UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION





WASHINGTON,
D.C. 20549





FORM
10-Q





(Mark
One)


T
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF


THE
SECURITIES EXCHANGE ACT OF 1934





For
the quarterly period ended March 31, 2010





OR





o
            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: 0-51102





GEORGETOWN
BANCORP, INC.


(Exact
name of registrant as specified in its charter)





Federal
            20-2107839(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)2
      East Main Street, Georgetown, MA
            01833(Address
      of principal executive office)
            (Zip
      Code)








(978)
352-8600


(Registrant’s
telephone number, including area code)





None


(Former
name, former address and former fiscal year, if changed since last
report)





Indicate
by check whether the registrant: (1) has filed all reports required to be filed
by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for 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 T No o





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





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
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer
            o
            Accelerated
      filer
            oNon-accelerated
      filer
            o
            Smaller
      reporting company
            T





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





Indicate
the number of shares outstanding of the registrant’s common stock, as of the
latest practicable date:  Common Stock, $0.10 par value, 2,638,387
shares outstanding as of May 12, 2010.













Form 10-Q


GEORGETOWN
BANCORP, INC.


Table
of Contents





Part
      I.
            Financial Information
            PageItem
      1:
            Financial
      Statements (Unaudited)Consolidated Statements of Financial
    Conditionat March 31, 2010 and June 30, 2009
            1Consolidated Statements of Income for the Three and
      NineMonths Ended March 31, 2010 and 2009
            2Consolidated Statements of Changes in
      Stockholders’Equity for the Nine Months Ended March 31, 2010 and
      2009
            3Consolidated Statements of Cash Flows for
    theNine Months Ended March 31, 2010 and 2009
            4Notes to Consolidated Financial Statements
            6Item
      2:
            Management’s Discussion and Analysis of Financial Condition and
      Results ofOperations
            14Item
      3:
            Quantitative and Qualitative Disclosures About Market
      Risk
            26Item
      4:
            Controls and Procedures
            26Part
      II.
            Other InformationItem
      1:
            Legal Proceedings
            26Item 1A:
            Risk Factors
            26Item
      2:
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            26Item
      3:
            Defaults upon Senior Securities
            26Item
      4:
            Other Information
            26Item
      5:
            Exhibits
            26SIGNATURES
            27








PART
I—FINANCIAL INFORMATION





ITEM
1. Financial Statements





GEORGETOWN BANCORP, INC.


CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION


----------------------------------------------------------------------


(unaudited)





ASSETS





At
            
            
            AtMarch 31,
            
            
            June 30,2010
            
            
            2009(In
      thousands)Cash
      and due from banks
            
            $
            2,638
            
            
            $
            3,355Short-term
      investments
            
            
            3,038
            
            
            
            8,001Total
      cash and cash equivalents
            
            
            5,676
            
            
            
            11,356Securities
      available for sale, at fair value
            
            
            11,843
            
            
            
            9,528Securities
      held to maturity, at amortized cost
            
            
            3,999
            
            
            
            4,959Federal
      Home Loan Bank stock, at cost
            
            
            3,111
            
            
            
            3,111Loans
      held for sale
            
            
            1,670
            
            
            
            269Loans,
      net of allowance for loan losses of $1,680,000at
      March 31, 2010 and $1,455,000 at June 30, 2009
            
            
            172,077
            
            
            
            163,825Premises
      and equipment, net
            
            
            4,019
            
            
            
            4,212Accrued
      interest receivable
            
            
            843
            
            
            
            714Bank-owned
      life insurance
            
            
            2,521
            
            
            
            2,414Prepaid
      FDIC insurance
            
            
            668
            
            
            
            -Other
      assets
            
            
            1,085
            
            
            
            803Total
      assets
            
            $
            207,512
            
            
            $
            201,191LIABILITIES
      AND STOCKHOLDERS' EQUITYDeposits
            
            $
            139,360
            
            
            $
            141,126Securities
      sold under agreements to repurchase
            
            
            395
            
            
            
            520Short-term
      Federal Home Loan Bank advances
            
            
            12,700
            
            
            
            -Long-term
      Federal Home Loan Bank advances
            
            
            33,726
            
            
            
            40,268Mortgagors'
      escrow accounts
            
            
            496
            
            
            
            407Due
      to broker for investment purchase
            
            
            1,000
            
            
            
            -Accrued
      expenses and other liabilities
            
            
            1,863
            
            
            
            1,553Total
      liabilities
            
            
            189,540
            
            
            
            183,874Commitments
      and contingenciesStockholders'
      equity:Preferred
      stock, $0.10 par value per share:  1,000,000shares
      authorized; none outstanding
            
            
            -
            
            
            
            -Common
      stock, $0.10 par value per share: 10,000,000shares
      authorized; 2,777,250 shares issued
            
            
            278
            
            
            
            278Additional
      paid-in capital
            
            
            11,450
            
            
            
            11,350Retained
      earnings
            
            
            7,832
            
            
            
            7,228Accumulated
      other comprehensive income
            
            
            152
            
            
            
            136Unearned
      compensation - ESOP (42,934 and 49,078 shares unallocatedat
      March 31, 2010 and June 30, 2009, respectively)
            
            
            (429
            )
            
            
            (491
            )Unearned
      compensation - Equity Incentive
      Plan  (25,000  sharesunvested
      at March 31, 2010)
            
            
            (127
            )
            
            
            -Treasury
      stock, at cost (138,863 shares)
            
            
            (1,184
            )
            
            
            (1,184
            )Total
      stockholders' equity
            
            
            17,972
            
            
            
            17,317Total
      liabilities and stockholders' equity
            
            $
            207,512
            
            
            $
            201,191





See
accompanying notes to consolidated financial statements.


1





GEORGETOWN BANCORP, INC.


CONSOLIDATED
STATEMENTS OF INCOME


----------------------------------------------------------------------


(unaudited)





Three Months Ended
            
            
            Nine Months EndedMarch 31,
            
            
            March 31,2010
            
            
            2009
            
            
            2010
            
            
            2009(In
      thousands, except share data)Interest
      and dividend income:Loans,
      including fees
            
            $
            2,537
            
            
            $
            2,483
            
            
            $
            7,454
            
            
            $
            7,268Securities
            
            
            157
            
            
            
            194
            
            
            
            473
            
            
            
            639Short-term
      investments
            
            
            -
            
            
            
            -
            
            
            
            1
            
            
            
            6Total
      interest and dividend income
            
            
            2,694
            
            
            
            2,677
            
            
            
            7,928
            
            
            
            7,913Interest
      expense:Deposits
            
            
            512
            
            
            
            721
            
            
            
            1,665
            
            
            
            1,937Securities
      sold under agreements to repurchase
            
            
            1
            
            
            
            -
            
            
            
            2
            
            
            
            2Short-term
      Federal Home Loan Bank advances
            
            
            6
            
            
            
            4
            
            
            
            7
            
            
            
            110Long-term
      Federal Home Loan Bank advances
            
            
            345
            
            
            
            492
            
            
            
            1,134
            
            
            
            1,540Total
      interest expense
            
            
            864
            
            
            
            1,217
            
            
            
            2,808
            
            
            
            3,589Net
      interest income
            
            
            1,830
            
            
            
            1,460
            
            
            
            5,120
            
            
            
            4,324Provision
      for loan losses
            
            
            89
            
            
            
            4
            
            
            
            285
            
            
            
            182Net
      interest income, after provision for loan losses
            
            
            1,741
            
            
            
            1,456
            
            
            
            4,835
            
            
            
            4,142Non-interest
      income:Customer
      service fees
            
            
            158
            
            
            
            146
            
            
            
            490
            
            
            
            478Net
      gain on sale of loans
            
            
            47
            
            
            
            62
            
            
            
            223
            
            
            
            62Net
      gain on  other secondary market activities
            
            
            70
            
            
            
            -
            
            
            
            70
            
            
            
            -Income
      from bank-owned life insurance
            
            
            25
            
            
            
            7
            
            
            
            35
            
            
            
            2Other,
      net
            
            
            10
            
            
            
            3
            
            
            
            16
            
            
            
            9Total
      non-interest income
            
            
            310
            
            
            
            218
            
            
            
            834
            
            
            
            551Non-interest
      expenses:Salaries
      and employee benefits
            
            
            872
            
            
            
            845
            
            
            
            2,598
            
            
            
            2,418Occupancy
      and equipment expenses
            
            
            205
            
            
            
            201
            
            
            
            586
            
            
            
            591Data
      processing expenses
            
            
            108
            
            
            
            94
            
            
            
            331
            
            
            
            273Professional
      fees
            
            
            92
            
            
            
            90
            
            
            
            299
            
            
            
            242Advertising
      expenses
            
            
            82
            
            
            
            70
            
            
            
            186
            
            
            
            185FDIC
      insurance
            
            
            57
            
            
            
            49
            
            
            
            154
            
            
            
            97Other
      general and administrative expenses
            
            
            183
            
            
            
            217
            
            
            
            570
            
            
            
            581Total
      non-interest expenses
            
            
            1,599
            
            
            
            1,566
            
            
            
            4,724
            
            
            
            4,387Income
      before income taxes
            
            
            452
            
            
            
            108
            
            
            
            945
            
            
            
            306Income
      tax provision
            
            
            166
            
            
            
            33
            
            
            
            341
            
            
            
            112Net
      income
            
            $
            286
            
            
            $
            75
            
            
            $
            604
            
            
            $
            194Weighted-average
      number of common shares outstanding:Basic
      and diluted
            
            
            2,604,389
            
            
            
            2,585,918
            
            
            
            2,595,486
            
            
            
            2,583,867Net
      income per share:Basic
      and diluted
            
            $
            0.11
            
            
            $
            0.03
            
            
            $
            0.23
            
            
            $
            0.08





See
accompanying notes to consolidated financial statements.


2





GEORGETOWN BANCORP, INC.


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


----------------------------------------------------------------------


(unaudited)





CommonStock
            
            
            AdditionalPaid-inCapital
            
            
            RetainedEarnings
            
            
            AccumulatedOtherComprehensiveIncome (Loss)
            
            
            UnearnedCompensation-ESOP
            
            
            UnearnedCompensation-Equity Incentive Plan
            
            
            TreasuryStock
            
            
            Total(In
      thousands)Balance
      at June 30, 2008
            
            $
            278
            
            
            $
            11,393
            
            
            $
            6,878
            
            
            $
            (19
            )
            
            $
            (573
            )
            
            
            -
            
            
            $
            (1,184
            )
            
            $
            16,773Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            194
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            194Net
      unrealized gain on securitiesavailable
      for sale, net of relatedtax
      effects of $114,000
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            195
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            195Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            389Common
      stock held by ESOP allocated orcommitted
      to be allocated (6,145 shares)
            
            
            -
            
            
            
            (30
            )
            
            
            -
            
            
            
            -
            
            
            
            61
            
            
            
            -
            
            
            
            -
            
            
            
            31Balance
      at March 31, 2009
            
            $
            278
            
            
            $
            11,363
            
            
            $
            7,072
            
            
            $
            176
            
            
            $
            (512
            )
            
            $
            -
            
            
            $
            (1,184
            )
            
            $
            17,193Balance
      at June 30, 2009
            
            $
            278
            
            
            $
            11,350
            
            
            $
            7,228
            
            
            $
            136
            
            
            $
            (491
            )
            
            $
            -
            
            
            $
            (1,184
            )
            
            $
            17,317Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            604
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            604Net
      unrealized gain on securitiesavailable
      for sale, net of relatedtax
      effects of $9,000
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            16
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            16Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            620Common
      stock held by ESOP allocated orcommitted
      to be allocated (6,144 shares)
            
            
            -
            
            
            
            (31
            )
            
            
            -
            
            
            
            -
            
            
            
            62
            
            
            
            -
            
            
            
            -
            
            
            
            31Restricted
      stock granted in connection with equityincentive
      plan (25,000 shares)
            
            
            -
            
            
            
            130
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (130
            )
            
            
            -
            
            
            
            -Share
      based compensation - options
            
            
            -
            
            
            
            1
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1Share
      based compensation - restricted stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3
            
            
            
            -
            
            
            
            3Balance
      at March 31, 2010
            
            $
            278
            
            
            $
            11,450
            
            
            $
            7,832
            
            
            $
            152
            
            
            $
            (429
            )
            
            $
            (127
            )
            
            $
            (1,184
            )
            
            $
            17,972





See
accompanying notes to consolidated financial statements.


