##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended June 30, 2009

OR



| ̈ | 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: 0-53163

BCSB BANCORP, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 26-1424764                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

4111 E. Joppa Road, Suite 300, Baltimore, Maryland 21236

(Address of principal executive offices)

(410)
256-5000

(Registrants telephone number, including area code)

N/A

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

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

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

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



|                           |  |                      |  |                                               |  |                             
|-------------------------- |  | -------------------- |  | --------------------------------------------- |  | ----------------------------
|Large Accelerated Filer   ̈ |  | Accelerated Filer   ̈ |  | Non-Accelerated Filer   ̈                      |  | Smaller Reporting Company  x
|                           |  |                      |  | (Do not check if a smaller reporting company) |  |                             

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

As of July 31, 2009 the issuer had 3,121,076 shares of Common Stock issued and outstanding.









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##### Table of Contents

CONTENTS



|                              |  |                                                                                                                        |  |   
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | --
|                              |  | PAGE                                                                                                                  
|PART I. FINANCIAL INFORMATION |  |                                                                                                                       
|                              |  |                                                                                                                       
|Item 1.                       |  | Financial Statements                                                                                                   |  |   
|                              |  |                                                                                                                       
|                              |  | Consolidated Statements of Financial Condition as of June 30, 2009 (unaudited) and September 30,
2008                  |  | 3 
|                              |  |                                                                                                                       
|                              |  | Consolidated Statements of Operations for the Nine and Three Months Ended June 30, 2009 and 2008
(unaudited)           |  | 4 
|                              |  |                                                                                                                       
|                              |  | Consolidated Statements of Comprehensive (Loss) for the Nine and Three Months Ended June 30, 2009 and 2008
(unaudited) |  | 5 
|                              |  |                                                                                                                       
|                              |  | Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2009 and 2008 (unaudited)                     |  | 6 
|                              |  |                                                                                                                       
|                              |  | Notes to Consolidated Financial Statements                                                                             |  | 8 
|                              |  |                                                                                                                       
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                  |  | 21
|                              |  |                                                                                                                       
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                             |  | 35
|                              |  |                                                                                                                       
|Item 4T.                      |  | Controls and Procedures                                                                                                |  | 35
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                       
|                              |  |                                                                                                                       
|Item 1.                       |  | Legal Proceedings                                                                                                      |  | 36
|                              |  |                                                                                                                       
|Item 1A.                      |  | Risk Factors                                                                                                           |  | 36
|                              |  |                                                                                                                       
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                            |  | 36
|                              |  |                                                                                                                       
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                        |  | 36
|                              |  |                                                                                                                       
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                    |  | 36
|                              |  |                                                                                                                       
|Item 5.                       |  | Other Information                                                                                                      |  | 38
|                              |  |                                                                                                                       
|Item 6.                       |  | Exhibits                                                                                                               |  | 38
|                              | 
|SIGNATURES                    |  |                                                                                                                       



