OBA Financial Services, Inc. - FORM 10-Q

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EX-32 - EXHIBIT 32 - OBA Financial Services, Inc.	dex32.htm
EX-31.1 - EXHIBIT 31.1 - OBA Financial Services, Inc.	dex311.htm
EX-31.2 - EXHIBIT 31.2 - OBA Financial Services, Inc.	dex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended March 31, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 001-34593

OBA FINANCIAL SERVICES, INC.

(Exact Name of Registrant as Specified in Charter)

Maryland

27-1898270

(State or Other Jurisdiction

of Incorporation)

(I.R.S. Employer

Identification No.)


20300 Seneca Meadows Parkway, Germantown, Maryland		20876
(Address of Principal Executive Offices)		(Zip Code)

(301) 916-0742

Registrant’s telephone number, including area code

Not Applicable

(Former name or former address, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x.

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock as of the latest practicable date.

4,628,750 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of May 12, 2011.

OBA FINANCIAL SERVICES, INC. AND SUBSIDIARY

Form 10-Q Quarterly Report

Table of Contents


PART I – FINANCIAL INFORMATION

	Forward-Looking Statements Disclosure	2

Item 1.	Financial Statements
	Consolidated Statements of Condition (Unaudited) As of March 31, 2011 and June 30, 2010	4
	Consolidated Statements of Income (Unaudited) for the three and nine months ended March 31, 2011 and 2010	5
	Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Unaudited) for the nine months ended March 31, 2011 and 2010	6
	Consolidated Statements of Cash Flows (Unaudited) for the nine months ended March 31, 2011 and 2010	7
	Notes to Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33

Item 4.	Controls and Procedures	33

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults Upon Senior Securities	33

Item 4.	[Reserved]	33

Item 5.	Other Information	33

Item 6.	Exhibits	33

Signatures		34

Forward-looking Statements

This report, as well as other written communications made from time to time by OBA Financial Services, Inc., and its subsidiary, OBA Bank, (collectively, the “Company”) and oral communications made from time to time by authorized officers of the Company, may contain statements relating to the future results of the Company (including certain projections and business trends) that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Such forward-looking statements can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may,” “potential,” and words of similar meaning. These forward-looking statements include, but are not limited to:

•

possible or assumed estimates with respect to the financial condition, expected or anticipated revenue, and results of operations and business of the Company, including earnings growth determined using accounting principles generally accepted in the United States of America (“U.S. GAAP”);

•

estimates of revenue growth in retail banking, lending and other areas, and origination volume in the Company’s consumer, commercial, and other lending businesses;

•

statements regarding the asset quality and levels of non-performing assets and impairment charges with respect to the Company’s investment portfolio;

•

statements regarding current and future capital management programs, tangible capital generation, and market share;

•

estimates of non-interest income levels, including fees from services and product sales, and expense levels;

•

statements of the Company’s goals, intentions, and expectations;

•

statements regarding the Company’s business plans, prospects, growth, and operating strategies; and

•

estimates of the Company’s risks and future costs and benefits.

The Company cautions that a number of important factors could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Such factors include, but are not limited to:

•

prevailing general economic conditions, either nationally or locally in some or all areas in which the Company conducts business, that are different than expected;

•

changes in the securities market, the banking industry, or competition among depository and other financial institutions;

•

inflation and changes in interest rates, deposit flows, loan demand, real estate values, consumer spending, savings, and borrowing habits which can materially affect, among other things, consumer banking revenues, origination levels in the Company’s lending businesses and the level of defaults, losses, and prepayments on loans made by the Company, whether held in portfolio or sold in the secondary markets, and the Company’s net interest margin and fair value of financial instruments;

•

changes in any applicable law, rule, government regulation, policy, or practice with respect to tax or legal issues affecting financial institutions, including changes in the Company’s primary regulator, regulatory fees, and capital requirements;

•

risks and uncertainties related to the Company’s ability to successfully integrate any assets, liabilities, customers, systems, and management personnel the Company may acquire, if any, into its operations and its ability to realize related revenue synergies and cost savings within the expected time frame;

•

the Company’s timely development of new and competitive products or services in a changing environment, and the acceptance of such products or services by the Company’s customers so the Company is able to enter new markets successfully and capitalize on growth opportunities;

•

operational issues and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems, on which it is highly dependent;

•

changes in accounting principles, policies, guidelines, and practices, as may be adopted by the Company’s regulatory agencies, the Financial Accounting Standards Board (the “FASB”), the Securities and Exchange Commission (“SEC”), and the Public Company Accounting Oversight Board (the “PCAOB”);

•

litigation liability, including costs, expenses, settlements, and judgments, or the outcome of other matters before regulatory agencies, whether pending or commencing in the future;

•

changes in the quality or composition of the investment and loan portfolios;

•

changes in the Company’s organization, compensation, and benefit plans;

•

changes in other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products, and services; and

•

the timing and occurrence or non-occurrence of events that may be subject to circumstances beyond the Company’s control.

These forward-looking statements are based on the Company’s current beliefs and expectations and are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond the Company’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Readers are cautioned not to place undue reliance on these forward-looking statements which are made as of the date of this report, and except as may be required by applicable law or regulation, the Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the PSLRA.

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

OBA Financial Services, Inc. and Subsidiary

Consolidated Statements of Condition (Unaudited)


	March 31, 2011			June 30, 2010
(In thousands, except share data)
Assets:
Cash and due from banks	$	16,073		$	16,946
Federal funds sold		4,745			19,100

Cash and cash equivalents		20,818			36,046
Interest bearing deposits with other banks		4,865			5,072
Securities available for sale		21,817			29,346
Securities held to maturity (fair value of $3,862 and $4,809)		3,753			4,637
Federal Home Loan Bank stock, at cost		3,469			3,883
Loans		284,254			277,835
Less: allowance for loan losses		2,188			1,737

Net loans		282,066			276,098
Premises and equipment, net		6,158			6,231
Bank owned life insurance		8,522			8,297
Other assets		4,503			4,485

Total assets	$	355,971		$	374,095


Liabilities:
Deposits:
Noninterest-bearing	$	25,934		$	23,499
Interest-bearing		189,755			209,942

Total deposits		215,689			233,441
Securities sold under agreements to repurchase		15,182			20,292
Federal Home Loan Bank advances		41,647			36,834
Advance payments from borrowers for taxes and insurance		1,181			2,262
Other liabilities		1,403			1,044

Total liabilities		275,102			293,873


Stockholders’ Equity:
Preferred stock (par value $.01); authorized 50,000,000 shares; no shares issued or outstanding		-			-
Common stock (par value $.01); authorized 100,000,000 shares; issued and outstanding 4,628,750 shares at March 31, 2011 and June 30, 2010		46			46
Additional paid-in capital		44,793			44,759
Unearned ESOP shares		(3,472	)		(3,610	)
Retained earnings		39,018			38,284
Accumulated other comprehensive income		484			743

Total stockholders’ equity		80,869			80,222

Total liabilities and stockholders’ equity	$	355,971		$	374,095

See notes to consolidated financial statements.

OBA Financial Services, Inc. and Subsidiary

Consolidated Statements of Income (Unaudited)


	Three Months Ended March 31,						Nine Months Ended March 31,
	2011			2010			2011		2010
(In thousands, except per share data)
Interest and Dividend Income:
Loans receivable, including fees	$	3,784		$	3,583		$	11,391	$	11,030
Investment securities:
Interest - taxable		256			291			840		1,002
Dividends		5			-			14		15
Federal funds sold		8			53			39		72

Total interest and dividend income		4,053			3,927			12,284		12,119

Interest Expense:
Deposits		596			816			1,910		2,880
Federal Home Loan Bank advances		298			493			1,042		1,698
Securities sold under agreements to repurchase		51			54			182		178

Total interest expense		945			1,363			3,134		4,756

Net interest income		3,108			2,564			9,150		7,363
Less provision for loan losses		189			680			592		773

Net interest income after provision for loan losses		2,919			1,884			8,558		6,590

Non-Interest Income (Loss):
Customer service fees		91			110			311		352
Loan servicing fees		10			12			32		36
Bank owned life insurance income		78			85			226		254
Impairment losses on investment securities:
Total other-than-temporary impairment losses		-			(428	)		-		(512	)
Losses previously recognized in other comprehensive income before taxes		-			(904	)		-		(1,370	)

Net impairment losses recognized in income		-			(1,332	)		-		(1,882	)

Other gains (losses)		(4	)		27			91		54
Other non-interest income		15			27			91		68

Total non-interest income (loss)		190			(1,071	)		751		(1,118	)

Non-Interest Expense:
Salaries and employee benefits		1,563			1,313			4,473		3,711
Occupancy and equipment		415			375			1,336		1,139
Data processing		199			176			537		491
Directors’ fees		74			73			241		226
FDIC assessments		52			155			200		347
Other non-interest expense		521			291			1,439		998

Total non-interest expense		2,824			2,383			8,226		6,912

Income (loss) before income taxes		285			(1,570	)		1,083		(1,440	)
Income tax expense (benefit)		86			(636	)		349		(648	)

Net income (loss)	$	199		$	(934	)	$	734	$	(792	)


Basic earnings (loss) per share	$	0.05		$	(0.22	)	$	0.17	$	(0.19	)

Basic weighted average shares outstanding (1)		4,277,016			4,258,516			4,272,353		4,258,516

(1) Fiscal year 2010 calculated from the effective date of January 21, 2010 to the period end

See notes to consolidated financial statements.

