This Quarterly Report contains forward-looking statements, which can be identified by the use of such words as "estimate," "project," "believe," "intend," "anticipate," "plan," "seek," "expect," "will," "may," and similar expressions. These forward-looking statements include, but are not limited to:

• statements of our goals, intentions and expectations;

• statements regarding our business plans and prospects and growth and operating strategies;

• statements regarding the asset quality of our loan and investment portfolios; and

• estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.

The following factors, among others, could cause the actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

• our ability to manage our operations during the current United States economic recession;

• our ability to manage the risk from the growth of our commercial real estate lending;

• significant increases in our loan losses, exceeding our allowance;

• changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments and inflation;

• further declines in the yield on our assets resulting from the current low interest rate environment;

• risks related to high concentration of loans secured by real estate located in our market area;

• significant increases in our loan losses;

• risks relating to acquisitions and an ability to integrate and operate profitably any financial institution that we may acquire;

• our ability to pay dividends;

• adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate values);

• general economic conditions, either nationally or in our market area;

• changes in consumer spending, borrowing and savings habits, including a lack of consumer confidence in financial institutions;

• potential increases in deposit assessments;

• significantly increased competition among depository and other financial institutions;

• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies and the authoritative accounting and auditing bodies;

• legislative or regulatory changes, including increased deposit or premium assessments and increased compliance costs, that adversely affect our business and earnings;

• changes in the level of government support of housing finance;

• significantly increased competition with financial institutions;

• risks and costs related to becoming a publicly traded company; and

• changes in our organization, compensation and benefit plans.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in Poage Bankshares, Inc.'s Annual Report on Form 10-K/A, as filed with the Securities and Exchange Commission on January 18, 2012.

Comparison of Financial Condition at March 31, 2012 and September 30, 2011

Our total assets decreased $9.0 million, or 2.7% to $319.0 million at March 31, 2012 from $328.0 million at September 30, 2011. The decrease was primarily due to a decrease of cash and due from financial institutions of $26.7 million, or 55.2%, to $21.7 million at March 31, 2012 from $48.4 million at September 30, 2011, partially offset by an increase in securities available for sale of $22.8 million, or 29.7%, to $99.5 million at March 31, 2012 from $76.7 million at September 30, 2011.

Loans held for sale decreased $610,000, or 60.3% to $402,000 at March 31, 2012 from $1.0 million at September 30, 2011. This decrease was largely due to reduced one-to-four family mortgage loan originations.

Loans receivable, net, decreased $5.5 million, or 3.0% to $178.2 million at March 31, 2012 from $183.7 million at September 30, 2011. This decrease was largely due to reduced one-to-four family loan originations, caused by the reduced level of refinancing and transfers to other real estate owned. Non-performing loans decreased $1.2 million, or 44.4%, from $2.7 million at September 30, 2011 to $1.5 million at March 31, 2012.

Securities available for sale increased to $99.5 million at March 31, 2012 from $76.7 million at September 30, 2011. This increase was primarily due to the deployment of excess cash and cash equivalents for the purchase of higher-yielding residential mortgage backed securities.

Deposits decreased $5.8 million, or 2.4%, to $236.9 million at March 31, 2012 from $242.7 million at September 30, 2011. The decrease was primarily attributable to an increase in savings and NOW accounts of $2.2 million, or 2.4%, offset by a decrease of $8.0 million, or 5.4%, in certificates of deposit.

Federal Home Loan Bank advances decreased $2.5 million, or 10.8%, to $20.6 million at March 31, 2012 from $23.1 million at September 30, 2011. This decrease in borrowings was primarily the result of regular principal payments and maturities.

Total shareholders' equity increased slightly to $59.7 million at March 31, 2012, compared to $59.1 million at September 30, 2011. The increase resulted primarily from net income of $1.1 million for the six months ended March 31, 2012, partially offset by a decrease in other comprehensive income of $342,000 and cash dividends of $135,000.

Average Balance and Yields

The following tables set forth average balance sheets, average yields and costs, and certain other information at the dates and for the periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income.