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



|                                                                                                                                                          |  |                        |         |   |                   |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                          |  | June 30,2009           |         |   | September 30,2008 |  
|                                                                                                                                                          |  | (unaudited)            |         |   |                   |  
|                                                                                                                                                          |  | (dollars in thousands) |        
|Assets                                                                                                                                                    |  |                        |         |   |                   |   |         |  
|Cash and due from banks                                                                                                                                   |  | $                      | 8,324   |   |                   | $ | 8,305   |  
|Interest-bearing deposits in other banks                                                                                                                  |  |                        | 30,712  |   |                   |   | 5,741   |  
|Federal funds sold                                                                                                                                        |  |                        | 17,075  |   |                   |   | 20,937  |  
|                                                                                                                                                          |  |                        |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                                 |  |                        | 56,111  |   |                   |   | 34,983  |  
|Interest bearing time deposits                                                                                                                            |  |                        | 100     |   |                   |   | 100     |  
|Investment securities, available for sale                                                                                                                 |  |                        |        |   |                   |   | 994     |  
|Loans receivable, net                                                                                                                                     |  |                        | 398,881 |   |                   |   | 400,469 |  
|Mortgage-backed securities, available for sale                                                                                                            |  |                        | 91,083  |   |                   |   | 89,956  |  
|Foreclosed real estate and repossessed assets                                                                                                             |  |                        | 639     |   |                   |   | 1,244   |  
|Premises and equipment, net                                                                                                                               |  |                        | 9,241   |   |                   |   | 9,762   |  
|Federal Home Loan Bank of Atlanta stock, at cost                                                                                                          |  |                        | 1,485   |   |                   |   | 1,559   |  
|Bank owned life insurance                                                                                                                                 |  |                        | 14,771  |   |                   |   | 14,389  |  
|Goodwill and other intangible assets                                                                                                                      |  |                        | 2,404   |   |                   |   | 2,431   |  
|Accrued interest and other assets                                                                                                                         |  |                        | 12,361  |   |                   |   | 11,195  |  
|                                                                                                                                                          |  |                        |         |   |                   |   |         |  
|Total assets                                                                                                                                              |  | $                      | 587,076 |   |                   | $ | 567,082 |  
|                                                                                                                                                          |  |                        |         |   |                   |   |         |  
|Liabilities and Stockholders Equity                                                                                                                      |  |                        |         |   |                   |   |         |  
|Liabilities                                                                                                                                               |  |                        |         |   |                   |   |         |  
|Deposits:                                                                                                                                                 |  |                        |         |   |                   |   |         |  
|Non-interest bearing                                                                                                                                      |  | $                      | 27,352  |   |                   | $ | 25,498  |  
|Interest-bearing                                                                                                                                          |  |                        | 476,018 |   |                   |   | 459,293 |  
|                                                                                                                                                          |  |                        |         |   |                   |   |         |  
|Total deposits                                                                                                                                            |  |                        | 503,370 |   |                   |   | 484,791 |  
|Short Term Advances from the Federal Home Loan Bank of Atlanta                                                                                            |  |                        |        |   |                   |   | 10,000  |  
|Junior Subordinated Debentures                                                                                                                            |  |                        | 17,011  |   |                   |   | 17,011  |  
|Other liabilities                                                                                                                                         |  |                        | 7,133   |   |                   |   | 5,525   |  
|                                                                                                                                                          |  |                        |         |   |                   |   |         |  
|Total liabilities                                                                                                                                         |  |                        | 527,514 |   |                   |   | 517,327 |  
|                                                                                                                                                          |  |                        |         |   |                   |   |         |  
|Commitments and Contingencies                                                                                                                             |  |                        |         |   |                   |   |         |  
|Stockholders Equity                                                                                                                                      |  |                        |         |   |                   |   |         |  
|Preferred stock (par value $.01  5,000,000 authorized, 10,800 and 0 shares issued and outstanding at June 30, 2009 and
September 30, 2008, respectively) |  |                        | 10,341  |   |                   |   |        |  
|Common stock (par value $.01  50,000,000 authorized, 3,121,076 issued and outstanding at June 30, 2009 and September 30, 2008,
respectively)             |  |                        | 31      |   |                   |   | 31      |  
|Additional paid-in capital                                                                                                                                |  |                        | 39,384  |   |                   |   | 38,839  |  
|Obligation under Rabbi Trust                                                                                                                              |  |                        | 1,035   |   |                   |   | 1,100   |  
|Retained earnings (substantially restricted)                                                                                                              |  |                        | 14,153  |   |                   |   | 14,484  |  
|Accumulated other comprehensive loss (net of taxes)                                                                                                       |  |                        | (3,275  | ) |                   |   | (2,467  | )
|Employee Stock Ownership Plan                                                                                                                             |  |                        | (1,120  | ) |                   |   | (1,181  | )
|Stock held by Rabbi Trust                                                                                                                                 |  |                        | (987    | ) |                   |   | (1,051  | )
|                                                                                                                                                          |  |                        |         |   |                   |   |         |  
|Total stockholders equity                                                                                                                                |  |                        | 59,562  |   |                   |   | 49,755  |  
|                                                                                                                                                          |  |                        |         |   |                   |   |         |  
|Total liabilities and stockholders equity                                                                                                                |  | $                      | 587,076 |   |                   | $ | 567,082 |  
|                                                                                                                                                          |  |                        |         |   |                   |   |         |  

The accompanying notes to consolidated financial statements are an integral part of these
statements.