3





GEORGETOWN BANCORP, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


----------------------------------------------------------------------


(unaudited)





Nine
      Months EndedMarch 31,2010
            
            
            2009(In
      thousands)Cash
      flows from operating activities:Net
      income
            
            $
            604
            
            
            $
            194Adjustments
      to reconcile net income to net cashused
      by operating activities:Provision
      for loan losses
            
            
            285
            
            
            
            182Accretion
      of securities, net
            
            
            (20
            )
            
            
            (24
            )Accretion
      of deferred loan fees and costs, net
            
            
            (6
            )
            
            
            (43
            )Depreciation
      and amortization expense
            
            
            265
            
            
            
            275Increase
      in accrued interest receivable
            
            
            (129
            )
            
            
            (101
            )Income
      from bank-owned life insurance
            
            
            (35
            )
            
            
            (2
            )Share
      based compensation expense and ESOP allocation
            
            
            35
            
            
            
            31Loans
      originated for sale
            
            
            (12,084
            )
            
            
            (5,768
            )Principal
      balance of loans sold
            
            
            10,703
            
            
            
            4,934Net
      gain on other secondary market activities
            
            
            (70
            )
            
            
            -Prepaid
      FDIC insurance
            
            
            (668
            )
            
            
            -Net
      change in other assets and liabilities
            
            
            69
            
            
            
            (13
            )Net
      cash used by operating activities
            
            
            (1,051
            )
            
            
            (335
            )Cash
      flows from investing activities:Activity
      in securities available for sale:Maturities,
      prepayments and calls
            
            
            3,222
            
            
            
            3,799Purchases
            
            
            (4,500
            )
            
            
            (2,510
            )Maturities,
      prepayments and callsof
      securities held to maturity
            
            
            968
            
            
            
            867Purchase
      of Federal Home Loan Bank stock
            
            
            -
            
            
            
            (103
            )Loan
      principal originations, net
            
            
            (9,538
            )
            
            
            (18,806
            )Principal
      balance of portfolio loans sold
            
            
            1,007
            
            
            
            -Purchase
      of premises and equipment
            
            
            (72
            )
            
            
            (74
            )Proceeds
      from redemption of bank-owned life insurance
            
            
            112
            
            
            
            -Purchase
      of bank-owned life insurance
            
            
            (184
            )
            
            
            -Net
      cash used by investing activities
            
            
            (8,985
            )
            
            
            (16,827
            )








(continued)








See
accompanying notes to consolidated financial statements.


4





GEORGETOWN
BANCORP, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


----------------------------------------------------------------------


(unaudited)


(concluded)





Nine Months EndedMarch 31,2010
            
            
            2009(In
      thousands)Cash
      flows from financing activities:Net
      change in deposits
            
            
            (1,766
            )
            
            
            30,111Net
      change in securities sold under agreementsto
      repurchase
            
            
            (125
            )
            
            
            (76
            )Net
      change in Federal Home Loan Bank advances withmaturities
      of  three months or less
            
            
            12,700
            
            
            
            (11,150
            )Proceeds
      of Federal Home Loan Bank advances withmaturities
      greater than three months
            
            
            7,000
            
            
            
            15,500Repayments
      of Federal Home Loan Bank advanceswith
      maturities greater than three months
            
            
            (13,542
            )
            
            
            (15,140
            )Net
      change in mortgagors' escrow accounts
            
            
            89
            
            
            
            69Net
      cash provided by financing activities
            
            
            4,356
            
            
            
            19,314Net
      change in cash and cash equivalents
            
            
            (5,680
            )
            
            
            2,152Cash
      and cash equivalents at beginning of period
            
            
            11,356
            
            
            
            5,455Cash
      and cash equivalents at end of period
            
            $
            5,676
            
            
            $
            7,607Supplementary
      information:Interest
      paid on deposit accounts
            
            $
            1,667
            
            
            $
            1,943Interest
      paid on borrowings
            
            
            1,170
            
            
            
            1,661Income
      taxes paid
            
            
            128
            
            
            
            59Due
      to broker for investment purchase
            
            
            1,000
            
            
            
            -





See
accompanying notes to consolidated financial statements.


5





GEORGETOWN BANCORP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(1)
            Basis
      of Presentation





The
accompanying unaudited financial statements of Georgetown Bancorp, Inc. (the
“Company”) were prepared in accordance with the instructions for Form 10-Q and
with Regulation S-X and do not include information or footnotes necessary for a
complete presentation of financial condition, results of operations, and cash
flows in conformity with generally accepted accounting principles. However, in
the opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial statements have
been included. The results of operations for the three- and nine-month periods
ended March 31, 2010 are not necessarily indicative of the results that may be
expected for future periods, including the entire fiscal year. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the 2009 Consolidated Financial Statements presented in the
Company’s Annual Report on Form 10-K filed with the Securities and Exchange
Commission on September 28, 2009. The consolidated financial statements include
the accounts of Georgetown Savings Bank (the “Bank”) and its wholly owned
subsidiary, Georgetown Securities Corporation, which engages in the buying,
selling and holding of securities. All significant inter-company balances and
transactions have been eliminated in consolidation.





(2)
            Earnings
      Per Common Share





Basic
earnings per share represents income available to common stockholders divided by
the weighted-average number of common shares outstanding during the
period.  If rights to dividends on unvested options/awards are
non-forfeitable, these unvested awards/options are considered outstanding in the
computation of basic earnings per share.  Diluted earnings per share
reflects additional common shares that would have been outstanding if dilutive
potential common shares had been issued, as well as any adjustment to income
that would result from the assumed issuance.  Potential common shares
that may be issued by the Company relate to outstanding stock options and
restricted stock awards and are determined using the treasury stock
method.





Treasury
shares and unallocated ESOP shares are not deemed outstanding for earnings per
share calculations.





Earnings
per common share have been computed based on the following:





Three
      Months Ended
            
            
            Nine
      Months EndedMarch 31,
            
            
            March 31,2010
            
            
            2009
            
            
            2010
            
            
            2009Net
      income available to common stockholders
            
            $
            286,000
            
            
            $
            75,000
            
            
            $
            604,000
            
            
            $
            194,000Basic
      common shares:Weighted
      average shares outstanding
            
            
            2,638,387
            
            
            
            2,638,387
            
            
            
            2,638,387
            
            
            
            2,638,387Less:  Weighted
      average unallocated ESOP shares
            
            
            (44,276
            )
            
            
            (52,469
            )
            
            
            (46,327
            )
            
            
            (54,520
            )Add:  Weighted
      average unvested restricted stockshares
      with non-forfeitable dividend rights
            
            
            10,278
            
            
            
            -
            
            
            
            3,426
            
            
            
            -Basic
      weighted average common shares outstanding
            
            
            2,604,389
            
            
            
            2,585,918
            
            
            
            2,595,486
            
            
            
            2,583,867Dilutive
      potential common shares
            
            
            ----
            
            
            
            ----
            
            
            
            ----
            
            
            
            ----Diluted
      weighted average common shares outstanding
            
            
            2,604,389
            
            
            
            2,585,918
            
            
            
            2,595,486
            
            
            
            2,583,867Basic
      and diluted EPS
            
            $
            0.11
            
            
            $
            0.03
            
            
            $
            0.23
            
            
            $
            0.08





Options
for 25,000 shares were not included in the computation of diluted earnings per
share because to do so would have been antidilutive for the three and nine
months ended March 31, 2010.


6





(3)
            Corporate
      Structure





In
conjunction with its reorganization into the mutual holding company structure,
on January 5, 2005, the Bank (i) converted to a stock savings bank as the
successor to the Bank in its mutual form; (ii) organized the Company as a
federally-chartered corporation that owns 100% of the common stock of the Bank
(in stock form); and (iii) organized Georgetown Bancorp, MHC as a
federally-chartered mutual holding company that owned 57.9% of the Common Stock
of the Company as of March 31, 2010.





(4)
            Recent
      Accounting Pronouncements





In
December 2009, the FASB issued ASU No. 2009-16, “Transfers and Servicing (Topic
860) - Accounting for Transfers of Financial Assets.” This ASU incorporates SFAS
No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB
Statement No. 140” (“SFAS 166”), issued by the FASB in June 2009, within the
FASB ASC. This ASU removes the concept of a qualifying special-purpose entity
and establishes a new “participating interest” definition that must be met for
transfers of portions of financial assets to be eligible for sale accounting,
clarifies and amends the derecognition criteria for a transfer to be accounted
for as a sale, and changes the amount that can be recognized as a gain or loss
on a transfer accounted for as a sale when beneficial interests are received by
the transferor. Enhanced disclosures are also required to provide information
about transfers of financial assets and a transferor’s continuing involvement
with transferred financial assets. This ASU must be applied as of the beginning
of an entity’s first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. The ASC was adopted, effective
January 1, 2010, and did not have any material impact on the Company’s financial
position or results of operation.





In
January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and
Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements.”
The ASU provides amendments that require disclosures of the transfers in or out
of level 1 and 2 inputs and the reasons for the transfers and summary of
activity in Level 3 fair value measurements on a gross basis rather than net. In
addition, the ASU clarifies existing disclosures related to the level of
disaggregation and inputs and valuation techniques. The level 3 activity
disclosures will be effective for fiscal years beginning after December 15,
2010, and for interim periods within those fiscal years. All other disclosures
will be effective for interim and annual periods beginning after December 15,
2009.  The ASC was adopted January 1, 2010, where applicable and did
not have a material impact as it required only disclosures which are included in
the Fair Value footnote.





In March
2010, the FASB issued ASU No. 2010-11, “Derivatives and Hedging (Topic 815) –
Scope Exception Related to Embedded Credit Derivatives.” The ASU amends and
clarifies the guidance on how entities should evaluate credit derivatives
embedded in beneficial interests in securitized financial assets.  The
updated guidance also eliminates the scope exception for bifurcation of embedded
credit derivatives in interests in securitized financial assets, unless they are
created solely by subordination of one financial instrument to
another.  The ASU is effective for interim and annual periods
beginning after June 15, 2010.  The Company is currently evaluating
this new ASU, but does not expect it will have an impact on the Company’s
financial statements since at present time the Company is not purchasing credit
derivatives embedded in beneficial interests in securitized financial
assets.





