HARLEYSVILLE SAVINGS FINANCIAL CORP - FORM 10-Q

HARLEYSVILLE SAVINGS FINANCIAL CORP - FORM 10-Q - February 10, 2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20429

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2011

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

For the transition period from to

Commission file number 0-29709

HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


Pennsylvania		23-3028464
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)


271 Main Street, Harleysville, Pennsylvania		19438
(Address of principal executive offices)		(Zip Code)

(215) 256-8828

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, 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 (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition 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 x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, $.01 Par Value, 3,712,418 shares outstanding as of February 10, 2012.

HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

Index


	PAGE(S)

Part I FINANCIAL INFORMATION
Item 1. Financial Statements

Unaudited Consolidated Statements of Financial Condition as of December 31, 2011, and September 30, 2011		1

Unaudited Consolidated Statements of Income for the Three Months Ended December 31, 2011 and 2010		2

Unaudited Consolidated Statements of Comprehensive Income for the Three Months Ended December 31, 2011 and 2010		3

Unaudited Consolidated Statements of Stockholders’ Equity for the Three Months Ended December 31, 2011 and 2010		4

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2011 and 2010		5

Notes to Unaudited Consolidated Financial Statements		6 - 26

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		27 - 30

Item 3. Quantitative and Qualitative Disclosures About Market Risk		30 - 32

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		34

Item 4. (Removed and Reserved)		34

Item 5. Other Information		34

Item 6. Exhibits		34

Signatures		35

Harleysville Savings Financial Corporation

Unaudited Consolidated Statements of Financial Condition

		September 30,			September 30,
	December 31,			September 30,
(In thousands, except share data)	2011			2011

Assets
Cash and amounts due from depository institutions	$	3,820		$	3,857
Interest bearing deposits		27,955			18,725

Total cash and cash equivalents		31,775			22,582

Investments and mortgage-backed securities:
Available for sale (amortized cost—December 31, $2,255; September 30, $18,560)		2,315			18,515
Held to maturity (fair value—December 31, $250,622; September 30, $240,581)		241,768			231,756
Loans receivable (net of allowance for loan losses—
December 31, $3,559; September 30, $3,311)		512,934			518,486
Accrued interest receivable		2,833			2,847
Federal Home Loan Bank stock—at cost		12,455			13,110
Foreclosed real estate		322			196
Office properties and equipment, net		11,898			12,005
Prepaid expenses and other assets		16,330			16,216

TOTAL ASSETS	$	832,630		$	835,713


Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	530,371		$	524,401
Long-term debt		238,676			250,194
Accrued interest payable		1,170			1,315
Advances from borrowers for taxes and insurance		3,456			1,368
Accounts payable and accrued expenses		924			1,353

Total liabilities		774,597			778,631


Commitments and contingencies

Stockholders’ equity:
Preferred Stock: $.01 par value; 7,500,000 shares authorized; none issued		—			—
Common stock: $.01 par value; 15,000,000 shares authorized; 3,921,177 shares issued; outstanding December 31, 2011 3,772,028 shares September 30, 2011 3,758,751 shares		39			39
Additional paid-in capital		8,396			8,346
Treasury stock, at cost (December 31, 2011, 149,149 shares;		(2,222	)		(2,405	)
September 30, 2011, 162,426 shares)
Retained earnings—partially restricted		51,781			51,131
Accumulated other comprehensive income (loss)		39			(29	)

Total stockholders’ equity		58,033			57,082

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	832,630		$	835,713

See notes to unaudited consolidated financial statements.

Harleysville Savings Financial Corporation

Unaudited Consolidated Statements of Income

		September 30,		September 30,
	For the Three Months Ended
	December 31,
(In thousands, except per share data)	2011		2010
Interest Income:
Interest on mortgage loans	$	4,662	$	4,804
Interest on commercial loans		1,390		1,236
Interest on mortgage-backed securities		1,414		1,405
Interest on consumer and other loans		987		1,052
Interest on other taxable investments		369		731
Interest on tax-exempt investments		182		201
Dividends on investment securities		1		1

Total interest income		9,005		9,430


Interest Expense:
Interest on deposits		1,548		2,018
Interest on borrowings		2,419		2,957

Total interest expense		3,967		4,975


Net Interest Income		5,038		4,455
Provision for loan losses		250		150

Net Interest Income after Provision for Loan Losses		4,788		4,305


Other Income:
Customer service fees		160		138
Income on bank-owned life insurance		122		123
Other income		289		240

Total other income		571		501


Other Expenses:
Salaries and employee benefits		1,889		1,729
Occupancy and equipment		365		346
Deposit insurance premiums		132		226
Data processing		186		167
Other		726		693

Total other expenses		3,298		3,161


Income before Income Tax Expense		2,061		1,645

Income tax expense		697		429


Net Income	$	1,364	$	1,216


Basic Earnings Per Share	$	0.36	$	0.33

Diluted Earnings Per Share	$	0.36	$	0.33


Dividends Per Share	$	0.19	$	0.19

See notes to unaudited consolidated financial statements.

Harleysville Savings Financial Corporation

Unaudited Consolidated Statements of Comprehensive Income

		September 30,			September 30,
	Three Months Ended
	December 31,
(In Thousands)	2011			2010
Net Income	$	1,364		$	1,216

Other Comprehensive Income
Unrealized gain on securities available for sale, net of tax expense 2011, $37; 2010, $35		68	(1)		70	(1)


Total Comprehensive Income	$	1,432		$	1,286


	2011			2010
(1) Disclosure of reclassification amount, net of tax for the three months ended:
Net unrealized gain arising during the three months ended	$	105		$	105
Reclassification adjustment for net losses (gains) included in net income		—			—


		105			105
Tax expense		(37	)		(35	)

Net unrealized gain on securities available for sale	$	68		$	70

See notes to unaudited consolidated financial statements.

Harleysville Savings Financial Corporation

Unaudited Consolidated Statements of Stockholders’ Equity

		0000		0000		0000			0000			0000			0000			0000
	Common							Retained			Accumulated
	Stock				Additional			Earnings-			Other						Total
	Shares		Common		Paid-in			Partially			Comprehensive			Treasury			Stockholders’
(In thousands, except share and per share data)	Outstanding		Stock		Capital			Restricted			(Loss) / Income			Stock			Equity

Balance at October 1, 2011		3,758,751	$	39	$	8,346		$	51,131		$	(29	)	$	(2,405	)	$	57,082

Net income									1,364									1,364
Dividends—$.19 per share									(714	)								(714	)
Restricted stock		565				(8	)								8			—
Stock option compensation						57												57
Treasury stock delivered under reinvestment plan		10,378				8									143			151
Employee options exercised		2,334				(7	)								32			25
Change in unrealized holding loss on available-for-sale securities, net of reclassification and tax												68						68


Balance at December 31, 2011		3,772,028	$	39	$	8,396		$	51,781		$	39		$	(2,222	)	$	58,033

		0000		0000		0000			0000			0000		0000			0000
	Common							Retained			Accumulated
	Stock				Additional			Earnings-			Other					Total
	Shares		Common		Paid-in			Partially			Comprehensive		Treasury			Stockholders’
(In thousands, except share and per share data)	Outstanding		Stock		Capital			Restricted			Income		Stock			Equity

Balance at October 1, 2010		3,687,409	$	39	$	8,126		$	48,562		$	7	$	(3,383	)	$	53,351

Net income									1,216								1,216
Dividends—$.19 per share									(701	)							(701	)
Stock option compensation						47											47
Treasury stock purchase
Treasury stock delivered under reinvestment plan		9,913				13								136			149
Employee options exercised		7,618				(32	)							104			72
Change in unrealized holding gain on available-for-sale securities, net of reclassification and tax												70					70


Balance at December 31, 2010		3,704,940	$	39	$	8,154		$	49,077		$	77	$	(3,143	)	$	54,204

See notes to unaudited consolidated financial statements.

