General

The primary function of the Company is to monitor and oversee its investment in the Bank. The Company engages in few other activities, and the Company has no significant assets other than its investment in the Bank. As a result, the results of operations of the Company are derived primarily from operations of the Bank. The Bank's results of operations are primarily dependent on net interest margin, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. The Bank's income is also affected by the level of its noninterest expenses, such as employee salaries and benefits, occupancy expenses and other expenses. The following discussion reviews material changes in the Company's financial condition as of March 31, 2012, and the results of operations for the three months ended March 31, 2012 and 2011.

The discussion set forth below, as well as other portions of this Form 10-Q, may contain forward-looking comments. Such comments are based upon the information currently available to management of the Company and management's perception thereof as of the date of this Form 10-Q. When used in this Form 10-Q, words such as "anticipates," "estimates," "believes," "expects," and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Such statements are subject to risks and uncertainties. Actual results of the Company's operations could materially differ from those forward-looking comments. The differences could be caused by a number of factors or combination of factors including, but not limited to: changes in demand for banking services; changes in portfolio composition; changes in management strategy; increased competition from both bank and non-bank companies; changes in the general level of interest rates; changes in general or local economic conditions; changes in federal or state regulations and legislation governing the operations of the Company or the Bank; and other factors set forth in reports and other documents filed by the Company with the SEC from time to time, including the risk factors described under Item 1A. of the Company's Form 10-K for the fiscal year ended December 31, 2011.

Financial Condition
The Company's total assets increased $528,071 (0%) from $648,505,858 as of December 31, 2011, to $649,033,929 as of March 31, 2012.

Interest-bearing deposits decreased $5,587,654 (100%) from $5,587,654 as of December 31, 2011, to $0 as of March 31, 2012. The decrease is due to maturities during the period.

Available-for-sale securities increased $15,353,695 (19%) from $81,064,878 as of December 31, 2011, to $96,418,573 as of March 31, 2012. The increase is primarily due to purchases of $28.8 million offset by sales, maturities and principal payments received of $13.4 million.

Net loans receivable decreased by $18,401,573 (4%) from $478,960,736 as of December 31, 2011, to $460,559,163 as of March 31, 2012. The Company experienced certain anticipated payoffs of various commercial real estate loans. During the quarter, commercial real estate loans decreased $18,781,686 (10%). Also, commercial loans decreased $2,083,861 (2%), permanent multi-family loans decreased $204,509 (1%), construction loans increased $2,520,924 (6%), loans secured by owner occupied one to four unit residential real estate decreased $386,616 (0%) and installment loans increased $885,367 (4%). The Company continues to focus its lending efforts in the commercial and owner occupied real estate loan categories, and to reduce its concentrations in non-owner occupied commercial real estate.

Allowance for loan losses increased $360,447 (3%) from $10,613,145 as of December 31, 2011 to $10,973,592 as of March 31, 2012. The allowance increased due to the provision for loan losses of $900,000 exceeding net loan charge-offs of $539,553 recorded during the period. Management charged off certain specific loans that had been identified and classified as impaired at December 31, 2011. See discussion under "Results of Operations - Comparison of Three Month Periods Ended March 31, 2012 and 2011 - Provision for Loan Losses." The allowance for loan losses, as a percentage of gross loans outstanding (excluding mortgage loans held for sale), as of March 31, 2012 and December 31, 2011 was 2.33% and 2.17%, respectively. The allowance for loan losses, as a percentage of nonperforming loans outstanding, as of March 31, 2012 and December 31, 2011 was 51.0% and 62.4%, respectively. Management believes the allowance for loan losses is at a level to be sufficient in providing for potential loan losses in the Bank's existing loan portfolio.

Deposits decreased $365,210 (0%) from $484,583,665 as of December 31, 2011, to $484,218,455 as of March 31, 2012. For the three months ended March 31, 2012, checking and savings accounts increased by $6.4 million and certificates of deposit decreased by $6.8 million. See also the discussion under "Quantitative and Qualitative Disclosure about Market Risk - Asset/Liability Management."

Stockholders' equity (including unrealized appreciation on available-for-sale securities, net of tax) increased $809,821 from $54,234,847 as of December 31, 2011, to $55,044,668 as of March 31, 2012. The Company's net income during this period was $834,722. In conjuction with the Series A Preferred Stock, the Company accrued $212,500 of dividends (5%) during the period. On a per common share basis, stockholders' equity increased from $14.07 as of December 31, 2011 to $14.22 as of March 31, 2012.

Average Balances, Interest and Average Yields

The Company's profitability is primarily dependent upon net interest income, which represents the difference between interest and fees earned on loans and debt and equity securities, and the cost of deposits and borrowings. Net interest income is dependent on the difference between the average balances and rates earned on interest-earning assets and the average balances and rates paid on interest-bearing liabilities. Non-interest income, non-interest expense, and income taxes also impact net income.

