The following analysis discusses changes in the financial condition at March 31, 2012 and June 30, 2011 and results of operations for the three and nine months ended March 31, 2012 and 2011, and should be read in conjunction with the Company's Condensed Consolidated Financial Statements and the notes thereto, appearing in Part I, Item 1 of this quarterly report. These financial statements should be read in conjunction with the 2011 Consolidated Financial Statements and notes thereto included in the Company's Annual Report on Form 10-K filed with the SEC on September 26, 2011.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiary include, but are not limited to, changes in: interest rates, general economic conditions, legislation and regulations, real estate values, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission.

Except as required by applicable law and regulation, the Company does not undertake - and specifically disclaims any obligation - to publicly release the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Overview

The Company's results of operations depend primarily on net interest and dividend income, which is the difference between the interest and dividend income earned on its interest-earning assets, such as loans and securities, and the interest expense on its interest-bearing liabilities, such as deposits and borrowings. The Company also generates non-interest income, primarily from fees and service charges. Gains on sales of loans and securities and bank-owned life insurance income are added sources of non-interest income. The Company's non-interest expense primarily consists of employee compensation and benefits, occupancy and equipment expense, advertising, data processing, professional fees and other operating expenses.

During the quarters ended March 31, 2012 and 2011, the Company recorded non-cash OTTI charges of $493,000 and $84,000, respectively. Both of these OTTI charges were taken on non-agency mortgage-backed securities. The net interest margin increased from 2.56% for the quarter ended March 31, 2011 to 2.62% for the quarter ended March 31, 2012, as we experienced a $42,000 decrease in net interest and dividend income over the periods. In addition, non-interest expense decreased $217,000 during the quarter ended March 31, 2012 compared to the quarter ended March 31, 2011. The provision for loan losses decreased $28,000 during the quarter ended March 31, 2012 as compared to the quarter ended March 31, 2011.

During the nine months ended March 31, 2012 and 2011, the Company recorded non-cash OTTI charges of $1.5 million and $611,000, respectively. Both of these OTTI charges were taken on non-agency mortgage-backed securities. The Company also received $1.5 million in a legal settlement, which was a partial recovery of a previously written-down security, reflected in the Company's results of operations during the nine months ended March 31, 2012. The net interest margin decreased from 2.53% for the nine months ended March 31, 2011 to 2.51% for the nine months ended March 31, 2012, as we experienced a $352,000 decrease in net interest and dividend income over the periods. In addition, non-interest expense decreased $112,000 during the nine months ended March 31, 2012 compared to the same period in the prior year. The provision for loan losses increased $131,000 during the nine months ended March 31, 2012 as compared to the nine months ended March 31, 2011.

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

Assets

Total assets decreased to $451.7 million at March 31, 2012 from $472.5 million at June 30, 2011. Cash and cash equivalents increased $3.3 million and totaled $11.6 million or 2.6% of total assets. Investments in available-for-sale securities decreased $4.7 million and totaled $53.3 million or 11.8% of total assets at March 31, 2012. Investments in held-to-maturity securities decreased $16.1 million and totaled $98.6 million or 21.8% of total assets at March 31, 2012. The decrease in investments was due to accumulating cash in order to payoff $25 million in FHLB advances this quarter. Net loans decreased $3.2 million and totaled $250.0 million or 55.4% of total assets at March 31, 2012. Included in other assets as of March 31, 2012 was $1.2 million in prepaid FDIC assessments. Bank owned life insurance increased $2.2 million due to purchases of additional policies and totaled $8.7 million at March 31, 2012.

Allowance for Loan Losses

The table below indicates the relationships between the allowance for loan
losses, total loans outstanding and nonperforming loans at March 31, 2012 and
June 30, 2011. For additional information, see "Comparison of Operating Results
for the Three and Nine months ended March 31, 2012 and 2011 - Provision for loan
losses."