Harleysville Savings Financial Corporation

Unaudited Consolidated Statements of Cash Flows

		September 30,			September 30,
	Three Months Ended December 31,
(In Thousands)	2011			2010
Operating Activities:
Net Income	$	1,364		$	1,216
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		154			153
Provision for loan losses		250			150
Amortization of deferred loan fees		88			73
Net accretion of premiums and discounts		(48	)		(27	)
Increase in cash surrender value of bank owned life insurance		(122	)		(123	)
Stock based compensation		57			47
Changes in assets and liabilities which provided (used) cash:
Decrease in accounts payable and accrued expenses		(430	)		(234	)
(Decrease) increase in prepaid expenses and other assets		(27	)		130
Increase in accrued interest receivable		14			181
Decrease in accrued interest payable		(145	)		(27	)

Net cash provided by operating activities		1,155			1,539

Investing Activities:
Purchase of mortgage-backed securities held to maturity		(18,950	)		(8,958	)
Purchase of investment securities held to maturity		(10,987	)		(34,000	)
Purchase of investment securities available-for-sale		(13,939	)		(17,220	)
Net redemption FHLB stock		655			805
Proceeds from the redemption of investment securities available-for-sale		30,243			35,345
Proceeds from maturities of investment securities held to maturity		6,825			11,000
Principal collected on mortgage-backed securities held to maturity		13,148			13,431
Principal collected on long term loans		46,095			34,477
Long term loans originated or acquired		(41,007	)		(29,469	)
Purchases of premises and equipment		(47	)		(147	)

Net cash provided by investing activities		12,036			5,264

Financing Activities:
Net increase in demand deposits, NOW accounts and savings accounts		14,876			4,367
Net decrease in certificates of deposit		(8,906	)		(820	)
Cash dividends		(563	)		(552	)
Repayment of long-term debt		(11,518	)		(6,700	)
Treasury stock delivered under employee stock plans		25			72
Net increase in advances from borrowers for taxes and insurance		2,088			2,102

Net cash used in provided by financing activities		(3,998	)		(1,531	)


INCREASE IN CASH AND CASH EQUIVALENTS		9,193			5,272

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		22,582			20,190


CASH AND CASH EQUIVALENTS AT END OF YEAR	$	31,775		$	25,462


Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest (credited and paid)	$	4,112		$	5,002
Income taxes		700			490
Foreclosed real estate acquired in settlement of loans		126			75

See notes to unaudited consolidated financial statements.

Harleysville Savings Financial Corporation

Notes to Unaudited Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation -The unaudited consolidated financial statements include the accounts of Harleysville Savings Financial Corporation (the “Company”) and its subsidiary. Harleysville Savings Bank (the “Bank”) is the wholly owned subsidiary of the Company. The accompanying consolidated financial statements include the accounts of the Company, the Bank, and the Bank’s wholly owned subsidiaries, HSB Inc, a Delaware corporation which was formed in order to hold certain assets, Freedom Financial LLC, a Pennsylvania limited liability Company that allows the Company to offer non deposit products, and HARL LLC, a limited liability Company that allows the Bank to invest in equity investments. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include information or footnotes necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the three months ended December 31, 2011 are not necessarily indicative of the results which may be expected for the entire fiscal year ending September 30, 2012 or any other period. The financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the period ended September 30, 2011.

Use of Estimates in Preparation of Consolidated Financial Statements

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. The most significant of these estimates is the allowance for loan losses, the determination of other-than-temporary impairment on securities and the valuation of deferred tax assets. Actual results could differ from those estimates.

Subsequent Events

The Company has evaluated events and transactions occurring subsequent to the statement of financial condition date of December 31, 2011 for items that should potentially be recognized or disclosed in these financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.

Recent Accounting Pronouncements – ASU 2010-20, Receivables (Topic 310): (Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses), will help investors assess the credit risk of a company’s receivables portfolio and the adequacy of its allowance for credit losses held against the portfolios by expanding credit risk disclosures.

This ASU requires more information about the credit quality of financing receivables in the disclosures to financial statements, such as aging information and credit quality indicators. Both new and existing disclosures must be disaggregated by portfolio segment or class. The disaggregation of information is based on how a company develops its allowance for credit losses and how it manages its credit exposure.

The amendments in this update apply to all public and nonpublic entities with financing receivables. Financing receivables include loans and trade accounts receivable. However, short-term trade accounts receivable, receivables measured at fair value or lower of cost or fair value, and debt securities are exempt from these disclosure amendments.

The effective date of ASU 2010-20 differs for public and nonpublic companies. For public companies, the amendments that require disclosures as of the end of a reporting period are effective for periods ending on or after December 15, 2010. The amendments that require disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010. For nonpublic companies, the amendments are effective for annual reporting periods ending on or after December 15, 2011. The Company has provided the required credit quality disclosures as of the end of the reporting periods December 31, 2010 and December 31, 2011 and disclosures about the activity for the three months ended December 31, 2011.

In April 2011, the FASB issued Accounting Standard Update (ASU) No. 2011-02, Receivables (Topic 310): (A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring), to clarify the accounting principles applied to loan modifications. ASU No. 2011-02 was issued to address the recording of an impairment loss in FASB ASC 310, Receivables. ASU No. 2011-02 adds text to the scope guidance Section 310-40-15 that is meant to help determine when a lender has granted a concession on their terms of a loan. The added material also provides criteria that should be used to help determine when the loan restructuring delays a payment by a length of time that is considered insignificant and when the borrower is having financial problems. For public companies the effective date is for fiscal quarters and years that start June 15, 2011, or later with the retrospective application to the beginning of the fiscal year for loans that are restructured during the year in which the changes are adopted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial condition statements.

