This discussion and analysis reflects the Company's consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations. You should read the information in this section in conjunction with the Company's consolidated financial statements and accompanying notes thereto beginning on page F-1 following Item 15 of this Form 10-K.

Overview

Our primary business is attracting retail deposits from the general public and using those deposits, together with funds generated from operations, principal repayments on securities and loans and borrowed funds, for our lending and investing activities. Our loan portfolio consists of one- to four-family residential real estate mortgages, commercial real estate mortgages, construction loans, commercial loans, home equity loans and lines of credit, and other consumer loans. We also invest in U.S. Government obligations and mortgage-backed securities and to a lesser extent, corporate bonds.

We reported net income of $497,000 for the fiscal year ended June 30, 2012 as compared to net income of $706,000 for fiscal 2011.

Net interest income for fiscal 2012 was down approximately 4.0% as compared to fiscal 2011. Non-interest expense had declined approximately 7.3%. The net interest rate spread decreased in fiscal 2012 to 3.22%, compared to 3.33% for fiscal 2011, mainly as a result of a lower interest rate environment. For the year ended June 30, 2012, interest income decreased by $1.3 million or 8.8% while interest expense decreased by $890,000 million or 21.1% as compared to 2011.

Total assets were $347.3 million at June 30, 2012, a 0.6% decrease compared to $349.5 million at June 30, 2011. The decrease in assets occurred primarily as the result of a $12.8 million decrease in loans receivable, net, offset by an increase of $9.0 million in securities held to maturity and an increase of $2.8 million in cash and cash equivalent balances. Deposits were $283.8 million at June 30, 2012, compared to $286.2 million at June 30, 2011. FHLB advances were $20.0 million at June 30, 2012 and June 30, 2011.

Stockholders' equity at June 30, 2012 was $40.9 million compared to our stockholders' equity at the prior year-end of $40.7 million, due to $497,000 of net income, an increase of $274,000 in paid-in capital and $169,000 in ESOP shares earned, offset by the repurchase of $423,000 in treasury stock, the declaration of $310,000 in cash dividends declared on our common stock and a $9,000 increase in accumulated other comprehensive loss. Our return on average equity for fiscal 2012 was 1.21% compared to 1.74% for fiscal 2011. The decrease in return on average equity for 2012 reflects the decrease in net income for the fiscal year ended June 30, 2012 as compared to the year ended June 30, 2011.

The Company experienced a reduction in loan and deposit growth during the twelve months ended June 30, 2012, primarily due to a slowing economy. Loans receivable, net, and deposits decreased by $12.8 million and $2.4 million, or 5.0% and 0.8%, respectively, while the Company's securities held to maturity increased by $9.0 million or 21.6%, as did cash and cash equivalent balances increased by $2.8 million or 9.0%. Borrowings remained unchanged from June 30, 2011 to June 30, 2012.

Critical Accounting Policies

Our accounting policies are integral to understanding the results reported and are described in Note 2 to our consolidated financial statements beginning on page F-1. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates. A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses.

The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level by management which represents the evaluation of known and inherent risks in the loan portfolio at the consolidated balance sheet date that are both probable and reasonable to estimate. Management's periodic evaluation of the adequacy of the allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examinations

The allowance calculation methodology includes segregation of the total loan portfolio into segments. The Company's loans receivable portfolio is comprised of the following segments: residential mortgage, commercial real estate, construction, consumer and, commercial and industrial. Some segments of the Company's loan receivable portfolio are further disaggregated into classes which allows management to better monitor risk and performance.

The residential mortgage loan segment is disaggregated into two classes: one-to four-family loans, which are primarily first liens, and home equity loans, which consist of first and second liens. The

commercial real estate loan segment consists of both owner and non-owner occupied loans which have medium risk due to historical activity on these type loans. The construction loan segment is further disaggregated into two classes:
one-to four-family owner occupied, which includes land loans, whereby the owner is known and there is less risk, and other, whereby the property is generally under development and tends to have more risk than the one-to four-family owner occupied loans. The commercial and industrial loan segment consists of loans made for the purpose of financing the activities of commercial customers. The majority of commercial and industrial loans are secured by real estate and thus carry a lower risk than traditional commercial and industrial loans. The consumer loan segment consists primarily of installment loans (direct and indirect) and overdraft lines of credit connected with customer deposit accounts.

The allowance consists of specific, general and unallocated components. The specific component is related to loans that are classified as impaired. For loans classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class and is based on historical loss experience adjusted for qualitative factors. These qualitative risk factors include:

1. Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.
2. National, regional, and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans.
3. Nature and volume of the portfolio and terms of loans.
4. Experience, ability, and depth of lending management and staff.
5. Volume and severity of past due, classified and nonaccrual loans as well as and other loan modifications.
6. Quality of the Company's loan review system, and the degree of oversight by the Company's Board of Directors.
7. Existence and effect of any concentrations of credit and changes in the level of such concentrations.
8. Effect of external factors, such as competition and legal and regulatory requirements.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management's best judgment using relevant information available at the time of the evaluation.