3



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)



|                                                                             |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|---------------------------------------------------------------------------- |  | -------------------------------------------- | ------ | - | ---------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ----- | -
|                                                                             |  | For the Nine MonthsEnded June 30,            |        |   | For the Three MonthsEnded June 30, |  
|                                                                             |  | 2009                                         |        |   | 2008                               |   |        | 2009 |  |   | 2008   |  
|                                                                             |  | (Dollars in thousands except per share data) |       
|Interest Income                                                              |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Interest and fees on loans                                                   |  | $                                            | 18,449 |   |                                    | $ | 20,131 |      |  | $ | 6,058  |   |  | $ | 6,542 |  
|Interest on mortgagebacked securities                                       |  |                                              | 3,911  |   |                                    |   | 4,202  |      |  |   | 1,282  |   |  |   | 1,312 |  
|Interest and dividends on investment securities                              |  |                                              | 33     |   |                                    |   | 191    |      |  |   | 2      |   |  |   | 43    |  
|Other interest income                                                        |  |                                              | 156    |   |                                    |   | 1,594  |      |  |   | 38     |   |  |   | 357   |  
|                                                                             |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Total interest income                                                        |  |                                              | 22,549 |   |                                    |   | 26,118 |      |  |   | 7,380  |   |  |   | 8,254 |  
|Interest Expense                                                             |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Interest on deposits                                                         |  |                                              | 9,720  |   |                                    |   | 13,441 |      |  |   | 3,001  |   |  |   | 4,026 |  
|Interest on borrowings  short term                                          |  |                                              | 284    |   |                                    |   | 337    |      |  |   | 59     |   |  |   | 121   |  
|Interest on borrowings  long term                                           |  |                                              |       |   |                                    |   | 306    |      |  |   |       |   |  |   | 60    |  
|Other interest expense  debentures                                          |  |                                              | 727    |   |                                    |   | 1,319  |      |  |   | 189    |   |  |   | 358   |  
|                                                                             |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Total interest expense                                                       |  |                                              | 10,731 |   |                                    |   | 15,403 |      |  |   | 3,249  |   |  |   | 4,565 |  
|                                                                             |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Net interest income                                                          |  |                                              | 11,818 |   |                                    |   | 10,715 |      |  |   | 4,131  |   |  |   | 3,689 |  
|Provision for losses on loans                                                |  |                                              | 900    |   |                                    |   |       |      |  |   | 600    |   |  |   |      |  
|                                                                             |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Net interest income after provision for losses on loans                      |  |                                              | 10,918 |   |                                    |   | 10,715 |      |  |   | 3,531  |   |  |   | 3,689 |  
|Other Income                                                                 |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Total other-than-temporary impairment charges                                |  |                                              | (1,892 | ) |                                    |   |       |      |  |   | (1,892 | ) |  |   |      |  
|Less: Portion included in other comprehensive income (pre-tax)               |  |                                              | 1,392  |   |                                    |   |       |      |  |   | 1,392  |   |  |   |      |  
|                                                                             |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Net other-than-temporary impairment charges on securities available for sale |  |                                              | (500   | ) |                                    |   |       |      |  |   | (500   | ) |  |   |      |  
|Gain (loss) on repossessed assets                                            |  |                                              | 196    |   |                                    |   | (63    | )    |  |   | 6      |   |  |   | (21   | )
|Mortgage banking operations                                                  |  |                                              | 25     |   |                                    |   | 37     |      |  |   | 11     |   |  |   | 14    |  
|Fees on transaction accounts                                                 |  |                                              | 717    |   |                                    |   | 746    |      |  |   | 216    |   |  |   | 270   |  
|Income from bank owned life insurance                                        |  |                                              | 331    |   |                                    |   | 373    |      |  |   | 172    |   |  |   | 128   |  
|Miscellaneous income                                                         |  |                                              | 424    |   |                                    |   | 341    |      |  |   | 233    |   |  |   | 149   |  
|                                                                             |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Other income, net                                                            |  |                                              | 1,193  |   |                                    |   | 1,434  |      |  |   | 138    |   |  |   | 540   |  
|Non-Interest Expenses                                                        |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Salaries and related expense                                                 |  |                                              | 6,026  |   |                                    |   | 6,137  |      |  |   | 2,112  |   |  |   | 2,037 |  
|Occupancy expense                                                            |  |                                              | 1,778  |   |                                    |   | 1,704  |      |  |   | 576    |   |  |   | 557   |  
|Federal deposit insurance premiums                                           |  |                                              | 789    |   |                                    |   | 444    |      |  |   | 483    |   |  |   | 127   |  
|Data processing expense                                                      |  |                                              | 1,181  |   |                                    |   | 1,122  |      |  |   | 372    |   |  |   | 381   |  
|Property and equipment expense                                               |  |                                              | 708    |   |                                    |   | 855    |      |  |   | 223    |   |  |   | 284   |  
|Professional fees                                                            |  |                                              | 694    |   |                                    |   | 320    |      |  |   | 237    |   |  |   | 135   |  
|Advertising                                                                  |  |                                              | 404    |   |                                    |   | 442    |      |  |   | 172    |   |  |   | 153   |  
|Telephone, postage and office supplies                                       |  |                                              | 284    |   |                                    |   | 304    |      |  |   | 93     |   |  |   | 84    |  
|Other expenses                                                               |  |                                              | 489    |   |                                    |   | 305    |      |  |   | 175    |   |  |   | 52    |  
|                                                                             |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Total non-interest expenses                                                  |  |                                              | 12,353 |   |                                    |   | 11,633 |      |  |   | 4,443  |   |  |   | 3,810 |  
|                                                                             |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|(Loss) Income before tax (benefit) provision                                 |  |                                              | (242   | ) |                                    |   | 516    |      |  |   | (774   | ) |  |   | 419   |  
|Income tax (benefit) expense                                                 |  |                                              | (166   | ) |                                    |   | 82     |      |  |   | (356   | ) |  |   | 134   |  
|                                                                             |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Net (Loss) Income                                                            |  |                                              | (76    | ) |                                    |   | 434    |      |  |   | (418   | ) |  |   | 285   |  
|Preferred stock dividends and discount accretion                             |  |                                              | (322   | ) |                                    |   |       |      |  |   | (157   | ) |  |   |      |  
|                                                                             |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Net (Loss) Income available to common shareholders                           |  | $                                            | (398   | ) |                                    | $ | 434    |      |  | $ | (575   | ) |  | $ | 285   |  
|                                                                             |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Net (Loss) Income Per Share of Common Stock:                                 |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Basic and diluted (loss) income per share of common stock                    |  | $                                            | (.14   | ) |                                    | $ | .14    |      |  | $ | (.20   | ) |  | $ | .09   |  
|                                                                             |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  
|Dividends per share                                                          |  | $                                            | .00    |   |                                    | $ | .00    |      |  | $ | .00    |   |  | $ | .00   |  
|                                                                             |  |                                              |        |   |                                    |   |        |      |  |   |        |   |  |   |       |  

