Forward Looking Statements

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 and similar expressions. These forward-looking statements include:

• 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.

By identifying these forward-looking statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed under "Risk Factors" in Part I, Item 1A of the Company's Annual Report on Form 10-K and Part II, Item 1A of this Report on Form 10-Q, as well as the following factors:

• significantly increased competition among depository and other financial institutions;

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

• general economic conditions, either nationally or in our market areas, that are worse than expected;

• adverse changes in the securities markets;

• legislative or regulatory changes that adversely affect our business;

• our ability to enter new markets successfully and take advantage of growth opportunities, and the possible short-term dilutive effect of potential acquisitions or de novo branches, if any;

• changes in consumer spending, borrowing and savings habits;

• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies and the Financial Accounting Standards Board; and

• changes in our organization, compensation and benefit plans.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

Comparison of Financial Condition at December 31, 2012 and September 30, 2012

Total Assets. Total assets decreased by $13.1 million, or 0.9%, to $1,405.6 million at December 31, 2012 from $1,418.7 million at September 30, 2012. Decreases in loans receivable and other assets were offset, in part, by increases in interest bearing deposits with other institutions and investment securities available for sale.

Interest-Bearing Deposits with Other Institutions. Interest-bearing deposits with other institutions increased $3.0 million, or 65.5%, to $7.5 million at December 31, 2012 from $4.5 million at September 30, 2012. This increase was primarily the result of the cash generated from the increase in sales of loans receivable from September 30, 2012 through December 31, 2012.

Net Loans. Net loans decreased $9.7 million, or 1.0%, to $940.3 million at December 31, 2012 from $950.0 million at September 30, 2012. During this period, residential real estate loans outstanding decreased by $6.7 million to $689.6 million. Commercial real estate loans decreased $133,000 to $160.1 million, home equity loans and lines of credit decreased $1.5 million to $46.4 million, and other loans decreased $159,000 to $2.3 million. These decreases were partially offset by increases in construction loans outstanding of $111,000 to $3.9 million and obligations of states and political subdivisions of $402,000 to $34.1 million.

Other Assets. Other assets decreased $8.5 million, or 28.7%, to $21.2 million at December 31, 2012 from $29.8 million at September 30, 2012. The primary reason for the decrease was a decrease in accounts receivable for $6.7 million at December 31, 2012 compared to September 30, 2012. At September 30, 2012, the Company had approximately $6.0 million in accounts receivable for brokered deposits that the Company contracted for prior to September 30, 2012 but for which the funds were not received until October 1, 2012.

Investment Securities Available for Sale. Investment securities available for sale increased $1.9 million, or 0.59%, to $331.5 million at December 31, 2012 from $329.6 million at September 30, 2012. The increase was due primarily to increases in mortgage-backed securities of $14.7 million and municipal bonds of $5.8 million, offset in part, by a decrease in agency bonds of $18.6 million.

Deposits. Deposits decreased $27.7 million, or 2.79%, to $967.9 million at December 31, 2012 from $995.6 million at September 30, 2012. At December 31, 2012 compared to September 30, 2012, certificate of deposit accounts decreased $21.9 million to $564.2 million, NOW accounts decreased $6.9 million to $103.0 million, and money market accounts decreased $6.0 million to $149.7 million. These decreases were offset in part during the same period by an increase in non-interest bearing demand accounts of $5.2 million to $47.0 million and savings and club accounts of $1.9 million to $104.0 million. Included in the certificates of deposit at December 31.2012 was a decrease in brokered certificates of $4.3 million to $152.5 million.

Borrowed Funds. Borrowed funds increased by $9.2 million, or 3.93%, to $244.0 million at December 31, 2012, from $234.7 million at September 30, 2012. The increase in borrowed funds was primarily due to increases in short term FHLBank Pittsburgh borrowings of $41.2 million offset by declines in other borrowings of $32.0 million.

Stockholders' Equity. Stockholders' equity increased by $1.9 million, or 1.1%, to $177.3 million at December 31, 2012 from $175.4 million at September 30, 2012. This increase was primarily the result of net income of $2.9 million which was partially offset by a decrease in accumulated other comprehensive income of $570,000 to $1.2 million at December 31, 2012 from $1.8 million at September 30, 2012.

Average Balance Sheets for the Three Months Ended December 31, 2012 and 2011

The following tables set forth average balance sheets, average yields and costs,
and certain other information for the periods indicated. All average balances
are daily average balances, the yields set forth below include the effect of
deferred fees and discounts and premiums that are amortized or accreted to
interest income.



