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;

• 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 June 30, 2012 and September 30, 2011

Our total assets decreased $8.6 million, or 2.6% to $319.4 million at June 30, 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 $22.6 million, or 46.7%, to $25.8 million at June 30, 2012 from $48.4 million at September 30, 2011, partially offset by an increase in securities available for sale of $15.9 million, or 20.7%, to $92.6 million at June 30, 2012 from $76.7 million at September 30, 2011.

Loans held for sale decreased $336,000, or 33.2% to $676,000 at June 30, 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 $2.0 million, or 1.1% to $181.7 million at June 30, 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 $1.6 million, or 59.3%, from $2.7 million at September 30, 2011 to $1.1 million at June 30, 2012.

Securities available for sale increased to $92.6 million at June 30, 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 June 30, 2012 from $242.7 million at September 30, 2011. The decrease was primarily attributable to an increase in savings and NOW accounts of $2.0 million, or 2.1%, offset by a decrease of $7.8 million, or 5.2%, in certificates of deposit.

Federal Home Loan Bank advances decreased $3.9 million, or 16.9%, to $19.2 million at June 30, 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 to $61.1 million at June 30, 2012, compared to $59.1 million at September 30, 2011. The increase resulted primarily from net income of $1.7 million for the nine months ended June 30, 2012, an increase in other comprehensive income of $430,000 and partially offset by cash dividends of $270,000.

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 June 30,
                                                          2012                                        2011
                                                        Interest                                    Interest
                                          Average          and          Yield/        Average          and          Yield/
                                          Balance       Dividends        Cost         Balance       Dividends        Cost

Assets:
Interest-earning assets:
Loans                                    $ 180,048     $     2,605         5.79 %    $ 182,062     $     2,766         6.08 %
Investment securities                       99,557             609         2.45 %       75,265             472         2.51 %
FHLB stock                                   1,947              20         4.11 %        1,903              21         4.41 %
Other interest-earning assets               19,712               7         0.14 %       16,907               1         0.02 %

Total interest-earning assets              301,264           3,241         4.30 %      276,137           3,260         4.72 %

Noninterest-earning assets                  19,392                                      19,384

Total assets                               320,656                                     295,521

Liabilities and equity:
Interest bearing liabilities:
Interest bearing deposits:
NOW, savings, money market, and other       93,919              82         0.35 %       84,485             179         0.85 %
Certificates of deposit                    142,258             533         1.50 %      152,944             715         1.87 %

Total interest bearing deposits            236,177             615         1.04 %      237,429             894         1.51 %

FHLB advances                               19,758             146         2.96 %       25,741             195         3.03 %

Total interest bearing liabilities         255,935             761         1.19 %      263,170           1,089         1.66 %

Non-interest bearing liabilities:
Non-interest bearing deposits                1,013                                       1,005
Accrued interest payable                       353                                         420
Other liabilities                            2,898                                       2,383

Total non-interest bearing liabilities       4,264                                       3,808

Total liabilities                          260,199                                     266,978

Total equity                                60,457                                      28,543

Total liabilities and equity             $ 320,656                                   $ 295,521

Net interest income                                          2,480                                       2,171
Interest rate spread                                                       3.11 %                                      3.07 %
Net interest margin                                                        3.29 %                                      3.14 %
Average interest-earning assets to
average interest-bearing liabilities                        117.71 %                                    104.93 %

                                                                 For the Nine Months Ended June 30,
                                                          2012                                        2011
                                                        Interest                                    Interest
                                          Average          and          Yield/        Average          and          Yield/
                                          Balance       Dividends        Cost         Balance       Dividends        Cost

Assets:
Interest-earning assets:
Loans                                    $ 181,056     $     7,988         5.88 %    $ 182,746     $     8,314         6.07 %
Investment securities                       96,671           1,797         2.48 %       70,368           1,293         2.45 %
FHLB stock                                   1,919              61         4.24 %        1,889              61         4.31 %
Other interest-earning assets               22,711              31         0.18 %       17,838               5         0.04 %

Total interest-earning assets              302,357           9,877         4.36 %      272,841           9,673         4.73 %

Noninterest-earning assets                  20,555                                      18,934

Total assets                               322,912                                     291,775

Liabilities and equity:
Interest bearing liabilities:
Interest bearing deposits:
NOW, savings, money market, and other       91,526             292         0.43 %       75,794             488         0.86 %
Certificates of deposit                    144,471           1,764         1.63 %      156,909           2,344         1.99 %