In April 2011, the FASB issued Accounting Standard Update (ASU) 2011-03 (Reconsideration of Effective Control for Repurchase Agreements). The FASB has issued this Update to clarify the accounting principles applied to repurchase agreements, as set forth by FASB ASC Topic 860, Transfers and Servicing. This update, entitled Reconsideration of Effective Control for Repurchase Agreements, amends one of three criteria used to determine whether or not a transfer of assets may be treated as a sale by the transferor. Under Topic 860, the transferor may not maintain effective control over the transferred assets in order to qualify as a sale. This Update eliminates the criteria under which the transferor must retain collateral sufficient to repurchase or redeem the collateral on substantially agreed upon terms as a method of maintaining effective control. This Update is effective for both public and nonpublic entities for interim and annual reporting periods beginning on or after December 31, 2011, and requires prospective application to transactions or modifications of transactions which occur on or after the effective date. Early adoption is not permitted. The Company is in the process of evaluating the adoption of this update will have on their financial condition or statement of operations.

In May 2011, the FASB issued Accounting Standard Update (ASU) 2011-04 (Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs). This update amends FASB ASC Topic 820, Fair Value Measurements, to bring U.S. GAAP for fair value measurements in line with International Accounting Standards. The Update clarifies existing guidance for items such as: the application of the highest and best use concept to non-financial assets and liabilities; the application of fair value measurement to financial instruments classified in a reporting entity’s stockholder’s equity; and disclosure requirements regarding quantitative information about unobservable inputs used in the fair value measurements of level 3 assets. The Update also creates an exception to Topic 820 for entities which carry financial instruments within a portfolio or group, under which the entity is now permitted to base the price used for fair valuation upon a price that would be received to sell the net asset position or transfer a net liability position in an orderly transaction. The Update also allows for the application of premiums and discounts in a fair value measurement if the financial instrument is categorized in level 2 or 3 of the fair value hierarchy. Lastly, the ASU contains new disclosure requirements regarding fair value amounts categorized as level 3 in the fair value hierarchy such as: disclosure of the valuation process used; effects of and relationships between unobservable inputs; usage of nonfinancial assets for purposes other than their highest and best use when that is the basis of the disclosed fair value; and categorization by level of items disclosed at fair value, but not measured at fair value for financial statement purposes. For public entities, this Update is effective for interim and annual periods beginning after December 15, 2011. For nonpublic entities, the Update is effective for annual periods beginning after December 15, 2011. Early adoption is not permitted. The Company is in the process of evaluating the adoption of this update will have on their financial condition or statement of operations.

In June 2011, The FASB issued Accounting Standard Update (ASU) 2011-05 (Presentation of Comprehensive Income). The provisions of this update amend FASB ASC Topic 220, Comprehensive Income, to facilitate the continued alignment of U.S. GAAP with International Accounting Standards. The Update prohibits the presentation of the components of comprehensive income in the statement of stockholder’s equity. Reporting entities are allowed to present either: a statement of comprehensive income, which reports both net income and other comprehensive income; or separate, but consecutive, statements of net income and other comprehensive income. Under previous GAAP, all 3 presentations were acceptable. Regardless of the presentation selected, the Reporting Entity is required to present all reclassifications between other comprehensive and net income on the face of the new statement or statements. The provisions of this Update are effective for fiscal years and interim periods beginning after December 31, 2011 for public entities. For nonpublic entities, the provisions are effective for fiscal years ending after December 31, 2012, and for interim and annual periods thereafter. The Company is in the process of evaluating the adoption of this update will have on their financial condition or statement of operations.

ASU 2011-12 (Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05), In December, 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05. In response to stakeholder concerns regarding the operational ramifications of the presentation of these reclassifications for current and previous years, the FASB has deferred the implementation date of this provision to allow time for further consideration. The requirement in ASU 2011-05, Presentation of Comprehensive Income, for the presentation of a combined statement of comprehensive income or separate, but consecutive, statements of net income and other comprehensive income is still effective for fiscal years and interim periods beginning after December 15, 2011 for public companies, and fiscal years ending after December 15, 2011 for nonpublic companies.

2. INVESTMENT AND MORTGAGE-BACKED SECURITIES

The amortized cost and fair value of the Company’s securities gross unrealized gains and losses, as of December 31, 2011 and September 30, 2011 are as follows:

Available for sale securities:

		September 30,		September 30,		September 30,			September 30,
	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(In Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Equity securities	$	355	$	94	$	(82	)	$	367
Collateralized mortgage obligations		785		48		—			833
U.S. Government money market funds		1,115		—		—			1,115

Total Available for Sale Securities	$	2,255	$	142	$	(82	)	$	2,315

	September 30, 2011
(In Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Equity securities	$	355	$	44	$	(110	)	$	289
Collateralized mortgage obligations		785		21		—			806
U.S. Government money market funds		17,420		—		—			17,420

Total Available for Sale Securities	$	18,560	$	65	$	(110	)	$	18,515

Held to maturity securities:

		September 30,		September 30,		September 30,			September 30,
	December 31, 2011
(In Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities- U.S. Government Sponsored Enterprises (GSE’s)	$	134,336	$	7,520	$	—		$	141,856
Collateralized mortgage obligations		21,241		114		(39	)		21,316
Municipal bonds		15,212		1,047		—			16,259
U.S. Government Agencies		70,979		216		(4	)		71,191

Total Held to Maturity Securities	$	241,768	$	8,897	$	(43	)	$	250,622

	September 30, 2011
(In Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities- U.S. Government Sponsored Enterprises (GSE’s)	$	124,576	$	7,855	$	—		$	132,431
Collateralized mortgage obligations		25,165		118		(33	)		25,250
Municipal bonds		16,022		814		(21	)		16,815
U.S. Government Agencies		65,993		146		(54	)		66,085

Total Held to Maturity Securities	$	231,756	$	8,933	$	(108	)	$	240,581

All the Company’s mortgage-backed securities and collateralized mortgage obligations are residential. At December 31, 2011, The Bank holds $21.2 million in Collateralized Mortgage Obligations (CMOs) of which $18.2 million are issued by Government Sponsored Enterprises and $3.0 million are privately-issued. These private label securities are adequately rated. A summary of securities with unrealized losses, aggregated by category, at December 31, 2011 is as follows:

		September 30,		September 30,			September 30,		September 30,			September 30,		September 30,
	Less than 12 Months					12 Months or Longer					Total
(In Thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Total Fair Value		Total Unrealized Losses
Collateralized mortgage obligations	$	14,773	$	(39	)	$	—	$	—		$	14,773	$	(39	)
U.S. Government Agencies		2,990		(4	)		—		—			2,990		(4	)

Subtotal debt securities		17,763		(43	)		—		—			17,763		(43	)
Equity securities		30		(3	)		133		(79	)		163		(82	)

Total temporarily impaired securities	$	17,793	$	(46	)	$	133	$	(79	)	$	17,926	$	(125	)

At December 31, 2011, debt securities in a gross unrealized loss position consisted of 10 securities that at such date had an aggregate depreciation of 0.25% from the Company’s amortized cost basis. Management believes that the estimated fair value of the securities disclosed above is primarily dependent upon the movement in market interest rates. Management evaluated the length of time and the extent to which the fair value has been less than cost; the financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer. The Company has the ability and intent to hold these securities until maturity and the Company does not believe it will be required to sell such securities prior to the recovery of the amortized cost basis. Management does not believe any individual unrealized loss as of December 31, 2011 represents an other-than-temporary impairment.