Management evaluates individual loans in all of the loan segments (including loans in residential mortgage and consumer segments) for possible impairment if the loan is greater than $200,000 and if the loan is either in nonaccrual status is risk rated Substandard or worse or has been modified in a troubled debt restructuring. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed.

Loans the terms of which are modified are classified as troubled debt restructurings if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a reduction

in interest rate, a below market interest rate based on risk, or an extension of a loan's stated maturity date. Nonaccrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as troubled debt restructurings are designated as impaired.

Once the determination has been made that a loan is impaired, impairment is measured by comparing the recorded investment in the loan to one of the following:(a) present value of expected cash flows (discounted at the loan's effective interest rate), (b) loan's observable market price or (c) fair value of collateral adjusted for expected selling costs. The method is selected on a loan by loan basis with management primarily utilizing the fair value of collateral method.

The estimated fair values of the real estate collateral are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

The estimated fair values of the non-real estate collateral, such as accounts receivable, inventory and equipment, are determined based on the borrower's financial statements, inventory reports, accounts receivable agings or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

The evaluation of the need and amount of the allowance for impaired loans and whether a loan can be removed from impairment status is made on a quarterly basis. The Company's policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

Comparison of Financial Condition at June 30, 2012 and 2011

General. Total assets were $347.3 million at June 30, 2012, compared to $349.5 million at June 30, 2011. The Company experienced a $12.7 million or 5.0%, decrease in loans receivable, net, while securities held to maturity and cash and cash equivalent balances increased by $9.0 million and $2.8 million or 21.6% and 9.0%, respectively. Deposits decreased $2.4 million or 0.8%, while advances from the Federal Home Loan Bank of New York remained unchanged. The increase in securities held to maturity and cash and cash equivalents was primarily due to a decrease in loan balances as a result of low demand, and tempered by a decrease in deposit balances during this period.

Total assets decreased by $2.1 million or 0.6% between years, as did total liabilities by $2.3 million or 0.7%, and the ratio of average interest-earning assets to average-interest bearing liabilities increased to 109.22% for fiscal 2012 as compared to 107.25% for fiscal 2011. Stockholders' equity increased $198,000 or 0.5% to $40.9 million at June 30, 2012 compared to $40.7 million at June 30, 2011.

Loans. Loans receivable, net, declined $12.8 million, or 5.0% from $253.3 million at June 30, 2011 to $240.5 at June 30, 2012. As a percentage of assets, loans decreased to 69.2% from 72.5%. The Company's commercial and industrial loans grew by $767,000 or 8.2% during the year, as did deposit account loans by $238,000 or 48.5% and personal loans by $3,000 or 15.0%. One-to four-family residential loans decreased by $7.5 million or 5.0%, construction loans decreased by $3.8 million or 22.7%, and home equity loans decreased by $1.0 million or 2.0%, as did commercial real estate loans,

automobile loans, and overdraft protection loans by $379,000, $42,000 and $32,000 or 1.2%, 17.8% and 16.5%, respectively, between June 30, 2011 and June 30, 2012.

Securities. Our portfolio of securities held to maturity was at $50.7 million at June 30, 2012 as compared to $41.7 million at June 30, 2011. Maturities, calls and principal repayments during the year totaled $52.6 million as compared to $40.0 million during the prior year. We purchased $61.6 million of new securities during the year ended June 30, 2012 compared to $34.2 million during the year ended June 30, 2011.

Deposits. Total deposits at June 30, 2012 were $283.8 million, a $2.4 million decrease as compared to $286.2 million at June 30, 2011. Demand deposits, in aggregate, increased by $3.3 million, while savings and club accounts decreased by $3.3 million, as did certificate of deposit accounts by $2.4 million.

Borrowings. Total borrowings at June 30, 2012 and 2011 amounted to $20.0 million. The Company did not make or repay any long term borrowings during 2012 and did not have short-term borrowings at June 30, 2012 and 2011.

Equity. Stockholders' equity was $40.9 million at June 30, 2012 compared to $40.7 million at June 30, 2011, an increase of $198,000 or 0.5%. The $274,000 increase in paid in capital was primarily due to compensation expense attributable to the Company's stock-based compensation plan. Other increases in equity were due to $497,000 in net income and $169,000 in ESOP shares earned, which were offset by the declaration of $310,000 in cash dividends declared on our common stock, a $423,000 increase in treasury stock due to repurchases, and an $9,000 increase in accumulated other comprehensive loss.