                                                                          For the Three Months Ended December 31,
                                                                  2012                                               2011
                                                               Interest                                           Interest
                                                Average         Income/                            Average         Income/
                                                Balance         Expense        Yield/ Cost         Balance         Expense        Yield/ Cost
                                                                                   (dollars in thousands)
Interest-earning assets:
Loans (1)                                     $   953,090      $  12,237               5.09 %    $   748,215      $   9,341               4.95 %
Investment securities
Taxable (2)                                        96,785            422               1.73 %         36,771            232               2.50 %
Exempt from federal income tax (2) (3)             10,038             54               3.23 %          7,743             48               3.80 %

Total investment securities                       106,823            476               1.87 %         44,514            280               2.73 %
Mortgage-backed securities                        218,612          1,208               2.19 %        206,380          1,406               2.70 %
Federal Home Loan Bank stock                       19,914             24               0.48 %         16,283             -                0.00 %
Other                                               5,657              5               0.35 %         21,783              2               0.04 %

Total interest-earning assets                   1,304,096         13,950               4.25 %      1,037,175         11,029               4.23 %
Allowance for loan losses                          (7,408 )                                           (8,257 )
Noninterest-earning assets                        102,046                                             62,838

Total assets                                  $ 1,398,734                                        $ 1,091,756


Interest-bearing liabilities:
NOW accounts                                  $    95,415             13               0.05 %    $    58,932              4               0.03 %
Money market accounts                             153,302            116               0.30 %        112,827             80               0.28 %
Savings and club accounts                         100,692             12               0.05 %         70,968             24               0.13 %
Certificates of deposit                           578,902          1,830               1.25 %        353,897          1,803               2.02 %
Borrowed funds                                    228,709          1,260               2.19 %        290,416          2,410               3.29 %

Total interest-bearing liabilities              1,157,020          3,231               1.11 %        887,040          4,321               1.93 %
Non-interest bearing NOW accounts                  48,791                                             32,242
Noninterest-bearing liabilities                    15,586                                             10,594

Total liabilities                               1,221,397                                            929,876
Equity                                            177,337                                            161,880

Total liabilities and equity                  $ 1,398,734                                        $ 1,091,756


Net interest income                                            $  10,719                                          $   6,708

Interest rate spread                                                                   3.14 %                                             2.30 %
Net interest-earning assets                   $   147,076                                        $   150,135

Net interest margin (4)                                                                3.26 %                                             2.57 %
Average interest-earning assets to average
interest-bearing liabilities                                      112.71 %                                           116.93 %

(1) Non-accruing loans are included in the outstanding loan balances.

(2) Available for sale securities are reported at fair value.

(3) Yields on tax exempt securities have been calculated on a fully tax equivalent basis assuming a tax rate of 34%.

(4) Represents the difference between interest earned and interest paid, divided by average total interest earning assets.

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

Net Income. Net income increased $2.0 million, or 224.9%, to $2.9 million for the three months ended December 31, 2012 compared to net income of $886,000 for the comparable period in 2011. The increase was due primarily to increases in net interest income and noninterest income, offset in part, by an increase in noninterest expenses.

Net Interest Income. Net interest income increased $4.0 million, or 59.8%, to $10.7 million for the three months ended December 31, 2012 from $6.7 million for the comparable period in 2011. The increase was primarily attributable to an increase in the Company's interest rate spread to 3.14% for the three months ended December 31, 2012, from 2.30% for the comparable period in 2011, offset in part by a decrease of $3.1 million in the Company's average net earnings assets.

Interest Income. Interest income increased $2.9 million, or 26.5%, to $14.0 million for the three months ended December 31, 2012 from $11.0 million for the comparable 2011 period. The increase resulted primarily from additional earning assets added as a result of the merger with First Star Bank in the fourth quarter of 2012. Average interest earning assets increased $266.9 million and the average yield on interest earning assets increased two basis points. The average yield on interest earning assets was 4.25% for the three months ended December 31, 2012, as compared to 4.23% for the comparable 2011 period. Loans increased on average $204.9 million between the two periods. In addition, average investment securities increased $62.3 million, mortgage-backed securities increased $12.2 million, Federal Home Loan Bank stock increased $3.6 million and other interest earning assets decreased $16.1 million. The decrease in other interest earning assets was primarily due to a corresponding decrease in the average balance of cash held at FHLBank Pittsburgh. Interest income for the fiscal first quarter 2013 also includes the recapture of approximately $500,000, before tax, of a previously recorded fair value adjustment to a loan acquired as part of the First Star acquisition. This loan was fully repaid in the first quarter. An additional $473,000, before tax, was recaptured during the quarter related to similar loans that were partially repaid.

