principal and interest payments are brought current, there has been a period of sustained performance (generally, six months), and full payment of principal and interest is expected. At December 31, 2011 and June 30, 2011, the Company had $6.6 million and $5.4 million in total non-performing assets, respectively. Primarily, these totals represent commercial real estate and one-to four family residential loans. Of the $6.6 million in non-performing assets the Company reported at December 31, 2011, $3.2 million were also troubled debt restructurings.

The following table summarizes non-performing assets:

                                                December 31,        June 30,
        (dollars in thousands)                      2011              2011
        Non-performing assets
        Non-accrual loans:
        Commerical Real Estate                  $       5,515      $    5,292
        One-to four family residential                    457              -
        Home equity loans and lines of credit             603              -

        Total non-accrual loans                         6,575           5,292
        Other real estate owned                            74             105

        Total non-performing assets             $       6,649      $    5,397


        Asset quality ratios:
        Non-performing loans to total loans              2.34 %          1.88 %
        Non-performing assets to total assets            1.74            1.40

The non-performing loans to total loans ratio increased 46 basis points from 1.88% at June 30, 2011 to 2.34% at December 31, 2011 and the non-performing assets to total assets ratio increased 34 basis points from 1.40% at June 30, 2011 to 1.74% at December 31, 2011. Both ratios increased primarily as a result of a single one- to four-family residential loan and a related home equity line of credit moving to non-accrual status at December 31, 2011. For further detail, see "Note 4 - Credit Quality of Loans and Allowance for Loan Losses" in the accompanying financial statements.

Troubled Debt Restructurings. At December 31, 2011 and June 30, 2011, the Bank had $5.4 million and $2.8 million of modified loans, respectively, which were considered troubled debt restructurings. At December 31, 2011, the Bank had $723 thousand in one-to four family residential mortgage loans that were considered troubled debt restructurings and $4.7 million in commercial real estate loans that were considered troubled debt restructurings. At June 30, 2011, the Bank had $731 thousand in one- to four-family residential real estate loans and home equity loans and lines of credit that were considered troubled debt restructurings and $2.0 million in commercial real estate loans that were considered troubled debt restructures. Of the $5.4 million in modified loans considered troubled debt restructurings, $3.2 million were also non-performing loans. For further detail, see "Note 4 - Credit Quality of Loans and Allowance for Loan Losses" in the accompanying financial statements.

Securities. At December 31, 2011, the securities portfolio totaled $43.3 million, or 11.3% of total assets, as compared to $39.5 million, or 10.2% of total assets, at June 30, 2011.

Deposits. At December 31, 2011, deposits decreased $5.1 million, or 2.0%, to $251.9 million from $257.0 million at June 30, 2011. Total certificates of deposit increased $3.6 million while brokered deposits decreased $9.4 million, total money market accounts decreased $17.8 million, and total checking accounts increased $8.8 million.

Borrowings. At December 31, 2011, total borrowings increased $7.1 million, or 15.6%, to $52.3 million from $45.2 million at June 30, 2011. Repurchase agreements decreased $5.4 million, or 34.5%, to $10.2 million at December 31, 2011. At December 31, 2011, Federal Home Loan Bank advances totaled $42.1 million, an increase of $12.4 million from June 30, 2011 primarily due to an increase in short term advances.

At December 31, 2011, the Company had access to additional Federal Home Loan Bank advances of up to $59.4 million.

Equity. Equity totaled $75.9 million and $80.9 million at December 31, 2011 and June 30, 2011, respectively. The decrease of $5.0 million was primarily the result of the continuation of the Company's share repurchase program.