In April
2010, the FASB issued ASU No. 2010–18, “Effect of a Loan Modification When the
Loan Is Part of a Pool That Is Accounted for as a Single Asset.”  The
ASU addresses the diversity in practice on whether a loan that is part of a pool
of loans accounted for as a single asset should be removed from that pool upon a
modification that would constitute a troubled debt restructuring.  As
a result of the amendments, modifications of loans that are accounted for within
a pool under the guidance for loans and debt securities acquired with
deteriorated credit quality, would not result in the removal of those loans from
the pool even if the modification of the those loans would otherwise be
considered a troubled debt restructuring.    The ASU is
effective for interim and annual periods beginning after July 15,
2010.  The Company does not believe this ASU will have an impact on
the Company’s financial statements since at present time the Company is not
purchasing loans.


7





(5)
            Securities





A summary
of securities is as follows:





Gross
            
            
            GrossAmortized
            
            
            Unrealized
            
            
            Unrealized
            
            
            FairCost
            
            
            Gains
            
            
            Losses
            
            
            Value(In
      thousands)At March 31, 2010Securities available for
    saleGovernment-sponsoredenterprise
      obligations
            
            $
            5,500
            
            
            $
            7
            
            
            $
            (6
            )
            
            $
            5,501Residential
      mortgage-backedsecurities
            
            
            6,108
            
            
            
            234
            
            
            
            -
            
            
            
            6,342Total
      securitiesavailable
      for sale
            
            $
            11,608
            
            
            $
            241
            
            
            $
            (6
            )
            
            $
            11,843Securities held to maturityResidential
      mortgage-backedsecurities
            
            $
            3,999
            
            
            $
            168
            
            
            $
            -
            
            
            $
            4,167








Gross
            
            
            GrossAmortized
            
            
            Unrealized
            
            
            Unrealized
            
            
            FairCost
            
            
            Gains
            
            
            Losses
            
            
            Value(In
      thousands)At June 30, 2009Securities available for
    saleGovernment-sponsoredenterprise
      obligations
            
            $
            1,500
            
            
            $
            -
            
            
            $
            (2
            )
            
            $
            1,498Residential
      mortgage-backedsecurities
            
            
            7,819
            
            
            
            216
            
            
            
            (5
            )
            
            
            8,030Total
      securitiesavailable
      for sale
            
            $
            9,319
            
            
            $
            216
            
            
            $
            (7
            )
            
            $
            9,528Securities held to maturityResidential
      mortgage-backedsecurities
            
            $
            4,959
            
            
            $
            142
            
            
            $
            -
            
            
            $
            5,101





All
residential mortgage-backed securities have been issued by government-sponsored
enterprises.


8





The
amortized cost and estimated fair value of debt securities by contractual
maturity at March 31, 2010 is as follows.  Expected maturities will
differ from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties.





Available for Sale
            
            
            Held to MaturityAmortized
            
            
            Fair
            
            
            Amortized
            
            
            FairCost
            
            
            Value
            
            
            Cost
            
            
            Value(In
      thousands)After
      1 year through5
      years
            
            $
            2,500
            
            
            $
            2,504
            
            
            $
            -
            
            
            $
            -After
      5 years through10
      years
            
            
            2,000
            
            
            
            1,997
            
            
            
            -
            
            
            
            -Over
      10 years
            
            
            1,000
            
            
            
            1,000
            
            
            
            -
            
            
            
            -5,500
            
            
            
            5,501
            
            
            
            -
            
            
            
            -Residential
      mortgage-backedsecurities
            
            
            6,108
            
            
            
            6,342
            
            
            
            3,999
            
            
            
            4,167$
            11,608
            
            
            $
            11,843
            
            
            $
            3,999
            
            
            $
            4,167





There
were no sales of securities for the nine months ended March 31, 2010 and
2009.





Information
pertaining to securities with gross unrealized losses aggregated by investment
category and length of time that individual securities have been in a continuous
loss position is as follows:





Less Than Twelve Months
            
            
            Greater Than Twelve MonthsGross
            
            
            
            
            
            GrossUnrealized
            
            
            Fair
            
            
            Unrealized
            
            
            FairLosses
            
            
            Value
            
            
            Losses
            
            
            Value(In
      thousands)At March 31, 2010:Securities available for
    saleGovernment-sponsoredenterprise
      obligations
            
            $
            6
            
            
            $
            1,494
            
            
            $
            -
            
            
            $
            -At June 30, 2009:Securities available for
    saleGovernment-sponsoredenterprise
      obligations
            
            $
            2
            
            
            $
            1,498
            
            
            $
            -
            
            
            $
            -Residential
      mortgage-backedsecurities
            
            
            5
            
            
            
            1,455
            
            
            
            -
            
            
            
            -Total
      temporarily impairedsecurities
            
            $
            7
            
            
            $
            2,953
            
            
            $
            -
            
            
            $
            -





At March
31, 2010, two securities classified as available for sale had unrealized losses
with aggregate depreciation of 0.41% from the Company’s amortized cost basis,
which management believes to be temporary and not a result of credit
quality.


9





(6)
            Servicing





Loans
serviced for others and mortgage servicing rights





Mortgage
loans serviced for others are not included in the accompanying consolidated
balance sheets. The unpaid principal balances of mortgage loans serviced for
others were $20.6 million and $12.0 million at March 31, 2010 and
June 30, 2009, respectively.





The risks
inherent in the mortgage servicing assets relate primarily to changes in
prepayments that result from shifts in mortgage interest rates. The fair value
of servicing rights was $209,000 at March 31, 2010 and was determined using the
quarterly average 10-year, U.S. Treasury rate plus 5.0%, adjusted to reflect the
current credit spreads and conditions in the market as a discount rate.
Prepayment assumptions, which are impacted by loan rates and terms, are
calculated using a moving average of prepayment data published by the Public
Securities Association.





The
following summarizes mortgage servicing rights capitalized and amortized, along
with the aggregate activity related valuation allowances:





Three Months Ended
            
            
            Nine Months EndedMarch
      31,
            
            
            March
      31,2010
            
            
            2009
            
            
            2010
            
            
            2009(Dollars
      in thousands)Mortgage
      servicing rights:Balance
      at beginning of period
            
            $
            183
            
            
            $
            -
            
            
            $
            116
            
            
            $
            -Additions
            
            
            16
            
            
            
            37
            
            
            
            97
            
            
            
            37Disposals
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Amortization
            
            
            (2
            )
            
            
            
            
            
            
            (16
            )Balance
      at end of period
            
            
            197
            
            
            
            37
            
            
            
            197
            
            
            
            37Valuation
      allowances:Balance
      at beginning of period
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Additions
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Recoveries
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Write-downs
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Balance
      at end of period
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Mortgage
      servicing assets, net
            
            $
            197
            
            
            $
            37
            
            
            $
            197
            
            
            $
            37





(7)
            Secured
      Borrowings and Collateral





Federal
Home Loan Bank advances





At March
31, 2010, all FHLB of Boston advances are secured by a blanket security
agreement on qualified collateral; principally first mortgage loans on
owner-occupied residential property in the amount of $58.8 million,
government-sponsored enterprise obligations with a fair value of $3.5
million and mortgage-backed securities with a fair value of $10.5
million.





Securities
Sold Under Agreements to Repurchase





Securities
sold under agreements to repurchase are funds borrowed from customers on an
overnight basis. The amount of securities collateralizing the agreements to
repurchase remains in securities and the obligation to repurchase securities
sold is reflected as a liability in the consolidated balance
sheets.  Securities sold under agreement to repurchase amounted to
$395,000 at March 31, 2010 and are secured by Government-sponsored enterprise
obligations with a fair value of $1.0 million.  The weighted average
interest rate on these agreements was 0.50% at March 31, 2010.


10





(8)
            On-Balance
      Sheet Derivative Instruments and Hedging
  Activities





Interest
Rate Risk Management – Derivative Instruments Not Designated as Hedging
Instruments





Certain
derivative instruments do not meet the requirements to be accounted for as
hedging instruments.  These undesignated instruments are recognized on
the consolidated balance sheet at fair value, with changes in fair value
recorded in noninterest income.





Derivative Loan
Commitments





Mortgage
loan commitments are referred to as derivative loan commitments if the loan that
will result from exercise of the commitment will be held for sale upon
funding.  Loan commitments that are derivatives are recognized at fair
value on the consolidated balance sheet in other assets and other liabilities
with changes in their fair values recorded in other non-interest income. Fair
value is determined using secondary market pricing, including expected normal
servicing rights. In estimating fair value, the Company assigns a probability to
a loan commitment based on an expectation that it will be exercised and the loan
will be funded. The notional amount of mortgage loan commitments was $3.4
million at March 31, 2010 and the fair value of such commitments was an asset of
$35,000.





Forward Loan Sale
Commitments





To
protect against the price risk inherent in derivative loan commitments, the
Company utilizes both “mandatory delivery” and “best efforts” forward loan sale
commitments to mitigate the risk of potential decreases in the values of loans
that would result from the exercise of the derivative loan commitments.
Mandatory delivery contracts are accounted for as derivative
instruments.  Generally, the Company’s best efforts contracts meet the
definition of derivative instruments when the loans to the underlying borrowers
close, and are accounted for as derivative instruments at that
time.  Accordingly, forward loan sale commitments are recognized at
fair value on the consolidated balance sheet in other assets and other
liabilities with changes in their fair values recorded in other noninterest
income. The notional amount of forward loan sale commitments was $5.1 million at
March 31, 2010 and the fair value of such commitments was an asset of
$15,000.





The
Company estimates the fair value of its forward loan sales commitments using a
methodology similar to that used for derivative loan commitments.





The
following table presents the fair values of derivative instruments in the
balance sheet.





March
      31, 2010Assets
            
            
            LiabilitiesBalance
              Sheet
              Location
            
            Fair
              Value
            
            
            Balance
              Sheet
              Location
            
            
            Fair
              Value(In
      thousands)Derivatives
      not designatedas
      hedging instruments:Derivative
      loan commitments
            Other
      assets
            
            $
            35
            
            
            
            N/A
            
            
            $
            -Forward
      loan sale commitments
            Other
      assets
            
            
            15
            
            
            
            N/A
            
            
            
            -Total
      derivatives not designatedas
      hedging instruments
            
            
            $
            50
            
            
            
            
            
            
            $
            -


11





The
following table presents information pertaining to the Company’s derivatives not
designated as hedging instruments (in thousands).





Nine
      Months Ended March 31, 2010Derivatives Not Designated As
              Hedging Instruments
            
            Location of Gain(Loss)
            
            Amount of
              Gain(Loss)Derivative
      loan commitments
            
            Net
      gain on other secondarymarketing
      activities
            
            $
            35Forward
      loan sale commitments
            
            Net
      gain on other secondarymarketing
      activities
            
            
            15Total
            
            
            
            $
            50





(9)
            Fair
      Value Measurements





The
Company groups its financial assets and financial liabilities measured at fair
value in three levels, based on the markets in which the assets and liabilities
are traded and the reliability of the assumptions used to determine fair value
as follows:





Level l - Valuation
is based on quoted prices in active markets for identical assets or liabilities.
Level l assets and liabilities generally include debt and equity securities that
are traded in an active exchange market. At March 31, 2010, the Company had no
assets or liabilities valued using Level 1 measurements.