                                      March 31,       June 30,
                                        2012            2011
                                      (Dollars in thousands)

Allowance for loan losses           $       3,042     $   3,072
Gross loans outstanding                   252,632       256,297
Non-performing loans                        8,817         6,419

Allowance/gross loans outstanding            1.20 %        1.20 %
Allowance/non-performing loans               34.5 %        47.9 %

Liabilities

Total liabilities decreased to $403.8 million at March 31, 2012 from $425.8 million at June 30, 2011. Total deposits increased to $339.6 million at March 31, 2012 from $333.8 million at June 30, 2011, an increase of $5.8 million or 1.8%. Federal Home Loan Bank advances decreased to $56.5 million at March 31, 2012 from $83.5 million at June 30, 2011, a decrease of $27.0 million or 32.3%. This decrease was primarily due to repaying $25 million in FHLB advances at a weighted-cost of 4.65%. Cash flow from the investment portfolio was used to fund this repayment. Securities sold under agreements to repurchase decreased to $4.0 million at March 31, 2012 from $4.2 million at June 30, 2011, a decrease of $232,000 or 5.5%.

Stockholders' Equity

Stockholders' equity increased to $47.8 million at March 31, 2012 from $46.7 million at June 30, 2011, primarily due to a $171,000 decrease in unrealized losses on available-for-sale securities net of tax recorded in accumulated other comprehensive loss and net income of $852,000 for the nine months ended March 31, 2012.

Comparison of Operating Results for the Three and Nine months ended March 31, 2012 and 2011

Net Income

Net income amounted to $36,000 or $.01 per basic and diluted share for the quarter ended March 31, 2012 compared to net income of $530,000 or $.08 per basic and diluted share for the quarter ended March 31, 2011. The decrease in net income was primarily due to securities write-downs and a decrease in net interest income of $42,000 to $2.78 million for the quarter ended March 31, 2012 compared to $2.82 million for the quarter ended March 31, 2011. Other-than-temporarily impaired investment write-downs increased by $409,000 to $493,000 for the quarter ended March 31, 2012 compared to $84,000 for the quarter ended March 31, 2011. The provision for loan loss decreased by $28,000 to $190,000 for the quarter ended March 31, 2012 compared to $218,000 for the quarter ended March 31, 2011. Total non-interest expense decreased by $217,000 to $2.6 million for the quarter ended March 31, 2012 compared to $2.8 million for the quarter ended March 31, 2011. Income tax expense was $31,000 for the quarter ended March 31, 2012 compared to $190,000 in income tax expense for the quarter ended March 31, 2011.

Net income amounted to $852,000 or $.13 per basic and diluted share for the nine months ended March 31, 2012 compared to net income of $1.2 million or $.19 per basic and diluted share for the nine months ended March 31, 2011. This was primarily due to an increase of $1.0 million received in a legal settlement regarding prior security losses during the nine months ended March 31, 2012. Other-than-temporarily impaired investment write-downs increased by $894,000 to $1.5 million for the nine months ended March 31, 2012 compared to $611,000 for the nine months ended March 31, 2011. The provision for loan loss increased by $131,000 to $791,000 for the nine months ended March 31, 2012 compared to $660,000 for the nine months ended March 31, 2011. Net interest and dividend income decreased by $352,000 to $8.2 million for the nine months ended March 31, 2012 compared to $8.5 million for the nine months ended March 31, 2011. Income tax expense decreased by $95,000 to $275,000 for the nine months ended March 31, 2012 compared to $370,000 for the nine months ended March 31, 2011. Non-interest expense decreased $112,000 to $8.4 million for the nine months ended March 31, 2012 compared to $8.5 million for the nine months ended March 31, 2011.

Interest and Dividend Income

Interest and dividend income amounted to $4.3 million for the quarter ended March 31, 2012 compared to $4.9 million for the quarter ended March 31, 2011, a decrease of $515,000 or 10.6%. This was primarily due to a decrease in yield on earning assets of 31 basis points to 4.10% for the quarter ended March 31, 2012 compared to 4.41% for the quarter ended March 31, 2011. Average investment securities decreased $24.0 million to $162.0 million for the quarter ended March 31, 2012 compared to $186.0 million for the quarter ended March 31, 2011. The yield on investment securities decreased 21 basis points to 2.87% for the quarter ended March 31, 2012 compared to 3.08% for the quarter ended March 31, 2011. Average loans decreased by $1.6 million to $255.7 million for the quarter ended March 31, 2012 compared to $257.3 million for the quarter ended March 31, 2011. The yield on loans decreased 43 basis points to 5.00% for the quarter ended March 31, 2012 compared to 5.43% for the quarter ended March 31, 2011.