The accompanying notes to consolidated financial statements are an integral part of these
statements.



4



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) (UNAUDITED)



|                                                                                                                      |  |                                   |      |   |      |   |        |  
|--------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ---- | - | ---- | - | ------ | -
|                                                                                                                      |  | For the Nine Months EndedJune 30, |     
|                                                                                                                      |  | 2009                              |      |   | 2008 |  
|                                                                                                                      |  | (in thousands)                    |     
|Net (Loss) income                                                                                                     |  | $                                 | (76  | ) |      | $ | 434    |  
|Other comprehensive loss, net of tax:                                                                                 |  |                                   |      |   |      |   |        |  
|Unrealized net holding (losses) on Available-for-sale portfolios, net of benefit of $(582) and $(1,011), respectively |  |                                   | (808 | ) |      |   | (1,606 | )
|                                                                                                                      |  |                                   |      |   |      |   |        |  
|Comprehensive Loss                                                                                                    |  | $                                 | (884 | ) |      | $ | (1,172 | )
|                                                                                                                      |  |                                   |      |   |      |   |        |  



|                                                                                                                                |  |                                    |      |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------- | ---- | - | ---- | - | ------ | -
|                                                                                                                                |  | For the Three Months EndedJune 30, |     
|                                                                                                                                |  | 2009                               |      |   | 2008 |  
|                                                                                                                                |  | (in thousands)                     |     
|Net (Loss) Income                                                                                                               |  | $                                  | (418 | ) |      | $ | 285    |  
|Other comprehensive income (loss), net of tax:                                                                                  |  |                                    |      |   |      |   |        |  
|Unrealized net holding gains (losses) on Available-for-sale portfolios, net of tax (benefit) of $116 and $(1,405),
respectively |  |                                    | 178  |   |      |   | (2,233 | )
|                                                                                                                                |  |                                    |      |   |      |   |        |  
|Comprehensive Loss                                                                                                              |  | $                                  | (240 | ) |      | $ | (1,948 | )
|                                                                                                                                |  |                                    |      |   |      |   |        |  

The accompanying notes to the consolidated financial statements are an integral part of these
statements.