OBA Financial Services, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Unaudited)

Nine Months Ended March 31, 2011 and 2010


	Common Stock		Additional Paid-in Capital		Unearned ESOP Shares			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
(In thousands)

Balances at July 1, 2009	$	-	$	-	$	-		$	38,994		$	(492	)	$	38,502


Comprehensive income:
Net loss									(792	)					(792	)
Other comprehensive income (loss), net of tax:
Unrealized losses on debt securities for which a portion of impairment has been recognized in income, net of tax benefit of ($199)												(313	)		(313	)
Net unrealized gains on other available for sale securities, net of tax of $144												228			228
Reclassification adjustment for other-than-temporary impairment losses included in income, net of tax of $734												1,148			1,148
Reclassification adjustment for gain on sales of investments, net of tax benefit of ($1)												(2	)		(2	)

Total comprehensive income															269

Issuance of 4,628,750 shares of common stock net of offering cost		46		44,758											44,804
Purchase of 370,300 ESOP shares						(3,703	)								(3,703	)
ESOP shares committed to be released (4,629 shares)				2		46									48


Balances, March 31, 2010	$	46	$	44,760	$	(3,657	)	$	38,202		$	569		$	79,920


Balances at July 1, 2010	$	46	$	44,759	$	(3,610	)	$	38,284		$	743		$	80,222


Comprehensive income:
Net income									734						734
Other comprehensive loss, net of tax:
Net unrealized losses on available for sale securities, net of tax benefit of ($166)												(259	)		(259	)

Total comprehensive income															475


ESOP shares committed to be released (13,886 shares)				34		138									172


Balances, March 31, 2011	$	46	$	44,793	$	(3,472	)	$	39,018		$	484		$	80,869

See notes to consolidated financial statements.

OBA Financial Services, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)


	Nine Months Ended March 31,
(in thousands)	2011			2010
Operating Activities:
Net income (loss)	$	734		$	(792	)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for loan losses		592			773
Depreciation and amortization of premises and equipment		492			402
Net amortization (accretion) of securities premiums and discounts		130			(7	)
Net gains on sale of investment securities		-			(3	)
Impairment losses on investment securities		-			1,882
Proceeds from sales of loans held for sale		3,527			2,478
Originated loans held for sale		(3,428	)		(2,427	)
Net gains on sales of loans		(99	)		(51	)
Amortization of net deferred loan (fees) costs		(26	)		8
Write-down of foreclosed assets		88			-
Net gain on sale of deposits		(80	)		-
Earnings on investment in bank-owned life insurance		(226	)		(254	)
ESOP expense		172			48
Amortization of mortgage servicing rights		7			4
Amortization of brokered deposit premiums		21			22
Changes in other assets and liabilities, net		444			(2,110	)

Total adjustments		1,614			765

Net cash provided by (used in) operating activities		2,348			(27	)


Investing Activities:
Principal collections and maturities of securities available for sale		6,983			5,431
Principal collections and maturities of securities held to maturity		875			5,227
Proceeds from sales of securities available for sale		-			2,579
Purchases of securities available for sale		-			(2,475	)
Purchases of securities held to maturity		-			(9,983	)
Redemption of Federal Home Loan Bank Stock, net		414			-
Decrease in interest bearing deposits with other Banks, net		207			-
Loan purchases		(4,140	)		(200	)
Loan originations less principal collections		(2,413	)		17,394
Purchases of premises and equipment		(588	)		(217	)
Purchases of bank-owned life insurance		-			(2,500	)

Net cash provided by investing activities		1,338			15,256


Financing Activities:
Sale of deposits		(10,421	)		-
Decrease in other deposits		(7,115	)		(8,441	)
Net decrease in securities sold under agreements to repurchase		(5,110	)		(656	)
FHLB Advances		15,000			4,300
Repayment of advances from the FHLB		(10,187	)		(18,838	)
Net decrease in advance payments from borrowers for taxes and insurance		(1,081	)		(1,087	)
Proceeds from issuance of common stock, net of costs		-			41,101

Net cash (used in) provided by financing activities		(18,914	)		16,379

(Decrease) increase in cash and cash equivalents		(15,228	)		31,608
Cash and cash equivalents at beginning of period		36,046			33,657

Cash and cash equivalents at end of period	$	20,818		$	65,265


Supplemental Disclosures:
Interest paid	$	3,106		$	4,802
Income taxes paid		423			81
Non cash investing activities:
Loans transferred to foreclosed assets		-			47
Non cash financing activities:
During January 2010, the Company loaned $3.7 million to the Employee Stock Ownership Plan, which was used to acquire 370,300 shares of the Company’s stock. The loan is secured by the shares purchased and is shown as Unearned ESOP shares in the Consolidated Statement of Condition.

See notes to consolidated financial statements.

OBA Financial Services, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

In December 2007, OBA Bank (the “Bank”) reorganized into a three-tier mutual holding company structure. As part of the reorganization, the Bank converted from a mutual savings bank into a federally chartered stock savings bank and formed OBA Bancorp, Inc., a federally chartered mid-tier stock holding company, and OBA Bancorp, MHC, a federally chartered mutual holding company. The Bank became a wholly-owned subsidiary of OBA Bancorp, Inc. and OBA Bancorp, Inc. became a wholly-owned subsidiary of OBA Bancorp, MHC.

On January 21, 2010, OBA Bancorp, MHC completed its plan of conversion and reorganization from a mutual holding company to a stock holding company. In accordance with the plan, OBA Bancorp, MHC and OBA Bancorp, Inc. ceased to exist as separate legal entities and a stock holding company, OBA Financial Services, Inc., of which OBA Bank became a wholly owned subsidiary, sold and issued shares of capital stock to eligible depositors of OBA Bank. A total of 4,628,750 shares were issued in the conversion at $10 per share, raising $46.3 million of gross proceeds. OBA Financial Services, Inc.’s common stock began trading on the NASDAQ Capital Market under the symbol “OBAF” on January 22, 2010.

In accordance with Office of Thrift Supervision (“OTS”) regulations, at the time of the conversion from a mutual holding company to a stock holding company, OBA Bank substantially restricted retained earnings by establishing a liquidation account. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after conversion. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account. In the event of a complete liquidation of the Bank, and only in such event, each account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

OBA is a community-oriented bank which provides a variety of financial services to individuals and small businesses through its offices in Montgomery and Howard counties of Maryland. Its primary deposits are demand and time certificate accounts and its primary lending products are residential and commercial mortgage loans.

Basis of Presentation

The consolidated financial statements include the accounts of OBA Financial Services Inc., and OBA Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and are presented in accordance with instructions for Form 10-Q and Rule 10-01 of the SEC Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation are of a normal and recurring nature and have been included.

Operating results for the three and nine months ended March 31, 2011, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2011 or any other interim period. The consolidated financial statements presented in this report should be read in conjunction with the audited consolidated financial statements and the accompanying notes filed on

Form 10-K for the fiscal year ended June 30, 2010.

Use of Estimates

In preparing the consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Statement of Condition and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. A material estimate that is particularly sensitive to significant change in the near term relates to the determination of the allowance for loan losses.

Recent Accounting Pronouncements

Accounting Standards Update 2010-06

In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurement and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.

This Update requires new disclosures and clarifies some existing disclosure requirements about fair value measurements as set forth in Codification Subtopic 820-10.

ASU 2010-06 is effective for fiscal years beginning after December 15, 2009 and for interim periods within those fiscal years except the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. This update did not and is not expected to have a material impact on the Company’s consolidated financial statements.

Accounting Standards Update 2010-20

In June 2010, the FASB issued Accounting Standards Update 2010-20, Receivables (Topic 310), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.

The update requires a greater level of disaggregated information about the credit quality of financing receivables and the allowance for credit losses. The amendment also requires disclosures of credit quality indicators, past due information, and modifications of financing receivables.

ASU 2010-20 is effective for interim and annual reporting periods ending on or after December 15, 2010. The Company adopted this amendment on December 31, 2010 and has provided the required credit quality disclosures in the footnotes to these consolidated financial statements. Refer to Accounting Standards Update 2011-01 below for an update related to the adoption of ASU 2010-20.

Accounting Standards Update 2011-01

The amendments in this Update temporarily delay the effective date of the disclosures about troubled debt restructurings required by Update 2010-20 for public entities. Under the effective date in Update 2010-20, public-entity creditors would have provided disclosures about troubled debt restructurings for periods ending on or after December 15, 2010. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is effective for interim and annual periods ending after June 15, 2011(see ASU 2011-02 below). The deferral in this amendment was effective upon issuance.

Accounting Standards Update 2011-02

In April 2011, The FASB issued this Update to clarify the accounting principles applied to loan modifications, as defined by FASB ASC Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors. The Update clarifies guidance on a creditor’s evaluation of whether or not a concession has been granted, with an emphasis on evaluating all aspects of the modification rather than a focus on specific criteria, such as the effective interest rate test, to determine a concession. For public entities, the amendments in the Update are effective for the first interim or annual periods beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The entity should also disclose information required by ASU

2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which had previously been deferred by ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20, for interim and annual periods beginning on or after June 15, 2011. This update is not expected to have a material impact on the Company’s consolidated financial statements.

NOTE 2 – COMPREHENSIVE INCOME

U.S. GAAP requires that recognized revenue, expenses, gains, and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the Statement of Condition, such items, along with net income, are components of comprehensive income.