As of December 31, 2011, there were three equity securities in an unrealized loss position. Management evaluated the length of time and the extent to which the market value has been less than cost; the financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology that may impair the earnings potential of the investment or the discontinuance of a segment of the business that may effect the future earnings potential. The Company has the ability and intent to hold these securities until the anticipated recovery of fair value occurs. Management does not believe any individual unrealized loss of December 31, 2011 represents an other-than-temporary impairment.

A summary of securities with unrealized losses, aggregated by category, at September 30, 2011 is as follows:

		September 30,		September 30,			September 30,		September 30,			September 30,		September 30,
	Less than 12 Months					12 Months or Longer					Total
(In Thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Total Fair Value		Total Unrealized Losses
Collateralized mortgage obligations	$	11,830	$	(33	)	$	—	$	—		$	11,830	$	(33	)
Municipal bonds		—		—			1,517		(21	)		1,517		(21	)
U.S. Government Agencies and GSE’s		12,942		(54	)		—		—			12,942		(54	)

Subtotal debt securities		24,772		(87	)		1,517		(21	)		26,289		(108	)
Equity Securities		45		(13	)		114		(97	)		159		(110	)

Total temporarily impaired securities	$	24,817	$	(100	)	$	1,631	$	(118	)	$	26,448	$	(218	)

The following table sets forth the stated maturities of the investment and mortgage-backed securities at December 31, 2011. Money market funds and equity securities are not included in the table based on lack of maturity.

		September 30,		September 30,
	December 31, 2011
(In Thousands)	Amortized Cost		Fair Value

Available for sale:
Due in one year or less	$	—	$	—
Due after one year through five years		—		—
Due after five years through ten years		785		833
Due after ten years		—		—

Total	$	785	$	833


Held to maturity:
Due in one year or less	$	103,493	$	104,251
Due after one year through five years		106,680		113,234
Due after five years through ten years		31,595		33,137
Due after ten years		—		—

Total	$	241,768	$	250,622

Certain of the Company’s investment securities, totaling $14.0 million and $8.9 million at December 31, 2011 and September 30, 2011, respectively, were pledged as collateral to secure deposit sweep accounts and public deposits as required or permitted by law. Other securities, totaling $49.8 million and $52.8 million at December 31, 2011 and September 30, 2011, respectively, were pledged for long-term advances of $50 million as described in Note 8.

3. LOANS RECEIVABLE

Loans receivable consists of the following:

		September 30,			September 30,
(In Thousands)	December 31, 2011			September 30, 2011
Residential Mortgages	$	330,343		$	336,379
Construction		7,231			5,818
Home Equity		83,064			85,521
Commercial Mortgages		93,674			91,085
Commercial Business Loans		5,899			6,262
Consumer Non-Real Estate		1,268			1,136

Total		521,479			526,201
Undisbursed portion of loans in process		(3,922	)		(3,401	)
Deferred loan fees		(1,064	)		(1,003	)
Allowance for loan losses		(3,559	)		(3,311	)

Loans Receivable—net	$	512,934		$	518,486

The total amount of loans being serviced for the benefit of others was approximately $1.2 million and $1.7 million at December 31, 2011 and September 30, 2011, respectively.

The loans receivable portfolio is segmented into consumer and commercial loans. Consumer loans consist of the following classes: residential mortgage loans, construction loans, home equity loans and other consumer non-real estate loans. Commercial loans consist of the following classes: commercial mortgages and commercial business loans. For all classes of loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans including impaired loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet. The allowance for credit losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance for credit losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are reevaluated quarterly to ensure their relevance in the current economic environment.

Residential mortgage lending generally entails a lower risk of default than other types of lending. Other consumer loans and commercial real estate loans generally involve more risk of collectability because of the type and nature of the collateral and, in certain cases, the absence of collateral. It is the Company’s policy to establish specific reserves for losses on delinquent consumer loans and commercial loans when it determines that losses are probable.

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral. Interest payments on impaired loans and non-accrual loans are applied to principal unless the ability to collect the principal amount is fully secured, in which case interest is recognized on the cash basis.

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

For commercial business loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable aging or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial and consumer loans. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans criticized special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loan not classified are rated pass.

In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of December 31, 2011 and September 30, 2011:

September 30,

December 31, 2011

(In Thousands)

Pass

Special
Mention

Substandard

Doubtful

Total

Residential Mortgages

326,544

3,084

640

330,343

Construction

7,231

—

7,231

Home Equity

82,862

152

—

83,064

Commercial Mortgages

83,536

8,679

1,459

—

93,674

Commercial Business Loans

5,799

100

—

5,899

Consumer Non-Real Estate

1,268

—

1,268

Total

507,240

8,904

4,695

640

521,479

		September 30,		September 30,		September 30,		September 30,		September 30,
	September 30, 2011
(In Thousands)	Pass		Special Mention		Substandard		Doubtful		Total

Residential Mortgages	$	333,243	$	77	$	2,417	$	642	$	336,379
Construction		5,818		—		—		—		5,818
Home Equity		85,285		50		186		—		85,521
Commercial Mortgages		80,615		10,343		—		127		91,085
Commercial Business Loans		6,162		100		—		—		6,262
Consumer Non-Real Estate		1,136		—		—		—		1,136

Total	$	512,259	$	10,570	$	2,603	$	769	$	526,201

The following table summarizes information in regards to impaired loans by loan portfolio class as of December 31, 2011 and September 30, 2011:

		September 30,		September 30,		September 30,			September 30,		September 30,
	December 31, 2011
(In Thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance			Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential Mortgages	$	1,708	$	1,708	$	—		$	1,536	$	12
Construction		—		—		—			—		—
Home Equity		76		76		—			76		1
Commercial Mortgages		—		126		—			—		—
Commercial Business Loans		—		—		—			—		—
Consumer Non-Real Estate		—		—		—			—		—

With an allowance recorded:
Residential Mortgages	$	2,017	$	2,017	$	(310	)	$	1,567	$	2
Construction		—		—		—			—		—
Home Equity		76		76		(47	)		98		31
Commercial Mortgages		1,459		1,459		(110	)		1,459		—
Commercial Business Loans		—		—		—			—		—
Consumer Non-Real Estate		—		—		—			—		—

Total:
Residential Mortgages	$	3,725	$	3,725	$	(310	)	$	3,103	$	14
Construction		—		—		—			—		—
Home Equity		152		152		(47	)		174		32
Commercial Mortgages		1,459		1,585		(110	)		1,459		—
Commercial Business Loans		—		—		—			—		—
Consumer Non-Real Estate		—		—		—			—		—

		September 30,		September 30,		September 30,			September 30,		September 30,
	September 30, 2011
(In Thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance			Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential Mortgages	$	1,526	$	1,530	$	—		$	1,541	$	87
Construction		—		—		—			—		—
Home Equity		77		77		—			77		—
Commercial Mortgages		127		232		—			194		—
Commercial Business Loans		—		—		—			—		—
Consumer Non-Real Estate		—		—		—			5		—