Total interest bearing deposits            235,997           2,056         1.16 %      232,703           2,832         2.43 %

FHLB advances                               21,057             475         3.01 %       27,491             623         3.02 %

Total interest bearing liabilities         257,054           2,531         1.31 %      260,194           3,455         1.77 %

Non-interest bearing liabilities:
Non-interest bearing deposits                  956                                         943
Accrued interest payable                       380                                         465
Other liabilities                            4,651                                       2,194

Total non-interest bearing liabilities       5,987                                       3,602

Total liabilities                          263,041                                     263,796

Total equity                                59,871                                      27,979

Total liabilities and equity             $ 322,912                                   $ 291,755

Net interest income                                          7,346                                       6,218
Interest rate spread                                                       3.04 %                                      2.96 %
Net interest margin                                                        3.24 %                                      3.04 %
Average interest-earning assets to
average interest-bearing liabilities                        117.62 %                                    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 June 30, 2012, we had $19.2 million in advances from the Federal Home Loan Bank of Cincinnati and an additional borrowing capacity of $54.5 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 June 30, 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 June 30, 2012 and year-end:

                                                                                                                   To Be Well
                                                                                                                Capitalized Under
                                                                              For Capital Adequacy              Prompt Corrective
                                               Actual                                Purpose                   Action Regulations
                                         Amount       Ratio                 Amount               Ratio         Amount         Ratio
As of June 30 2012:
Total Risk-Based Capital
(to Risk-weighted Assets)               $ 45,679       29.57 %    ³       $   12,382     ³         8.00 %    $    15,448       10.00 %
Tier I Capital
(to Risk-weighted Assets)                 44,086       28.53 %    ³            6,179     ³         4.00 %          9,269        6.00 %
Tier I Capital
(to Adjusted Total Assets)                44,086       13.51 %    ³           12,771     ³         4.00 %         15,963        5.00 %

                                                                                                                     To Be Well
                                                                                                                 Capitalized Under
                                                                             For Capital Adequacy                Prompt Corrective
                                              Actual                               Purposes                      Action Regulations
                                        Amount       Ratio                 Amount               Ratio        Amount               Ratio
As of September 30, 2011:
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 Nine Months Ended June 30, 2012 and June 30, 2011

General. Net income increased to $646,000 for the three months ended June 30, 2012 from $395,000 for the three months ended June 30, 2011. The increase reflected an increase in net interest income of $309,000 for the three months ended June 30, 2012, offset by an increase in non-interest expense of $81,000 to $1.9 million for the three months ended June 30, 2012 from $1.8 million for the three months ended June 30, 2011.

Net income increased to $1.7 million for the nine months ended June 30, 2012 from $1.3 million for the nine months ended June 30, 2011. The increase reflected an increase in net interest income of $1.13 million for the nine months ended June 30, 2012, offset by an increase in non-interest expense of $830,000 to $5.9 million for the nine months ended June 30, 2012 from $5.1 million for the nine months ended June 30, 2011.

Interest Income. Interest income decreased slightly to $3.2 million for the three months ended June 30, 2012 from $3.3 million for the three months ended June 30, 2011.

Interest income on loans decreased $161,000, or 5.8%, to $2.6 million for the three months ended June 30, 2012 from $2.8 million for the three months ended June 30, 2011. Likewise, the average yields on loans decreased to 5.79% for the three months ended June 30, 2012, compared to 6.08% for the three months ended June 30, 2011. Interest income on investment securities increased $137,000, or 29.0%, to $609,000 for the three months ended June 30, 2012 from $472,000 for the three months ended June 30, 2011, reflecting an increase in the average balance of such securities to $99.6 million at June 30, 2012 from $75.3 million at June 30, 2011. The average yield decreased slightly to 2.45% for the three months ended June 30, 2012, compared to 2.51% for the three months ended June 30, 2011.

Interest income increased $204,000, or 2.1%, to $9.9 million for the nine months ended June 30, 2012 from $9.7 million for the nine months ended June 30, 2011. The increase was largely due to a $742,000 increase in interest income on taxable securities, partially offset by a decrease of $238,000 in interest income from tax exempt securities as well as a decrease of $326,000 in loan interest income.

