This section is intended to help potential investors understand our financial performance through a discussion of the factors affecting our financial condition at September 30, 2012 and 2011, and our consolidated results of operations for the fiscal years ended September 30, 2012 and 2011. This section should be read in conjunction with the audited consolidated financial statements and notes that appear elsewhere in this Annual Report.

Overview

Historically, we have operated as a traditional community savings bank. At September 30, 2012, $141.0 million, or 47.5% of our loan portfolio, consisted of longer-term (terms greater than 15 years), one- to four-family residential real estate loans, of which $96.5 million, or 68.4%, were fixed rate loans and $44.5 million, or 31.6% were adjustable rate loans. This resulted in our being particularly vulnerable to increases in interest rates, as our interest-bearing liabilities mature or reprice more quickly than our interest-earning assets. In recent years, we have increased our focus on the origination of commercial real estate loans, which generally provide higher yields than one- to four-family residential mortgage loans, have shorter durations and are usually originated with adjustable interest rates.

Other than our loans for the construction of one- to four-family residential properties and home equity lines of credit, we do not offer "interest only" mortgage loans on one- to four-family residential properties (where the borrower pays interest but no principal for an initial period, after which the loan converts to a fully amortizing loan). We also do not offer loans that provide for negative amortization of principal, such as "Option ARM" loans, where the borrower can pay less than the interest owed on their loan, resulting in an increased principal balance during the life of the loan. We do not offer "subprime loans" (loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally defined as loans having less than full documentation). We also do not own any private label mortgage-backed securities that are collateralized by Alt-A, low or no documentation or subprime mortgage loans.

At September 30, 2012, 94.1% of our mortgage-backed securities have been issued by Freddie Mac, Fannie Mae or Ginnie Mae, U.S. government agencies or government-sponsored enterprises. These entities guarantee the payment of principal and interest on our mortgage-backed securities.

Our non-performing assets totaled $4.4 million, or 1.00% of total assets at September 30, 2012, compared to $5.4 million, or 1.24%, of total assets at September 30, 2011. We had $4.9 million and $5.6 million of loans delinquent 60 days or greater at September 30, 2012 and September 30, 2011, respectively. We provided $1.2 million for loan losses during the fiscal year ended September 30, 2012 and $1.6 million during the fiscal year ended September 30, 2011.

Business Strategy

Our primary objective is to operate as a profitable, community-oriented financial institution serving customers in our market areas. We have sought to accomplish this objective by adopting a business strategy that is designed to maintain strong capital and high asset quality. This business strategy includes the following elements:

º •
º Remaining a community-oriented financial institution while continuing to increase our customer base of small and medium-size businesses in our market area. We were established in 1913 and have operated continuously in the Pittsburgh Metropolitan Area since that date. In 2006, we acquired Hoblitzell National Bank ("HNB"), which expanded our branch network to Bedford County, Pennsylvania and Allegany County, Maryland. We are committed to meeting the financial needs

of the communities in which we operate, and we are dedicated to providing quality personal service to our customers. We provide a broad range of consumer and business financial services from our ten banking offices, and have expanded our commercial real estate staff to enhance our capacity to serve small businesses in our market area.

º •
º Increasing commercial real estate lending while maintaining our conservative loan underwriting standards. Our loan portfolio balance has increased in recent years due in part to the growth in our commercial real estate loan portfolio to $92.0 million, or 31.0% of our gross loan portfolio at September 30, 2012, from $67.4 million, or 25.7% of our gross loan portfolio at September 30, 2008. This growth was due in part to the acquisition of HNB, a commercial bank that emphasized commercial real estate lending. In growing our commercial loan portfolio, we have emphasized maintaining strong asset quality by following conservative loan underwriting guidelines. We underwrite all of our loans in our main office to ensure uniformity and consistency in underwriting decisions.

º •
º Emphasizing deposits by attracting new customers and enhancing existing customer relationships. In an effort to grow our banking franchise, we have enhanced our direct marketing efforts to local businesses and established a stronger culture of cross-selling our products to our existing customers. In addition, we attract and retain deposits by offering enhanced technology, such as online banking and remote deposit capture, with a continued emphasis on quality customer service.

º •
º Expanding our branch network, primarily through branch purchases and de novo branching. We currently operate from ten banking offices. On April 6, 2011, a new branch was opened in Greensburg, Pennsylvania. We intend to evaluate additional branch expansion opportunities, primarily through branch purchases and de novo branches, to expand our presence in our current market area.

º •
º Pursuing future expansion and acquisition opportunities with the capital obtained in the conversion, although we have no current arrangements or agreements with respect to any such acquisitions. We intend to evaluate acquisitions of other financial institutions, as opportunities present themselves.