Capital and Liquidity. The Bank's goal is to maintain a strong capital position that supports its strategic goals while, at the same time, exceeding regulatory standards. At December 31, 2011, the Bank met the definition of a "well-capitalized" institution by exceeding all regulatory minimum capital requirements. The following tables summarize the Consolidated and Bank capital ratios:

                                                          Ratios at
                                                                                           "Well-
                                               December 31,           June 30,          Capitalized"
                                                   2011                 2011              Minimums
Consolidated Capital Ratios:

Total Capital to risk-weighted assets                  30.88 %            33.16 %                  -

Tier 1 Capital to risk-weighted assets                 29.85 %            32.26 %                  -

Tier 1 Leverage                                        19.76 %            20.81 %                  -

Bank Capital Ratios:

Total Capital to risk-weighted assets                  24.48 %            24.40 %               10.00 %

Tier 1 Capital to risk-weighted assets                 23.44 %            23.49 %                6.00 %

Tier 1 Leverage                                        15.52 %            15.15 %                5.00 %

The Company's primary sources of funds are deposits, borrowed funds, amortization and prepayment of loans, maturities of investment securities and other short-term investments, and earnings and funds provided from operations. While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. In addition, the Company invests excess funds in short-term interest-earning securities and other assets which provide liquidity to meet lending requirements.

The Company is a member of the Federal Home Loan Bank of Atlanta, whose competitive advance programs provide the Company with a safe, reliable, and convenient source of funds. A significant decrease in liquidity could result in the Company seeking other sources of funds, including, but not limited to, additional borrowings, brokered deposits, negotiated time deposits, the sale of available-for-sale investment securities, and the sale of loans or other assets.

Comparison of Operating Results for the Three Months Ended December 31, 2011 and 2010

General. Net income decreased $201 thousand to $82 thousand for the three months ended December 31, 2011 from net income of $283 thousand for the three months ended December 31, 2010. The decrease in net income was primarily a result of an increase in non-interest expense of $137 thousand and a decrease in non-interest income of $136 thousand.

Net Interest Income. Net interest income decreased $33 thousand to $3.0 million for the three months ended December 31, 2011 from $3.1 million for the three months ended December 31, 2010. Total interest expense decreased $96 thousand, or 9.1%, to $960 thousand for the three months ended December 31, 2011 as compared to $1.1 million for the three months ended December 31, 2010. The decrease in expense was primarily the result of the Bank paying off several higher costing term Federal Home Loan Bank advances. Deposit interest expense decreased due to lower overall deposit rates and the successful completion of the Bank's money market deposit promotion. Interest and dividend income decreased by $129 thousand to $4.0 million for the three months ended December 31, 2011. This decrease is primarily due to lower yields in the loan and investment portfolios.

The net interest margin was 3.59% for the three months ended December 31, 2011 compared to 3.76% for the three months ended December 31, 2010. The decrease in the net interest margin was primarily a result of a decrease in average net interest-earning assets and a decrease in the total interest earning assets average yield of 33 basis points as compared to a decrease in the total interest bearing liability yield of 25 basis points. Average interest-earning assets increased $12.1 million to $336.6 million for the period ended December 31, 2011 compared to $324.5 million for the period ended December 31, 2010. Average interest-bearing liabilities increased $19.3 million to $274.5 million for the period ended December 31, 2011 as compared to $255.2 million for the period ended December 31, 2010 as a result of the recently completed money market promotion.

Interest and Dividend Income. Interest and dividend income decreased $129 thousand to $4.0 million from $4.1 million for the three months ended December 31, 2011 and December 31, 2010, respectively. Interest income on total investments decreased $18 thousand and interest income on total loans decreased $127 thousand for the three months ended December 31, 2011 as compared to December 31, 2010 and was partially offset by an increase in interest income on fed funds sold of $12 thousand.

The average yield on loans decreased 9 basis points, to 5.29% for the three months ended December 31, 2011 from 5.38% for the three months ended December 31, 2010. Total average loans decreased $4.7 million, reflecting an average balance increase in commercial loans of $16.9 million to $147.3 million for the three months ended December 31, 2011 offset by a decrease in average residential mortgage loans of $17.1 million to $95.1 million and a decrease in average consumer loans of $4.5 million to $36.7 million for the three months ended December 31, 2011 as compared to $112.2 million and $41.2 million, respectively, for the three months ended December 31, 2010.