                                                                For the Three Months Ended March 31,
                                                          2012                                        2011
                                                        Interest                                     Interest
                                          Average          and          Yield/        Average           and          Yield/
                                          Balance       Dividends        Cost         Balance        Dividends        Cost
Assets:
Interest-earning assets:
Loans                                    $ 181,926     $     2,650         5.83 %    $ 183,073      $     2,803         6.12 %
Investment securities                      100,738             625         2.48 %       74,999              444         2.37 %
FHLB stock                                   1,927              22         4.57 %        1,883               21         4.46 %
Other interest-earning assets               18,421               8         0.17 %       11,153                1         0.04 %

Total interest-earning assets              303,012           3,305         4.36 %      271,108            3,269         4.82 %

Noninterest-earning assets                  19,684                                      19,159

Total assets                               322,696                                     290,267

Liabilities and equity:
Interest bearing liabilities:
Interest bearing deposits:
NOW, savings, money market, and other       92,507              83         0.36 %       75,444              156         0.83 %
Certificates of deposit                    144,855             583         1.61 %      157,032              766         1.95 %

Total interest bearing deposits            237,362             666         1.12 %      232,476              922         1.59 %

FHLB advances                               21,120             153         2.90 %       27,172              204         3.00 %

Total interest bearing liabilities         258,482             819         1.27 %      259,648            1,126         1.73 %

Non-interest bearing liabilities:
Non-interest bearing deposits                  864                                         987
Accrued interest payable                       240                                         302
Other liabilities                            2,753                                       1,921

Total non-interest bearing liabilities       3,857                                       3,210

Total liabilities                          262,339                                     262,858

Retained earnings                           59,260                                      27,757
Accumulated other comprehensive income       1,097                                        (348 )

Total equity                                60,357                                      27,409

Total liabilities and equity             $ 322,696                                   $ 290,267

Net interest income                                          2,486                                        2,143
Interest rate spread                                                       3.10 %                                       3.09 %
Net interest margin                                                        3.28 %                                       3.16 %
Average interest-earning assets to
average interest-bearing liabilities                        117.23 %                                     104.41 %

                                                                 For the Six Months Ended March 31,
                                                          2012                                        2011
                                                        Interest                                    Interest
                                          Average          and          Yield/        Average          and          Yield/
                                          Balance       Dividends        Cost         Balance       Dividends        Cost
Assets:
Interest-earning assets:
Loans                                    $ 181,558     $     5,383         5.93 %    $ 183,087     $     5,548         6.06 %
Investment securities                       95,235           1,188         2.49 %       67,920             821         2.42 %
FHLB stock                                   1,906              41         4.30 %        1,883              40         4.25 %
Other interest-earning assets               24,203              24         0.20 %       18,304               4         0.04 %

Total interest-earning assets              302,902           6,636         4.38 %      271,194           6,413         4.73 %

Noninterest-earning assets                  21,127                                      18,710

Total assets                               324,029                                     289,904

Liabilities and equity:
Interest bearing liabilities:
Interest bearing deposits:
NOW, savings, money market, and other       93,108             210         0.45 %       71,360             309         0.87 %
Certificates of deposit                    145,572           1,231         1.69 %      158,891           1,629         2.05 %

Total interest bearing deposits            238,680           1,441         1.21 %      230,251           1,938         1.68 %

FHLB advances                               21,703             329         3.03 %       28,366             428         3.02 %

Total interest bearing liabilities         260,383           1,770         1.36 %      258,617           2,366         1.83 %

Non-interest bearing liabilities:
Non-interest bearing deposits                  971                                       1,000
Accrued interest payable                       395                                         488
Other liabilities                            2,738                                       2,216

Total non-interest bearing liabilities       4,104                                       3,704

Total liabilities                          264,487                                     262,321

Retained earnings                           58,568                                      27,491
Accumulated other comprehensive income         974                                          92

Total equity                                59,542                                      27,583

Total liabilities and equity             $ 324,029                                   $ 289,904

Net interest income                                          4,866                                       4,047
Interest rate spread                                                       3.02 %                                      2.90 %
Net interest margin                                                        3.21 %                                      2.98 %
Average interest-earning assets to
average interest-bearing liabilities                        116.33 %                                    104.86 %

Liquidity and Capital Resources

Our primary sources of funds are deposits and the proceeds from principal and interest payments on loans and investment securities. We also utilize Federal Home Loan Bank advances. While maturities and scheduled amortization of loans and securities are predicable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. We generally manage the pricing of our deposits to be competitive within our market and to increase core deposit relationships.

Liquidity management is both a daily and long-term responsibility of management. We adjust our investments in liquid assets based upon management's assessment of
(i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and investment securities, and (iv) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning overnight deposits, federal funds sold, and short and intermediate-term investment securities. If we require funds beyond our ability to generate them internally we have additional borrowing capacity with the Federal Home Loan Bank of Cincinnati. At March 31, 2012, we had $20.6 million in advances from the Federal Home Loan Bank of Cincinnati and an additional borrowing capacity of $53.1 million.