The components of other comprehensive income (loss) and related tax effects are as follows:


	Three Months Ended March 31,					Nine Months Ended March 31,
	2011		2010			2011			2010
	(In thousands)
Unrealized losses on debt securities for which a portion of impairment has been recognized in income	$	-	$	(428	)	$	-		$	(512	)
Unrealized gains (losses) on other available for sale securities		14		81			(425	)		372
Reclassification adjustment for OTTI losses included in income		-		1,332			-			1,882
Reclassification adjustment for gain on sale of investments		-		-			-			(3	)

Net unrealized gains (losses)		14		985			(425	)		1,739
Tax effect		5		384			(166	)		678

Net of tax amount	$	9	$	601		$	(259	)	$	1,061

Accumulated other comprehensive income consists of the following:


	March 31, 2011			June 30, 2010
	(In thousands)

Net unrealized gains on available for sale securities	$	793		$	1,218
Tax effect		(309	)		(475	)

Total	$	484		$	743

NOTE 3 – SECURITIES

The amortized cost and fair value of securities with gross unrealized gains and losses are as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
March 31, 2011
Securities available for sale:
Debt Securities:
Residential mortgage-backed securities ⁽¹⁾	$	20,852	$	800	$	-		$	21,652
Trust preferred securities		122		-		(7	)		115

Total debt securities available for sale		20,974		800		(7	)		21,767
Equity Securities		50		-		-			50

Total securities available for sale		21,024		800		(7	)		21,817


Securities held to maturity:
Debt Securities:
Residential mortgage-backed securities ⁽¹⁾		3,753		109		-			3,862

Total debt securities held to maturity		3,753		109		-			3,862


Total investment securities	$	24,777	$	909	$	(7	)	$	25,679


June 30, 2010
Securities available for sale:
Debt Securities:
Residential mortgage-backed securities ⁽¹⁾	$	27,944	$	1,243	$	-		$	29,187
Trust preferred securities		135		-		(26	)		109

Total debt securities available for sale		28,079		1,243		(26	)		29,296
Equity Securities		50		-		-			50

Total securities available for sale		28,129		1,243		(26	)		29,346


Securities held to maturity:
Debt Securities:
Residential mortgage-backed securities ⁽¹⁾		4,637		172		-			4,809

Total debt securities held to maturity		4,637		172		-			4,809


Total investment securities	$	32,766	$	1,415	$	(26	)	$	34,155

⁽¹⁾

All residential mortgage-backed securities were issued by United States government agencies including the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. The Company had no private label residential mortgage-backed securities at March 31, 2011 and June 30, 2010 or during the nine months or year then ended, respectively.

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2011 are as follows:


	Available for sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
		(In thousands)

Due after ten years	$	122	$	115	$	-	$	-
Residential mortgage-backed securities		20,852		21,652		3,753		3,862

Total	$	20,974	$	21,767	$	3,753	$	3,862

At March 31, 2011 and June 30, 2010, the carrying amount of securities pledged to secure repurchase agreements was $22.4 million and $22.3 million, respectively.

The following table presents a summary of cumulative credit losses related to other-than-temporary impairment charges recognized in income for trust preferred securities during the nine months ended March 31, 2011 and 2010:


	Nine Months Ended March 31,
	2011		2010
		(In thousands)

Beginning balance of cumulative credit losses	$	-	$	1,020
Additions to credit losses recorded on securities		-		550
Reduction for securities sold		-		(1,570	)

Ending balance of cumulative credit losses	$	-	$	-

During the quarter ended March 31, 2010, the Company re-evaluated its intent regarding the pooled trust preferred securities. Due to the continued deterioration in the financial condition of some issuers, lack of improvement in the securities’ liquidity, the amount of management’s time and related costs of monitoring, valuing, and accounting for the securities and tax related considerations, the Company decided to sell the securities. Consequently, the Company has zero cumulative credit losses related to other-than-temporary impairment charges at March 31, 2010 and 2011.

Information pertaining to securities with gross unrealized losses at March 31, 2011 and June 30, 2010, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:


	Less than 12 Months				12 Months or More				Total
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
		(In thousands)

March 31, 2011
Trust preferred securities	$	-	$	-	$	7	$	115	$	7	$	115

Total	$	-	$	-	$	7	$	115	$	7	$	115


June 30, 2010
Trust preferred securities	$	-	$	-	$	26	$	109	$	26	$	109

Total	$	-	$	-	$	26	$	109	$	26	$	109

At March 31, 2011, the Company owned one trust preferred security backed by insurance and insurance holding companies. The pooled trust preferred security is in the senior tranche and is rated AA by the rating agency Fitch and A+ by the rating agency Moody’s. The security was purchased at par. The decline in the fair value of this security has been caused by (1) collateral deterioration due to failures and credit concerns across the financial services sector, (2) the widening of credit spreads for asset-backed securities, and (3) general illiquidity and, as a result, inactivity in the market for these securities.

The unrealized loss in the table above related to this security was not recognized in income as the Company does not intend to sell the security, believes it is not more than likely than not that the Company will be required to sell the security and believes the present value of expected cash flows is sufficient to recover the entire amortized cost basis.

NOTE 4 – CREDIT QUALITY OF LOANS AND ALLOWANCE FOR LOAN LOSSES

Various Company policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those assets characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets, or portions of assets, classified as losses are those considered uncollectible and of such little value that their continuance as an asset is not warranted. Assets that do not expose the Company to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve close attention, are required to be designated as Special Mention.

The Company maintains an allowance for loan losses at an amount estimated to equal all credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the statement of condition date. The Company’s determination as to the classification of assets is subject to review by the Company’s principal federal regulator, the OTS. The Company regularly reviews the asset portfolio to determine whether any assets require classification in accordance with applicable regulations.

Management evaluates the allowance for loan losses based upon the combined total of the specific and general components as discussed below. Generally, when the loan portfolio increases, absent other factors, the allowance for loan loss methodology results in a higher dollar amount of estimated probable losses than would be the case without the increase. Generally, when the loan portfolio decreases, absent other factors, the allowance for loan loss methodology results in a lower dollar amount of estimated probable losses than would be the case without the decrease.

Commercial real estate loans generally have greater credit risks compared to one- to four-family residential mortgage loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related business and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy.

Commercial business loans generally have greater credit risks compared to one- to four-family residential mortgage loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on commercial business loans typically depends on the successful operation of the related business and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy.

Generally, the Company underwrites commercial real estate loans at a loan-to-value ratio of 75% or less and residential real estate loans are underwritten at a loan-to-value ratio not exceeding 80%. In the event that a loan becomes past due, management will conduct visual inspections of collateral properties and/or review publicly available information, such as online databases, to ascertain property values. The Company may request a formal third party appraisal for various reasons including, but not limited to, age of previous appraisal, changes in market condition, and changes in borrower’s condition. For loans initially determined to be impaired loans, the Company utilizes the ascertained or appraised property value in determining the appropriate specific allowance for loan losses attributable to a loan. In addition, changes in the appraised value of properties securing loans can result in an increase or decrease in the general allowance for loan losses as an adjustment to the historical loss experience due to qualitative and environmental factors.

The loan portfolio is evaluated on a quarterly basis and the allowance is adjusted accordingly. While the best information available is used to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations. In addition, as an integral part of their examination process, the OTS will periodically review the allowance for loan losses. The OTS may require the Company to recognize additions to the allowance based on their analysis of information available to them at the time of their examination.

The components of loans receivable are as follows:


	March 31,
(in thousands)	2011
Commercial and Industrial	$	36,965
Commercial Real Estate		92,632
Commercial Construction		1,000
Residential Mortgage		117,536
Home Equity		35,841

Loans	$	283,974
Net deferred loan (fees) costs		280
Allowance for loan losses		(2,188	)

Net loans	$	282,066

The following table presents the classes of the loan portfolio summarized by loan rating within the Company’s internal risk rating system as of March 31, 2011:


	Pass		Special Mention		Substandard		Doubtful		Total
(In thousands)
Commercial and Industrial	$	34,901	$	2,008	$	56	$	-	$	36,965
Commercial Real Estate		80,788		4,763		7,081		-		92,632
Commercial Construction		1,000		-		-		-		1,000
Residential Mortgage		116,496		-		1,040		-		117,536
Home Equity		35,841		-		-		-		35,841

Total	$	269,026	$	6,771	$	8,177	$	-	$	283,974

Loans are placed on non-accrual status when payment of principal or interest is 90 days or more delinquent. Loans are also placed on non-accrual status if collection of principal or interest, in full, is in doubt. When loans are placed on a non-accrual status, unpaid accrued interest is fully reversed and further income is recognized only when full repayment of the loan is complete or the loan returns to accrual status, at which point income is recognized to the extent received. The loan may be returned to accrual status if both principal and interest payments are brought current, there has been a period of sustained performance (generally six months), and full payment of principal and interest is expected.