Level 2 - Valuation
is based on observable inputs other than Level l prices, such as quoted prices
for similar assets or liabilities; quoted prices in markets that are not active;
or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.





Level 3- Valuation
is based on unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities. Leve1 3 assets and liabilities include financial instruments whose
value is determined using pricing models, discounted cash flow methodologies, or
similar techniques, as well as instruments for which the determination of fair
value requires significant management judgment or estimation.





All of
the Company’s securities that are measured at fair value are included in Level 2
and are based on pricing models from independent, third party pricing services
that consider standard input factors such as observable market data, benchmark
yields, interest rate volatilities, broker/dealer quotes, credit spreads and new
issue data. There are no liabilities measured at fair value. All of the
Company’s loans that are measured at fair value are included in Level 3 and are
based on the appraised value of the underlying collateral considering
discounting factors, if deemed appropriate, and adjusted for selling costs.
These appraised values may be discounted based on management’s historical
knowledge, expertise or changes in market conditions from time of
valuation.





Assets
measured at fair value on a recurring basis at March 31, 2010 and June 30, 2009
are summarized below.





AssetsLevel 1
            
            
            Level 2
            
            
            Level 3
            
            
            at Fair Value(In
      thousands)March
      31, 2010:Securities
      available for sale
            
            $
            -
            
            
            $
            11,843
            
            
            $
            -
            
            
            $
            11,843June
      30, 2009:Securities
      available for sale
            
            $
            -
            
            
            $
            9,528
            
            
            $
            -
            
            
            $
            9,528


12





The
Company may also be required, from time to time, to measure certain other
financial assets on a nonrecurring basis in accordance with generally accepted
accounting principles. These adjustments to fair value usually result from
application of lower-of-cost-or-market accounting or write-downs of individual
assets. Assets measured at fair value on a non-recurring basis at March 31, 2010
are summarized below. The fair value adjustments relate to the amount of write
down recorded during the three and nine months ended March 31, 2010 on the
assets held at March 31, 2010.





Fair
      Value
            
            
            Fair
      ValueAdjustments
            
            
            AdjustmentsFor
      the Three
            
            
            For
      the NineAt March 31, 2010
            
            
            Months Ended
            
            
            Months EndedLevel 1
            
            
            Level 2
            
            
            Level 3
            
            
            March 31, 2010
            
            
            March 31, 2010(In
      thousands)Impaired
      loans
            
            $
            -
            
            
            $
            -
            
            
            $
            665
            
            
            $
            (57
            )
            
            $
            (24
            )





The
following methods and assumptions were used by the Company in estimating fair
value disclosures for financial instruments:





Cash and cash
equivalents: The carrying amounts of cash and short-term investments
approximate fair values.





Securities: Fair
values for the Company's debt securities are based on pricing models that
consider standard input factors such as observable market data, benchmark
yields, interest rate volatilities, broker/dealer quotes, credit spreads and new
issue data.





Federal Home Loan Bank
stock: Fair value is based on redemption provisions of the FHLB of
Boston. The FHLB stock has no quoted market value.





Loans held for sale:
Fair value is based on committed secondary market prices.





Loans: For
variable-rate loans that reprice frequently and with no significant change in
credit risk, fair values are based on carrying values.  Fair values
for other loans are estimated using discounted cash flow analyses, using market
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. Fair values for impaired loans are estimated using
discounted cash flow analyses or underlying collateral values, where
applicable.





Capitalized mortgage
servicing rights: Fair value is based on a quarterly, third-party
valuation model that calculates the present value of estimated future net
servicing income. The model utilizes a variety of assumptions, the most
significant of which are loan prepayment assumptions and the discount rate used
to discount future cash flows. Prepayment assumptions, which are impacted by
loan rates and terms, are calculated using a moving average of prepayment data
published by the Public Securities Association and modeled against the serviced
loan portfolio by the third party valuation specialist. The discount rate is the
quarterly average 10-year, U.S. Treasury rate plus 5.0% and adjusted to reflect
the current credit spreads and conditions in the market. Other assumptions
include delinquency rates, foreclosure rates, servicing cost inflation, and
annual unit loan cost. All assumptions are adjusted periodically to reflect
current circumstances.





Deposits: The fair
values for non-certificate accounts are, by definition, equal to the amount
payable on demand at the reporting date which is the carrying
amount.  Fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies market interest rates currently
being offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.





Securities sold under
agreements to repurchase: The fair value estimate of securities sold
under agreements to repurchase approximates carrying value as they mature daily
and bear market interest rates.





Short-term FHLB
advances: The fair value of short-term FHLB advances approximate carrying
value, as they generally immature within 90 days.





Long-term FHLB
advances: The fair value for long-term FHLB advances is estimated using
discounted cash flow analyses based on current market borrowing rates for
similar types of borrowing arrangements.





Accrued
interest:  The carrying amounts of accrued interest approximate
fair value.





Off-balance-sheet
instruments:  Fair values for off-balance-sheet, credit-related
financial instruments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties’ credit standing.  At March 31, 2010 and June 30, 2009,
the fair value of commitments outstanding is not significant since fees charged
are not material.


13





The
estimated fair values and related carrying amounts of the Company’s financial
instruments at March 31, 2010 and June 30, 2009, are as follows:





March 31, 2010
            
            
            June 30, 2009Carrying
            
            
            Fair
            
            
            Carrying
            
            
            FairAmount
            
            
            Value
            
            
            Amount
            
            
            Value(In
      thousands)Financial
      assets:Cash
      and cash equivalents
            
            $
            5,676
            
            
            $
            5,676
            
            
            $
            11,356
            
            
            $
            11,356Securities
      available for sale
            
            
            11,843
            
            
            
            11,843
            
            
            
            9,528
            
            
            
            9,528Securities
      held to maturity
            
            
            3,999
            
            
            
            4,167
            
            
            
            4,959
            
            
            
            5,101FHLB
      stock
            
            
            3,111
            
            
            
            3,111
            
            
            
            3,111
            
            
            
            3,111Loans
      held for sale
            
            
            1,670
            
            
            
            1,670
            
            
            
            269
            
            
            
            274Loans,
      net
            
            
            172,077
            
            
            
            172,682
            
            
            
            163,825
            
            
            
            163,345Accrued
      interest receivable
            
            
            843
            
            
            
            843
            
            
            
            714
            
            
            
            714Capitalized
      mortgage servicing rights
            
            
            197
            
            
            
            209
            
            
            
            116
            
            
            
            119Financial
      liabilities:Deposits
            
            
            139,360
            
            
            
            140,728
            
            
            
            141,126
            
            
            
            143,018Securities
      sold under agreementsto
      repurchase
            
            
            395
            
            
            
            395
            
            
            
            520
            
            
            
            520Short-term
      FHLB advances
            
            
            12,700
            
            
            
            12,700
            
            
            
            -
            
            
            
            -Long-term
      FHLB advances
            
            
            33,726
            
            
            
            34,335
            
            
            
            40,268
            
            
            
            40,967Accrued
      interest payable
            
            
            118
            
            
            
            118
            
            
            
            148
            
            
            
            148





Item2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





This
document may contain certain forward-looking statements, such as statements of
the Company’s or the Bank’s plans, objectives, expectations, estimates and
intentions. Forward-looking statements may be identified by the use of words
such as “expects”, “subject”, and “believe”, “will”, “intends”, “will be” or
“would”. These statements are subject to change based on various important
factors (some of which are beyond the Company’s or the Bank’s control) and
actual results may differ materially. Accordingly, readers should not place
undue reliance on any forward-looking statements, which reflect management’s
analysis of factors only as of the date of which they are given. These factors
include general economic conditions, trends in interest rates, the ability of
our borrowers to repay their loans, the ability of the Company or the Bank to
effectively manage its growth, and results of regulatory examinations, among
other factors. The foregoing list of important factors is not exclusive. Readers
should carefully review the risk factors described in other documents the
Company files from time to time with the Securities and Exchange Commission,
including Current Reports on Form 8-K.





Except as
required by applicable law and regulation, the Company does not undertake – and
specifically disclaims any obligation – to publicly release the result of any
revisions that may be made to any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.





Overview





The
Company’s results of operations depend primarily on net interest and dividend
income, which is the difference between the interest and dividend income earned
on its interest-earning assets, such as loans and securities, and the interest
expense on its interest-bearing liabilities, such as deposits and borrowings.
The Company also generates non-interest income, primarily from fees and service
charges. Gains on sales of loans are additional sources of non-interest income.
The Company’s non-interest expense primarily consists of employee compensation
and benefits, occupancy and equipment expense, advertising, data processing,
professional fees and other operating expenses.





Our
financial performance for the three and nine months ended March 31, 2010
continued to improve, as the Company’s net income increased compared to the same
periods last year. Our improved financial performance continued to be driven by
an expanding net interest margin, primarily due to originations of
higher-yielding commercial loans, a significant portion of which are
collateralized by one-to-four family and multi-family properties, and the
controlling of interest expense. The asset quality of our loan portfolio
remained stable during the quarter. The Company’s earnings were supplemented by
our mortgage banking activities, which are expected to make a significant
contribution to profitability in future periods.


14





Critical
Accounting Policies





Our
critical accounting policies are those that involve significant judgments and
assumptions by management and that have, or could have, a material impact on our
income or the carrying value of our assets. Our critical accounting policies are
those related to our allowance for loan losses and the valuation of our deferred
tax assets. The allowance for loan losses is the amount estimated by management
as necessary to cover credit losses inherent in the loan portfolio at the
balance sheet date. The allowance is established through the provision for loan
losses that is charged against income. Management performs a quarterly
evaluation of the adequacy of the allowance for loan losses. We consider a
variety of factors in establishing this estimate including, but not limited to,
current economic conditions, delinquency statistics, geographic and industry
concentrations, the adequacy of the underlying collateral, the financial
strength of the borrower, results of internal and external loan reviews and
other relevant factors. This evaluation is inherently subjective, as it requires
material estimates by management that may be susceptible to significant
change.





The
analysis has three components:  specific, general, and an unallocated
component. The specific component relates to loans that are determined to be
impaired. Impairment is measured by determining the present value of expected
future cash flows or, for collateral-dependent loans, the fair value of the
collateral adjusted for market conditions and selling expenses. The general
component is determined by segregating the remaining loans by type of loan. We
also analyze historical loss experience, delinquency trends, general economic
conditions and geographic and industry concentrations. This analysis establishes
factors that are applied to the loan groups to determine the amount of the
general component of the allowance for loan losses. 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 losses in the portfolio. Because of the imprecision surrounding
these factors, we may maintain an unallocated component available for other
factors that is not allocated to a specific loan category.





Actual
loan losses may be significantly more than the allowances we have established,
which could have a material negative effect on our financial
results.  In addition, the Office of Thrift Supervision (“OTS”), as an
integral part of its examination process, will periodically review our allowance
for loan losses. Such agency may require us to recognize adjustments to the
allowance, based on its judgments about information available to it at the time
of its examination.





Deferred
tax assets and liabilities are reflected at currently enacted income tax rates
applicable to the period in which the deferred tax assets or liabilities are
expected to be realized or settled.  As changes in tax laws or rates
are enacted, deferred tax assets and liabilities are adjusted accordingly
through the provision for income taxes.  The Company’s base amount of
its federal income tax reserve for loan losses is a permanent difference for
which there is no recognition of a deferred tax liability.  However,
the loan loss allowance maintained for financial reporting purposes is a
temporary difference with allowable recognition of a related deferred tax asset,
if it is deemed realizable. The Company exercises significant judgment in
evaluating the amount and timing of recognition of the resulting tax assets and
liabilities. These judgments require projections of future taxable income. These
judgments and estimates, which are inherently subjective, are reviewed
periodically as regulatory and business factors change. The deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is
more likely than not that all or some portion of the deferred tax asset will not
be realized.