The Association is subject to various regulatory capital requirements administered by its primary federal regulator, the Office of the Comptroller of the Currency ("OCC"). Failure to meet the minimum regulatory capital requirements can initiate certain mandatory, and possible additional discretionary actions by regulators, that if undertaken, could have a direct material effect on the Association and the consolidated financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines involving quantitative measures of the Association's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.

The Association's capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios of: total risk-based capital and Tier I capital to risk-weighted assets (as defined in the regulations), Tier I capital to adjusted total assets (as defined), and tangible capital to adjusted total assets (as defined).

As of March 31, 2012, based on the most recent notification from the OCC, the Association was categorized as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the most recent notification that management believes have changed the Association's prompt corrective action category.

Actual and required capital amounts (in thousands) and ratios for the Association are presented below at March 31, 2012 and year-end:

                                                                                                        To Be Well
                                                                                                     Capitalized Under
                                                                     For Capital Adequacy            Prompt Corrective
                                                Actual                     Purposes                 Action Regulations
As of March 31, 2012:                     Amount       Ratio          Amount          Ratio         Amount         Ratio
Total Risk-Based Capital (to
Risk-weighted Assets)                    $ 44,914       28.27 %    ³     $12,710      ³ 8.00 %    $    15,888       10.00 %
Tier I Capital (to Risk-weighted
Assets)                                    43,373       27.30 %    ³       6,355      ³ 4.00 %          9,533        6.00 %
Tier I Capital (to Adjusted Total
Assets)                                    43,373       13.60 %    ³      12,756      ³ 4.00 %         15,945        5.00 %

                                                                                                         To Be Well
                                                                                                      Capitalized Under
                                                                      For Capital Adequacy            Prompt Corrective
                                                 Actual                     Purposes                 Action Regulations
As of September 30, 2011:                  Amount       Ratio          Amount          Ratio         Amount         Ratio
Total Risk-Based Capital (to
Risk-weighted Assets)                     $ 43,748       28.52 %    ³     $12,270      ³ 8.00 %    $    15,388     ³ 10.00 %
Tier I Capital (to Risk-weighted
Assets)                                   $ 42,090       27.44 %    ³     $ 6,135      ³ 4.00 %    $     9,203     ³  6.00 %
Tier I Capital (to Adjusted Total
Assets)                                   $ 42,090       12.88 %    ³     $13,076      ³ 4.00 %    $    16,346     ³  5.00 %
Tangible Capital (to Adjusted Total
Assets)                                   $ 42,090       12.88 %    ³     $ 4,904      ³ 1.50 %            N/A         N/A

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers' requests for funding and take the form of loan commitments and lines of credit.

Comparison of Operating Results for the Three and Six Months Ended March 31, 2012 and March 31, 2011

General. Net income decreased to $452,000 for the three months ended March 31, 2012 from $469,000 for the three months ended March 31, 2011. The decrease reflected an increase in net interest income of $343,000 for the three months ended March 31, 2012, offset by an increase in non-interest expense of $498,000 to $2.1 million for the three months ended March 31, 2012 from $1.7 million for the three months ended March 31, 2011.

Net income increased to $1.1 million for the six months ended March 31, 2012 from $906,000 for the six months ended March 31, 2011. The increase reflected an increase in net interest income of $819,000 for the six months ended March 31, 2012, offset by an increase in non-interest expense of $749,000 to $4.0 million for the six months ended March 31, 2012 from $3.3 million for the six months ended March 31, 2011.

Interest Income. Interest income remained constant at $3.3 million for the three months ended March 31, 2012 and for the three months ended March 31, 2011.

Interest income on loans decreased $153,000, or 5.5%, to 2.7 million for the three months ended March 31, 2012 from $2.8 million for the three months ended March 31, 2011. Likewise, the average yields on loans decreased to 5.83% for the three months ended March 31, 2012, compared to 6.12% for the three months ended March 31, 2011. Interest income on investment securities increased $178,000, or 28.6%, to $625,000 for the three months ended March 31, 2012 from $444,000 for the three months ended March 31, 2011, reflecting an increase in the average balance of such securities to $100.7 million at March 31, 2012 from $75.0 million at March 31, 2011. The average yield increased slightly to 2.48% for the three months ended March 31, 2012, compared to 2.37% for the three months ended March 31, 2011.

Interest income increased $203,000, or 3.2%, to $6.6 million for the six months ended March 31, 2012 from $6.4 million for the six months ended March 31, 2011. The increase was largely due to a $502,000 increase in interest income on taxable securities, partially offset by a decrease of $135,000 in interest income from tax exempt securities as well as a decrease of $165,000 in loan interest income.