Interest Expense. Interest expense decreased $1.1 million, or 25.2%, to $3.2 million for the three months ended December 31, 2012 from $4.3 million for the comparable 2011 period. The decrease resulted from an 82 basis point decrease in the overall cost of interest bearing liabilities to 1.11% for the three months ended December 31, 2012 from 1.93% for the comparable 2011 period, partially offset by a $270.0 million increase in average interest-bearing liabilities. Average interest bearing liabilities increased primarily as a result of the merger with First Star Bank in the fourth quarter of 2012. The yield on borrowed funds declined primarily as a result of the prepayment of $37.0 million in higher yielding borrowings in the fourth quarter of 2012. Yields on certificates of deposits declined due primarily to the replacement of maturing brokered certificates of deposit with shorter duration lower cost certificates of deposit.

Provision for Loan Losses. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect a borrower's ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are subject to interpretation and revision as more information becomes available or as future events occur. After an evaluation of these factors, management made a provision for loan losses of $1.0 million for the three month period ended December 31, 2012 as compared to $500,000 for the three month period ended December 31, 2011. The allowance for loan losses was $7.6 million, or 0.80% of loans outstanding, at December 31, 2012, compared to $7.3 million, or 0.76% of loans outstanding at September 30, 2012.

Non-interest Income. Non-interest income increased $502,000, or 32.9%, to $2.0 million for the three months ended December 31, 2012 from $1.5 million for the comparable period in 2011. The primary reasons for the increase were increases in gain on sale of loans, net of $334,000 and service fees on deposit accounts of $80,000 during the 2012 period. As part of its overall interest rate risk management strategy, the Company sold $11.5 million of long-term, fixed-rate mortgage loans during the quarter ended December 31, 2012. There were no loans sold during the comparable 2011 period.

Non-interest Expense. Non-interest expense increased $843,000, or 12.7%, to $7.5 million for the three months ended December 31, 2012 from $6.7 million for the comparable period in 2011. The primary reasons for the increase were increases in compensation and employee benefits of $620,000, occupancy and equipment of $193,000 and data processing expense of $181,000. These increases were partially offset by decreases in the cost to liquidate foreclosed real estate of $293,000 and professional fees of $178,000. The increases in noninterest expense were due primarily to the larger organization in fiscal first quarter 2013 compared with fiscal first quarter 2012 as a result of the First Star merger. The decrease in professional fees was due to a decrease in merger related legal fees.

Income Taxes. Income tax expense increased $1.2 million to $1.4 million for the three months ended December 31, 2012 from $184,000 for the comparable 2011 period. The increase was primarily a result of the increase in income before taxes of $3.2 million for the three months ended December 31, 2012. The effective tax rate was 32.1% for the three months ended December 31, 2012, compared to 17.2% for the 2011 period. The increase in the effective tax rate was primarily due to the decrease in the portion of pre-tax income derived from non-taxable loan and investment income for the three months ended December 31, 2012 compared to the 2011 period.

Non-Performing Assets

The following table provides information with respect to the Bank's
non-performing assets at the dates indicated. (Dollars in thousands)



                                                          December 31,             September 30,
                                                              2012                     2012

Non-performing assets:
Non-accruing loans                                       $       25,488           $        23,707
Troubled debt restructures                                          531                       533

Total non-performing loans                                       26,019                    24,240
Foreclosed real estate                                            2,503                     2,998

Total non-performing assets                              $       28,522           $        27,238

Ratio of non-performing loans to total loans                       2.74 %                    2.53 %
Ratio of non-performing loans to total assets                      1.85 %                    1.71 %
Ratio of non-performing assets to total assets                     2.03 %                    1.92 %
Ratio of allowance for loan losses to total loans                  0.80 %                    0.76 %

Loans are reviewed on a regular basis and are placed on non-accrual status when they become more than 90 days delinquent. When loans are placed on non-accrual status, unpaid accrued interest is fully reserved, and further income is recognized only to the extent received. Non-performing assets increased $1.3 million to $28.5 million at December 31, 2012 from $27.2 million at September 30, 2012. Non-performing loans increased $1.8 million to $26.0 million at December 31, 2012 from $24.2 million at September 30, 2012. The increase was primarily due to an increase of $516,000 in nonperforming commercial loans and $1.3 million in nonperforming residential loans. The increase in commercial loans was primarily due to the addition of one commercial real estate loan. At December 31, 2012 the outstanding balance of this loan was $446,000 and the loan was paying pursuant to its terms. The number of nonperforming residential loans increased to 99 at December 31, 2012, from 79 at September 30, 2012. The $25.5 million of non-accruing loans at December 31, 2012 included 88 residential loans with an aggregate outstanding balance of $10.7 million that were past due 90 or more days at December 31, 2012, 90 commercial and commercial real estate loans with aggregate outstanding balances of $13.3 million and 16 consumer loans with aggregate balances of $337,000. Within the residential loan balance are $1.2 million of loans less than 90 days past due. In the quarter ended December 31, 2012, the Company identified eight residential loans which, although paying as agreed, have a high probability of default. Foreclosed real estate decreased $495,000 to $2.5 million at December 31, 2012 from $3.0 million at September 30, 2012. Foreclosed real estate consists of 28 residential properties, two building lots and one commercial property.