The following table sets forth certain information relating to the Company's average consolidated statements of financial condition and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense annualized by the average balance of assets or liabilities, respectively, for the periods shown. Average balances were derived from average daily balances. The average balance of loans includes loans on which the Company has discontinued accruing interest. The yields and costs include fees which are considered adjustments to yields. All dollar amounts are in thousands.

                               Three Months ended 3/31/2012                    Three Months ended 3/31/2011
                          Average                         Yield /         Average                         Yield /
                          Balance          Interest         Cost          Balance          Interest         Cost
ASSETS
Interest-earning:
Loans                   $   474,043       $    6,404           5.40 %   $   494,906       $    6,717           5.43 %
Investment securities        87,226              412           1.89 %        96,185              725           3.02 %
Other assets                 27,772               50           0.72 %        39,527               88           0.89 %
Total
interest-earning            589,041            6,866           4.66 %       630,618            7,530           4.78 %
Noninterest-earning          54,515                                          52,753
                        $   643,556                                     $   683,371
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing:
Savings accounts        $    21,469               23           0.43 %   $    19,591               32           0.65 %
Transaction accounts        263,094              568           0.86 %       254,739              695           1.09 %
Certificates of
deposit                     151,856              551           1.45 %       170,386              873           2.05 %
FHLB Advances                68,050              384           2.26 %        93,050              600           2.58 %
Securities sold under
agreements to
repurchase                   25,000              184           2.94 %        39,750              279           2.81 %
Subordinated
debentures                   15,465              140           3.62 %        15,465              207           5.35 %
Total
interest-bearing            544,934            1,850           1.36 %       592,981            2,686           1.81 %
Noninterest-bearing          43,226                                          37,474
Total liabilities           588,160                                         630,455
Stockholders' equity         55,396                                          52,916
                        $   643,556                                     $   683,371
Net earning balance     $    44,107                                     $    37,637
Earning yield less
costing rate                                                   3.30 %                                          2.97 %
Net interest income,
and net interest
margin on interest
earning assets                            $    5,016           3.41 %                     $    4,844           3.07 %
Ratio of
interest-earning
assets to
interest-bearing
liabilities                                      108 %                                           106 %

Results of Operations - Comparison of Three Month Periods Ended March 31, 2012 and 2011

Net income for the three months ended March 31, 2012 and 2011 was $834,722 and $522,962, respectively, which represents an increase in earnings of $311,760 (60%).

Interest Income

Total interest income for the three months ended March 31, 2012 decreased $664,196 (9%) as compared to the three months ended March 31, 2011. For the three month period ended March 31, 2012 compared to the same period in 2011, the average yield on interest earning assets decreased 12 basis points to 4.66%, while the average balance of interest earning assets decreased approximately $41,577,000. The Company's decrease in the average yield on interest earning assets was primarily impacted by the average yield on investments which decreased 112 basis points to 1.89% for the three months ended March 31, 2012, as compared to 3.02% during the same period in 2011. This was primarily due to a series of investment transactions in the fourth quarter of 2011 to sell certain investment securities in order to prepay $14.75 million of repurchase agreements. The securities carried a weighted average yield of 5.00% at the time of sale. Another factor that has negatively impacted the Company's average yield on interest earning assets during the quarter was the increase in nonaccrual loans which was $21.5 million as of March 31, 2012, as compared to $17.0 million as of December 31, 2011.

Interest Expense

Total interest expense for the three months ended March 31, 2012 decreased $836,161 (31%) when compared to the three months ended March 31, 2011. For the three month period ended March 31, 2012, the average cost of interest bearing liabilities decreased 45 basis points to 1.36%, and the average balance of interest bearing liabilities decreased approximately $48,047,000 when compared to the same period in 2011. The primary reason for the significant decrease in the average cost of interest bearing liabilities was the continued decline in higher cost certificates of deposits as well as reductions in the average rate paid on transaction deposit balances. Also, the Company reduced its FHLB advances and securities sold under agreements to repurchase during the latter half of 2011. As a result, interest expense on these borrowings decreased $311,813 (35%) for the three months ended March 31, 2012 as compared to the same period in 2011.

Net Interest Income

Net interest income for the three months ended March 31, 2012 increased $171,965 (4%) when compared to the same period in 2011. The average balance of interest earning assets decreased by approximately $6,470,000 less than the average balance in interest bearing liabilities decreased when comparing the three month period ended March 31, 2012 to the same period in 2011. For the three month period ended March 31, 2012, the net interest margin increased 34 basis points to 3.41% when compared to the same period in 2011.

Provision for Loan Losses

Based on its internal analysis and methodology, management recorded a provision for loan losses of $900,000 for the three months ended March 31, 2012, compared to $900,000 for the same period in 2011. The Bank will continue to monitor its allowance for loan losses and make future additions based on economic and regulatory conditions. Management of the Company anticipates the need to continue increasing the allowance for loan losses through charges to the provision for loan losses if anticipated growth in the Bank's loan portfolio increases or other circumstances warrant. Although the Bank maintains its allowance for loan losses at a level which it considers to be sufficient to provide for potential loan losses in its existing loan portfolio, there can be no assurance that future loan losses will not exceed internal estimates. In addition, the amount of the allowance for loan losses is subject to review by regulatory agencies which can order the establishment of additional loan loss provisions.