With an allowance recorded:
Residential Mortgages	$	1,533	$	1,632	$	(198	)	$	1,639	$	28
Construction		—		—		—			—		—
Home Equity		109		109		(79	)		111		2
Commercial Mortgages		—		—		—			—		—
Commercial Business Loans		—		—		—			—		—
Consumer Non-Real Estate		—		—		—			—		—

Total:
Residential Mortgages	$	3,059	$	3,162	$	(198	)	$	3,180	$	115
Construction		—		—		—			—		—
Home Equity		186		186		(79	)		188		2
Commercial Mortgages		127		232		—			194		—
Commercial Business Loans		—		—		—			—		—
Consumer Non-Real Estate		—		—		—			5		—

The performance and credit quality of the loan portfolio is also monitored by the analyzing 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 status as of December 31, 2011 and September 30, 2011:

September 30,

December 31, 2011

(In Thousands)

30-89 Days Past
Due

Greater
than 90
Days

Total
Past Due

Current

Total Loans
Receivables

Loans
Receivable
> 90 Days
and
Accruing

Residential Mortgages

5,816

3,273

9,089

321,254

330,343

—

Construction

—

7,231

—

Home Equity

1,126

1,214

81,850

83,064

—

Commercial Mortgages

4,517

1,459

5,976

87,698

93,674

—

Commercial Business Loans

—

5,899

—

Consumer Non-Real Estate

1,229

1,268

—

Total

11,495

4,823

16,318

505,161

521,479

—

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
	September 30, 2011
(In Thousands)	30-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivables		Loans Receivable > 90 Days and Accruing
Residential Mortgages	$	1,719	$	2,771	$	4,490	$	331,889	$	336,379	$	—
Construction		—		—		—		5,818		5,818		—
Home Equity		467		100		567		84,954		85,521		15
Commercial Mortgages		4,180		127		4,307		86,778		91,085		—
Commercial Business Loans		—		—		—		6,262		6,262		—
Consumer Non-Real Estate		—		4		4		1,132		1,136		—

Total	$	6,366	$	3,002	$	9,368	$	516,833	$	526,201	$	15

The following table provides the activity in the allowance for loan losses by loan class for three-months ended December 31, 2011 and the balance in the allowance for loan losses at September 30, 2011 disaggregated on the basis of the Company’s impairment method by loan class along with the balance of loans receivable by class disaggregated on the basis of the Company’s impairment methodology.

Allowance for Loan Loss:

		September 30,		September 30,		September 30,			September 30,			September 30,			September 30,			September 30,		September 30,
	Residential Mortgages		Construction		Home Equity			Commercial Mortgages			Commercial Business Loans			Consumer Non-Real Estate			Unallocated		Totals
Three Months ended December 31, 2011:

Beginning Balance, October 1, 2011	$	871	$	33	$	431		$	1,516		$	214		$	5		$	241	$	3,311

Charge-offs		—		—		—			(127	)		—			(5	)		—		(132	)

Recoveries		—		—		—			128			—			2			—		130

Provisions		90		7		(40	)		133			(7	)		3			64		250


Ending balance, December 31, 2011	$	961	$	40	$	391		$	1,650		$	207		$	5		$	305	$	3,559


Ending balance:
Individually evaluated for impairment	$	310	$	—	$	47		$	110		$	—		$	—		$	—	$	467

Ending balance:
Collectively evaluated for impairment	$	651	$	40	$	344		$	1,540		$	207		$	5		$	305	$	3,092

Loans:
Ending balance:	$	330,343	$	7,231	$	83,064		$	93,674		$	5,899		$	1,268		$	—	$	521,479

Ending balance:
Individually evaluated for impairment	$	3,725	$	—	$	152		$	1,459		$	—		$	—		$	—	$	5,336

Ending balance:
Collectively evaluated for impairment	$	326,618	$	7,231	$	82,912		$	92,215		$	5,899		$	1,268		$	—	$	516,143

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,

Ending balance, September 30, 2011:

Individually evaluated for impairment	$	198	$	—	$	79	$	—	$	—	$	—	$	—	$	277

Ending balance:
Collectively evaluated for impairment	$	673	$	33	$	352	$	1,516	$	214	$	5	$	241	$	3,034

Loans:
Ending balance:	$	336,379	$	5,818	$	85,521	$	91,085	$	6,262	$	1,136	$	—	$	526,201

Ending balance:
Individually evaluated for impairment	$	3,059	$	—	$	186	$	127	$	—	$	—	$	—	$	3,372

Ending balance:
Collectively evaluated for impairment	$	333,320	$	5,818	$	85,335	$	90,958	$	6,262	$	1,136	$	—	$	522,829

As a result of adopting the amendments in ASU No. 2011-02, the Company reassessed all restructurings that occurred on or after January 1, 2011 for identification as troubled debt restructurings. The Company identified no loans for which the allowance for loan losses had previously been measured under a general allowance for credit losses methodology that are now considered troubled debt restructurings in accordance with ASU No. 2011-02, and as such, there are no retroactive disclosures required. The company had no loans modified as troubled debt restructurings for the three months ended December 31, 2011. The Company had no loans modified as troubled debt restructurings with the previous three months from December 31, 2011 which were in payment default.

The following table presents nonaccrual loans by classes of the loan portfolio as of December 31, 2011 and September 30, 2011:

		September 30,		September 30,
	December 31,		September 30,
(In Thousands)	2011		2011
Residential Mortgages	$	3,592	$	3,059
Construction		—		—
Home Equity		88		171
Commercial Mortgages		1,459		127
Commercial Business Loans		—		—
Consumer Non-Real Estate		3		—

Total	$	5,142	$	3,357

4. FEDERAL HOME LOAN BANK STOCK

Federal law requires a member institution of the Federal Home Loan Bank (FHLB) to hold stock of its district FHLB according to a predetermined formula. The restricted stock is carried at cost. In December 2008, the FHLB of Pittsburgh notified member banks that it was suspending dividend payments and the repurchase of capital stock. During 2010 and 2011, the FHLB allowed certain redemptions.

Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.

Management believes no impairment charge is necessary related to the FHLB restricted stock as of December 31, 2011.

5. DEPOSITS

Deposits are summarized as follows:

		September 30,		September 30,
	(In Thousands)
	December 31,		September 30,
	2011		2011
Non-interest bearing checking accounts	$	22,877	$	20,836
Now accounts		34,974		30,175
Interest bearing checking accounts		38,820		39,135
Money market deposit accounts		143,008		134,611
Passbook and club accounts		4,148		4,194
Certificate of deposits		286,544		295,450

Total Deposits	$	530,371	$	524,401

The aggregate amount of certificate accounts in denominations of $100,000 or more at December 31, 2011 and September 30, 2011 amounted to approximately $57.5 million and $61.5 million, respectively.