At December 31, 2012 the principal balance of troubled debt restructures was $12.5 million as compared to $13.1 million at September 30, 2012. Of the $12.5 million of troubled debt restructures at December 31, 2012, $7.7 million are performing loans and $4.8 million are non-accrual loans. An additional $531,000 of performing troubled debt restructures are classified as non-performing assets because they were non-performing assets at the time they were restructured.

Of the 72 loans that comprise our troubled debt restructures at December 31, 2012, no loans were granted a rate concession at a below market interest rate. Twelve loans with balances totaling $2.0 million were granted market rate and terms concessions, one loan with a balance of $381,000 was granted an interest rate concession and 59 loans with balances totaling $10.1 million were granted term concessions.

As of December 31, 2012, troubled debt restructures were comprised of 42 residential loans totaling $6.9 million, 24 commercial and commercial real estate loans totaling $5.5 million, and six consumer (home equity loans, home equity lines and credit, and other) totaling $158,000.

For the three month period ended December 31, 2012, three loans totaling $471,000 were removed from TDR status. One loan for $172,000 was transferred to foreclosed real estate, and two loans totaling $299,000 completed 12 months of consecutive on time payments.

We have modified terms of loans that do not meet the definition of a TDR. The vast majority of such loans were rate modifications of residential first mortgage loans in lieu of refinancing. The non-TDR rate modifications

were all performing loans when the rates were reset to current market rates. For the three months ended December 31, 2012, we modified 100 loans ($14.1 million) in this fashion. With regard to commercial loans, including commercial real estate loans, various non-troubled loans were modified, either for the purpose of a rate reduction to reflect current market rates (in lieu of a refinance) or the extension of a loan's maturity date. In total, there were ten such loans in the three months ended December 31, 2012 with an aggregate balance of approximately $4.9 million.

Liquidity and Capital Resources

We maintain liquid assets at levels we consider adequate to meet both our short-term and long-term liquidity needs. We adjust our liquidity levels to fund deposit outflows, repay our borrowings and to fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives.

Our primary sources of liquidity are deposits, prepayment and repayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and earnings and funds provided from operations, as well as access to FHLBank advances and other borrowing sources. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. We set the interest rates on our deposits to maintain a desired level of total deposits.

A portion of our liquidity consists of cash and cash equivalents and borrowings, which are a product of our operating, investing and financing activities. At December 31, 2012, $19.9 million of our assets were invested in cash and cash equivalents. Our primary sources of cash are principal repayments on loans, proceeds from the maturities of investment securities, principal repayments of mortgage-backed securities and increases in deposit accounts. Short-term investment securities (maturing in one year or less) totaled $2.2 million at December 31, 2012. As of December 31, 2012, we had $229.0 million in borrowings outstanding from FHLBank Pittsburgh and $15.0 million in borrowings through repurchase agreements with other financial institutions. We have access to additional FHLBank advances of up to approximately $577.4 million.

At December 31, 2012, we had $74.0 million in loan commitments outstanding, which included, in part, $31.4 million in undisbursed construction loans and land development loans, $31.6 million in unused home equity lines of credit, $4.9 million in commercial lines of credit and commitments to originate commercial loans, $3.2 million in performance standby letters of credit and $2.7 million in other unused commitments which are primarily to originate residential mortgage loans and multifamily loans. Certificates of deposit due within one year of December 31, 2012 totaled $267.3 million, or 47.3% of certificates of deposit. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2013. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered

As reported in the Consolidated Statements of Cash Flows, our cash flows are classified for financial reporting purposes as operating, investing or financing cash flows. Net cash provided by operating activities was $6.1 million and $3.9 million for the three months ended December 31, 2012 and 2011, respectively. These amounts differ from our net income because of a variety of cash receipts and disbursements that did not affect net income for the respective periods. Net cash provided (used) in investing activities was $8.2 million and $(15.8) million for the three months ended December 31, 2012 and 2011, respectively, principally reflecting our loan and investment security activities. Deposit and borrowing cash flows have comprised most of our financing activities which resulted in net cash used of $9.9 million and $779,000 for the three months ended December 31, 2012 and 2011, respectively.

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. The allowance for loan losses is the estimated amount considered necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses which is charged against income. In determining the allowance for loan losses,

. . .