The performance and credit quality of the loan portfolio is also monitored by the analyzing of the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due and non-accrual status as of March 31, 2011:


	31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Total Non-Accrual Loans
(In thousands)
Commercial and Industrial	$	-	$	-	$	-	$	-	$	36,965	$	36,965	$	-
Commercial Real Estate		5,309		559		-		5,868		86,764		92,632		-
Commercial Construction		-		-		-		-		1,000		1,000		-
Residential Mortgage		55		-		-		55		117,481		117,536		459
Home Equity		195		-		-		195		35,646		35,841		-

Total	$	5,559	$	559	$	-	$	6,118	$	277,856	$	283,974	$	459

The Company provides for loan losses based upon the consistent application of the documented allowance for loan loss methodology. All loan losses are charged to the allowance for loan losses and all recoveries are credited to it. Additions to the allowance for loan losses are provided by charges to income based on various factors which, in management’s judgment, deserve current recognition in estimating probable losses. Management regularly reviews the loan portfolio and makes provisions for loan losses in order to maintain the allowance for loan losses in accordance with U.S. GAAP. The allowance for loan losses consists primarily of two components:

(1)

specific allowances established for impaired loans. The amount of impairment provided for as a specific allowance is represented by the deficiency, if any, between the present value of the loan’s expected cash flows discounted at the loan’s effective interest rate, or the loan’s observable market price, if any, or the fair value of the underlying collateral, if the loan is collateral dependent, and the carrying value of the loan. Impaired loans for which the present value of the loan’s expected cash flows discounted at the loan’s effective interest rate, or the loan’s observable market price, or the fair value of the underlying collateral, if the loan is collateral dependent, exceeds the carrying value of the loan are not considered in establishing specific allowances for loan losses; and

(2)

general allowances established for loan losses on a portfolio basis for loans that do not meet the definition of impaired loans. The portfolio is grouped into similar risk characteristics, primarily loan type. The Bank applies an estimated loss rate to each loan group. The loss rates applied are based upon loss experience adjusted, as appropriate, for the

environmental factors discussed below. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions.

Actual loan losses may be significantly more than the allowance for loan losses established, which could have a material negative effect on financial results.

The adjustments to historical loss experience are based on management’s evaluation of several qualitative and environmental factors, including:

•

changes in any concentration of credit (including, but not limited to, concentrations by geography, industry, or collateral type);

•

changes in the number and amount of non-accrual loans, classified loans, and past due loans;

•

changes in national, state, and local economic trends;

•

changes in the types of loans in the loan portfolio;

•

changes in the experience and ability of personnel and management in the loan origination and loan servicing departments;

•

changes in the value of underlying collateral for collateral dependent loans;

•

changes in lending strategies; and

•

changes in lending policies and procedures.

In addition, management may establish an unallocated allowance to provide for probable losses that have been incurred as of the reporting date but are not reflected in the allocated allowance.

The following table sets forth the activity in and allocation of the allowance for loan losses by loan portfolio class as of and for the three months ended March 31, 2011.


	Commercial and industrial			Commercial real estate		Commercial construction			Residential mortgage			Home equity		Unallocated			Total
(In thousands)
Allowance for loan losses:
Beginning Balance	$	269		$	1,020	$	3		$	500		$	164	$	214		$	2,170
Charge-offs		-			77		-			15			79		-			171
Recoveries		-			-		-			-			-		-			-
Provisions		(30	)		170		(1	)		(201	)		253		(2	)		189

Ending balance	$	239		$	1,113	$	2		$	284		$	338	$	212		$	2,188


Allowance for Loan Losses:
Ending allowance balance related to loans:
Individually evaluated for impairment	$	-		$	372	$	-		$	90		$	-	$	-		$	462
Collectively evaluated for impairment		239			741		2			194			338		212			1,726

Total ending allowance balance	$	239		$	1,113	$	2		$	284		$	338	$	212		$	2,188


Loans receivable:
Ending loan balance
Individually evaluated for impairment	$	-		$	7,080	$	-		$	699		$	-				$	7,779
Collectively evaluated for impairment		36,965			85,552		1,000			116,837			35,841					276,195

Total ending loan balance	$	36,965		$	92,632	$	1,000		$	117,536		$	35,841				$	283,974

The following table summarizes information in regards to impaired loans by loan portfolio class as of March 31, 2011:


	As of the end of the period						For the three months ended March 31, 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
(In thousands)
With No Related Allowance Recorded:
Commercial Real Estate	$	5,780	$	5,857	$	-	$	3,169	$	-
Residential Mortgage

Total with no allowance recorded	$	5,780	$	5,857	$	-	$	3,169	$	-


With an Allowance Recorded:
Commercial Real Estate	$	1,300	$	1,300	$	372	$	1,302	$	15
Residential Mortgage		699		699		90		700		13

Total with allowance recorded	$	1,999	$	1,999	$	462	$	2,002	$	28


Total:
Commercial Real Estate	$	7,080	$	7,157	$	372	$	4,471	$	15
Residential Mortgage		699		699		90		700		13

Total	$	7,779	$	7,856	$	462	$	5,171	$	28

NOTE 5 – FAIR VALUE MEASUREMENTS AND DISCLOSURES

Management uses its best judgment in estimating the fair value of the Company’s assets and liabilities; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all assets and liabilities, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective reporting dates and have not been re-evaluated or updated subsequent to those respective dates. As such, the estimated fair values of these assets and liabilities subsequent to the respective reporting dates may be different than the amounts reported at each reporting date. Accounting guidance related to fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:


Level 1:		Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2:		Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3:		Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2011 and June 30, 2010 are as follows:


(In thousands)				(Level 1)
Description	March 31, 2011		Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs

Securities available for sale:
Residential mortgage-backed securities	$	21,652	$	-	$	21,652	$	-
Trust preferred securities		115		-		-		115
Equity Securities		50		-		50		-

Total securities available for sale	$	21,817	$	-	$	21,702	$	115


Description	June 30, 2010		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs

Securities available for sale:
Residential mortgage-backed securities	$	29,187	$	-	$	29,187	$	-
Trust preferred securities		109		-		-		109
Equity Securities		50		-		50		-

Total securities available for sale	$	29,346	$	-	$	29,237	$	109

The following table presents a reconciliation of the securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended March 31, 2011:


	Three Months Ended March 31, 2011			Nine Months Ended March 31, 2011
(In thousands)

Beginning balance	$	105		$	109

Principal repayments		(4	)		(13	)
Unrealized gains included in other comprehensive income		14			19


Ending balance, March 31, 2011	$	115		$	115

Level 3 securities consist of trust preferred securities at March 31, 2011 and June 30, 2010.

For assets measured at fair value on a nonrecurring basis at March 31, 2011 and June 30, 2010, the fair value measurements by level within the fair value hierarchy are as follows:


(In thousands)				(Level 1)
Description	March 31, 2011		Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs

Impaired loans	$	1,537	$	-	$	-	$	1,537


Foreclosed assets	$	105	$	-	$	-	$	105


Description	June 30, 2010		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs

Impaired loans	$	1,993	$	-	$	-	$	1,993


Foreclosed assets	$	193	$	-	$	-	$	193

The methods and assumptions used to estimate the fair values included in the above tables are included in the disclosures that follow.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate fair values at March 31, 2011 and June 30, 2010:

Cash and Cash Equivalents (Carried at Cost)

The carrying amounts of cash and short-term instruments approximate fair value.

Securities Available for Sale (Carried at Fair Value)

The fair values of securities available for sale, excluding trust preferred securities, are determined by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

The market for pooled trust preferred securities is inactive. A significant widening of the bid/ask spreads in the markets in which these securities trade was followed by a significant decrease in the volume of trades relative to historical levels. The new issue market is also inactive and no new pooled trust preferred securities have been issued since 2007. Since there were limited observable market-based Level 1 and Level 2 inputs for trust preferred securities, the fair value of these securities was estimated using primarily unobservable Level 3 inputs. Fair value estimates for trust preferred securities were based on discounting expected cash flows using a risk-adjusted discount rate. The Company develops the risk-adjusted discount rate by considering the time value of money (risk-free rate) adjusted for an estimated risk premium for bearing the uncertainty in future cash flows and, given current adverse market conditions, a liquidity adjustment based on an estimate of the premium that a market participant would require assuming an orderly transaction.

Securities Held to Maturity (Carried at Amortized Cost)

A review of the investment portfolio may indicate that certain securities held to maturity are impaired. If necessary, the Company performs fair value modeling and evaluations on these securities. All processes and controls associated with determination of the fair value of those securities are consistent with those performed for securities available for sale.

Federal Home Loan Bank Stock (Carried at Cost)

The carrying amount of Federal Home Loan Bank stock approximates fair value and considers the limited marketability of such securities.

Loans Receivable (Carried at Cost)

The fair values of loans (except impaired loans) are estimated using discounted cash flow analyses which use market rates at the statement of condition date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts.

Impaired Loans (Generally Carried at Fair Value)

Impaired loans are those for which the Company has measured impairment generally based on the fair value of the loan’s collateral. Fair value of real estate collateral is generally determined based upon independent third-party appraisals of the properties, which consider sales prices of similar properties in the proximate vicinity or by discounting expected cash flows from the properties by an appropriate risk adjusted discount rate. Fair value of collateral other than real estate is based on an estimate of the liquidation proceeds. Impaired loans are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value consists of the loan balances net of a valuation allowance.

Foreclosed Assets (Carried at Lower of Cost or Fair Value less Estimated Selling Costs)

Fair values of foreclosed assets are based on independent third party appraisals of the properties or discounted cash flows based upon the expected sales proceeds upon disposition of the assets. These values were generally determined based on the sales prices of similar properties in the proximate vicinity. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Mortgage Servicing Rights (Carried at Lower of Cost or Fair Value)

At origination, the Company estimates the fair value of mortgage servicing rights at 1% of the principal balances of loans sold. The Company amortizes that amount over the estimated period of servicing revenues or charges the entire amount to income upon prepayment of the related loan. Due to the small size of the balance of mortgage servicing rights at March 31, 2011 and June 30, 2010, the Company did not perform any further analysis or estimate their fair values. Therefore, the Company has disclosed that the carrying amounts of mortgage servicing rights approximate fair value.