6. COMMITMENTS

At December 31, 2011, the following commitments were outstanding:

		September 30,
	(In thousands)
Letters of credit	$	203
Commitments to originate loans		11,383
Unused portion of home equity lines of credits		54,429
Unused portion of commercial lines of credits		7,691
Undisbursed portion of construction loans in process		3,922

Total	$	77,628

Outstanding letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The majority of these standby letters of credit expire within the next twelve months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Company requires collateral supporting these letters of credit as deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of December 31, 2011 for guarantees under standby letters of credit issued is not material.

7. EARNINGS PER SHARE

The following shares were used for the computation of earnings per share:

		September 30,		September 30,
	For the Three Months Ended
	December 30,
	2011		2010
Basic		3,763,147		3,693,373
Diluted		3,790,457		3,731,203

The difference between the number of shares used for computation of basic earnings per share and diluted earnings per share represents the dilutive effect of stock options. There were 293,501 stock options that were anti-dilutive of which 5,263 where unvested restricted stock grants for the three- months ended December 31, 2011, respectively. There were 251,375 stock options that were anti-dilutive of which 2,822 where unvested restricted stock grants for the three month periods ended December 31, 2010, respectively.

8. LONG-TERM DEBT

Advances consists of the following:

		September 30,		September 30,			September 30,		September 30,
	December 31,					September 30,
	2011					2011
	(In thousands)
			Weighted					Weighted
			Interest					Interest
Maturing Period	Amount		Rate			Amount		Rate

1 to 12 months	$	42,667		4.58	%	$	53,029		4.50	%
13 to 24 months		36,704		3.95	%		32,778		4.07	%
25 to 36 months		22,766		4.35	%		27,563		4.13	%
37 to 48 months		17,477		3.84	%		17,656		3.84	%
49 to 60 months		10,000		4.71	%		10,000		4.71	%
61 to 72 months		50,000		4.43	%		45,000		4.52	%
73 to 84 months		59,062		3.99	%		64,168		4.38	%


Total	$	238,676		4.24	%	$	250,194		4.34	%

Federal Home Loan Bank (FHLB) advances are collateralized by Federal Home Loan Bank stock and substantially all first mortgage loans. The Company has a line of credit with the FHLB of which $0 out of $75.0 million was used at December 30, 2011 and September 30, 2011, respectively. Included in the table above at December 31, 2011 and September 30, 2011 are convertible advances whereby the FHLB has the option at a predetermined strike rate to convert the fixed interest rate to an adjustable rate tied to London Interbank Offered Rate (“LIBOR”). The Company then has the option to repay these advances if the FHLB converts the interest rate. These advances are included in the periods in which they mature. The Company has a total FHLB borrowing capacity of $340.0 million of which $188.7 million was used as of December 30, 2011. In addition, there are four long-term advances from other financial institutions totaling $50 million that are secured by investment and mortgage-backed securities.

9. REGULATORY CAPITAL REQUIREMENTS

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the table below) of total Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital (as defined) to assets (as defined). Management believes, as of December 31, 2011, that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2011, the most recent notification from the Federal Deposit Insurance Corporation categorized the Company and Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Bank’s actual capital amounts and ratios at December 31, 2011 and September 30, 2011 are also presented in the table below. The Company’s capital ratios are not significantly different than the Bank’s disclosed below.

		September 30,		September 30,			September 30,		September 30,			September 30,		September 30,
											To Be Considered Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio

At December 31, 2011
Tier 1 Capital (to assets)	$	58,008		7.01	%	$	33,109		4.00	%	$	41,386		5.00	%
Tier 1 Capital (to risk weighted assets)		58,008		12.56	%		18,480		4.00	%		27,721		6.00	%
Total Capital (to risk weighted assets)		61,572		13.33	%		36,961		8.00	%		46,201		10.00	%

At September 30, 2011
Tier 1 Capital (to assets)	$	57,055		6.77	%	$	33,722		4.00	%	$	42,153		5.00	%
Tier 1 Capital (to risk weighted assets)		57,055		12.23	%		18,662		4.00	%		27,993		6.00	%
Total Capital (to risk weighted assets)		60,366		12.94	%		37,325		8.00	%		46,656		10.00	%

10. FAIR VALUE MEASUREMENTS AND DISCLOSURES

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with accounting guidance, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is determined at a reasonable point within the range that is most representative of fair value under current market conditions.

The guidance 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 under 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 financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2011 and September 30, 2011 are as follows:

		September 30,		September 30,		September 30,		September 30,
Description	December 31, 2011		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Available for sale securities:
Equity securities	$	367	$	367	$	—	$	—
U.S. Government money market funds		1,115		1,115		—		—
Collateralized mortgage obligations		833		—		833		—

Total	$	2,315	$	1,482	$	833	$	—


Description	September 30, 2011		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Available for sale securities:
Equity securities	$	289	$	289	$	—	$	—
U.S. Government money market funds		17,420		17,420		—		—
Collateralized mortgage obligations		806		—		806		—

Total	$	18,515	$	17,709	$	806	$	—

There were no transfers in and out of Level 1 and Level 2 fair value measurements for the quarter ended December 31, 2011.

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

September 30,

Description

December 31,
2011

(Level 1)
Quoted Prices in
Active Markets
for Identical
Assets

(Level 2)
Significant Other
Observable
Inputs

(Level 3)
Significant
Unobservable
Inputs

(In Thousands)

Impaired Loans

3,085

—

3,085

		September 30,		September 30,		September 30,		September 30,
Description	September 30, 2011		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
(In Thousands)
Impaired Loans	$	1,365	$	—	$	—	$	1,365

The following valuation techniques were used to measure fair value of the Company’s financial instruments in the tables above and below:

Cash and Cash Equivalents (Carried at Cost)

The carrying amounts for cash and cash equivalents approximate those assets’ fair values.

Securities

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

Loans Receivable (Carried at Cost)

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet 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 values.

Impaired loans are those loans which the Company has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Federal Home Loan Bank Stock (Carried at Cost)

The carrying amount of this restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.

Accrued Interest Receivable and Payable (Carried at Cost)

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit Liabilities (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings and 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 fixed-rate 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 a aggregated expected monthly maturities on time deposits.

Borrowings (Carried at Cost)

Fair values of borrowings are estimated using discounted cash flow analysis, based on quoted prices for new 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.

Off-Balance Sheet Financial Instruments (Disclosed at Cost)

Fair values for the Company’s 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 off-balance sheet financial instruments are not considered material as of December 31, 2011 and September 30, 2011.

The estimated fair value amounts have been determined by the Company using available market information appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret the data to develop the estimates.

The carrying amounts and estimated fair values of financial instruments as of December 31, 2011 and September 30, 2011 are as follows.