Comparison
of Financial Condition at March 31, 2010 and June 30, 2009





Total
assets increased by $6.3 million, or 3.1%, to $207.5 million at March 31, 2010,
from $201.2 million at June 30, 2009. The increase in total assets resulted
primarily from an increase in net loans and securities available for sale,
partially offset by a decrease in cash and cash equivalents, as overnight funds
were used to fund loan originations and deposit outflows. Net loans increased
$8.3 million, or 5.0%, to $172.1 million at March 31, 2010, from $163.8 million
at June 30, 2009, primarily due to an $11.2 million, or 26.1%, increase in
commercial loans and a $2.9 million, or 12.6% increase in construction loans,
partially offset by a $5.6 million, or 5.7%, decrease in residential loans.
Investment securities available for sale increased $2.3 million, or 24.3%, to
$11.8 million at March 31, 2010, from $9.5 million at June 30, 2009. Investment
securities held to maturity decreased $960,000, or 19.4%, to $4.0 million at
March 31, 2010, from $5.0 million at June 30, 2009. At March 31, 2010, total
investment securities were comprised of government-sponsored enterprise
obligations and mortgage-backed securities, all of which are guaranteed by
government-sponsored enterprises. As a result, our investment securities
impairment considerations generally related to fluctuations in market interest
rates. At March 31, 2010, no securities were deemed to be other–than-temporarily
impaired. Total interest-earning assets increased $6.3 million, or 3.3%, to
$197.4 million at March 31, 2010, from $191.1 million at June 30,
2009.


15





Loan Portfolio
Composition. The
following table sets forth the composition of our loan portfolio by type of loan
as of the dates indicated.





At
            
            
            AtMarch
      31,
            
            
            June
      30,2010
            
            
            2009Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent(Dollars
      in thousands)Residential
      loans:One-to-four
      family
            
            $
            76,524
            
            
            
            44.07
            %
            
            $
            82,140
            
            
            
            49.73
            %Home
      equity loansand
      lines of credit
            
            
            16,583
            
            
            
            9.55
            
            
            
            16,592
            
            
            
            10.05Total
      residential mortgage loans
            
            
            93,107
            
            
            
            53.62
            
            
            
            98,732
            
            
            
            59.78Commercial
      loans:One-to-four
      family real estate
            
            
            5,435
            
            
            
            3.13
            
            
            
            4,795
            
            
            
            2.90Multi-family
      real estate
            
            
            13,046
            
            
            
            7.51
            
            
            
            8,226
            
            
            
            4.98Commercial
      real estate
            
            
            24,177
            
            
            
            13.92
            
            
            
            21,525
            
            
            
            13.04Commercial
            
            
            11,435
            
            
            
            6.58
            
            
            
            8,364
            
            
            
            5.07Total
      commercial loans
            
            
            54,093
            
            
            
            31.14
            
            
            
            42,910
            
            
            
            25.99Construction
      loans:One-to-four
      family
            
            
            13,242
            
            
            
            7.62
            
            
            
            13,327
            
            
            
            8.07Multi-family
            
            
            7,399
            
            
            
            4.26
            
            
            
            2,786
            
            
            
            1.69Commercial
      real estate
            
            
            5,430
            
            
            
            3.13
            
            
            
            7,042
            
            
            
            4.26Total
      construction loans
            
            
            26,071
            
            
            
            15.01
            
            
            
            23,155
            
            
            
            14.02Consumer
            
            
            405
            
            
            
            0.23
            
            
            
            353
            
            
            
            0.21Total
      loans:
            
            
            173,676
            
            
            
            100.00
            %
            
            
            165,150
            
            
            
            100.00
            %Other
      items:Net
      deferred loan costs
            
            
            81
            
            
            
            
            
            
            
            130Allowance
      for loan losses
            
            
            (1,680
            )
            
            
            
            
            
            
            (1,455
            )Total
      loans, net
            
            $
            172,077
            
            
            
            
            
            
            $
            163,825


16





Non-performing
Assets. The table below sets forth the amounts and categories of our
non-performing assets at the dates indicated. Delinquent loans that are 90 days
or more past due are generally considered non-performing assets.





At March 31,
            
            
            At June 30,2010
            
            
            2009(Dollars
      in thousands)Non-accrual
      loans:Residential
      mortgage loans
            
            $
            785
            
            
            $
            671Commercial
      loans
            
            
            -
            
            
            
            -Construction
      loans
            
            
            -
            
            
            
            66Consumer
            
            
            21
            
            
            
            -Total
      non-accrual loans
            
            
            806
            
            
            
            737Loans
      greater than 90 days delinquentand
      still accruing:Residential
      mortgage loans
            
            
            -
            
            
            
            -Commercial
      loans
            
            
            -
            
            
            
            -Construction
      loans
            
            
            -
            
            
            
            -Consumer
            
            
            -
            
            
            
            -Total
      loans greater than 90 days delinquentand
      still accruing
            
            
            -
            
            
            
            -Restructured
      loans
            
            
            211
            
            
            
            -Total
      non-performing loans
            
            
            1,017
            
            
            
            737Real
      estate owned
            
            
            66
            
            
            
            -Total
      non-performing assets
            
            $
            1,083
            
            
            $
            737Ratios:Non-performing
      loans to total loans
            
            
            0.59
            %
            
            
            0.45
            %Non-performing
      assets to total assets
            
            
            0.52
            %
            
            
            0.37
            %





Asset
quality continued to be stable, as non-performing assets increased $346,000 to
$1.1 million at March 31, 2010 compared to $737,000 at June 30, 2009. These
balances represented 0.52% of total assets at March 31, 2010 and 0.37% of total
assets at June 30, 2009. At June 30, 2009, there was one restructured loan
totaling $217,000 that was included in the non-accrual loan total. At March 31,
2010, there were no restructured loans included in the non-accrual loan total,
as the aforementioned loan was moved to accrual status based on sustained
performance. The allowance for loan losses was $1.7 million at March 31, 2010,
an increase of $225,000 from June 30, 2009. Loan charge-offs were $71,000 and
loan recoveries were $11,000 for the nine months ended March 31, 2010, as
compared to loan charge-offs of $14,000 and loan recoveries of $8,000 for the
same period in 2009. The allowance represented 0.97% of total loans at March 31,
2010 and 0.88% of total loans at June 30, 2009. The increase was primarily a
result of growth in loans with a higher degree of risk. At these levels, the
allowance for loan losses as a percentage of non-performing loans was 165.19% at
March 31, 2010 and 197.42% at June 30, 2009.





Total
deposits decreased by $1.8 million, or 1.3%, to $139.4 million at March 31,
2010, from $141.1 million at June 30, 2009. The decrease in deposits was
primarily due to decreases in money market accounts and demand deposit accounts,
which were partially offset by increases in NOW accounts, certificates of
deposit and savings accounts. Money market accounts decreased $5.9 million, or
12.8%, reflecting a lowering of interest rates paid. Demand deposit accounts
decreased $1.4 million, or 9.0%, primarily due to internal transfers to the
Company’s new NOW account product. NOW accounts increased $2.5 million, or
21.4%, reflecting activity in the Company’s new NOW account product.
Certificates of deposit increased $1.6 million, or 2.9% and savings accounts
increased $1.0 million, or 9.2%.





Total
borrowings from the FHLB increased $6.2 million, or 15.3%, as short-term
borrowings increased $12.7 million and long-term borrowings decreased $6.5
million. The change in the mix of borrowings reflected management’s efforts to
lower interest expense by taking advantage of low short-term rates.





Total
stockholders’ equity increased $655,000, or 3.8%, to $18.0 million at March 31,
2010, from $17.3 million at June 30, 2009, primarily due to net income of
$604,000. The net unrealized gains on securities available for sale of $152,000
at March 31, 2010 were attributable to changes in market interest
rates.


17





Comparison
of Operating Results for the Three Months Ended March 31, 2010 and
2009





General.Net income for the three
months ended March 31, 2010 was $286,000, or $.11 per basic and diluted share,
compared to net income of $75,000, or $.03 per basic and diluted share for the
three months ended March 31, 2009. The increase in net income was primarily due
to an increase in net interest income and non-interest income, partially offset
by an increase in the provision for loan losses and an increase in non-interest
expense.





Interest
Income.Interest income
increased by $17,000, or 0.70%, to $2.7 million for thethree months ended March
31, 2010. The increase in interest income was primarily due to an increase in
the average balance of interest-earning assets of $3.1 million, or 1.6%, to
$192.9 million for the three months ended March 31, 2010, from $189.8 million
for the same period in 2009, partially offset by 5 basis point decrease in the
average yield on interest-earning assets to 5.59% for the three months ended
March 31, 2010, from 5.64% for the same period in 2009.





Interest
income on loans increased $54,000, or 2.2%, to $2.5 million for the three months
ended March 31, 2010. The increase was due to an increase in the average balance
of loans of $3.8 million, or 2.2%, to $171.9 million for the three months ended
March 31, 2010, from $168.2 million for the three months ended March 31, 2009,
partially offset by a decrease in average loan yields of 1 basis point to 5.90%
for the three months ended March 31, 2010, from 5.91% for the three months ended
March 31, 2009.





Interest
and dividend income on investment securities decreased $37,000, or 19.3%, for
the three months ended March 31, 2010, compared to the same period in 2009. The
decrease in interest income was due to a decrease in the average balance of
investment securities of $1.8 million, or 8.7%, to $18.8 million for the three
months ended March 31, 2010, from $20.6 million for the three months ended March
31, 2009 and by a decrease in average investment yields of 43 basis points,
reflecting the lower interest rate market, to 3.34% for the three months ended
March 31, 2010, from 3.77% for the three months ended March 31,
2009.





Interest
Expense.Interest expense
decreased $353,000, or 29.0%, to $864,000 for the three months ended March 31,
2010 from $1.2 million for the three months ended March 31, 2009. The decrease
in interest expense was primarily due to an 82 basis point decrease in the
average cost of interest-bearing liabilities, reflecting the maturing of
higher-rate deposits and a shortening of the term of FHLB borrowings, to 2.06%
for the three months ended March 31, 2010, from 2.88% for the same period in
2009 and by a decrease in the average balance of interest-bearing liabilities of
$1.7 million, or 1.0%, to $167.4 million for the three months ended March 31,
2010, from $169.1 million for the same period in 2009.





Interest
expense on interest-bearing deposits decreased $209,000, or 29.0%, to $512,000
for the three months ended March 31, 2010, from $721,000 for the same period in
2009. The decrease was primarily due to a 73 basis point decrease in the average
cost of interest-bearing deposits to 1.68% for the three months ended March 31,
2010, from 2.41% for the same period in 2009, partially offset by an increase in
the average balance of interest-bearing deposits of $2.2 million, or 1.9%, to
$122.1 million for the three months ended March 31, 2010 from $119.9 million for
the same period in 2009.