Interest income on securities decreased $18 thousand to $248 thousand for the three months ended December 31, 2011 from $266 thousand for the three months ended December 31, 2010, as the average yield on securities decreased 65 basis points to 2.10% for the three months ended December 31, 2011 from 2.76% for the three months ended December 31, 2010, reflecting continued low market interest rates and prepayments of higher yielding securities within the mortgage backed securities portfolio.

Interest Expense. Interest expense decreased $96 thousand to $960 thousand from $1.1 million for the three months ended December 31, 2011 and December 31, 2010, respectively. The Bank paid off several higher cost term Federal Home Loan Bank borrowings. In addition, average customer repurchase balances decreased $3.1 million to $17.4 million at December 31, 2011 from $20.5 million at December 31, 2010. Deposit expense decreased as the average rate paid on deposits decreased 16 basis points to 1.08% for the three months ended December 31, 2011 from 1.24% for three months ended December 31, 2010.

Interest expense on borrowings decreased $86 thousand to $332 thousand for the three months ended December 31, 2011 from $418 thousand for the three months ended December 31, 2010, due to a $6.7 million, or 12.5%, decrease in the average balance of borrowings, primarily in Federal Home Loan Bank advances, as well as a 27 basis point decrease in the average cost of borrowings to 2.80% for the three months ended December 31, 2011 from 3.07% for the three months ended December 31, 2010, reflecting continued low market interest rates and the repayment of higher cost borrowings.

Provision for Loan Losses. The Company's provision for loan losses for the three months ended December 31, 2011 was $229 thousand, a decrease of $16 thousand from $245 thousand for the three months ended December 31, 2010. The provision for loan losses for the three months ended December 31, 2011 included a partial charge-off in the disposition of one loan previously listed as sub-standard in the amount $18 thousand. The provision for loan losses also reflected several risk rating upgrades to loans previously listed as classified assets, special mention or substandard. These upgrades were the

result of the Bank's most recent third party loan review and continued management and analysis of the loans by Management. For further discussion related to the provision for loan losses, see "Allowance for Loan Losses" in the "Comparison of Financial Condition at December 31, 2011 and June 30, 2011." For further discussions related to loan portfolio performance, see "Non-performing Assets" in the "Comparison of Financial Condition at December 31, 2011 and June 30, 2011" and Note 4 of the notes to the consolidated financial statements.

Non-Interest Income. The following table summarizes changes in non-interest income:

                                                   Three Months Ended
                                                      December 30,                   Change
                                                   2011            2010         $             %
                                                     (In thousands)

Customer service fees                            $     92         $  104      $  (12 )        (11.5 )%
Loan servicing fees                                     7             11          (4 )        (36.4 )
Bank owned life insurance income                       75             78          (3 )         (3.8 )
Other non-interest income                              29             45         (16 )        (35.6 )

Non-interest income before net gains (losses)         203            238         (35 )        (14.7 )

Net gain on sale of loans                              -              70         (70 )       (100.0 )
Write-down of other real estate property              (31 )           -          (31 )           -

Net gains (losses)                                    (31 )           70        (101 )       (144.3 )


Total non-interest income                        $    172         $  308      $ (136 )        (44.2 )

Total non-interest income decreased $136 thousand to $172 thousand for the three months ended December 31, 2011 as compared to $308 thousand for the three months ended December 31, 2010. This decrease is primarily the result of the partial write-down of the Bank's lone other real estate owned property and a decrease in gains on sale of loans as a result of no loan sales in the three months ended December 31, 2011. The decrease in other non-interest income was primarily the result of the reduction of income related to loan sales as the Bank had no loan sales in the three months ended December 31, 2011.