Interest and dividend income amounted to $13.5 million for the nine months ended March 31, 2012 compared to $15.0 million for the nine months ended March 31, 2011, a decrease of $1.5 million or 9.9%. This was primarily due to a decrease in yield on earning assets of 30 basis points to 4.13% for the nine months ended March 31, 2012 compared to 4.43% for the nine months ended March 31, 2011. Average investment securities decreased $15.2 million to $171.1 million for the nine months ended March 31, 2012 compared to $186.3 million for the nine months ended March 31, 2011. The yield on investment securities decreased 41 basis points to 2.86% for the nine months ended March 31, 2012 compared to 3.27% for the nine months ended March 31, 2011. Average loans decreased by $716,000 to $256.2 million for the nine months ended March 31, 2012 compared to $256.9 million for the nine months ended March 31, 2011. The yield on loans decreased 29 basis points to 5.09% for the nine months ended March 31, 2012 compared to 5.38% for the nine months ended March 31, 2011.

Interest Expense

Interest expense amounted to $1.6 million for the quarter ended March 31, 2012 compared to $2.0 million for the quarter ended March 31, 2011, a decrease of $473,000 or 23.2%. The decrease was primarily due to changes in rates of interest-bearing liabilities. The cost of average interest-bearing liabilities decreased 38 basis points to 1.70% for the quarter ended March 31, 2012 from 2.08% for the quarter ended March 31, 2011. The average rate on interest-bearing deposits decreased by 35 basis points to 1.24% for the quarter ended March 31, 2012 compared to 1.59% for the quarter ended March 31, 2011. The average rate on borrowed money decreased by eight basis points to 3.47% for the quarter ended March 31, 2012 compared to 3.55% for the quarter ended March 31, 2011.

Interest expense amounted to $5.3 million for the nine months ended March 31, 2012 compared to $6.4 million for the quarter ended March 31, 2011, a decrease of $1.1 million or 17.6%. The decrease was primarily due to changes in rates of interest-bearing liabilities. The cost of average interest-bearing liabilities decreased 29 basis points to 1.85% for the nine months ended March 31, 2012 from 2.14% for the nine months ended March 31, 2011. The average rate on interest-bearing deposits decreased by 28 basis points to 1.36% for the nine months ended March 31, 2012 compared to 1.64% for the nine months ended March 31, 2011. The average rate on borrowed money increased by one basis point to 3.56% for the nine months ended March 31, 2012 compared to 3.55% for the nine months ended March 31, 2011.

Net Interest and Dividend Income

Net interest and dividend income amounted to $2.78 million for the quarter ended March 31, 2012 compared to $2.82 million for the quarter ended March 31, 2011, a decrease of $42,000 or 1.5%. Net interest rate spread increased by six basis points to 2.40% for the quarter ended March 31, 2012 from 2.34% for the quarter ended March 31, 2011. Net interest margin increased six basis points to 2.62% from 2.56% when comparing the quarters ended March 31, 2012 and 2011, respectively. Net interest-earning assets increased $5.8 million to $56.2 million for the quarter ended March 31, 2012 compared to $50.4 million for the quarter ended March 31, 2011.

Net interest and dividend income amounted to $8.2 million for the nine months ended March 31, 2012 compared to $8.5 million for the nine months ended March 31, 2011, a decrease of $352,000 or 4.1%. Net interest rate spread decreased by one basis point to 2.28% for the nine months ended March 31, 2012 from 2.29% for the nine months ended March 31, 2011. Net interest margin decreased two basis points to 2.51% from 2.53% when comparing the nine months ended March 31, 2012 and 2011, respectively. Net interest-earning assets increased $4.2 million to $54.6 million for the nine months ended March 31, 2012 compared to $50.4 million for the nine months ended March 31, 2011.