Comparison of Operating Results for the Two Years Ended June 30, 2012

General. Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. It is a function of the average balances of loans and investments versus deposits and borrowed funds outstanding in any one period and the yields earned on those loans and investments and the cost of those deposits and borrowed funds. Our results of operations are also affected by our provision for loan losses, non-interest income and non-interest expense. Non-interest income includes service fees and charges, and income on bank owned life insurance. Non-interest expense includes salaries and employee benefits, occupancy and equipment expense and other general and administrative expenses such as service bureau fees and advertising costs.

Our net income for the year ended June 30, 2012 was $497,000, a 29.6% decrease compared to net income of $706,000 for the year ended June 30, 2011. This decrease was the result of an increase in the provision for loan losses, a decrease in net interest income and a decrease in non-interest income, offset by a decrease in non-interest expenses and income taxes for the year ended June 30, 2012, compared to the year ended June 30, 2011.

Net Interest Income. Net interest income for the year ended June 30, 2012 amounted to $10.5 million, 4.0% lower than net interest income for the year ended June 30, 2011 of $10.9 million. Interest income decreased by $1.3 million, or 8.8%, as did interest expense by $890,000 or 21.1% for the year ended June 30, 2012.

Average earning assets decreased by $2.9 million or 0.9% for the year ended June 30, 2012, compared to the year ended June 30, 2011, while the average rate on earning assets which decreased by 37 basis points to 4.38% for the year ended June 30, 2012, resulting in a decrease of $1.3 million or 8.8% in total interest income compared to the year ended June 30, 2011. Interest income on loans decreased by $1.5 million or 11.5% for the year ended June 30, 2012, compared to the year ended June 30, 2011, as did the average yield by 28 basis points to 4.75%. Average loan receivable balances decreased $16.4 million or 6.2% to $248.1 million for the year ended June 30, 2012, compared to $264.5 million for the year ended June 30, 2011. Interest income on securities held to maturity increased $215,000 or 12.5% for the year ended June 30, 2012, compared to the year ended June 30, 2011. Average securities held to maturity balances increased $14.2 million or 30.4% for the year ended June 30, 2012, compared to the year ended June 30, 2011, and the yield on the investment held to maturity portfolio decreased by 50 basis points to 3.18% for the year ended June 30, 2012, compared to the year ended June 30, 2011. Interest income on other interest-earning assets decreased by $18,000 or 16.8% for the year ended June 30, 2012, compared to the year ended June 30, 2011 due to an average balance decrease of $743,000 or 10.2%, and an 11 basis point decrease in yield to 1.35%.

Total interest expense decreased $890,000, or 21.1% for the year ended June 30, 2012, compared to the year ended June 30, 2011. Average interest-bearing liabilities decreased $8.0 million or 2.7%, from $296.8 million for the year ended June 30, 2011, to $288.8 million for the year ended June 30, 2012, as did the average rate on interest-bearing liabilities which decreased by 26 basis points to 1.16% for the year ended June 30, 2012, resulting in a decrease of $890,000 or 21.1% in total interest expense compared to the year ended June 30, 2011. Interest expense on deposits decreased $890,000 or 25.1% for the year ended June 30, 2012, compared to the year ended June 30, 2011, as a result of a 29 basis point reduction to 0.99% in the average rate on interest-bearing deposits, and a $8.0 million or 2.9% decrease in average interest-bearing deposits. The average balance of NOW, super NOW and money market demand account balances increased $2.7 million or 8.6%, while the average balance of savings balances decreased $4.9 million or 4.2%, and the average balance of certificates of deposit decreased by $5.8 million or 4.6% for the year ended June 30, 2012 compared to the same period ended June 30, 2011. The average rate on savings and club deposits, certificates of deposit and NOW, super NOW and money market demand accounts decreased by 30 basis points, 29 basis points, and 14 basis points, respectively, for the year ended June 30, 2012 compared to the year ended June 30, 2011. Total interest expense on FHLB advances was $684,000 for both years ended June 30, 2012 and June 30, 2011. Federal Home Loan Bank advance average balances were $20.0 million, at an average rate of 3.42% for both years ended June 30, 2012 and June 30, 2011.

Our net interest rate spread was 3.22% for the year ended June 30, 2012 compared to 3.33% for the year ended June 30, 2011. The spread decreased during the year ended June 30, 2012 as our average yield on interest-earning assets decreased by 37 basis points to 4.38% from 4.75%, while the cost of interest-bearing liabilities also decreased by 26 basis points to 1.16% from 1.42%, compared to the same period ended June 30, 2011.