5



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



|                                                                         |  |                                   |         |   |      |   |        |  
|------------------------------------------------------------------------ |  | --------------------------------- | ------- | - | ---- | - | ------ | -
|                                                                         |  | For the Nine Months EndedJune 30, |        
|                                                                         |  | 2009                              |         |   | 2008 |  
|                                                                         |  | (dollars in thousands)            |        
|Operating Activities                                                     |  |                                   |         |   |      |   |        |  
|Net (loss) income                                                        |  | $                                 | (76     | ) |      | $ | 434    |  
|Adjustments to reconcile net (loss) income to                            |  |                                   |         |   |      |   |        |  
|Net Cash Provided by Operating Activities                                |  |                                   |         |   |      |   |        |  
|Other-than-temporary impairment charges on securities available for sale |  |                                   | 500     |   |      |   |       |  
|Amortization of deferred loan fees and cost, net                         |  |                                   | 157     |   |      |   | 168    |  
|Non-cash compensation under stock-based benefit plan                     |  |                                   | 169     |   |      |   | 144    |  
|Provision for losses on loans                                            |  |                                   | 900     |   |      |   |       |  
|Amortization of purchase premiums and discounts, net                     |  |                                   | (58     | ) |      |   | (65    | )
|Provision for depreciation                                               |  |                                   | 761     |   |      |   | 769    |  
|(Gains) loss on sale of repossessed assets                               |  |                                   | (196    | ) |      |   | 63     |  
|Increase in cash surrender value of bank owned life insurance            |  |                                   | (331    | ) |      |   | (374   | )
|(Increase) decrease in accrued interest and other assets                 |  |                                   | (583    | ) |      |   | 1,647  |  
|(Decrease) increase in other liabilities                                 |  |                                   | (813    | ) |      |   | 2,957  |  
|Decrease in obligation under Rabbi Trust                                 |  |                                   | (65     | ) |      |   | (46    | )
|                                                                         |  |                                   |         |   |      |   |        |  
|Net cash provided by operating activities                                |  |                                   | 365     |   |      |   | 5,697  |  
|Cash Flows from Investing Activities                                     |  |                                   |         |   |      |   |        |  
|Purchase of bank owned life insurance                                    |  |                                   | (51     | ) |      |   | (49    | )
|Proceeds from maturities of investment securities  available for sale   |  |                                   | 1,000   |   |      |   | 3,000  |  
|Net decrease in loans                                                    |  |                                   | (112    | ) |      |   | 13,351 |  
|Purchase of mortgage-backed securities  available for sale              |  |                                   | (16,216 | ) |      |   |       |  
|Principal collected on mortgage-backed securities                        |  |                                   | 13,205  |   |      |   | 9,141  |  
|Proceeds from sales of foreclosed real estate and repossessed assets     |  |                                   | 1,516   |   |      |   | 208    |  
|Investment in premises and equipment                                     |  |                                   | (240    | ) |      |   | (218   | )
|Redemption of Federal Home Loan Bank of Atlanta Stock, net               |  |                                   | 74      |   |      |   | 711    |  
|                                                                         |  |                                   |         |   |      |   |        |  
|Net cash (used) provided by investing activities                         |  |                                   | (824    | ) |      |   | 26,144 |  



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (continued)



|                                                                                  |  |                                   |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | --------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | For the Nine Months EndedJune 30, |        
|                                                                                  |  | 2009                              |         |   | 2008 |  
|                                                                                  |  | (dollars in thousands)            |        
|Cash Flows from Financing Activities                                              |  |                                   |         |   |      |   |         |  
|Net increase (decrease) in deposits                                               |  | $                                 | 19,249  |   |      | $ | (48,198 | )
|Net increase in advances by borrowers for taxes and insurance                     |  |                                   | 1,751   |   |      |   | 1,700   |  
|Net proceeds from stock offering                                                  |  |                                   |        |   |      |   | 17,140  |  
|Loan to employee stock ownership plan                                             |  |                                   |        |   |      |   | (1,222  | )
|Repayment of Federal Home Loan Bank of Atlanta advances                           |  |                                   | (10,000 | ) |      |   | (10,000 | )
|Redemption of Junior Subordinated debentures                                      |  |                                   |        |   |      |   | (6,186  | )
|Net proceeds from preferred stock offering (Troubled Asset Relief Program TARP) |  |                                   | 10,800  |   |      |   |        |  
|Dividends paid on preferred stock                                                 |  |                                   | (213    | ) |      |   |        |  
|                                                                                  |  |                                   |         |   |      |   |         |  
|Net cash provided (used) by financing activities                                  |  |                                   | 21,587  |   |      |   | (46,766 | )
|                                                                                  |  |                                   |         |   |      |   |         |  
|Increase (decrease) in cash equivalents                                           |  |                                   | 21,128  |   |      |   | (14,925 | )
|Cash and cash equivalents at beginning of period                                  |  |                                   | 34,983  |   |      |   | 76,016  |  
|                                                                                  |  |                                   |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                        |  | $                                 | 56,111  |   |      | $ | 61,091  |  
|                                                                                  |  |                                   |         |   |      |   |         |  
|Supplemental Disclosures of Cash Flows Information:                               |  |                                   |         |   |      |   |         |  
|Cash paid during the period for:                                                  |  |                                   |         |   |      |   |         |  
|Interest                                                                          |  | $                                 | 9,750   |   |      | $ | 15,403  |  
|                                                                                  |  |                                   |         |   |      |   |         |  
|Income taxes                                                                      |  | $                                 | 20      |   |      | $ |        |  
|                                                                                  |  |                                   |         |   |      |   |         |  