Due to the large portion of fixed rate loans and securities in the Company's asset portfolio, interest rate risk is a concern and the Company continues to monitor and adjust the asset and liability mix as much as possible to take advantage of the benefits and reduce the risks or potential negative effects of a rising rate environment. Management attempts to mitigate the interest rate risk through balance sheet composition. See "Market Risk, Liquidity and Capital Resources - Market Risk."

Provision for Loan Losses

The provision for loan losses amounted to $190,000 for the quarter ended March 31, 2012 compared to $218,000 for the quarter ended March 31, 2011, a decrease of $28,000 or 12.8%. The allowance for loan losses is based on management's estimate of the probable losses inherent in the portfolio, considering the impact of certain internal and external factors. Among the factors management considers are prior loss experience, current economic conditions and their effects on borrowers, the character and size of the portfolio, trends in non-performing loans and delinquency rates and the performance of individual loans in relation to contractual terms. The provision for loan losses reflects adjustments to the allowance based on management's review of the portfolio in light of these factors. The ratio of the allowance to gross loans outstanding was 1.20% as of March 31, 2012 and June 30, 2011. Net charge-offs were $228,000 for the quarter ended March 31, 2012 compared to net recoveries of $14,000 for the quarter ended March 31, 2011.

The provision for loan losses amounted to $791,000 for the nine months ended March 31, 2012 compared to $660,000 for the nine months ended March 31, 2011, an increase of $131,000 or 19.8%. This is primarily due to increased allocations during the nine months ended March 31, 2012 for certain impaired loans. Net charge-offs were $821,000 for the nine months ended March 31, 2012 compared to net charge-offs of $492,000 for the nine months ended March 31, 2011. The ratio of the allowance to non-performing loans was 34.5% at March 31, 2012 compared to 47.9% at June 30, 2011.

Non-interest Income

Non-interest income totaled $120,000 for the quarter ended March 31, 2012 compared to $976,000 for the quarter ended March 31, 2011, a decrease of $856,000 or 87.7%. The decrease was primarily due to an increase in other-than-temporary impairment charges on available-for-sale securities of $409,000 to $493,000 for the quarter ended March 31, 2012 compared to $84,000 for the quarter ended March 31, 2011. The impairment charges for the three months ended March 31, 2012 and March 31, 2011 were the result of credit losses on non-agency mortgage-backed securities. Service fees decreased by $70,000 or 14.1% to $427,000 for the quarter ended March 31, 2012 compared to $497,000 for the quarter ended March 31, 2011. A $420,000 partial legal settlement on a previously written-down security was recognized during the quarter ended March 31, 2011.

Non-interest income totaled $2.1 million for the nine months ended March 31, 2012 compared to $2.2 million for the nine months ended March 31, 2011, a decrease of $71,000 or 3.3%. The decrease was primarily due to an increase in other-than-temporary impairment charges on available-for-sale securities of $894,000 to $1.5 million for the nine months ended March 31, 2012 compared to $611,000 for the nine months ended March 31,2011. The impairment charges for the nine months ended March 31, 2012 and March 31, 2011 were the result of credit losses on non-agency mortgage-backed securities. Service fees decreased $156,000 or 10.0% to $1.4 million for the nine months ended March 31, 2012 compared to $1.6 million for the nine months ended March 31, 2011. A $1.5 million legal settlement on a previously written-down security was recognized during the nine months ended March 31, 2012 compared to $420,000 during the nine months ended March 31, 2011.

Non-interest Expense

Non-interest expense amounted to $2.6 million for the quarter ended March 31, 2012 compared to $2.9 million for the quarter ended March 31, 2011, a decrease of $217,000 or 7.6%. Compensation and benefits expense decreased $15,000 or 1.0%. Occupancy and equipment expense decreased $62,000 or 16.8%. All other non-interest expenses decreased $140,000 or 13.5% to $894,000 for the quarter ended March 31, 2012 compared to $1.0 million for the quarter ended March 31, 2011.

Non-interest expense amounted to $8.4 million for the nine months ended March 31, 2012 as compared to $8.5 million for the nine months ended March 31, 2011, a decrease of $112,000 or 1.3%. Compensation and benefits expense increased $84,000 or 1.9%. Occupancy and equipment expense decreased $49,000 or 5.0%. All other non-interest expenses decreased $147,000 or 4.7%.