Provision for Loan Losses. The allowance for loan losses is a valuation account that reflects our estimation of the losses inherent in our loan portfolio to the extent they are both probable and reasonable to estimate. The allowance is established through provisions for loan losses that are charged to income in the period they are established. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. Recoveries on loans previously charged-off are added back to the allowance. The provision for the year ended June 30, 2012 was $2.2 million as compared to $1.7 million for the year before. The allowance for loan losses as a percentage of non-performing loans was 18.3% at June 30, 2012 compared to 13.3% at June 30, 2011 and the allowance for loan losses as a percentage of total loans was 1.24% at June 30, 2012 compared to 0.84% at June 30, 2011. While at June 30, 2012 non-performing loans increased $383,000 from the prior year, most of these loans are adequately

collateralized by real estate. Of the $16.8 million in non-performing loans at June 30, 2012, $9.0 million required specific loss allowances totaling $1,066,000.

Non-Interest Income. This category includes fees derived from checking accounts, ATM transactions and debit card use and mortgage related fees. It also includes increases in the cash-surrender value of our bank owned life insurance. Overall, non-interest income was $662,000 for the year ended June 30, 2012 compared to $773,000 for the year ended June 30, 2011, a decrease of $111,000 or 14.4%.

Income from fees and service charges totaled $341,000 for the year ended June 30, 2012 compared to $469,000 for the year ended June 30, 2011, a reduction of $128,000 or 27.3%. The decrease was due in part to a reduction in service fees on demand deposit accounts, including a $78,000 investment security prepayment penalty fee that was realized in the prior year period.

The unrealized loss on the Bank's trading security portfolio was $8,000 for the year ended June 30, 2012, compared to an unrealized gain of $13,000 for the year ended June 30, 2011.

Income on bank owned life insurance was $201,000 and $196,000 for the years ended June 30, 2012 and 2011, respectively.

Other non-interest income was $128,000 and $95,000 for the years ended June 30, 2012 and 2011, respectively. The increase was primarily attributable to an increase in income on other real estate owned.

Non-Interest Expenses. Total non-interest expenses decreased by $637,000 or 7.3% during the year ended June 30, 2012 and amounted to $8.1 million and $8.8 million for the years ended June 30, 2012 and 2011, respectively.

Other non-interest expense totaled $920,000 for the year ended June 30, 2012, compared to $1.3 million for the year ended June 30, 2011, a decrease of $348,000 or 27.4%. The decrease in other non-interest expense was primarily attributable to decreases in other real estate and non-operating expenses. Occupancy and equipment expense decreased by $225,000 or 13.6% to $1.4 million for the year ended June 30, 2012 compared to $1.7 million for the year ended June 30, 2011, primarily due to decreases in property taxes and other building and depreciation expenses. FDIC assessment expense totaled $295,000 for the year ended June 30, 2012 compared to $438,000 for the year ended June 30, 2011, a decrease of $143,000 or 32.7%. The reduction in FDIC insurance was attributable to the revised regulatory methodology used in calculating quarterly assessments that went into effect beginning with the April 30, 2011 assessment period. Salaries and employee benefits expense totaled $3.8 million for the year ended June 30, 2012 compared to $3.9 million for the year ended June 30, 2012, a $66,000 or 1.7% reduction in expense compared to the prior year. The decrease in salaries and employee benefits expense was primarily due to a reduction in the number of employees and related salary expense, which was offset by an increase in employee benefit expense, for the year ended June 30, 2012 compared to the year ended June 30, 2011. Salaries and employee benefits are our main non-interest expense and represented 46.9% and 44.2% of non-interest expenses for the years ended June 30, 2012 and 2011, respectively. Advertising expense totaled $174,000 for the year ended June 30, 2012 compared to $224,000 for the year ended June 30, 2011, representing a reduction of $50,000 or 22.3%. The decrease in advertising expense was attributable to a reduction in spending. Professional service expense increased by $82,000 or 19.0% to $514,000, as did service bureau fees by $57,000 or 13.8% to $470,000 for the year ended June 30, 2012 compared to $432,000 and $413,000, respectively, for the year ended June 30, 2011. The increase in professional service expense was primarily related to increases in consultant and legal expenses, whereas the increase in service bureau fees was attributable to an increase in service fees. Directors' compensation increased $56,000 or 12.2% for the year ended June 30, 2012 compared to the

year ended June 30, 2011, primarily as a result of former President/CEO, now receiving director compensation.

Income Taxes. Income tax expense for the year ended June 30, 2012 was $283,000 as compared to $515,000 for the year ended June 30, 2011. The effective tax rate was 36.3% for the year ended June 30, 2012 compared to 42.2% for the year ended June 30, 2011.

Average Balance Sheet. The following tables set forth certain information for the years ended June 30, 2012, 2011 and 2010. The average yields and costs are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the periods presented.

                                                                                    Year Ended June 30,
                                                 2012                                     2011                                       2010
                                                              Average                                   Average                    Interest
                                  Average       Interest       Yield/       Average       Interest       Yield/       Average      Earned/       Average
                                  Balance     Earned/Paid       Cost        Balance     Earned/ Paid      Cost        Balance        Paid      Yield/ Cost
. . .