Interest income on loans decreased $165,000, or 3.0%, to $5.4 million for the six months ended March 31, 2012, from $5.5 million for the 6 months ended March 31, 2011. The average yields on loans decreased to 5.93% for the six months ended March 31, 2012, compared to 6.06% for the six months ended March 31, 2011. Interest income on investment securities increased $367,000, or 30.9%, to $1.2 million for the six months ended March 31, 2012 from $821,000 for the six months ended March 31, 2011, reflecting an increase in the average balance of such securities to $95.2 million at March 31, 2012 from $67.9 million at March 31, 2011. The average yield increased slightly to 2.49% for the six months ended March 31, 2012, compared to 2.42% for the six months ended March 31, 2011.

Interest Expense. Interest expense decreased $307,000, or 27.3%, to $819,000 for the three months ended March 31, 2012 from $1.1 million for the three months ended March 31, 2011. The decrease reflected a decrease in the average rate paid on deposits to 1.12% for the three months ended March 31, 2012 from 1.59% for the three months ended March 31, 2011, which more than offset increases in the average balance of such deposits from $232.5 million to $237.4 million for the same periods. Interest expense on Federal Home Loan Bank Advances decreased $51,000 or 25.0% to $153,000 for the three months ended March 31, 2012 from $204,000 for the three months ended March 31, 2011. This decrease was due to a decrease of $6.1 million in the average balance of these borrowings, offset by a 10 basis point increase in the average rate paid on these borrowings.

Interest expense decreased $596,000, or 25.1%, to $1.8 million for the six months ended March 31, 2012 from $2.4 million for the six months ended March 31, 2011. The decrease reflected a decrease in the average rate paid on deposits to 1.21% for the six months ended March 31, 2012 from 1.68% for the six months ended March 31, 2011, which more than offset increases in the average balance of such deposit from $230.3 million to $238.7 million for the same periods. Interest expense on Federal Home Loan Bank Advances decreased $99,000 or 23.1% to $329,000 for the six months ended March 31, 2012 from $428,000 for the six months ended March 31, 2011. This decrease was due to a decrease of $6.7 million in the average balance of these borrowings, partially offset by a 1 basis point increase in the average rate paid on these borrowings.

Interest expense on certificates of deposit decreased $183,000, or 23.9%, to $583,000 for the three months ended March 31, 2012 from $766,000 for the three months ended March 31, 2011. This decrease reflected a decrease in the average rate paid on certificates of deposits to 1.61% for the three months ended March 31, 2012 from 1.95% for the three months ended March 31, 2011, as well as a decrease in the average balance of such certificates to $144.9 million from $157.0 million. Interest expense on money market deposits, savings, and NOW and demand deposits decreased $73,000, or 46.8%, to $83,000 for the three months ended March 31, 2012 from $156,000 for the three months ended March 31, 2011. The decrease was due to the lower average cost on the NOW and demand deposits as well as savings and money market accounts to 0.36% for the three months ended March 31, 2012 from 0.83% for the three months ended March 31, 2011.

Interest expense on certificates of deposit decreased $398,000, or 24.4%, to $1.2 million for the six months ended March 31, 2012 from $1.6 million for the six months ended March 31, 2011. This decrease reflected a decrease in the average rate paid on certificates of deposits to 1.69% for the six months ended March 31, 2012 from 2.05% for the six months ended March 31, 2011, as well as a decrease in the average balance of such certificates to $145.6 million from $158.9 million. Interest expense on money market deposits, savings, and NOW and demand deposits decreased $99,000, or 32.0%, to $210,000 for the six months ended March 31, 2012 from $309,000 for the six months ended March 31, 2011. The decrease was due to the lower average cost on the NOW and demand deposits as well as savings and money market accounts to 0.45% for the six months ended March 31, 2012 from 0.87% for the six months ended March 31, 2011.

Net Interest Income. Net interest income increased $343,000, or 16.0%, to $2.5 million for the three months ended March 31, 2012 from $2.1 million for the three months ended March 31, 2011. The interest rate spread increased slightly to 3.10% from 3.09%, along with an increase in the ratio of our average interest earning assets to average interest bearing liabilities to 117.23% from 104.41%. Our net interest margin increased to 3.28% from 3.16%. The increases in our interest rate spread and net interest margin were largely due to a reduction of rates paid on deposits.

Net interest income increased $819,000, or 20.2%, to $4.9 million for the six months ended March 31, 2012 from $4.0 million for the six months ended March 31, 2011. The interest rate spread increased to 3.02% from 2.90%, along with an increase in the ratio of our average interest earning assets to average interest bearing liabilities to 116.33% from 104.86%. Our net interest margin increased to 3.21% from 2.98%. The increases in our interest rate spread and net interest margin were largely due to a reduction of rates paid on deposits.

. . .