Interest
expense on FHLB short-term and long-term advances decreased $145,000, or 29.2%,
to $351,000 for the three months ended March 31, 2010, from $496,000 for the
same period in 2009. The decrease was primarily due to a decrease in the average
balance of FHLB short-term and long-term advances of $3.9 million, or 8.0%, to
$44.9 million for the three months ended March 31, 2010 from $48.8 million for
the same period in 2009 and by a 94 basis point decrease in the average cost of
FHLB short-term and long-term advances to 3.13% for the three months ended March
31, 2010, from 4.07% for the same period in 2009.





Net Interest
Income.Net
interest income increased $370,000, or 25.4%, to $1.8 million for the three
months ended March 31, 2010, from $1.5 million for the same period in 2009. The
increase in net interest income was primarily the result of a 71 basis point
increase in net interest margin to 3.79% for the three months ended March 31,
2010, from 3.08% for the same period ended 2009 and by the $4.7 million or
22.8%, increase in net average interest-earning assets to $25.4 million for the
three months ended March 31, 2010, from $20.7 million for the same period in
2009.





Provision for
Loan Losses. The
provision for loan losses for the three months ended March 31, 2010 was $89,000
compared to $4,000 for the three months ended March 31, 2009. The increase was
primarily related to specific reserves for two residential loans and provisions
due to loan growth for the three months ended March 31, 2010. Loan charge-offs
were $4,000 and loan recoveries were $2,000 for the three months ended March 31,
2010, as compared to loan charge-offs of $4,000 and loan recoveries of $3,000
for the same period in 2009.





Non-interest
Income.Non-interest income
increased $92,000, or 41.6%, to $310,000 for the three months ended March 31,
2010, from $218,000 for the same period in 2009. The increase was primarily
related to a $70,000 net gain on secondary market activities for the three
months ending March 31, 2010, representing the increase in secondary market
commitments and related fair value measurements. There was no net gain on
secondary market activities for the three months ending March 31, 2009 based on
immateriality.





Non-interest
Expense.Non-interest expense
increased $33,000, or 2.1%, to $1.6 million for the three months ended March 31,
2010. The increase in non-interest expense was primarily due to an increase in
salaries and benefits, data processing and advertising expense, partially offset
by a decrease in other general and administrative expenses. Salaries and
benefits expense increased $27,000, or 3.2%. Data processing expense increased
$14,000, or 14.8%, for the three months ended March 31, 2010, from the same
period in 2009, primarily due to the addition of services provided, such as
online account opening for both loans and deposits. Advertising expense
increased $12,000 or 15.9%, to $82,000 for the three months ended March 31, 2010
from $70,000 for the same period in 2009. Other general and administrative
expenses decreased


18





$34,000,
or 15.4%, primarily due to a $10,000 recovery pertaining to other real estate
owned for the three months ended March 31, 2010, compared to a $29,000
write-down of  other real estate owned for the three months ended
March 31, 2009.





Income
Taxes.The
income before income taxes of $452,000 for the three months ended March 31, 2010
resulted in an income tax provision of $166,000 for the three months ended March
31, 2010, as compared to income before income taxes of $108,000 and a related
income tax provision of $33,000 for the three months ended March 31, 2009. The
effective tax rates for the three months ended March 31, 2010 and 2009 were
36.7% and 30.6%, respectively. The increase in the effective rate for the three
months ended March 31, 2010, compared to the effective tax rate for the three
months ended March 31, 2009 was primarily due to a decrease in the projected
full-year effective tax rate at March 31, 2009 as compared to December 31,
2008.


19





Average Balance
Sheet. The following table sets forth certain information regarding the
Company’s average balance sheet for the periods indicated, including the average
yields on its interest-earning assets and the average costs of its
interest-bearing liabilities. Average yields are calculated by dividing the
interest income produced by the average balance of interest-bearing assets.
Average costs are calculated by dividing the interest expense produced by the
average balance of interest-bearing liabilities. The average balances for the
period are derived from average balances that are calculated daily. The average
yields and costs include fees that are considered adjustments to such average
yields and costs.





At March 31,
            
            
            Three Months Ended March
31,2010
            
            
            2010
            
            
            2009Weighted
            
            
            Average
            
            
            
            
            
            
            
            
            AverageOutstanding
            
            
            Average
            
            
            Outstanding
            
            
            
            
            
            Yield/
            
            
            Outstanding
            
            
            
            
            
            Yield/Balance
            
            
            Rate
            
            
            Balance
            
            
            Interest
            
            
            Rate
            
            
            Balance
            
            
            Interest
            
            
            Rate(Dollars
      in thousands)Interest-earning
      assets:Loans
            
            $
            175,427
            
            
            
            5.94
            %
            
            $
            171,936
            
            
            $
            2,537
            
            
            
            5.90
            %
            
            $
            168,174
            
            
            $
            2,483
            
            
            
            5.91
            %Investment
      securities (1)
            
            
            18,953
            
            
            
            3.24
            %
            
            
            18,788
            
            
            
            157
            
            
            
            3.34
            %
            
            
            20,571
            
            
            
            194
            
            
            
            3.77
            %Short-term
      investments
            
            
            3,038
            
            
            
            0.01
            %
            
            
            2,173
            
            
            
            -
            
            
            
            0.00
            %
            
            
            1,088
            
            
            
            -
            
            
            
            0.00
            %Total
      interest-earning assets
            
            
            197,418
            
            
            
            5.59
            %
            
            
            192,897
            
            
            
            2,694
            
            
            
            5.59
            %
            
            
            189,833
            
            
            
            2,677
            
            
            
            5.64
            %Non-interest-earning
      assets
            
            
            10,094
            
            
            
            
            
            
            
            10,011
            
            
            
            -
            
            
            
            
            
            
            
            11,047
            
            
            
            -Total
      assets
            
            $
            207,512
            
            
            
            
            
            
            $
            202,908
            
            
            
            2,694
            
            
            
            
            
            
            $
            200,880
            
            
            
            2,677Interest-bearing
      liabilities:Savings
      deposits
            
            $
            12,052
            
            
            
            0.19
            %
            
            $
            12,071
            
            
            $
            5
            
            
            
            0.17
            %
            
            $
            10,417
            
            
            $
            3
            
            
            
            0.12
            %NOW
      accounts
            
            
            14,455
            
            
            
            0.56
            %
            
            
            12,265
            
            
            
            13
            
            
            
            0.42
            %
            
            
            9,433
            
            
            
            3
            
            
            
            0.13
            %Money
      market accounts
            
            
            40,051
            
            
            
            1.20
            %
            
            
            39,339
            
            
            
            100
            
            
            
            1.02
            %
            
            
            41,003
            
            
            
            202
            
            
            
            1.97
            %Certificates
      of deposit
            
            
            58,121
            
            
            
            2.69
            %
            
            
            58,455
            
            
            
            394
            
            
            
            2.70
            %
            
            
            59,030
            
            
            
            513
            
            
            
            3.48
            %Total
      interest-bearing deposits
            
            
            124,679
            
            
            
            1.72
            %
            
            
            122,130
            
            
            
            512
            
            
            
            1.68
            %
            
            
            119,883
            
            
            
            721
            
            
            
            2.41
            %FHLB
      advances
            
            
            46,426
            
            
            
            2.88
            %
            
            
            44,907
            
            
            
            351
            
            
            
            3.13
            %
            
            
            48,802
            
            
            
            496
            
            
            
            4.07
            %Repurchase
      agreements
            
            
            395
            
            
            
            0.50
            %
            
            
            411
            
            
            
            1
            
            
            
            0.97
            %
            
            
            416
            
            
            
            -
            
            
            
            0.00
            %Total
      interest-bearing liabilities
            
            
            171,500
            
            
            
            2.03
            %
            
            
            167,448
            
            
            
            864
            
            
            
            2.06
            %
            
            
            169,101
            
            
            
            1,217
            
            
            
            2.88
            %Non-interest-bearing
      liabilities:Demand
      deposits
            
            
            14,681
            
            
            
            
            
            
            
            15,836
            
            
            
            
            
            
            
            
            
            
            
            12,975Other
      non-interest-bearing liabilities
            
            
            3,359
            
            
            
            
            
            
            
            1,810
            
            
            
            
            
            
            
            
            
            
            
            1,616Total
      liabilities
            
            
            189,540
            
            
            
            
            
            
            
            185,094
            
            
            
            
            
            
            
            
            
            
            
            183,692Stockholders'
      equity
            
            
            17,972
            
            
            
            
            
            
            
            17,814
            
            
            
            
            
            
            
            
            
            
            
            17,188Total
      liabilities and equity
            
            $
            207,512
            
            
            
            
            
            
            $
            202,908
            
            
            
            
            
            
            
            
            
            
            $
            200,880Net
      interest income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,830
            
            
            
            
            
            
            
            
            
            
            $
            1,460Net
      interest rate spread (2)
            
            
            
            
            
            
            3.56
            %
            
            
            
            
            
            
            
            
            
            
            3.53
            %
            
            
            
            
            
            
            
            
            
            
            2.76
            %Net
      interest-earning assets (3)
            
            $
            25,918
            
            
            
            
            
            
            $
            25,449
            
            
            
            
            
            
            
            
            
            
            $
            20,732Net
      interest margin (4)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3.79
            %
            
            
            
            
            
            
            
            
            
            
            3.08
            %Average
      of interest-earningassets
      to interest-bearingliabilities
            
            
            
            
            
            
            115.11
            %
            
            
            
            
            
            
            
            
            
            
            115.20
            %
            
            
            
            
            
            
            
            
            
            
            112.26
            %





(1)
            Consists
      entirely of taxable investment
securities.


(2)
            Net
      interest rate spread represents the difference between the yield on
      average interest-earning assets and the cost of average interest-bearing
      liabilities.


(3)
            Net
      interest-earning assets represents total interest-earning assets less
      total interest-bearing liabilities.


(4)
            Net
      interest margin represents net interest income divided by average total
      interest-earning assets.


20





Rate/Volume
Analysis.The following table presents the effects of changing rates and
volumes on our net interest income for the periods indicated. The rate column
shows the effects attributable to changes in rate (changes in rate multiplied by
prior volume). The volume column shows the effects attributable to changes in
volume (changes in volume multiplied by prior rate). The net column represents
the sum of the prior columns. For purposes of this table, changes attributable
to both rate and volume, which cannot be segregated, have been allocated
proportionately, based on the changes due to rate and the changes due to
volume.





For
      the Three Months Ended March 31, 2010Compared
      to the Three Months EndedMarch 31, 2009Increase (Decrease) Due toVolume
            
            
            Rate
            
            
            Net(In
      thousands)Interest-earning
      assets:Loans
            
            $
            56
            
            
            $
            (2
            )
            
            $
            54Investment
      securities
            
            
            (17
            )
            
            
            (20
            )
            
            
            (37
            )Total
      interest-earning assets
            
            
            39
            
            
            
            (22
            )
            
            
            17Interest-bearing
      liabilities:Savings
      deposits
            
            
            -
            
            
            
            2
            
            
            
            2NOW
      accounts
            
            
            1
            
            
            
            9
            
            
            
            10Money
      market accounts
            
            
            (8
            )
            
            
            (94
            )
            
            
            (102
            )Certificates
      of deposit
            
            
            (5
            )
            
            
            (114
            )
            
            
            (119
            )Total
      interest-bearing deposits
            
            
            (12
            )
            
            
            (197
            )
            
            
            (209
            )FHLB
      advances
            
            
            (40
            )
            
            
            (105
            )
            
            
            (145
            )Repurchase
      agreements
            
            
            -
            
            
            
            1
            
            
            
            1Total
      interest-bearing liabilities
            
            
            (52
            )
            
            
            (301
            )
            
            
            (353
            )Change
      in net interest income
            
            $
            91
            
            
            $
            279
            
            
            $
            370





Comparison
of Operating Results for the Nine Months Ended March 31, 2010 and
2009





General.Net income for the nine
months ended March 31, 2010 was $604,000, or $.23 per basic and diluted share,
compared to net income of $194,000, or $.08 per basic and diluted share for the
nine months ended March 31, 2009. The increase in net income was primarily due
to an increase in net interest income and non-interest income, partially offset
by an increase in non-interest expense.