The accompanying notes to the consolidated financial statements are an integral part of these
statements.



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 - Principles of Consolidation

BCSB Bancorp, Inc. (the Company) owns 100% of Baltimore County Savings Bank, F.S.B. and its subsidiaries (the Bank). The Bank owns
100% of Ebenezer Road, Inc. The accompanying consolidated financial statements include the accounts and transactions of these companies on a consolidated basis since the date of acquisition. All intercompany transactions have been eliminated in the
consolidated financial statements. Ebenezer Road, Inc. sells insurance products. Its operations are not material to the consolidated financial statements.

Note 2 - Basis for Financial Statement Presentation

The accompanying consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions to Form 10-Q. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted
in the United States of America for complete financial statements. In the opinion of management, all adjustments, (none of which were other than normal recurring accruals) necessary for a fair presentation of the financial position and results of
operations for the periods presented have been included. The financial statements of the Company are presented on a consolidated basis with those of the Bank. The results for the nine months ended June 30, 2009 are not necessarily indicative of
the results of operations that may be expected for the year ending September 30, 2009. The Company has evaluated subsequent events for potential recognition and/or disclosure through August 14, 2009, the date the consolidated financial
statements included in this Quarterly Report on Form 10-Q were issued. The consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes which are incorporated by reference in BCSB
Bancorp, Inc.s Annual Report on Form 10-K for the year ended September 30, 2008.

The preparation of the financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant
change in the near-term related to the determination of the allowance for loan losses (the Allowance), other-than-temporary impairment of investment securities, deferred tax assets and intangible assets.

Note 3 - Organization

The Company is a
Maryland corporation which was recently organized to be the stock holding company for the Bank in connection with our second-step conversion and reorganization completed on April 10, 2008, discussed further below. The Bank operates as a
federally chartered stock savings association. The Banks deposit accounts are insured up to a maximum of $250,000 by the Federal Deposit Insurance Corporation (FDIC). The maximum insurance limit is scheduled to revert to $100,000
after December 31, 2013. The Banks non-interest earning demand deposit accounts currently have unlimited FDIC insurance.

BCSB
Bankcorp, Inc., a federal corporation, was the former mid-tier stock holding company for the Bank. BCSB Bankcorp Inc. was organized in conjunction with the Banks reorganization from the mutual savings association to the mutual holding company
structure in 1998. Baltimore County Savings Bank, M.H.C., a federal mutual holding company, was the mutual holding company parent of BCSB Bankcorp, Inc. and owned 63.3% of BCSB Bankcorp, Inc.s outstanding stock. As a result of treasury stock
purchases, this stake increased to approximately 64.5% of BCSB Bankcorps outstanding stock at the time of the second-step conversion.

On April 10, 2008, a second-step conversion was completed after which Baltimore County Savings Bank, M.H.C. and BCSB Bankcorp, Inc. ceased to exist and BCSB Bancorp, Inc., was organized as the new stock-form holding company for the
Bank and successor to BCSB Bankcorp, Inc. The second-step conversion was accounted for as a change in corporate form with no resulting change in the historical basis of the former BCSB



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 3 - Organization  continued

Bankcorp, Inc.s assets, liabilities and equity. A total of 1,976,538 new shares of the Company were sold at $10 per share in the subscription, community and syndicated community offerings through which the
Company received proceeds of approximately $17.1 million, net of offering costs of approximately $2.8 million. The Company contributed $8.5 million or approximately 50% of the net proceeds to the Bank in the form of a capital contribution. The
Company loaned $1.2 million to the Banks Employee Stock Ownership Plan (the ESOP) and the ESOP used those funds to acquire 122,197 shares of the Companys common stock at $10 per share. As part of the conversion, outstanding
public shares of BCSB Bankcorp, Inc. were exchanged for .5264 shares of the new holding company of the Bank. No fractional shares were issued. Instead, cash was paid to shareholders at $10 per share for any fractional shares that would otherwise be
issued. A total of 3,121,076 shares were outstanding as of the closing of the second-step conversion on April 10, 2008.