Deposit Liabilities (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities.

Federal Home Loan Bank Advances (Carried at Cost)

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms, and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Securities Sold Under Agreements to Repurchase (Carried at Cost)

The carrying amounts of securities sold under agreements to repurchase approximate fair value for short-term obligations. The fair values for longer term repurchase agreements are based on current market interest rates for similar transactions.

Accrued Interest Receivable and Payable (Carried at Cost)

The carrying amounts of accrued interest approximate fair value.

Off-Balance-Sheet Credit-Related Instruments (Disclosures at Cost)

Fair values for off-balance-sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of these instruments is not material.

The estimated fair values of the Company’s financial instruments were as follows:


	March 31, 2011				June 30, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
			(In thousands)
Financial assets:
Cash and cash equivalents	$	20,818	$	20,818	$	36,046	$	36,046
Interest bearing deposits with other banks		4,865		4,865		5,072		5,072
Securities available for sale		21,817		21,817		29,346		29,346
Securities held to maturity		3,753		3,862		4,637		4,809
Federal Home Loan Bank stock		3,469		3,469		3,883		3,883
Loans receivable, net		282,066		289,622		276,098		283,876
Accrued interest receivable		1,215		1,215		1,206		1,206
Mortgage servicing rights		91		91		63		63

Financial liabilities:
Deposits		215,689		216,737		233,441		235,186
Securities sold under agreements to repurchase		15,182		15,432		20,292		20,539
Federal Home Loan Bank Advances		41,647		44,113		36,834		39,929
Accrued interest payable		269		269		241		241

Off-Balance sheet financial instruments		-		-		-		-

NOTE 6 – GUARANTEES

The Company has not issued any guarantees that would require liability recognition or disclosure, other than its letters of credit. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued, have expiration dates within one year. The credit risks involved in issuing letters of credit are essentially the same as those that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. As of March 31, 2011, the Company had $541 thousand of outstanding letters of credit. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. Management believes that the current amount of the liability as of March 31, 2011 for guarantees under letters of credit issued is not material.

NOTE 7 – EMPLOYEE STOCK OWNERSHIP PLAN

Effective January 1, 2010, the Company adopted an Employee Stock Ownership Plan (ESOP) for eligible employees. The ESOP borrowed $3.7 million from the Company and used those funds to acquire 370,300 shares, or 8%, of the total number of shares issued by the Company in its initial public offering. The shares were acquired at a price of $10.00 per share.

The loan is secured by the shares purchased with the loan proceeds and will be repaid by the ESOP over the 20-year term of the loan with funds from OBA Bank’s contributions to the ESOP and dividends payable on the stock, if any. The interest rate on the ESOP

loan is an adjustable rate equal to the lowest prime rate, as published in The Wall Street Journal. The interest rate adjusts annually and is the prime rate on the first business day of the calendar year.

Shares purchased by the ESOP are held by a trustee in an unallocated suspense account, and shares are released annually from the suspense account on a pro-rata basis as principal and interest payments are made by the ESOP to the Company. The trustee allocates the shares released among participants on the basis of each participant’s proportional share of compensation relative to all participants. As shares are committed to be released from the suspense account, OBA Bank reports compensation expense based on the average fair value of shares committed to be released with a corresponding credit to stockholders’ equity. Compensation expense recognized for the three months and nine months ended March 31, 2011 amounted to $65 thousand and $172 thousand, respectively. Compensation expense for the three and nine months ended March 31, 2010 was $48 thousand for both periods as the Company adopted the ESOP plan during the third quarter of fiscal year 2010.

Shares held by the ESOP trust at March 31, 2011 were as follows:


Allocated shares		23,144
Unreleased shares		347,156

Total ESOP shares		370,300

Fair value of unreleased shares, in thousands	$	5,041

NOTE 8 – EARNINGS PER SHARE

Basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. The Company had no potentially dilutive common shares for the three or nine month periods ended March 31, 2011 and 2010.


	Three Months Ended March 31,					Nine Months Ended March 31,
(Dollars in thousands, except per share data)	2011		2010			2011		2010

Basic
Net income (loss)	$	199	$	(934	)	$	734	$	(792	)


Shares:
Weighted average common shares outstanding (1)		4,277,016		4,258,516			4,272,353		4,258,516


Net income (loss) per common share, basic	$	0.05	$	(0.22	)	$	0.17	$	(0.19	)

(1) Fiscal year 2010 calculated from the effective date of January 21, 2010 to the period end

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FINANCIAL REVIEW

The principal objective of this Financial Review is to provide an overview of the financial condition and results of operations of OBA Financial Services Inc., and its subsidiary, OBA Bank. The discussion and tabular presentations should be read in conjunction with the accompanying unaudited Consolidated Financial Statements and Notes.

Overview of Income and Expenses

Income

The Company has two primary sources of pre-tax income. Net interest income is the difference between interest income, which is the income the Company earns on its loans and investments, and interest expense, which is the interest the Company pays on its deposits and borrowings.

Non-interest income is the compensation received from providing products and services and from other income. The majority of the non-interest income is earned from service charges on deposit accounts, bank owned life insurance income, and loan servicing fees. The Company also earns income from the sale of residential mortgage loans and other fees and charges.

The Company recognizes gains or losses as a result of sales of investment securities, loans, foreclosed property, and premises and equipment. In addition, the Company recognizes losses on its investment securities that are considered other-than-temporarily impaired. Gains and losses are not a regular part of the Company’s primary sources of income.

Expenses

The expenses the Company incurs in operating its business consist primarily of salaries and employee benefits, occupancy and equipment expense, external processing fees, FDIC assessments, Director fees, and other non-interest expenses.

Salaries and employee benefits expense consists primarily of the salaries and wages paid to employees, payroll taxes, and expenses for health care, retirement, and other employee benefits.

Occupancy expenses, which are fixed or variable costs associated with premises and equipment, consist primarily of lease payments, real estate taxes, depreciation charges, maintenance, and cost of utilities.

Equipment expense includes expenses and depreciation charges related to office and banking equipment.

External processing fees are paid to third parties mainly for data processing services.

Other expenses include expenses for charitable contributions, advertising and marketing, attorneys, accountants and consultants, franchise taxes, insurance, office supplies, postage, telephone, and other miscellaneous operating expenses.

Critical Accounting Policies and Estimates

There are no material changes to the critical accounting policies disclosed in OBA Financial Services, Inc.’s Form 10-K for the fiscal year ended June 30, 2010.

Comparison of Financial Condition at March 31, 2011 and June 30, 2010

Assets. Total assets decreased $18.1 million, or 4.8%, to $356.0 million at March 31, 2011 from $374.1 million at June 30, 2010. The decrease was primarily due to a decrease in cash and cash equivalents and securities available for sale partially offset by an increase in total loans.

Cash and Cash equivalents. At March 31, 2011, Cash and cash equivalents decreased $15.2 million, or 42.2%, to $20.8 million primarily due to an increase in total loans outstanding and a decrease in interest-bearing deposits and repurchase agreements partially offset by a decrease in securities available for sale and an increase in Federal Home Loan Bank borrowings.

Loans. At March 31, 2011, total gross loans were $284.3 million. At March 31, 2011, the loan portfolio increased $6.4 million, or 2.3%, from $277.8 million at June 30, 2010. The increase was primarily due to an increase of $31.2 million in total commercial loans partially offset by a reduction in fixed rate residential mortgage loans of $23.4 million. The reduction in the fixed rate residential mortgage loan portfolio is a result of management’s decision to, generally, sell newly-originated, longer-term (primarily 30 year) fixed rate one- to four-family residential real estate loans to mitigate interest rate risk, as well as, prepayments exceeding other originations that were held in the portfolio. For further detail, see “Note 4 – Credit Quality of Loans and Allowance for Loan Losses” in the accompanying financial statements.

Allowance for Loan Losses.

The following table summarizes activity in the allowance for loan losses for the three and nine months ended March 31, 2011 and 2010:


	Three Months Ended March 31,						Nine Months Ended March 31,
(in thousands)	2011			2010			2011			2010
Balance at beginning of period	$	2,170		$	1,124		$	1,737		$	1,167
Provision for loan losses		189			680			592			773
Loans charged-off, net		(171	)		(500	)		(141	)		(636	)

Balance at end of period	$	2,188		$	1,304		$	2,188		$	1,304


Ratios:
Net charge-offs to average loans		0.25	%		0.75	%		0.07	%		0.30	%
Allowance for loan losses to total loans		0.77			0.49			0.77			0.49

At March 31, 2011, the allowance for loan losses was $2.2 million compared with $1.3 million at March 31, 2010, $1.7 million at June 30, 2010, $1.9 million at September 30, 2010, and $2.2 million at December 31, 2010. The allowance for loan losses as a percentage of total loans at March 31, 2011 was 0.77% compared to 0.49% at March 31, 2010, 0.63% at June 30, 2010, 0.67% at September 30, 2010, and 0.76% at December 31, 2010. Net charge-offs as a percentage of average loans were 0.25% for the three months ended March 31, 2011 and 0.75% for the three months ended March 31, 2010. Net charge-offs as a percentage of average loans were 0.07% for the nine months ended March 31, 2011 and 0.30% for the nine months ended March 31, 2010. At March 31, 2011, the Bank had $7.9 million in impaired loans as compared to $2.6 million at June 30, 2010. Total impaired loans are primarily made up of two loan relationships with not-for-profit entities that had collateral value well in excess of the loan value. Based on the value of the collateral, no specific allowances were required for these loans. The increase in the allowance for loan losses for the nine months ended March 31, 2011 was primarily a result of an increase in total loans and total commercial loans, an increase in the allowance requirement for home equity loans and home equity lines of credit, an increase in total classified assets, the partial charge-off of three loans, one each of residential fixed rate mortgage, home-equity, and commercial real estate loans, partially offset by a decrease in total residential mortgage loans, as discussed in “Loans” in “Comparison of Financial Condition at March 31, 2011 and June 30, 2010.”