Noninterest Income

Noninterest income increased $89,113 (12%) for the three months ended March 31, 2012 when compared to the three months ended March 31, 2011.

Gains on investment securities for the three months ended March 31, 2012 were $37,529 compared to $3,704 during the same period in 2011. Losses on foreclosed assets were $101,109 for the three months ended March 31, 2012 as compared to $133,987 for the same period in 2011. Gain on sale of loans increased $84,154 (30%) for the three months ended March 31, 2012 when compared to the same period in 2011 due to increased volume in mortgage loan originations. Deposit service charges decreased $84,141 (25%) due primarily to declines in overdraft charges, which is partially due to amendments to Regulation E regarding fees on debit card and ATM transactions.

Noninterest Expense

Noninterest expense decreased $104,716 (3%) for the three months ended March 31, 2012 when compared to the three months ended March 31, 2011.

Salaries and employee benefits increased $69,945 (3%) for the three months ended March 31, 2012 when compared to the same period in 2011. This increase was primarily due to additions of associates throughout 2011 in the areas of human resources, information systems and risk management, as well as normal pay raises. FDIC deposit insurance premiums decreased $69,000 for the period primarily due to the change in the assessment base and rate structure that went into effect in the second quarter of 2011. The Company also experienced a significant decrease of $120,000 in legal expenses related to costs incurred on a few specific troubled borrowers during the prior year quarter.

Provision for Income Taxes

The increase in the provision for income taxes is a direct result of the increase in the Company's taxable income for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011.

Nonperforming Assets

The allowance for loan losses is calculated based upon an evaluation of pertinent factors underlying the various types and quality of the Bank's existing loan portfolio. When making such evaluation, management considers such factors as the repayment status of its loans, the estimated net realizable value of the underlying collateral, borrowers' intent (to the extent known by the Bank) and ability to repay the loan, local economic conditions and the Bank's historical loss ratios. The allowance for loan losses, as a percentage of nonperforming loans outstanding, as of March 31, 2012 and December 31, 2011 was 51.0% and 62.4%, respectively. Total loans classified as substandard, doubtful or loss as of March 31, 2012, were $36.6 million or 5.63% of total assets as compared to $32.9 million, or 5.08% of total assets at December 31, 2011. Management considered nonperforming and total classified loans in evaluating the adequacy of the Bank's allowance for loan losses.

The ratio of nonperforming assets to total assets is another useful tool in evaluating exposure to credit risk. Nonperforming assets of the Bank include nonperforming loans and assets which have been acquired as a result of foreclosure or deed-in-lieu of foreclosure. All dollar amounts are in thousands.

                                                      3/31/2012       12/31/2011       12/31/2010
Nonperforming loans                                  $    21,532     $     17,002     $     23,012
Real estate acquired in settlement of loans                9,427           10,012           10,540
Total nonperforming assets                           $    30,959     $     27,014     $     33,552

Total nonperforming assets as a percentage of
total assets                                                4.77 %           4.17 %           4.91 %
Allowance for loan losses                            $    10,974     $     10,613     $     13,083
Allowance for loan losses as a percentage of gross
loans                                                       2.33 %           2.17 %           2.54 %

Liquidity and Capital Resources

Liquidity refers to the ability to manage future cash flows to meet the needs of depositors and borrowers and fund operations. Maintaining appropriate levels of liquidity allows the Company to have sufficient funds available for customer demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities. The Company's primary sources of liquidity include cash and cash equivalents, customer deposits and Federal Home Loan Bank of Des Moines borrowings. The Company also has established borrowing lines available from the Federal Reserve Bank which is considered a secondary source of funds.

The Company's most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, and certificates of deposit with other financial institutions that have an original maturity of three months or less. The levels of such assets are dependent on the Bank's operating, financing, and investment activities at any given time. The Company's cash and cash equivalents totaled $35,708,676 as of March 31, 2012 and $26,574,082 as of December 31, 2011, representing an increase of $9,134,594. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows, which are subject to, and influenced by, many factors.

The Bank's capital ratios are above the levels required to be considered a well-capitalized financial institution. As of March 31, 2012, the Bank's Tier 1 leverage ratio was 10.57%, its Tier 1 risk-based capital ratio was 13.44% and the Bank's total risk-based capital ratio was 14.70% - all exceeding the minimums of 5%, 6% and 10%, respectively.

With regards to the securities sold to the Treasury under CPP, if the Company is unable to redeem the Series A Preferred Stock within five years of its issuance, the cost of capital to the Company will increase significantly from 5% per annum ($850,000 annually) to 9% per annum ($1,530,000 annually). Depending on the Company's financial condition at the time, the increase in the annual dividend rate on the Series A Preferred Stock could have a material adverse effect on the Company's liquidity and net income available to common stockholders.