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 4 - Investment Securities

The amortized cost and estimated fair values of investment securities are as follows as of June 30, 2009 and September 30, 2008.



|                                     |  |               |       |                      |   |                       |  |   |                    |   |  |   |    
|------------------------------------ |  | ------------- | ----- | -------------------- | - | --------------------- |  | - | ------------------ | - |  | - | ---
|(in thousands)                       |  | AmortizedCost |       | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFairValue
|Available for sale:                  |  |               |       |                      |   |                       |  |   |                    |   |  |   |    
|June 30, 2009                        |  |               |       |                      |   |                       |  |   |                    |   |  |   |    
|US Government and Agency obligations |  | $             |      |                      | $ |                      |  | $ |                   |   |  | $ |   
|                                     |  |               |       |                      |   |                       |  |   |                    |   |  |   |    
|                                     |  |               |       |                     
|                                     |  | AmortizedCost |       | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFairValue
|                                     |  |               |       |                      |   |                       |  |   |                    |   |  |   |    
|Available for sale:                  |  |               |       |                      |   |                       |  |   |                    |   |  |   |    
|September 30, 2008                   |  |               |       |                      |   |                       |  |   |                    |   |  |   |    
|US Government and Agency obligations |  | $             | 1,000 |                      | $ |                      |  | $ | (6                 | ) |  | $ | 994
|                                     |  |               |       |                      |   |                       |  |   |                    |   |  |   |    

Note 5 - Mortgage-Backed Securities

The amortized cost and estimated fair values of mortgage backed securities are as follows as of June 30, 2009 and September 30, 2008:



|                                    |  |               |        |                      |   |                       |  |   |                    |   |  |   |       
|----------------------------------- |  | ------------- | ------ | -------------------- | - | --------------------- |  | - | ------------------ | - |  | - | ------
|(in thousands)                      |  | AmortizedCost |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFairValue
|Available for sale:                 |  |               |        |                      |   |                       |  |   |                    |   |  |   |       
|June 30, 2009                       |  |               |        |                      |   |                       |  |   |                    |   |  |   |       
|GNMA certificates                   |  | $             | 3,740  |                      | $ | 170                   |  | $ |                   |   |  | $ | 3,910 
|Collateralized mortgage obligations |  |               | 22,709 |                      |   |                      |  |   | (7,846             | ) |  |   | 14,863
|FNMA certificates                   |  |               | 50,169 |                      |   | 1,524                 |  |   |                   |   |  |   | 51,693
|FHLMC participating certificates    |  |               | 19,873 |                      |   | 744                   |  |   |                   |   |  |   | 20,617
|                                    |  |               |        |                      |   |                       |  |   |                    |   |  |   |       
|                                    |  | $             | 96,491 |                      | $ | 2,438                 |  | $ | (7,846             | ) |  | $ | 91,083
|                                    |  |               |        |                      |   |                       |  |   |                    |   |  |   |       
|September 30, 2008                  |  |               |        |                      |   |                       |  |   |                    |   |  |   |       
|GNMA certificates                   |  | $             | 3,805  |                      | $ | 172                   |  | $ |                   |   |  | $ | 3,977 
|Collateralized mortgage obligations |  |               | 25,143 |                      |   |                      |  |   | (3,976             | ) |  |   | 21,167
|FNMA certificates                   |  |               | 44,389 |                      |   | 171                   |  |   | (276               | ) |  |   | 44,284
|FHLMC participating certificates    |  |               | 20,632 |                      |   | 75                    |  |   | (179               | ) |  |   | 20,528
|                                    |  |               |        |                      |   |                       |  |   |                    |   |  |   |       
|                                    |  | $             | 93,969 |                      | $ | 418                   |  | $ | (4,431             | ) |  | $ | 89,956
|                                    |  |               |        |                      |   |                       |  |   |                    |   |  |   |       

There were no sales of available for sale mortgage backed securities during the nine months ended
June 30, 2009 or the year ended September 30, 2008.