Interest
Income.Interest income
increased by $15,000, to $7.9 million for thenine months ended March
31, 2010. The increase in interest income was primarily due to an increase in
the average balance of interest-earning assets of $5.7 million, or 3.1%, to
$187.9 million for the nine months ended March 31, 2010, from $182.2 million for
the same period in 2009, partially offset by a 17 basis point decrease in the
average yield on interest-earning assets to 5.62% for the nine months ended
March 31, 2010, from 5.79% for the same period in 2009.





Interest
income on loans increased $186,000, or 2.6%, to $7.5 million for the nine months
ended March 31, 2010, from $7.3 million for the nine months ended March 31,
2009.  The increase was due to an increase in the average balance of
loans of $6.6 million, or 4.1%, to $167.1 million for the nine months ended
March 31, 2010, from $160.4 million for the nine months ended March 31, 2009,
partially offset by a decrease in average loan yields of 9 basis points to 5.95%
for the nine months ended March 31, 2010, from 6.04% for the nine months ended
March 31, 2009.





Interest
and dividend income on investment securities decreased $166,000, or 26.0%, to
$473,000 for the nine months ended March 31, 2010, compared to $639,000 for the
same period in 2009. The decrease in interest income was due to a decrease in
the average balance of


21





investment
securities of $2.2 million, or 10.6%, to $18.6 million for the nine months ended
March 31, 2010, from $20.8 million for the nine months ended March 31, 2009 and
by a decrease in average investment yields of 71 basis points, reflecting the
lower interest rate market,  to 3.39% for the nine months ended March
31, 2010, from 4.10% for the nine months ended March 31, 2009.





Interest
Expense.Interest expense
decreased $781,000, or 21.8%, to $2.8 million for the nine months ended March
31, 2010 from $3.6 million for the nine months ended March 31, 2009. The
decrease in interest expense was primarily due to a 67 basis point decrease in
the average cost of interest-bearing liabilities to 2.30% for the nine months
ended March 31, 2010, from 2.97% for the same period in 2009, partially offset
by an increase in the average balance of interest-bearing liabilities of $1.9
million, or 1.2%, to $163.0 million for the nine months ended March 31, 2010,
from $161.0 million for the same period in 2009.





Interest
expense on interest-bearing deposits decreased $272,000, or 14.1%, to $1.7
million for the nine months ended March 31, 2010. The decrease was primarily due
to a 61 basis point decrease in the average cost of interest-bearing deposits to
1.83% for the nine months ended March 31, 2010, from 2.44% for the same period
in 2009, partially offset by an increase in the average balance of
interest-bearing deposits of $15.9 million, or 15.0%, to $121.5 million for the
nine months ended March 31, 2010 from $105.6 million for the same period in
2009.





Interest
expense on FHLB short-term and long-term advances decreased $509,000, or 30.8%,
to $1.1 million for the nine months ended March 31, 2010, from $1.7 million for
the same period in 2009. The decrease was primarily due to a decrease in the
average balance of FHLB short-term and long-term advances of $13.9 million, or
25.3%, to $40.9 million for the nine months ended March 31, 2010 from $54.8
million for the same period in 2009 and by a 29 basis point decrease in the
average cost of FHLB short-term and long-term advances to 3.72% for the nine
months ended March 31, 2010, from 4.01% for the same period in
2009.





Net Interest
Income.Net
interest income increased $796,000, or 18.4%, to $5.1 million for the nine
months ended March 31, 2010, from $4.3 million for the same period in 2009. The
increase in net interest income was primarily the result of a 47 basis point
increase in net interest margin to 3.63% for the nine months ended March 31,
2010, from 3.16% for the same period in 2009 and by the $3.8 million, or 17.7%,
increase in net average interest-earning assets to $25.0 million for the nine
months ended March 31, 2010, from $21.2 million for the same period in
2009.





Provision for
Loan Losses. The
provision for loan losses for the nine months ended March 31, 2010 was $285,000
compared to $182,000 for the nine months ended March 31, 2009. The increase was
primarily related to specific reserves for two residential loans and provisions
due to loan growth for the nine months ended March 31, 2010. Loan charge-offs
were $71,000 and loan recoveries were $11,000 for the nine months ended March
31, 2010, as compared to loan charge-offs of $14,000 and loan recoveries of
$8,000 for the same period in 2009.





Non-interest
Income.Non-interest income
increased $283,000, or 51.0%, to $834,000 for the nine months ended March 31,
2010, from $551,000 for the same period in 2009. The increase was partially
related to gains of $223,000 from the sale of $11.7 million in loans, $10.7
million classified as held for sale and $1.0 million from the Company’s loan
portfolio, compared to gains of $62,000 from the sale of $4.9 million in loans
for the same period in 2009. Additionally, the increase was related to a $70,000
net gain on other secondary market activities for the nine months ending March
31, 2010, representing the increase in secondary market commitments and related
fair value measurements. There was no net gain on other secondary market
activities for the nine months ending March 31, 2009 based on
immateriality.





Non-interest
Expense.Non-interest expense
increased $337,000, or 7.78%, to $4.7 million for the nine months ended March
31, 2010, from $4.4 million for the same period in 2009. The increase in
non-interest expense was primarily due to increases in salaries and benefits,
data processing fees, professional fees and Federal Deposit Insurance
Corporation (“FDIC”) deposit insurance expense. Salaries and benefits expense
increased $180,000, or 7.5%, primarily due to higher replacement salaries for
new hires, as well as an increase in the number of employees receiving health
insurance benefits. Occupancy expense decreased $5,000, or 0.7%, to $586,000 for
the nine months ended March 31, 2010. Data processing expense increased $58,000,
or 20.9%, for the nine months ended March 31, 2010, from the same period in
2009, primarily due to the addition of services provided, such as online account
opening for both loans and deposits. Professional fees increased $57,000, or
23.6%, to $299,000 for the nine months ended March 31, 2010, from $242,000 for
the same period in 2009, primarily due to increased costs associated with
compliance with section 404 of the Sarbanes-Oxley Act, related to internal
controls over financial reporting and with legal expense associated with an
employee termination. FDIC deposit insurance expense increased $57,000, or
58.8%, as a result of increases in insurance premium rates. Other general and
administrative expenses decreased $11,000, or 2.0%, to $570,000 for the nine
months ended March 31, 2010, from the same period in 2009.





Income
Taxes.The
income before income taxes of $945,000 for the nine months ended March 31, 2010
resulted in an income tax provision of $341,000 for the nine months ended March
31, 2010, as compared to the income before income taxes of $306,000 and income
tax provision of $112,000 for the nine months ended March 31, 2009. The
effective tax rates for the nine months ended March 31, 2010 and 2009 were 36.1%
and 36.6%, respectively.


22





Average Balance
Sheet. The following table sets forth certain information regarding the
Company’s average balance sheet for the periods indicated, including the average
yields on its interest-earning assets and the average costs of its
interest-bearing liabilities. Average yields are calculated by dividing the
interest income produced by the average balance of interest-bearing assets.
Average costs are calculated by dividing the interest expense produced by the
average balance of interest-bearing liabilities. The average balances for the
period are derived from average balances that are calculated daily. The average
yields and costs include fees that are considered adjustments to such average
yields and costs.





At
      March 31,
            
            
            Nine Months Ended March 31,2010
            
            
            2010
            
            
            2009Weighted
            
            
            Average
            
            
            
            
            
            
            
            
            AverageOutstanding
            
            
            Average
            
            
            Outstanding
            
            
            
            
            
            Yield/
            
            
            Outstanding
            
            
            
            
            
            Yield/Balance
            
            
            Rate
            
            
            Balance
            
            
            Interest
            
            
            Rate
            
            
            Balance
            
            
            Interest
            
            
            Rate(Dollars
      in thousands)Interest-earning
      assets:Loans
            
            $
            175,427
            
            
            
            5.94
            %
            
            $
            167,079
            
            
            $
            7,454
            
            
            
            5.95
            %
            
            $
            160,433
            
            
            $
            7,268
            
            
            
            6.04
            %Investment
      securities (1)
            
            
            18,953
            
            
            
            3.24
            %
            
            
            18,578
            
            
            
            473
            
            
            
            3.39
            %
            
            
            20,792
            
            
            
            639
            
            
            
            4.10
            %Short-term
      investments
            
            
            3,038
            
            
            
            0.01
            %
            
            
            2,283
            
            
            
            1
            
            
            
            0.06
            %
            
            
            1,009
            
            
            
            6
            
            
            
            0.79
            %Total
      interest-earning assets
            
            
            197,418
            
            
            
            5.59
            %
            
            
            187,940
            
            
            
            7,928
            
            
            
            5.62
            %
            
            
            182,234
            
            
            
            7,913
            
            
            
            5.79
            %Non-interest-earning
      assets
            
            
            10,094
            
            
            
            
            
            
            
            10,726
            
            
            
            -
            
            
            
            
            
            
            
            10,845
            
            
            
            -Total
      assets
            
            $
            207,512
            
            
            
            
            
            
            $
            198,666
            
            
            
            7,928
            
            
            
            
            
            
            $
            193,079
            
            
            
            7,913Interest-bearing
      liabilities:Savings
      deposits
            
            $
            12,052
            
            
            
            0.19
            %
            
            $
            11,513
            
            
            $
            13
            
            
            
            0.15
            %
            
            $
            10,216
            
            
            $
            9
            
            
            
            0.12
            %NOW
      accounts
            
            
            14,455
            
            
            
            0.56
            %
            
            
            11,054
            
            
            
            16
            
            
            
            0.19
            %
            
            
            9,309
            
            
            
            9
            
            
            
            0.13
            %Money
      market accounts
            
            
            40,051
            
            
            
            1.20
            %
            
            
            41,843
            
            
            
            333
            
            
            
            1.06
            %
            
            
            37,384
            
            
            
            637
            
            
            
            2.27
            %Certificates
      of deposit
            
            
            58,121
            
            
            
            2.69
            %
            
            
            57,110
            
            
            
            1,303
            
            
            
            3.04
            %
            
            
            48,734
            
            
            
            1,282
            
            
            
            3.51
            %Total
      interest-bearing deposits
            
            
            124,679
            
            
            
            1.72
            %
            
            
            121,520
            
            
            
            1,665
            
            
            
            1.83
            %
            
            
            105,643
            
            
            
            1,937
            
            
            
            2.44
            %FHLB
      advances
            
            
            46,426
            
            
            
            2.88
            %
            
            
            40,944
            
            
            
            1,141
            
            
            
            3.72
            %
            
            
            54,837
            
            
            
            1,650
            
            
            