Non-performing Assets. Loans are placed on non-accrual status when payment of principal or interest is 90 days or more delinquent. Loans are also placed on non-accrual status if collection of principal or interest in full is in doubt. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received. The loan may be returned to accrual status if both principal and interest payments are brought current, there has been a period of sustained performance (generally six months), and full payment of principal and interest is expected. At March 31, 2011 and June 30, 2010, the Company had $564 thousand and $639 thousand in total non-performing assets, respectively. These totals represent one residential mortgage loan and one property in Other Real Estate Owned.

The following table summarizes non-performing assets as of March 31, 2011 and June 30, 2010:


(in thousands)	March 31, 2011			June 30, 2010

Non-performing assets
Non-accrual loans:
One-to four-family residential	$	459		$	446

Total non-accrual loans		459			446
Other real estate owned		105			193

Total non-performing assets	$	564		$	639


Asset quality ratios:
Non-performing loans to total loans		0.16	%		0.16	%
Non-performing assets to total assets		0.16			0.17

Non-performing loan and asset ratios are effectively unchanged since June 30, 2010. The non-performing loans to total loans ratio remained unchanged at 16 basis points as of March 31, 2011 as compared to June 30, 2010. The non-performing assets to total assets ratio decreased one basis point from 17 basis points as of June 30, 2010 to 16 basis points as of March 31, 2011. For further detail, see “Note 4 – Credit Quality of Loans and Allowance for Loan Losses” in the accompanying financial statements.

Troubled Debt Restructurings. Loans are periodically modified to make concessions to help a borrower remain current on the loan and to avoid foreclosure. Generally, the Bank does not forgive principal or interest on loans or modify the interest rate on loans to rates that are below market rates. At March 31, 2011 and June 30, 2010, the Bank had $2.9 million and $3.4 million of these modified loans, respectively. At March 31, 2011, the Bank had $1.0 million in one- to four family residential mortgage loans and home equity loans and lines of credit that were considered troubled debt restructures. At March 31, 2011, the Bank had $1.9 million in commercial real estate loans that were considered troubled debt restructures. At June 30, 2010, the Bank had $1.9 million in one- to four-residential real estate loans and home equity loans and lines of credit that were considered troubled debt restructures. At June 30, 2010, the Bank had $1.5 million in commercial real estate loans that were considered troubled debt restructures.

Securities. At March 31, 2011, the securities portfolio totaled $25.6 million, or 7.2% of total assets as compared to $34.0 million, or 9.1% of total assets, at June 30, 2010.

Deposits. At March 31, 2011, deposits decreased by $17.8 million, or 7.6% to $215.7 million from $233.4 million at June 30, 2010. The decrease resulted primarily from sale of the Bank’s Washington D.C. branch to EagleBank in January 2011 and a reduction of higher cost deposits partially offset by an increase in non-interest bearing checking account balances. Specifically, total certificates of deposit decreased by $7.8 million, total money market accounts decreased by $5.7 million, and total checking accounts decreased by $3.6 million while non-interest bearing checking accounts increased by $2.4 million, or 10.4%.

Borrowings. At March 31, 2011, total borrowings were essentially unchanged from June 30, 2010 having decreased $297 thousand, or 0.5%, to $56.8 million. Repurchase agreements decreased $5.1 million, or 25.2%, to $15.2 million, or 5.5% of total liabilities at March 31, 2011. At March 31, 2011, Federal Home Loan Bank advances totaled $41.6 million, or 15.1% of total liabilities; an increase of $4.8 million, or 13.1% from June 30, 2010. This increase was primarily the result of a $12.0 million short term borrowing used as the initial funding mechanism for the sale of the Bank’s Washington D.C. branch to EagleBank, and a $3.0 million term borrowing offset by the maturity of $10.1 million in higher costing long term borrowings.

At March 31, 2011, the Company had access to additional Federal Home Loan Bank advances of up to $41.5 million.

Equity. Equity totaled $80.9 million and $80.2 million at March 31, 2011 and June 30, 2010, respectively. The increase of $646 thousand was primarily the result of net income partially offset by a decrease in accumulated other comprehensive income.

Capital and Liquidity. The Company’s goal is to maintain a strong capital position that supports its strategic goals while, at the same time, exceeding regulatory standards. At March 31, 2011, the Bank exceeded all regulatory minimum capital requirements and met the definition of a “well-capitalized” institution; total risk-based capital ratio exceeding 10%, Tier 1 risk-based capital ratio exceeding 6%, and leverage capital ratio exceeding 5%.

The Company’s primary sources of funds are deposits, borrowed funds, amortization and prepayment of loans, maturities of investment securities and other short-term investments, and earnings and funds provided from operations. While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. In addition, the Company invests excess funds in short-term interest-earning and other assets which provide liquidity to meet lending requirements.

The Company is a member of the Federal Home Loan Bank of Atlanta, whose competitive advance programs provide the Company with a safe, reliable, and convenient source of funds. A significant decrease in liquidity could result in the Company seeking other sources of funds, including, but not limited to, additional borrowings, brokered deposits, negotiated time deposits, the sale of “available for sale” investment securities, and the sale of loans or other assets.

Comparison of Operating Results for the Three Months Ended March 31, 2011 and 2010

General. Net income increased $1.1 million to $199 thousand for the three months ended March 31, 2011 from a net loss of $934 thousand for the three months ended March 31, 2010. The increase in net income was primarily a result of an increase in non-interest income of $1.3 million, net interest income of $544 thousand, or 21.2%, and a decrease in the provision for loan losses of $491 thousand partially offset by an increase in non-interest expense of $441 thousand, or 18.5%, and income tax expense of $722 thousand.

Net Interest Income. Net interest income increased $544 thousand, or 21.2%, to $3.1 million for the three months ended March 31, 2011, compared to $2.6 million for the three months ended March 31, 2010. Interest expense decreased $418 thousand, or 30.7%, for the three months ended March 31, 2011 as low market interest rates resulted in the reduction of the cost of deposits and borrowings. Interest and dividend income increased $126 thousand, or 3.2%, for the three months ended March 31, 2011. The net interest margin was 3.92% for the three months ended March 31, 2011, compared to 3.25% for the three months ended March 31, 2010. The improvement was the result of an increase in average net interest-earning assets of $36.4 million and the increase of 14 basis points on those interest-earning assets. Average net interest-bearing liabilities decreased $35.2 million while the average cost of interest-bearing liabilities decreased 41 basis points.

Interest and Dividend Income. Interest and dividend income increased $126 thousand, or 3.2%, to $4.1 million for the three months ended March 31, 2011 compared to $3.9 million for the three months ended March 31, 2010. Interest income on loans increased $201 thousand, or 5.6%, to $3.8 million for the three months ended March 31, 2011 from $3.6 million for the three months ended March 31, 2010, as the average yield on loans increased seven basis points, to 5.42% for the three months ended March 31, 2011 from 5.35% for the three months ended March 31, 2010, reflecting an increase in commercial loans and the run-off of residential mortgage loans. The increase in interest income on loans was partially offset by a decrease in interest on investments and fed funds sold which decreased $80 thousand, or 23.3%, to $264 thousand for the three months ended March 31, 2011 from $344 thousand for the three months ended March 31, 2010.

Total average loans increased $11.5 million, or 4.2%, reflecting an average balance increase in commercial loans of $41.3 million to $139.6 million for the three months ended March 31, 2011 and a decrease in residential mortgage loans of $28.9 million, or 21.9%, to $102.7 million and a decrease in consumer loans of $933 thousand, or 2.2%, to $40.7 million for the three months ended March 31, 2011 as compared to $131.6 million and $41.6 million, respectively, for the three months ended March 31, 2010. The balance changes reflect the continued focus on originating commercial loans. Commercial loans generally carry higher yields and assist in managing interest rate risk. The reduction in the average balance of the residential real estate loans resulted from management’s decision, generally, to sell newly-originated, longer-term (primarily 30 year) fixed-rate residential real estate loans to help mitigate interest rate risk.

Interest income on securities decreased $35 thousand, or 12.0%, to $256 thousand for the three months ended March 31, 2011 from $291 thousand for the three months ended March 31, 2010, as the average yield on securities decreased 80 basis points to 3.02% for the three months ended March 31, 2011 from 3.82% for the three months ended March 31, 2010, reflecting continued low market interest rates and prepayments of higher yielding securities within the mortgage backed securities portfolio.

Interest Expense. Interest expense decreased $418 thousand, or 30.7%, to $945 thousand for the three months ended March 31, 2011 from $1.4 million for the three months ended March 31, 2010. Continued low market interest rates and a decrease in higher-cost certificates of deposit allowed for the reduction of deposit interest expense by $220 thousand, or 27.0%, as the average rate paid on deposits decreased 25 basis points to 1.25% for the three months ended March 31, 2011 from 1.50% for three months ended March 31, 2010.