Critical Accounting Policies

We consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income, to be critical accounting policies. We consider the following to be our critical accounting policies.

Allowance for Loan Losses. We maintain an allowance for loan losses in an amount we believe is appropriate to absorb probable losses inherent in the portfolio at a balance sheet date. Management's periodic determination of the adequacy of the allowance is based on the size and current risk characteristics of the loan portfolio, an assessment of individual problem loans and actual loss experience, current economic events in relevant industries and other pertinent factors such as regulatory guidance and general economic conditions. However, this evaluation is inherently subjective, as it requires an estimate of the loss content for each risk rating and for each impaired loan, an estimate of the amounts and timing of expected future cash flows, and an appraisal or other estimate of the value of collateral on impaired loans and estimated losses on pools of homogenous loans based on the balance of loans in each loan category, changes in the inherent credit risk due to portfolio growth, historical loss experience and consideration of current economic trends. Based on our estimate of the level of allowance for loan losses required, we record a provision for loan losses to maintain the allowance for loan losses at an appropriate level.

The determination of the allowance for loan losses is based on management's current judgments about the loan portfolio credit quality and management's consideration of all known relevant internal and external factors that affect loan collectability, as of the reporting date. We cannot predict with certainty the amount of loan charge-offs that will be incurred. We do not currently determine a range of loss with respect to the allowance for loan losses. In addition, various banking regulatory agencies, as an integral part of their examination processes, periodically review our allowance for loan losses. Such agencies may require that we recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination. Accordingly, actual results could differ from those estimates.

Other-Than-Temporary Impairment. In estimating other-than-temporary impairment of investment securities, securities are evaluated periodically, and at least quarterly, to determine whether a decline in their value is other than temporary. We consider numerous factors when determining whether potential other-than-temporary impairment exists and the period over which a debt security is expected to recover. The principal factors considered are (1) the length of time and the extent to which the fair value has been less than the amortized cost basis, (2) the financial condition of the issuer (and guarantor, if any) and adverse conditions specifically related to the security, industry or geographic area, (3) failure of the issuer of the security to make scheduled interest or principal payments, (4) any changes to the rating of a security by a rating agency, and (5) the presence of credit enhancements, if any, including the guarantee of the federal government or any of its agencies.

For debt securities, other-than-temporary impairment is considered to have occurred if (1) we intend to sell the security, (2) it is more likely than not we will be required to sell the security before recovery of its amortized cost basis, or (3) if the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. In determining the present value of expected cash flows, we discount the expected cash flows at the effective interest rate implicit in the security at the date of acquisition or, for debt securities that are beneficial interests in securitized financial assets, at the current rate used to accrete the beneficial interest. In estimating cash flows expected to be collected, we use available information with respect to security prepayment speeds, expected deferral rates and severity, whether subordinated interests, if any, are capable of absorbing estimated losses and the value of any underlying collateral.

Deferred Tax Assets. We use an estimate of future earnings to support our position that the benefit of our deferred tax assets will be realized. If future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and our net income will be reduced.

Goodwill and Other Intangible Assets. We must assess goodwill and other intangible assets for impairment. This assessment involves estimating the fair value of our reporting units. If the fair value of the reporting unit is less than its carrying value including goodwill, we would be required to take a charge against earnings to write down the assets to the lower value.

Balance Sheet Analysis: September 30, 2012 and September 30, 2011

Assets. Our total assets increased $8.8 million, or 2.0%, to $443.4 million at September 30, 2012 from $434.6 million at September 30, 2011 due mainly to increases in cash and cash equivalents and net loans partially offset by a decrease in mortgage-backed securities.

Cash and Cash Equivalents. Cash and cash equivalents increased $6.1 million or 48.3% to $18.8 million at September 30, 2012 from $12.7 million at September 30, 2011. This increase was due primarily to an increase in net deposit inflows which exceeded net loan growth.

Loans. At September 30, 2012, net loans were $291.1 million, or 65.6% of total assets, an increase of $6.0 million from $285.1 million at September 30, 2011. This increase was primarily due to increases

in commercial real estate and home equity loans. We have continued our focus on steadily increasing our commercial real estate loans to better diversify our loan portfolio.

Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio at the dates indicated, excluding loans held for sale.