Interest income on loans decreased $326,000, or 3.9%, to $8.0 million for the nine months ended June 30, 2012, from $8.3 million for the nine months ended June 30, 2011. The average yields on loans decreased to 5.88% for the nine months ended June 30, 2012, compared to 6.07% for the nine months ended June 30, 2011. Interest income on investment securities increased $504,000, or 39.0%, to $1.8 million for the nine months ended June 30, 2012 from $1.3 million for the nine months ended June 30, 2011, reflecting an increase in the average balance of such securities to $96.7 million at June 30, 2012 from $70.4 million at June 30, 2011. The average yield increased slightly to 2.48% for the nine months ended June 30, 2012, compared to 2.45% for the nine months ended June 30, 2011.

Interest Expense. Interest expense decreased $328,000, or 30.5%, to $761,000 for the three months ended June 30, 2012 from $1.1 million for the three months ended June 30, 2011. The decrease reflected a decrease in the average rate paid on deposits to 1.04% for the three months ended June 30, 2012 from 1.51% for the three months ended June 30, 2011 and a decrease in the average balance of such deposits of $1.3 million. Interest expense on Federal Home Loan Bank Advances decreased $49,000 or 25.1% to $146,000 for the three months ended June 30, 2012 from $195,000 for the three months ended June 30, 2011. This decrease was due to a decrease of $6.0 million in the average balance of these borrowings and a 7 basis point decrease in the average rate paid on these borrowings.

Interest expense decreased $924,000, or 26.7%, to $2.5 million for the nine months ended June 30, 2012 from $3.5 million for the nine months ended June 30, 2011. The decrease reflected a decrease in the average rate paid on deposits to 1.16% for the nine months ended June 30, 2012 from 2.43% for the nine months ended June 30, 2011, which more than offset increases in the average balance of such deposit from $236.0 to $232.7 for the same periods. Interest expense on Federal Home Loan Bank Advances decreased $148,000 or 23.8% to $475,000 for the nine months ended June 30, 2012 from $623,000 for the nine months ended June 30, 2011. This decrease was due to a decrease of $6.4 million in the average balance of these borrowings and a basis point decrease in the average rate paid on these borrowings.

Interest expense on certificates of deposit decreased $182,000, or 25.4%, to $533,000 for the three months ended June 30, 2012 from $715,000 for the three months ended June 30, 2011. This decrease reflected a decrease in the average rate paid on certificates of deposits to 1.50% for the three months ended June 30, 2012 from 1.87% for the three months ended June 30, 2011, as well as a decrease in the average balance of such certificates to $142.3 million from $152.9 million. Interest expense on money market deposits, savings, and NOW and demand deposits decreased $97,000, or 54.2%, to $82,000 for the three months ended June 30, 2012 from $179,000 for the three months ended June 30, 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 .35% for the three months ended June 30, 2012 from .85% for the three months ended June 30, 2011, which more than offset a $9.4 million increase in the average balance of such deposits to $93.9 million.

Interest expense on certificates of deposit decreased $580,000, or 24.7%, to $1.8 million for the nine months ended June 30, 2012 from $2.3 million for the nine months ended June 30, 2011. This decrease reflected a decrease in the average rate paid on certificates of deposits to 1.63% for the nine months ended June 30, 2012 from 1.99% for the nine months ended June 30, 2011, as well as a decrease in the average balance of such certificates to $144.5 million from $156.9 million. Interest expense on money market deposits, savings, and NOW and demand deposits decreased $196,000, or 40.2%, to $292,000 for the nine months ended June 30, 2012 from $488,000 for the nine months ended June 30, 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 .43% for the nine months ended June 30, 2012 from .86% for the nine months ended June 30, 201, which more than offset a $15.7 million increase in the average balance of such deposits to $91.5 million.

Net Interest Income. Net interest income increased $309,000, or 14.2%, to $2.5 million for the three months ended June 30, 2012 from $2.2 million for the three months ended June 30, 2011. The interest rate spread increased slightly to 3.11% from 3.07%, along with an increase in the ratio of our average interest earning assets to average interest bearing liabilities to 117.71% from 104.93%. Our net interest margin increased to 3.29% from 3.14%. 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 $1.1 million, or 17.7%, to $7.3 million for the nine months ended June 30, 2012 from $6.2 million for the nine months ended June 30, 2011. The interest rate spread increased to 3.04% from 2.96%, along with an increase in the ratio of our average interest earning assets to average interest bearing liabilities to 117.62% from 104.86%. Our net interest margin increased to 3.24% from 3.04%. The increases in our interest rate spread and net interest margin were largely due to a reduction of rates paid on deposits.

Provision for Loan Losses. We recorded a provision for loan losses of $57,000 and $160,000, respectively, for the three months ended June 30, 2012 and 2011, and a provision for loan losses of $317,000 and $460,000, respectively, for the . . .