Interest expense on borrowings decreased $198 thousand, or 36.2%, to $349 thousand for the three months ended March 31, 2011 from $547 thousand for the three months ended March 31, 2010, due to a $9.3 million, or 14.9%, decrease in the average balance of borrowings, primarily in Federal Home Loan Bank advances, as well as, an 88 basis points decrease in the average cost of borrowings to 2.64% for the three months ended March 31, 2011 from 3.53% for the three months ended March 31, 2011, reflecting continued low market interest rates and the repayment of higher cost borrowings.

Provision for Loan Losses. The Company’s provision for loan losses for the three months ended March 31, 2011 was $189 thousand, a decrease of $491 thousand, or 72.2%, from the provision for loan losses of $680 thousand in the three months ended March 31, 2010. The provision for loan losses in the three months ended March 31, 2010 included the charge-off of one loan in the amount of $500 thousand that until charge-off was a performing asset. The provision for loan losses for the three months ended March 31, 2011 was primarily a result of the partial charge-off of three loans, one each of residential fixed rate mortgage, home-equity, and commercial real estate loans, an increase in total net loans, including an increase in commercial loans, an increase in the allowance requirement for home equity loans and home equity lines of credit, and an increase in classified assets partially offset by a reduction in fixed rate residential mortgage loans. For further discussion related to the “Provision for Loan Losses,” see “Allowance for Loan Losses” in the “Comparison of Financial Condition at March 31, 2011 and June 30, 2010.” For a further discussion related to loan portfolio performance, see “Non-performing Assets” in the “Comparison of Financial Condition at March 31, 2011 and June 30, 2010.”

Non-Interest Income. The following table summarizes changes in non-interest income (loss) between the three months ended March 31, 2011 and 2010.


	Three Months Ended March 31,						Change
	2011			2010			$			%
	(In thousands)
Customer service fees	$	91		$	110		$	(19	)		(17.3	) %

Loan servicing fees		10			12			(2	)		(16.7	)

Bank owned life insurance income		78			85			(7	)		(8.2	)

Other non-interest income		15			27			(12	)		(44.4	)

Non-interest income before net gains (losses)		194			234			(40	)		(17.1	)

Impairment losses on investment securities		-			(1,332	)		1,332			(100.0	)
Net gain on sale of loans		4			27			(23	)		(85.2	)
Net gain on sale of deposits		80			-			80			-
Write-down of other real estate property		(88	)		-			(88	)		-

Net losses		(4	)		(1,305	)		1,301			(99.7	)


Total non-interest income (loss)	$	190		$	(1,071	)	$	1,261			(117.7	)

Total non-interest income increased $1.3 million for the three months ended March 31, 2011 to $190 thousand. Total non-interest income before net losses decreased $40 thousand, or 17.1%, to $194 thousand for the three months ended March 31, 2011 from $234 thousand for the three months ended March 31, 2010. Customer service fees decreased $19 thousand, or 17.3%, to $91 thousand for the three months ended March 31, 2011. Other non-interest income decreased $12 thousand, or 44.4%, to $15 thousand for the three months ended March 31, 2011.

Net losses decreased $1.3 million to $4 thousand for the three months ended March 31, 2011 from $1.3 million for the three months ended March 31, 2010. There were no impairment losses on investment securities for the three months ended March 31, 2011, a decrease of $1.3 million from the three months ended March 31, 2010. The decrease is the result of the Company’s previous sale of its bank and bank holding company pooled trust preferred securities in March 2010. The reduction in impairment losses on investment securities is primarily the reason behind the increase of $1.3 million in the total non-interest income (loss) for the three months ended March 31, 2011 to net income of $190 thousand as compared to a net loss of $1.1 million for the three months ended March 31, 2010.

Net gains on the sale of loans decreased $23 thousand, or 85.2%, to $4 thousand for the three months ended March 31, 2011. The Company’s sale of its Washington D.C. branch to EagleBank resulted in gain of $80 thousand in the three months ended March 31, 2011. The Company wrote down its sole Other Real Estate Owned property to $105 thousand at March 31, 2011 from $193 thousand at December 31, 2010.

Non-Interest Expense. The following table summarizes changes in non-interest expense between the three months ended March 31, 2011 and 2010.


	Three Months Ended March 31,				Change
	2011		2010		$			%
	(In thousands)

Salaries and employee benefits	$	1,563	$	1,313	$	250			19.0	%
Occupancy and equipment		415		375		40			10.7
Data processing		199		176		23			13.1
Directors’ fees		74		73		1			1.4
FDIC assessments		52		155		(103	)		(66.5	)
Other non-interest expense		521		291		230			79.0

Total non-interest expense	$	2,824	$	2,383	$	441			18.5

Salaries and employee benefits increased $250 thousand, or 19.0%, to $1.6 million for the three months ended March 31, 2011 from $1.3 million for the three months ended March 31, 2010. The Company hired several commercial bankers as part of the business strategy to increase the commercial loan portfolios and a manager of the residential real estate department whom were not employed with the Bank in the three months ended March 31, 2010. Salaries and employee benefits include those additional salaries, as well as, the associated benefits and taxes required. Occupancy and equipment includes costs for repairs to existing branches. Data processing expenses increased $23 thousand, or 13.1%, in the three months ended March 31, 2011. This includes standard upgrades to existing systems. FDIC assessments decreased $103 thousand, or 66.5%, to $52 thousand for the three months ended March 31, 2011 from $155 thousand for the three months ended March 31, 2010. The decrease is primarily the result of a lower FDIC assessment rate due to the Bank’s increased capital level due to the initial public stock offering, a reduction in assessments due to the sale of the Bank’s Washington D.C. branch to EagleBank, and the reduction of excess deposit balances held for potential stockholders in anticipation of the initial public stock offering. Other non-interest expense increased primarily due to increased legal, regulatory, and accounting costs necessary to operate as a public company and increased marketing expenses.

Income Taxes. The Company recorded an income tax expense of $86 thousand for the three months ended March 31, 2011, reflecting an effective tax rate of 30.2%, compared to income tax benefit of $636 thousand for the three months ended March 31, 2010, reflecting an effective tax rate of 40.5%. The income tax benefit received in the three months ended March 31, 2010 is primarily the result of the Bank’s impairment losses on investment securities. The difference between the effective tax rate and statutory rate is primarily due to the amount of income received from bank-owned life insurance, which is tax-free for federal and state tax purposes, relative to total pre-tax income for each period.

Comparison of Operating Results for the Nine months ended March 31, 2011 and 2010

General. Net income increased $1.5 million to $734 thousand for the nine months ended March 31, 2011 from a net loss of $792 thousand for the nine months ended March 31, 2010. The increase in net income was primarily a result of an increase in net interest income of $1.8 million, or 24.3%, and non-interest income of $1.9 million. This was partially offset by an increase in non-interest expense of $1.3 million, or 19.0%.

Net Interest Income. Net interest income increased $1.8 million, or 24.3%, to $9.2 million for the nine months ended March 31, 2011 compared to $7.4 million for the nine months ended March 31, 2010. Interest expense decreased $1.6 million, or 34.1%, for the nine months ended March 31, 2011 as low market interest rates resulted in the reduction of the cost of deposits and borrowings and higher cost deposits and borrowings were allowed to run-off. Interest and dividend income increased $165 thousand, or 1.4%, for the nine months ended March 31, 2011. The net interest margin was 3.71% for the nine months ended March 31, 2011 compared to 2.97% for the nine months ended March 31, 2010. The improvement was the result of an increase in average net interest-earning assets of $35.3 million and the average yield of interest-earning assets increase of nine basis points. Average net interest-bearing liabilities decreased $37.2 million while the average cost of interest-bearing liabilities decreased 53 basis points.

Interest and Dividend Income. Interest and dividend income increased $165 thousand, or 1.4%, to $12.3 million for the nine months ended March 31, 2011 from $12.1 million for the nine months ended March 31, 2010. Interest income on loans increased $361 thousand, or 3.3%, to $11.4 million for the nine months ended March 31, 2011 from $11.0 million for the nine months ended March 31, 2010, as the average yield on loans increased ten basis points, to 5.39% for the nine months ended March 31, 2011 from 5.29% for the nine months ended March 31, 2010, reflecting an increase in commercial loans and a continued reduction in residential real estate loans. The increase in interest income on loans was partially offset by a decrease in interest on investments and fed funds sold which decreased $195 thousand, or 18.2%, to $879 thousand for the nine months ended March 31, 2011 from $1.1 million for the nine months ended March 31, 2010.

Total average loans increased $3.7 million to $281.6 million for the nine months ended March 31, 2011 from $277.8 million for the nine months ended March 31, 2010. Average balances increased in commercial loans by $31.6 million, or 32.5%, to $128.9 million for nine months ended March 31, 2011 as compared to $97.3 million for the nine months ended March 31, 2010, reflecting the recent focus on originating commercial loans. Commercial loans generally carry higher yields and assist in managing interest rate risk. The increase in the commercial loan portfolio was partially offset by a reduction in average residential real estate mortgage loans of $27.9 million, or 20.0%, to $111.7 million for the nine months ended March 31, 2011 as compared to an average balance of $139.6 million for the nine months ended March 31, 2010. The reduction resulted from management’s decision to, generally, sell newly-originated, longer-term (primarily 30 year) fixed-rate residential real estate loans to help mitigate interest rate risk, as well as prepayments exceeding other originations that were held in the portfolio.