                                                               At September 30,
                       2012                   2011                   2010                   2009                   2008
                Amount     Percent     Amount     Percent     Amount     Percent     Amount     Percent     Amount     Percent
                                                            (Dollars in thousands)
Real estate
loans:
One- to
four-family
residential    $ 141,018       47.5 % $ 141,265       48.7 % $ 141,710       48.7 % $ 134,958       49.0 % $ 129,973       49.6 %
Commercial        92,027       31.0      88,096       30.4      86,051       29.5      76,890       27.9      67,411       25.7
Home equity
loans and
lines of
credit            47,999       16.2      45,594       15.7      47,523       16.3      45,486       16.5      44,079       16.8
Construction       1,168        0.4       1,128        0.4       3,240        1.1       2,145        0.8       5,028        1.9
Commercial
loans             12,257        4.1      11,683        4.0       9,956        3.4      12,414        4.5      12,052        4.6
Other loans        2,158        0.7       2,392        0.8       3,012        1.0       3,261        1.2       3,696        1.4

Total loans      296,627      100.0 %   290,158      100.0 %   291,492      100.0 %   275,154      100.0 %   262,239      100.0 %

Other items:
Deferred
loan costs
(fees), net         (244 )                 (128 )                 (118 )                  (47 )                   63
Loans in
process             (796 )                 (396 )               (1,319 )               (1,260 )               (2,325 )
Allowance
for loan
losses            (4,474 )               (4,521 )               (3,989 )               (3,078 )               (2,426 )

Total loans,
net            $ 291,113              $ 285,113              $ 286,066              $ 270,769              $ 257,551

Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at September 30, 2012. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

                                      One- to four-family                                                   Home equity loans
                                    residential real estate             Commercial real estate             and lines of credit              Construction
Due During the Twelve Months                         Weighted                           Weighted                        Weighted                   Weighted
Ending September 30,               Amount          Average Rate        Amount         Average Rate       Amount       Average Rate    Amount     Average Rate
                                                                                   (Dollars in thousands)
2013                            $        1,090              5.52 %  $       4,065              5.01 %  $       469             4.59 % $     -                -
2014                                       388              5.03 %          2,158              4.98 %          852             5.18 %       -                -
2015                                       152              6.30 %          4,781              4.53 %          788             5.40 %       -                -
2016 to 2017                               870              5.48 %          3,303              4.72 %        2,440             5.19 %       -                -
2018 to 2022                            25,681              3.99 %         17,766              5.28 %       15,526             4.79 %       -                -
2023 to 2027                            42,106              3.95 %         16,998              5.52 %       23,158             4.60 %     135             3.00 %
2028 and beyond                         70,731              4.86 %         42,956              5.69 %        4,766             4.81 %   1,033             3.44 %

Total                           $      141,018              4.44 %  $      92,027              5.44 %  $    47,999             4.74 % $ 1,168             3.39 %

                                      Commercial                 Other loans                    Total
Due During the Twelve Months                 Weighted                   Weighted                     Weighted
Ending September 30,            Amount     Average Rate    Amount     Average Rate     Amount      Average Rate
                                                            (Dollars in thousands)
2013                           $  4,240             4.54 % $   314             7.18 % $  10,178             4.91 %
2014                              1,524             5.41 %     403             8.21 %     5,325             5.37 %
2015                              1,470             5.63 %     710             7.78 %     7,901             5.19 %
2016 to 2017                      4,496             5.07 %     474             8.16 %    11,583             5.13 %
2018 to 2022                        515             5.64 %     257             2.86 %    59,745             4.59 %
2023 to 2027                         12             6.75 %                               82,409             4.45 %
2028 and beyond                       -                          -                -     119,486             5.14 %

Total                          $ 12,257             5.02 % $ 2,158             7.25 % $ 296,627             4.84 %

Fixed and Adjustable Rate Loans. The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at September 30, 2012 that are contractually due after September 30, 2013.

                                                  Due After September 30, 2013
                                                Fixed       Adjustable      Total
                                                         (In thousands)
     Real estate loans:
     One- to four-family residential          $   95,380    $    44,547   $ 139,927
     Commercial                                   20,373         67,589      87,962
     Home equity loans and lines of credit        47,530              -      47,530
     Construction                                  1,169              -       1,169
     Commercial                                    7,948             69       8,017
     Other loans                                       -          1,844       1,844

     Total loans                              $  172,400    $   114,049   $ 286,449

Investment Securities Portfolio. The following table sets forth the composition of our investment securities portfolio at the dates indicated.

                                                   At September 30,
                             2012                        2011                         2010
                   Amortized                   Amortized                    Amortized
                     Cost        Fair Value       Cost       Fair Value       Cost        Fair Value
                                                    (In thousands)
Municipal
obligations        $   31,284    $    33,076    $  28,595    $    29,980    $   18,037    $    19,050
U.S. government
and agency
obligations            20,994         21,155       24,493         24,654        26,848         26,949
Corporate bonds         7,253          7,100        7,255          7,066         7,776          7,795
Mortgage-backed
securities:
Ginnie Mae pass
through
certificates           15,159         15,364       19,080         19,192         6,665          6,734
Fannie Mae pass
through
certificates           18,151         18,881       17,358         17,960         6,447          6,743
Freddie Mac
pass through
certificates            3,139          3,376        4,755          5,071         7,876          8,288
Collateralized
mortgage
obligations             2,231          2,259          446            455           672            686
Private pass
through
certificates              123            122          131            130           139            138
Equity
securities              1,214          1,344        1,218          1,246         1,134          1,154

Total
securities         $   99,548    $   102,677    $ 103,331    $   105,754    $   75,594    $    77,537

At September 30, 2012 and September 30, 2011, all of our investment securities were classified as available for sale and recorded at current fair value. Purchases of securities during the fiscal year ended September 30, 2012 of $35.4 million were offset by maturities, repayments, calls and sales of $38.0 million.