Non-Interest Expense. The following table summarizes changes in non-interest expense:

                                          Three Months Ended
                                             December 31,                 Change
                                           2011          2010         $           %
                                            (In thousands)

       Salaries and employee benefits   $    1,667      $ 1,449     $ 218         15.0 %
       Occupancy and equipment                 399          470       (71 )      (15.1 )
       Data processing                         173          179        (6 )       (3.4 )
       Directors' fees                          89           79        10         12.7
       FDIC assessments                         69           71        (2 )       (2.8 )
       Other non-interest expense              457          469       (12 )       (2.6 )

       Total non-interest expense       $    2,854      $ 2,717     $ 137          5.0

Total non-interest expense increased $137 thousand to $2.9 million for the three months ended December 31, 2011 from $2.7 million for the three months ended December 31, 2010 primarily due to increased salaries and employee benefits. Salaries and employee benefits increased $218 thousand, or 15.0%, to $1.7 million for the three months ended December 31, 2011 from $1.4 million for the three months ended December 31, 2010. The increase is primarily a result of additions to staff and grants under the approved equity incentive plan as disclosed in Note 8 of the notes to the consolidated financial statements. Salaries and employee benefits include those additional salaries, as well as, the associated benefits and taxes required. Occupancy and equipment decreased $71 thousand from $470 thousand for the three months ended December 31, 2010 to $399 thousand for the three months ended December 31, 2011. The decrease was primarily the result of the sale of the Bank's Washington D.C. branch which occurred in the three months ended March 31, 2011.

Income Taxes. The Company recorded an income tax expense of $49 thousand for the three months ended December 31, 2011, reflecting an effective tax rate of 37.4%, compared to income tax expense of $138 thousand for the three months ended December 31, 2010, reflecting an effective tax rate of 32.8%. The difference between the effective tax rate and statutory rate is primarily due to the amount of income received from bank-owned life insurance, which is tax-exempt for federal and state tax purposes, relative to total pre-tax income for each period.

Comparison of Operating Results for the Six months ended December 31, 2011 and 2010

General. Net income decreased $365 thousand to $170 thousand for the six months ended December 31, 2011 from $535 thousand for the six months ended December 31, 2010. The decrease in net income was primarily a result of an increase in non-interest expense of $388 thousand, or 7.2%, and decreases in non-interest income of $178 thousand, or 31.7%, and net-interest income of $26 thousand.

Net Interest Income. Net interest income decreased $26 thousand to $6.0 million for the six months ended December 31, 2011. Interest expense decreased $119 thousand, or 5.4%, for the six months ended December 31, 2011 primarily as a result of the repayment of several long-term higher costing Federal Home Loan Bank advances. This was partially offset by an increase in deposit expense due to the Bank's money market promotion. Interest and dividend income decreased as a result of low market interest rates which reduced the average yields on the loan and investment portfolios.

The net interest margin was 3.55% for the six months ended December 31, 2011, compared to 3.61% for the six months ended December 31, 2010. The reduction in net interest margin was primarily the result of an increase in average interest-bearing liabilities due to the money market promotion and low market interest rates which reduced the average yield on the loan portfolios by 6 basis points and the securities portfolio by 71 basis points.

Interest and Dividend Income. Interest and dividend income decreased $145 thousand, or 1.8%, to $8.1 million for the six months ending December 31, 2011 as compared to $8.2 million for the six months ending December 31, 2010. Interest income on loans decreased $116 thousand, or 1.5%, to $7.5 million for the six months ended December 31, 2011 from $7.6 million for the six months ended December 31, 2010, as the average yield on loans decreased 6 basis points, to 5.31% for the six months ended December 31, 2011 from 5.37% for the six months ended December 31 2010, reflecting decreases in one-to four-family residential real estate and home equity loans and lines of credit partially offset by an increase in commercial loans.

Total average loans decreased $1.1 million to $279.8 million for the six-months ended December 31, 2011. Average balances decreased in residential and consumer loans by $20.3 million and $3.7 million, respectively, for the six months ended December 31, 2011 as compared to the six months ended December 31, 2010. Average commercial loans increased $22.9 million reflecting the continued focus on commercial loan origination. Commercial loans generally carry higher yields and assist in managing interest rate risk. The reduction in the residential mortgage . . .