Interest income on securities decreased $162 thousand, or 16.2%, to $840 thousand for the nine months ended March 31, 2011 from $1.0 million for the nine months ended March 31, 2010, as the average yield on securities decreased 1.07% to 2.97% for the nine months ended March 31, 2011 from 4.04% for the nine months ended March 31, 2010, reflecting continued low market interest rates and prepayments within the mortgage backed securities portfolio. The average balance of securities increased $4.9 million, or 14.5%, to an average balance of $38.4 million for the nine months ended March 31, 2011.

Interest Expense. Interest expense decreased $1.6 million, or 34.1%, to $3.1 million for the nine months ended March 31, 2011 from $4.8 million for the nine months ended March 31, 2010. Continued low market interest rates and a decrease in higher costing certificates of deposit allowed for the reduction of deposit interest expense by $970 thousand, or 33.7%, as the average rate paid on deposits decreased 45 basis points to 1.25% for the nine months ended March 31, 2011 from 1.70% for nine months ended March 31, 2010. The average balance of deposits decreased $22.3 million, or 10.0%, to an average balance of $200.1 million for the nine months ended March 31, 2011 from $222.4 million for the nine months ended March 31, 2010.

Interest expense on borrowings decreased $652 thousand, or 34.8%, to $1.2 million for the nine months ended March 31, 2011 from $1.9 million for the nine months ended March, 31, 2010. The reduction was due to a $15.0 million decrease, or 21.6%, in the average balance of borrowings, primarily in Federal Home Loan Bank advances, as well as, a 60 basis points decrease in the average cost of borrowings to 2.97% for the nine months ended March 31, 2011 from 3.56% for the nine months ended March 31, 2010; reflecting continued low market interest rates.

Provision for Loan Losses. The Company’s provision for loan losses for the nine months ended March 31, 2011 was $592 thousand, a decrease of $181 thousand, or 23.4%, from $773 thousand in the nine month period ended March 31, 2010. The provision for loan losses for the nine months ended March 31, 2010 included the charge-off of one loan in the amount of $500 thousand that until charge-off was a performing asset. The provision for loan losses for the nine months ended March 31, 2011 was primarily a result of the partial charge-off of three loans, one in each category; residential fixed rate mortgage, home-equity, and commercial real estate loans, an increase in total net loans, including an increase in commercial loans, an increase in the allowance requirement for home equity loans and home equity lines of credit, and an increase in classified assets partially offset by a reduction in fixed rate residential mortgage loans. For further discussion related to the “Provision for Loan Losses,” see “Allowance for Loan Losses” in the

“Comparison of Financial Condition at March 31, 2011 and June 30, 2010.” For a further discussion related to loan portfolio performance, see “Non-performing Assets” in the “Comparison of Financial Condition at March 31, 2011 and June 30, 2010.”

Non-Interest Income. The following table summarizes changes in non-interest income (loss) between the nine months ended March 31, 2011 and 2010.


	Nine Months Ended March 31,						Change
	2011			2010			$			%
		(In thousands)

Customer service fees	$	311		$	352		$	(41	)		(11.6	) %
Loan servicing fees		32			36			(4	)		(11.1	)
Bank owned life insurance income		226			254			(28	)		(11.0	)
Other non-interest income		91			68			23			33.8

Non-interest income before net gains (losses)		660			710			(50	)		(7.0	)

Impairment losses on investment securities		-			(1,882	)		1,882			(100.0	)
Net gain on the sale of investments		-			3			(3	)		(100.0	)
Net gain on sale of loans		99			51			48			94.1
Net gain on sale of deposits		80			-			80			-
Write-down of other real estate property		(88	)		-			(88	)		-

Net gains (losses)		91			(1,828	)		1,919			(105.0	)


Total non-interest income (loss)	$	751		$	(1,118	)	$	1,869			(167.2	)

Total non-interest income increased $1.9 million for the nine months ended March 31, 2011 to $751 thousand. Total non-interest income before net gains (losses) decreased $50 thousand, or 7.0%, to $660 thousand for the nine months ended March 31, 2011 from $710 thousand for the nine months ended March 31, 2010. Customer service fees decreased $41 thousand, or 11.6%, to $311 thousand for the nine months ended March 31, 2011. Bank owned life insurance income decreased $28 thousand, or 11.0%, to $226 thousand for the nine months ended March 31, 2011 from $254 thousand for the nine months ended March 31, 2010. Other non-interest income increased $23 thousand, or 33.8%, to $91 thousand for the nine months ended March 31, 2011 primarily as a result of increased rental income at the Bank’s headquarters.

Net losses decreased $1.9 million which resulted in a net gain of $91 thousand for the nine months ended March 31, 2011 an increase from the $1.8 million loss for the nine months ended March 31, 2010. There were no impairment losses on investment securities for the nine months ended March 31, 2011, a decrease of $1.9 million from the nine months ended March 31, 2010. The decrease is the result of the Company’s previous sale of its bank and bank holding company pooled trust preferred securities in March 2010. The reduction in impairment losses on investment securities is primarily the reason behind the increase of $1.9 million in the total non-interest income (loss) for the nine months ended March 31, 2011 to net income of $751 thousand as compared to a net loss of $1.1 million for the nine months ended March 31, 2010.

Net gains on the sale of loans increased $48 thousand, or 94.1%, to $99 thousand for the nine months ended March 31, 2011. The Company’s sale of its Washington D.C. branch to EagleBank resulted in gain of $80 thousand in the nine months ended March 31, 2011. The Company wrote down its sole Other Real Estate Owned property to $105 thousand at March 31, 2011 from $193 thousand at June 30, 2010.

Non-Interest Expense. The following table summarizes changes in non-interest expense between the nine months ended March 31, 2011 and 2010.


	Nine Months Ended March 31,				Change
	2011		2010		$			%
	(In thousands)

Salaries and employee benefits	$	4,473	$	3,711	$	762			20.5	%
Occupancy and equipment		1,336		1,139		197			17.3
Data processing		537		491		46			9.4
Directors’ fees		241		226		15			6.6
FDIC assessments		200		347		(147	)		(42.4	)
Other non-interest expense		1,439		998		441			44.2

Total non-interest expense	$	8,226	$	6,912	$	1,314			19.0

Salaries and employee benefits increased $762 thousand, or 20.5%, to $4.5 million for the nine months ended March 31, 2011 from $3.7 million for the nine months ended March 31, 2010. The Company hired several commercial bankers as part of the business strategy to increase the commercial loan portfolios and a manager of the residential real estate department whom were either not employed with the Bank in the nine months ended March 31, 2010 or employed for only part of that period. Salaries and employee benefits include those additional salaries, as well as, the associated benefits and taxes required. Occupancy and equipment includes costs for repairs to existing branches, as well as, the opening of one branch. Data processing expenses increased $46 thousand, or 9.4%, in the nine months ended March 31, 2011. This includes standard upgrades to existing systems. FDIC assessments decreased $147 thousand, or 42.4%, to $200 thousand for the nine months ended March 31, 2011 from $347 thousand for the nine months ended March 31, 2010. The decrease is primarily the result of a lower FDIC assessment rate due to the Bank’s increased capital level due to the initial public stock offering, a reduction in assessments due to the sale of the Bank’s Washington D.C. branch to EagleBank, and the reduction of excess deposit balances held for potential stockholders in anticipation of the initial public stock offering. Other non-interest expense increased $441 thousand, or 44.2%, primarily due to increased legal, regulatory, and accounting costs necessary to operate as a public company and increased marketing expenses.

Income Taxes. The Company recorded an income tax expense of $349 thousand for the nine months ended March 31, 2011, reflecting an effective tax rate of 32.2%, compared to income tax benefit of $648 thousand for the nine months ended March 31, 2010, reflecting an effective tax rate of 45.0%. The income tax benefit received in the nine months ended March 31, 2010 is primarily the result of the Bank’s impairment losses on investment securities. The difference between the effective tax rate and statutory rate is primarily due to the amount of income received from bank-owned life insurance, which is tax-free for federal and state tax purposes, relative to total pre-tax income for each period.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required, as the Registrant is a smaller reporting company.

ITEM 4.

CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2011. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended March 31, 2011, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

As of March 31, 2011, the Company was not subject to any legal actions, the outcome of which was expected to have a material effect on our financial condition or results of operations.

ITEM 1A.

RISK FACTORS

Not required, as the Registrant is a smaller reporting company.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.

[Reserved]

ITEM 5.

OTHER INFORMATION

None

ITEM 6.

EXHIBITS

The exhibits required by Item 601 of Regulation S-K are included with this Form 10-Q and are listed on the “Exhibit Index” immediately following the Signatures.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		OBA FINANCIAL SERVICES, INC. (Registrant)

Date: May 13, 2011		/S/ CHARLES E. WELLER
		Charles E. Weller
		President and Chief Executive Officer



Date: May 13, 2011		/S/ DAVID A. MILLER
		David A. Miller
		Senior Vice President and Chief Financial Officer

EXHIBIT INDEX


Exhibit Number		Description

31.1		Certification of Charles E. Weller, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

31.2		Certification of David A. Miller, Senior Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

32		Certification of Charles E. Weller, President and Chief Executive Officer, and David A. Miller, Senior Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company