Provision for Income Taxes

Income tax expense amounted to $31,000 for the quarter ended March 31, 2012 compared to $190,000 for the quarter ended March 31, 2011. The effective tax rates were 46.3% and 26.4%, respectively. The Company adjusted the tax provision during the current quarter to ensure the year-to-date provision was appropriate. Income tax expense amounted to $275,000 for the nine months ended March 31, 2012 compared to $370,000 for the nine months ended March 31, 2011. The effective tax rates were 24.4% and 23.6%, respectively.

Average Balances and Yields

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table 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 or expense. Yields and costs are annualized.

                                                                          For the Three Months Ended March 31,
                                                                 2012                                                 2011
                                                                                 (Dollars in thousands)

                                            Average           Interest           Yield/          Average           Interest           Yield/
 Interest-earning assets:                   Balance        Income/Expense         Cost           Balance        Income/Expense         Cost
 Investment securities                    $   162,048     $          1,157            2.87 %   $   186,035     $          1,414            3.08 %
 Loans                                        255,689                3,181            5.00 %       257,284                3,442            5.43 %
 Other earning assets                           8,357                    4            0.19 %         3,234                    1            0.13 %
 Total interest-earnings assets               426,094                4,342            4.10 %       446,553                4,857            4.41 %
 Non-interest-earning assets                   31,653                                               32,414
 Total assets                             $   457,747                                          $   478,967

 Interest-bearing liabilities:
 NOW accounts                             $    92,263     $            154            0.67 %   $    90,349     $            223            1.00 %
 Savings accounts                              51,500                   44            0.34 %        47,766                   41            0.35 %
 Money market accounts                         15,094                   21            0.56 %        14,066                   27            0.78 %
 Time deposits                                135,454                  692            2.05 %       143,003                  863            2.45 %
 Borrowed money                                75,604                  653            3.47 %       101,012                  883            3.55 %
 Total interest-bearing liabilities           369,915                1,564            1.70 %       396,196                2,037            2.08 %
 Non-interest-bearing demand deposits          38,963                                               34,327
 Other non-interest-bearing liabilities         2,389                                                1,932
 Capital accounts                              46,480                                               46,512
 Total liabilities and capital accounts   $   457,747                                          $   478,967

 Net interest income                                      $          2,778                                     $          2,820
 Interest rate spread                                                                 2.40 %                                               2.33 %
 Net interest-earning assets              $    56,179                                          $    50,357
 Net interest margin                                                                  2.62 %                                               2.56 %
 Average earning assets to
  average interest-bearing liabilities                                              115.19 %                                             112.71 %

                                                                       For the Nine Months Ended March 31,
                                                               2012                                             2011
                                                                             (Dollars in thousands)

                                            Average        Interest/         Yield/          Average        Interest/         Yield/
 Interest-earning assets:                   Balance        Dividends          Cost           Balance        Dividends          Cost
 Investment securities                    $   171,143     $      3,672            2.86 %   $   186,358     $      4,577            3.27 %
 Loans                                        256,151            9,797            5.09 %       256,867           10,378            5.38 %
 Other earning assets                           7,293                8            0.15 %         6,195                4            0.09 %
 Total interest-earnings assets               434,587           13,477            4.13 %       449,420           14,959            4.43 %
 Non-interest-earning assets                   31,923                                           32,781
 Total assets                             $   466,510                                      $   482,201

 Interest-bearing liabilities:
 NOW accounts                             $    91,406     $        545            0.79 %   $    89,410     $        728            1.08 %
 Savings accounts                              50,131              130            0.35 %        47,390              125            0.35 %
 Money market accounts                         14,869               73            0.65 %        13,509               88            0.87 %
 Time deposits                                138,123            2,260            2.18 %       144,243            2,696            2.49 %
 Borrowed money                                85,453            2,284            3.56 %       104,444            2,785            3.55 %
 Total interest-bearing liabilities           379,982            5,292            1.85 %       398,996            6,422            2.14 %
 Non-interest-bearing demand deposits          37,967                                           35,547
 Other non-interest-bearing liabilities         2,308                                            1,979
. . .