September 30,

December 31, 2011

September 30, 2011

(In Thousands)

Carrying
Amount

Estimated Fair
Value

Carrying
Amount

Estimated Fair
Value

Assets:

Cash and cash equivalents

31,775

22,582

Securities held to maturity

241,768

250,622

231,756

240,581

Securities available-for-sale

2,315

18,515

Loans receivable—net

512,934

537,714

518,486

543,732

Federal Home Loan Bank stock

12,455

13,110

Accrued interest receivable

2,833

2,847

Liabilities:

Checking, passbook, club and NOW deposit accounts

100,819

94,340

Money Market deposit accounts

143,008

134,611

Certificate of deposit accounts

286,544

292,924

295,450

303,290

Borrowings

238,676

262,520

250,194

276,735

Accrued interest payable

1,170

1,315

Off balance sheet financial instruments

—

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been and have not been considered in the estimate.

11. SUBSEQUENT EVENT

In February 2012, the Company purchased back $1.8 million of treasury stock (123,478 shares at $14.53 per share) from an unrelated party. This purchase was not a part of our current common stock repurchase program. This was a separate resolution to repurchase common stock in an unsolicited private transaction.

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

This report contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by and information currently available to management. In addition, in those and other portions of this document, the words “anticipate,” “believe,” “estimate,” “intend,” “should” and similar expressions, or the negative thereof, as they relate to the Company or the Company’s management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future-looking events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.

The Company’s business consists of attracting deposits from the general public through a variety of deposit programs and investing such deposits principally in first mortgage loans secured by residential properties, commercial loans and commercial lines of credit in the Company’s primary market area. The Company also originates a variety of consumer loans, predominately home equity loans and lines of credit also secured by residential properties in the Company’s primary lending area. The Company serves its customers through its full-service branch network as well as through remote ATM locations, the internet and telephone banking.

Critical Accounting Policies and Judgments

The Company’s consolidated financial statements are prepared based on the application of certain accounting policies. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variations and may significantly affect the Company’s reported results and financial position for the period or in future periods. Changes in underlying factors, assumptions, or estimates in any of these areas could have a material impact on the Company’s future financial condition and results of operations. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the consolidated financial statements: allowance for loan losses, other-than-temporary security impairment and deferred income taxes.

Allowance for Loan Losses

Analysis and Determination of the Allowance for Loan Losses—The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. The Company evaluates the need to establish allowances against losses on loans on a monthly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.

Our methodology for assessing the appropriateness of the allowance for loan losses consists of three key elements: (1) specific allowances for certain impaired loans; (2) a general valuation allowance on certain identified problem loans; and (3) a general valuation allowance on the remainder of the loan portfolio. Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available for the entire portfolio.

Specific Allowance Required for Certain Impaired Loans: We establish an allowance for certain impaired loans for the amounts by which the collateral value, present value of future cash flows or observable market price are lower than the carrying value of the loan. Under current accounting guidelines, a loan is defined as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due under the contractual terms of the loan agreement.

General Valuation Allowance on Certain Identified Problem Loans—We also establish a general allowance for classified loans that do not have an individual allowance. We segregate these loans by loan category and assign allowance percentages to each category based on inherent losses associated with each type of lending and consideration that these loans, in the aggregate, represent an above-average credit risk and that more of these loans will prove to be uncollectible compared to loans in the general portfolio.

General Valuation Allowance on the Remainder of the Loan Portfolio—We establish another general allowance for loans that are not classified to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. This general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages based on our historical loss experience, delinquency trends and management’s evaluation of the collectibility of the loan portfolio. The allowance may be adjusted for significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are reevaluated quarterly to ensure their relevance in the current economic environment.

Other-than-Temporary Impairment of Investment Securities

Securities are evaluated periodically to determine whether a decline in their value is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a lack of evidence to support realizable value equal to or greater than the carrying value of the investment.

Deferred Tax Assets

In evaluating our ability to recover deferred tax assets, management considers all available positive and negative evidence, including our past operating results and our forecast of future taxable income. In determining future taxable income, management makes assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings.

Changes in Financial Position for the Three-Month Period Ended December 31, 2011

Total assets at December 31, 2011 were $832.6 million, a decrease of $3.1 million for the three-month period then ended. The decrease was primarily due to a decreases in loans receivable of $5.6 million, investments available for sale of $16.2 million and repurchase of Federal Home Loan Bank Stock of $655,000. The decreases were partially offset by an increase in cash and investments held to maturity of approximately $19.2 million.

There was a growth in deposits during the three-month period ended December 31, 2011. Total deposits increased $6.0 million to $530.4 million. Advances from borrowers for taxes and insurance also increased by $2.1 million due to the timing of property tax payments. The increases were primarily offset by a decrease in borrowings of $11.5 million due to normal repayments for the period.

Comparisons of Results of Operations for the Three-Month Period Ended December 31, 2011 with the Three-Month Period Ended December 31, 2010

Net Income

Net income for the three-month period ended December 31, 2011 was $1.4 million compared to $1.2 million for the comparable period in 2010. Basic and diluted earnings per share for the three-month period ending December 31, 2011 was $0.36.

Net Interest Income

Net interest income was $5.0 million for the three-month period ended December 31, 2011 compared to $4.5 million for the comparable period in 2010. Although our average balance in interest-earning assets and interest-bearing liabilities decreased our average interest rate spread increased from 2.13% to 2.49% in the respective December 31, 2010 and 2011 periods.

Non-Interest Income

Non-interest income increased to $571,000 for the three-month period ended December 31, 2011 from $501,000 for the comparable period in 2010. The increase is primarily due to an increase in income on non-deposit products and customer service fees due to the increase in transaction accounts over the current period.

Non-Interest Expenses

For the three-month period ended December 31, 2011, non-interest expenses increased by $137,000 or 4.33% to $3.3 million compared to $3.2 million for the same period in 2010. Salary and employee benefits increased $160,000 to $1.9 million for the three-month period ended December 31, 2011, primarily due to an increase in staffing and bank growth. Occupancy and equipment increased $19,000 and other expenses increased $33,000 for three-month ended December 31, 2011 compared to the same period in 2010. The aforementioned increases are partially offset by a decrease in FDIC insurance expense by $94,000 compared to the same period in 2010. The annualized ratio of non-interest expenses to average assets for the three-month period ended December 31, 2011 and 2010 were 1.57% and 1.48%, respectively.

Income Taxes

The Company made provisions for income taxes of $697,000 for the three-month period ended December 31, 2011, compared to $429,000 for the comparable period in 2010. These provisions are based on the levels of pre-tax income, adjusted primarily for tax-exempt interest income on investments.

Liquidity and Capital Recourses

For a financial institution, liquidity is a measure of the ability to fund customers’ needs for loans and deposit withdrawals. The Bank regularly evaluates economic conditions in order to maintain a strong liquidity position. One of the most significant factors considered by management when evaluating liquidity requirements is the stability of the Bank’s core deposit base. In addition to cash, the Bank maintains a portfolio of short-term investments to meet its liquidity requirements.

The Company also relies upon cash flow from operations and other financing activities, generally short-term and long-term debt. Liquidity is also provided by investing activities including the repayment and maturity of loans and investment securities as well as the management of asset sales when considered necessary. The Bank also has access to and sufficient assets to secure lines of credit and other borrowings in amounts adequate to fund any unexpected cash requirements.