At September 30, 2012 and September 30, 2011, the Company held 16 securities and 19 securities in unrealized loss positions of $258,000 and $280,000, respectively. The decline in the fair value of these securities resulted primarily from interest rate fluctuations. The Company does not intend to sell these securities nor is it more likely than not that the Company would be required to sell these securities before their anticipated recovery and the Company believes the collection of the investment and related interest is probable. Based on this analysis, the Company considers all of the unrealized losses to be temporary impairment losses.

Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio at September 30, 2012 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. State and municipal securities yields have not been adjusted to a tax-equivalent basis.

                                                      More than                    More than
                                                       One Year                   Five Years                  More than
                      One Year or Less            through Five Years           through Ten Years              Ten Years                     Total Securities
                                  Weighted                     Weighted                    Weighted                   Weighted                               Weighted
                   Amortized      Average      Amortized       Average      Amortized      Average      Amortized     Average      Amortized      Fair       Average
                     Cost          Yield          Cost          Yield         Cost          Yield         Cost         Yield         Cost         Value       Yield
                                                                                 (Dollars in thousands)
Municipal
obligations         $       -             -    $     2,421          4.40 %  $   23,876          3.19 %  $    4,987         4.16 %  $   31,284   $  33,076         3.44 %
U.S. government
and agency
obligations                 -             -         13,994          1.40 %       7,000          1.63 %           -            -        20,994      21,155         1.48 %
Corporate bonds           251          4.03 %        7,002          1.71 %           -             -             -            -         7,253       7,100         1.79 %
Mortgage-backed
securities:
Ginnie Mae pass
through
certificates                -             -              -             -             -             -        15,159         1.92 %      15,159      15,364         1.92 %
Fannie Mae pass
through
certificates              126          4.50 %          453          4.37 %       1,592          4.07 %      15,980         2.22 %      18,151      18,881         2.45 %
Freddie Mac
pass through
certificates               68          4.23 %          142          4.00 %       2,929          4.37 %           -            -         3,139       3,376         4.35 %
Collateralized
mortgage
obligations                 -             -              -             -           225          4.75 %       2,006         1.83 %       2,231       2,259         2.13 %
Private pass
through
certificates                -             -              -             -             -             -           123         0.88 %         123         122         0.88 %
Equity
securities                  -             -              -             -             -             -         1,214         2.87 %       1,214       1,344         2.87 %

Total               $     445          4.19 %  $    24,012          1.86 %  $   35,622          3.03 %  $   39,469         2.35 %  $   99,548   $ 102,677         2.48 %

Bank Owned Life Insurance. We invest in bank owned life insurance to provide us with a funding source for our benefit plan obligations. Bank owned life insurance also generally provides us noninterest income that is non-taxable. At September 30, 2012, we had invested $10.3 million in bank owned life insurance.

Deposits. We accept deposits primarily from the areas in which our offices are located. We have consistently focused on building broader customer relationships and targeting small business customers to increase our core deposits. We also rely on our customer service to attract and retain deposits. We offer a variety of deposit accounts with a range of interest rates and terms. Our deposit accounts consist of savings accounts, certificates of deposit, money market accounts, commercial and regular checking accounts and individual retirement accounts. Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market interest rates, liquidity requirements and our deposit growth goals. We do not accept brokered deposits.

Our deposits increased $10.0 million, or 3.1%, to $330.3 million at September 30, 2012 from $320.3 million at September 30, 2011. The increase resulted from a $12.3 million, or 18.7% increase in demand and NOW accounts and a $3.9 million, or 2.9%, increase in certificate accounts offset in part by a $4.9 million, or 4.3% decrease in savings accounts. The increase in certificate accounts resulted from an increase in our offering of longer term products, some of which provide the customer an option to increase the interest rate on the certificate in the future.

At September 30, 2012, we had a total of $138.0 million in certificates of deposit, of which $31.3 million had remaining maturities of one year or less. Based on historical experience and current market interest rates, we believe we will retain upon maturity a large portion of our certificates of deposit with maturities of one year or less as of September 30, 2012.

The following table sets forth the distribution of total deposit accounts, . . .