            4.01
            %Repurchase
      agreements
            
            
            395
            
            
            
            0.50
            %
            
            
            490
            
            
            
            2
            
            
            
            0.54
            %
            
            
            527
            
            
            
            2
            
            
            
            0.51
            %Total
      interest-bearing liabilities
            
            
            171,500
            
            
            
            2.03
            %
            
            
            162,954
            
            
            
            2,808
            
            
            
            2.30
            %
            
            
            161,007
            
            
            
            3,589
            
            
            
            2.97
            %Non-interest-bearing
      liabilities:Demand
      deposits
            
            
            14,681
            
            
            
            
            
            
            
            16,510
            
            
            
            
            
            
            
            
            
            
            
            13,544Other
      non-interest-bearing liabilities
            
            
            3,359
            
            
            
            
            
            
            
            1,599
            
            
            
            
            
            
            
            
            
            
            
            1,467Total
      liabilities
            
            
            189,540
            
            
            
            
            
            
            
            181,063
            
            
            
            
            
            
            
            
            
            
            
            176,018Stockholders'
      equity
            
            
            17,972
            
            
            
            
            
            
            
            17,603
            
            
            
            
            
            
            
            
            
            
            
            17,061Total
      liabilities and equity
            
            $
            207,512
            
            
            
            
            
            
            $
            198,666
            
            
            
            
            
            
            
            
            
            
            $
            193,079Net
      interest income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            5,120
            
            
            
            
            
            
            
            
            
            
            $
            4,324Net
      interest rate spread (2)
            
            
            
            
            
            
            3.56
            %
            
            
            
            
            
            
            
            
            
            
            3.32
            %
            
            
            
            
            
            
            
            
            
            
            2.82
            %Net
      interest-earning assets (3)
            
            $
            25,918
            
            
            
            
            
            
            $
            24,986
            
            
            
            
            
            
            
            
            
            
            $
            21,227Net
      interest margin (4)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3.63
            %
            
            
            
            
            
            
            
            
            
            
            3.16
            %Average
      of interest-earningassets
      to interest-bearingliabilities
            
            
            
            
            
            
            115.11
            %
            
            
            
            
            
            
            
            
            
            
            115.33
            %
            
            
            
            
            
            
            
            
            
            
            113.18
            %





(1)
            Consists
      entirely of taxable investment
securities.


(2)
            Net
      interest rate spread represents the difference between the yield on
      average interest-earning assets and the cost of average interest-bearing
      liabilities.


(3)
            Net
      interest-earning assets represents total interest-earning assets less
      total interest-bearing liabilities.


(4)
            Net
      interest margin represents net interest income divided by average total
      interest-earning assets.


23





Rate/Volume
Analysis.The following table presents the effects of changing rates and
volumes on our net interest income for the periods indicated. The rate column
shows the effects attributable to changes in rate (changes in rate multiplied by
prior volume). The volume column shows the effects attributable to changes in
volume (changes in volume multiplied by prior rate). The net column represents
the sum of the prior columns. For purposes of this table, changes attributable
to both rate and volume, which cannot be segregated, have been allocated
proportionately, based on the changes due to rate and the changes due to
volume.





For
      the Nine Months Ended March 31, 2010Compared
      to the Nine Months EndedMarch 31, 2009Increase (Decrease) Due toVolume
            
            
            Rate
            
            
            Net(In
      thousands)Interest-earning
      assets:Loans
            
            $
            301
            
            
            $
            (115
            )
            
            $
            186Investment
      securities
            
            
            (68
            )
            
            
            (98
            )
            
            
            (166
            )Short-term
      investments
            
            
            8
            
            
            
            (13
            )
            
            
            (5
            )Total
      interest-earning assets
            
            
            241
            
            
            
            (226
            )
            
            
            15Interest-bearing
      liabilities:Savings
      deposits
            
            
            1
            
            
            
            3
            
            
            
            4NOW
      accounts
            
            
            2
            
            
            
            5
            
            
            
            7Money
      market accounts
            
            
            76
            
            
            
            (380
            )
            
            
            (304
            )Certificates
      of deposit
            
            
            220
            
            
            
            (199
            )
            
            
            21Total
      interest-bearing deposits
            
            
            299
            
            
            
            (571
            )
            
            
            (272
            )FHLB
      advances
            
            
            (418
            )
            
            
            (91
            )
            
            
            (509
            )Total
      interest-bearing liabilities
            
            
            (119
            )
            
            
            (662
            )
            
            
            (781
            )Change
      in net interest income
            
            $
            360
            
            
            $
            436
            
            
            $
            796


24





Liquidity
Management.Liquidity is the ability to meet current and future financial obligations
of a short-term nature. Our primary sources of funds consist of deposit inflows,
loan repayments and maturities and sales of securities. While maturities and
scheduled amortization of loans and securities are predictable sources of funds,
deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Company recently began
to sell loans to the secondary market and expects to continue to utilize this
strategy in future periods.





We
regularly adjust our investments in liquid assets based upon our assessment of
(i) expected loan demand, (ii) expected deposit flows, (iii) yields available on
interest-earning deposits and securities, and (iv) the objectives of our
asset/liability management program. Excess liquid assets are invested generally
in interest-earning deposits and short- and intermediate-term
securities.





Our most
liquid assets are cash and cash equivalents. The levels of these assets are
dependent on our operating, financing, lending and investing activities during
any given period. At March 31, 2010, cash and cash equivalents totaled $5.7
million. Securities classified as available-for-sale, which provide additional
sources of liquidity, totaled $11.8 million at March 31, 2010. Our policies also
allow for access to the wholesale funds market for up to 50.0% of total assets,
or $103.8 million. At March 31, 2010, we had $46.4 million in FHLB advances
outstanding and $699,000 in brokered certificates of deposit, allowing the
Company access to an additional $56.6 million in wholesale funds based on policy
guidelines.





At March
31, 2010, we had $6.2 million in loan commitments outstanding. In addition to
commitments to originate loans, we had $20.6 million in unadvanced funds to
borrowers.





Related
to our secondary market activities, we had $5.1 million of forward loan sale
commitments at March 31, 2010. These forward loan sale commitments were used to
offset the interest rate risk associated with mortgage loans, which have had
their interest rate locked by our customers. We also had $1.7 million of loans
held for sale.





Certificates
of deposit due within one year of March 31, 2010 totaled $33.3 million, or 23.9%
of total deposits. If these deposits do not remain with us, we will be required
to seek other sources of funds, including other certificates of deposit or other
wholesale funding options. Depending on market conditions, we may be required to
pay higher rates on such deposits or other borrowings than we currently pay on
the certificates of deposit due on or before March 31, 2010. We believe,
however, based on past experience that a significant portion of our certificates
of deposit will remain with us. We have the ability to attract and retain
deposits by adjusting the interest rates offered.





We have
no material commitments or demands that are likely to affect our liquidity other
than set forth below. In the event loan demand were to increase at a pace
greater than expected, or any unforeseen demand or commitment were to occur, we
would access our borrowing capacity with the FHLB and other wholesale market
sources.





Our
primary investing activities are the origination of loans and the purchase of
securities. During the nine months ended March 31, 2010, we originated $53.1
million of loans and purchased $4.5 million in investment securities. We also
sold $11.7 million in residential mortgage loans for the nine months ended March
31, 2010.





Financing
activities consist primarily of activity in deposit accounts, FHLB borrowings
and advances and the sale of residential mortgages. We experienced a net
decrease in total deposits of $1.8 million for the nine months ended March 31,
2010. Deposit flows are affected by the overall level of interest rates, the
interest rates and products offered by us and our local competitors and other
factors. We generally manage the pricing of our deposits to be
competitive.





FHLB
borrowings and advances reflected a net increase of $6.2 million during the nine
months ended March 31, 2010. FHLB borrowings and advances have primarily been
used to fund loan demand and purchase securities.





Capital
Management.The Bank is subject to various regulatory capital requirements including
a risk-based capital measure. The risk-based capital guidelines include both a
definition of capital and a framework for calculating risk-weighted assets by
assigning balance sheet assets and off-balance sheet items to broad risk
categories. At March 31, 2010, the Bank exceeded all of its regulatory capital
requirements and is considered “well capitalized” under regulatory
guidelines.





The OTS,
as the primary federal regulator of federal savings banks, periodically
recommends certain of those institutions take voluntary steps to reduce risk to
the institutions and the federal deposit insurance fund. In light of the current
economic environment, the OTS requested and the Bank’s board of directors agreed
on October 27, 2009 to certain voluntary constraints on the Bank’s leveraged
growth strategy. The Bank does not expect any of these standards to materially
impair its execution of its business plan. The OTS has agreed to revisit these
voluntary constraints from time to time. The voluntary constraints are as
follows: (i) the Bank will maintain a Tier one (core) capital ratio of at least
7.1%; and (ii) in the event the Tier one (core) capital ratio decreases below
7.5%, the ratio of “high-risk” loans, as defined, to Tier one (core) capital
would not exceed 350%; the ratio of classified assets to Tier one (core) capital
(plus the allowance for loan losses) would not exceed 15%; and the ratio of
nonperforming assets to total assets would not exceed 1.5%. As of March 31,
2010, the Bank’s Tier one capital ratio was 7.81% compared to the requested
target of 7.50%. The Company has $1.1 million of cash available to down-stream
to the Bank to support its future capital needs.





Off-Balance Sheet
Arrangements.For the nine months ended March 31, 2010, we engaged in no
off-balance sheet transactions reasonably likely to have a material effect on
our financial condition, results of operations or cash flows.


25





Item3.
            Quantitative
      and Qualitative Disclosure About Market
Risk





Not
applicable to smaller reporting companies.





Item4.
            Controls
      and Procedures





Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined
in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of
the end of the period covered by this report. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that, as of the
end of the period covered by this report, our disclosure controls and procedures
were effective to ensure (1) that information required to be disclosed in the
reports that the Company files or submits under the Securities Exchange Act of
1934, is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms; and (2) that they are alerted in a
timely manner about material information relating to the Company required to be
filed in its periodic SEC filings.





There has
been no change in the Company’s internal control over financial reporting during
the Company’s most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.





PART
II. OTHER INFORMATION





Item
      1.
            Legal
      Proceedings





Neither
the Company nor the Bank is engaged in pending legal proceedings material to the
Company’s consolidated financial condition or results of
operations.





Item
      1A.
            Risk
      Factors





Not
applicable to smaller reporting companies.





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





a)
      Not applicable





b)
      Not applicable





c)
      The Company did not repurchase any shares during the quarter ended March
      31, 2010.





Item
      3.
            Defaults
      Upon Senior Securities





None





Item
      4.
            Other
      Information





a)  Not
      applicable





b) There were no material changes to the procedures by which security holders
may recommend nominees to the Company’s board of directors during the period
covered by this Form 10-Q.





Item5.
            Exhibits





31.1
              Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act


31.2
              Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act


32
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley
Act


26





GEORGETOWN BANCORP, INC.





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.








GEORGETOWN
BANCORP, INC.


(Registrant)








Date:
      May 14, 2010
            /s/ Robert E. BallettoRobert
      E. BallettoPresident
      and Chief Executive Officer(Principal
      Executive Officer)/s/ Joseph W. KennedyJoseph
      W. KennedySenior
      Vice President, Chief Financial Officer and Treasurer(Principal
      Accounting and Financial Officer)






27