As of December 31, 2011, the Company had $77.6 million in commitments to fund loan originations, disburse loans in process and meet other obligations. Management anticipates that the majority of these commitments will be funded within the next six months by means of normal cash flows and new deposits.

The Company invests excess funds in overnight deposits and other short-term interest-earning assets, which provide liquidity to meet lending requirements. The Company also has available borrowings with the Federal Home Loan Bank of Pittsburgh up to the Company’s maximum borrowing capacity, which was $340.0 million at December 31, 2011 of which $188.7 million was outstanding at December 31, 2011.

The Bank’s net income for the three-month period ended December 31, 2011 was $1.4 million compared to $1.2 million for the comparable period 2010. This increased the Bank’s stockholder’s equity to $58.0 million or 6.97% of total assets. This amount is well in excess of the Bank’s minimum regulatory capital requirement.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company has instituted programs designed to decrease the sensitivity of its earnings to material and prolonged increases in interest rates. The principal determinant of the exposure of the Company’s earnings to interest rate risk is the timing difference between the repricing or maturity of the Company’s interest-earning assets and the repricing or maturity of its interest-bearing liabilities. If the maturities of such assets and liabilities were perfectly matched, and if the interest rates borne by its assets and liabilities were equally flexible and moved concurrently, neither of which is the case, the impact on net interest income of rapid increases or decreases in interest rates would be minimized. The Company’s asset and liability management policies seek to decrease the interest rate sensitivity by shortening the repricing intervals and the maturities of the Company’s interest-earning assets. Although management of the Company believes that the steps taken have reduced the Company’s overall vulnerability to increases in interest rates, the Company remains vulnerable to material and prolonged increases in interest rates during periods in which its interest rate sensitive liabilities exceed its interest rate sensitive assets. The authority and responsibility for interest rate management is vested in the Company’s Board of Directors. The Chief Executive Officer implements the Board of Directors’ policies during the day-to-day operations of the Company.

Each month, the Chief Financial Officer (“CFO”) presents the Board of Directors with a report, which outlines the Company’s asset and liability “gap” position in various time periods. The “gap” is the difference between interest- earning assets and interest-bearing liabilities which mature or reprice over a given time period.

The CFO also meets weekly with the Company’s other senior officers to review and establish policies and strategies designed to regulate the Company’s flow of funds and coordinate the sources, uses and pricing of such funds. The first priority in structuring and pricing the Company’s assets and liabilities is to maintain an acceptable interest rate spread while reducing the effects of changes in interest rates and maintaining the quality of the Company’s assets.

The following table summarizes the amount of interest-earning assets and interest-bearing liabilities outstanding as of December 31, 2011, which are expected to mature, prepay or reprice in each of the future time periods shown. Except as stated below, the amounts of assets or liabilities shown which mature or reprice during a particular period were determined in accordance with the contractual terms of the asset or liability. Adjustable and floating-rate assets are included in the period in which interest rates are next scheduled to adjust rather than in the period in which they are due and fixed-rate loans and mortgage-backed securities are included in the periods in which they are anticipated to be repaid.

The passbook accounts, negotiable order of withdrawal (“NOW”) accounts, interest bearing accounts, and money market deposit accounts, are included in the “Over 5 Years” categories based on management’s beliefs that these funds are core deposits having significantly longer effective maturities based on the Company’s retention of such deposits in changing interest rate environments.

Generally, during a period of rising interest rates, a positive gap would result in an increase in net interest income while a negative gap would adversely affect net interest income. Conversely, during a period of falling interest rates, a positive gap would result in a decrease in net interest income while a negative gap would positively affect net interest income. However, the following table does not necessarily indicate the impact of general interest rate movements on the Company’s’ net interest income because the repricing of certain categories of assets and liabilities is discretionary and is subject to competitive and other pressures. As a result, certain assets and liabilities indicated as repricing within a stated period may in fact reprice at different rate levels.

		September 30,			September 30,			September 30,			September 30,			September 30,
(In thousands)	1 Year or less			1 to 3 Years			3 to 5 Years			Over 5 Years			Total
Interest-earning assets:
Mortgage loans	$	57,387		$	58,804		$	46,196		$	175,187		$	337,574
Commercial loans		50,433			17,700			14,927			16,513			99,573
Mortgage-backed securities		54,645			44,524			25,043			32,198			156,410
Consumer and other loans		67,463			8,817			4,106			3,946			84,332
Investment securities and other investments		80,794			21,583			20,414			5,291			128,082


Total interest-earning assets		310,722			151,428			110,686			233,135			805,971


Interest-bearing liabilities:
Passbook and Club accounts		400			—			—			3,747			4,148
NOW and checking accounts		7,379			—			—			66,415			73,794
Consumer Money Market Deposit accounts		55,156			—			—			60,402			115,558
Business Money Market Deposit accounts		20,588			—			—			6,863			27,450
Certificate accounts		111,323			128,770			46,451			—			286,544
Borrowed money		47,388			58,374			26,201			106,713			238,676


Total interest-bearing liabilities		242,234			187,144			72,652			244,140			746,170


Repricing GAP during the period	$	68,488		$	(35,716	)	$	38,034		$	(11,005	)	$	59,801


Cumulative GAP	$	68,488		$	32,772		$	70,806		$	59,801


Ratio of GAP during the period to total assets		8.23	%		-4.29	%		4.57	%		-1.32	%


Ratio of cumulative GAP to total assets		8.23	%		3.94	%		8.50	%		7.18	%

Item 4. Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in various legal proceedings occurring in the ordinary course of business. It is the opinion of management that these matters will not materially affect the Company’s consolidated financial position or results of operations.

Item 1A. Risk Factors

Not applicable.

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

(a)

Not applicable.

(b)

Not applicable.

(c)

The following table sets forth information with respect to purchases made by or on behalf of the Company of shares of common stock of the Company during the first quarter of fiscal 2012.

		September 30,		September 30,		September 30,		September 30,
Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)

October 1-31, 2011		—		—		—		50,492
November 1-30, 2011		—		—		—		50,492
December 1-31, 2011		—		—		—		50,492

Total		—	$	—		—		50,942

(1)	On June 30, 2008, the Company announced its current program to repurchase up to 5.0% of the outstanding shares of common stock of the Company, or 196,000 shares. The program does not have an expiration date and all shares are purchased in the open market.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. (Removed and Reserved)

Item 5. Other information.

Not applicable.

Item 6. Exhibits


No.		Descriptions

31.1		Certification of Chief Executive Officer

31.2		Certification of Chief Operating and Financial Officer

32.0		Section 1350 Certification of Chief Executive Officer and Chief Operating and Financial Officer

The following Exhibits are being furnished* as part of this report:


No.		Description

101.INS		XBRL Instance Document.*

101.SCH		XBRL Taxonomy Extension Schema Document.*

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.*

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.*

101.DEF		XBRL Taxonomy Extension Definitions Linkbase Document.*

These interactive data files are being furnished as part of this Quarterly Report, and, in accordance with Rule 402 of Regulation S-T, shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company