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 5 - Mortgage-Backed Securities - continued

Below are schedules of both investment securities and mortgage backed securities with unrealized losses as of June 30, 2009 and the length of time the individual security has been in a continuous unrealized loss
position.



|                                      |  |                     |       |                  |                   |     |           |       |                  |        |  |           |        |                  |  |   |        |  |   |        |  
|------------------------------------- |  | ------------------- | ----- | ---------------- | ----------------- | --- | --------- | ----- | ---------------- | ------ |  | --------- | ------ | ---------------- |  | - | ------ |  | - | ------ | -
|                                      |  | Less than 12 months |       |                  | 12 months or more |     |           | Total |                 
|(in thousands)                        |  | FairValue           |       | UnrealizedLosses |                   |     | FairValue |       | UnrealizedLosses |        |  | FairValue |        | UnrealizedLosses | 
|Mortgage-backed securities            |  |                     | 5,805 |                  |                   | (27 | )         |       |                  |       |  |           |       |                  |  |   | 5,805  |  |   | (27    | )
|Collateralized mortgage obligations   |  |                     |      |                  |                   |    |           |       |                  | 14,863 |  |           | (7,846 | )                |  |   | 14,863 |  |   | (7,846 | )
|                                      |  |                     |       |                  |                   |     |           |       |                  |        |  |           |        |                  |  |   |        |  |   |        |  
|Total temporarily impaired securities |  | $                   | 5,805 |                  | $                 | (27 | )         |       | $                | 14,863 |  | $         | (7,846 | )                |  | $ | 20,668 |  | $ | (7,873 | )
|                                      |  |                     |       |                  |                   |     |           |       |                  |        |  |           |        |                  |  |   |        |  |   |        |  

At June 30, 2009 the Company has seven securities in an unrealized loss position.

During the quarter ended June 30, 2009, we determined that, based on our most recent estimate of cash flows, other-than-temporary-impairment
(OTTI) had occurred with respect to one of our mortgage-backed securities and resulted in a pre-tax charge to earnings of $500,000. This security was rated AA by S&P at origination. This security had an original principle
balance of $5.0 million and has a current principle balance of $3.4 million. This security has an estimated fair value of $1.5 million at June 30, 2009. Most of the decline in fair value related to this security is principally due to non-credit
factors. Impairment is evaluated considering numerous factors, and their relative significance varies case to case. Factors considered include the length of time and extent to which the market value has been less than cost; the financial condition
and near-term prospects of the issuer; and the intent and ability to retain the security in order to allow for an anticipated recovery in market value. Under the revised guidance, the amount of other-than-temporary impairment that is recognized
through earnings is determined by comparing the present value of the expected cash flows to the amortized cost of the security. The discount rate used to determine the credit loss is the expected book yield on the security.



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BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 6 - Cash Flow Presentation

For purposes of the statements of cash flows, cash and cash equivalents include cash and amounts due from depository institutions, investments in federal funds, and certificates of deposit with original maturities of
90 days or less.

Note 7 - Earnings Per Share

Basic per share amounts are based on the weighted average shares of common stock outstanding. Diluted earnings per share assume the conversion, exercise or issuance of all potential common stock instruments such as options and warrants,
unless the effect is to reduce a loss or increase earnings per share. The basic and diluted weighted average common shares outstanding for the nine and three month periods ended June 30, 2009 and 2008 are as follows:



|                                                                        |  |                                      |      |   |        |       |           |   |      |               |  |        |     |           |       |  |   |    
|----------------------------------------------------------------------- |  | ------------------------------------ | ---- | - | ------ | ----- | --------- | - | ---- | ------------- |  | ------ | --- | --------- | ----- |  | - | ---
|                                                                        |  | For the Nine Months Ended June 30,  
|                                                                        |  | 2009                                 |      |   | 2008  
|                                                                        |  | (in thousands except per share data)
|                                                                        |  | Income (Loss)                        |      |   | Shares |       | Per Share |   |      | Income        |  | Shares |     | Per Share
|Basic EPS                                                               |  |                                      |      |   |        |       |           |   |      |               |  |        |     |           |       |  |   |    
|Net Income                                                              |  | $                                    | (76  | ) |        | 2,906 |           | $ | (.03 | )             |  | $      | 434 |           | 3,052 |  | $ | .14
|Less preferred dividend                                                 |  |                                      | (322 | ) |        | 2,906 |           |   | (.11 | )             |  |        |    |           |      |  |   |   
|                                                                        |  |                                      |      |   |        |       |           |   |      |               |  |        |     |           |       |  |   |    
|Income available to common shareholders                                 |  |                                      | (398 | ) |        | 2,906 |           |   | (.14 | )             |  |        | 434 |           | 3,052 |  |   | .14
|Diluted EPS                                                             |  |                                      |      |   |        |       |           |   |      |               |  |        |     |           |       |  |   |    
|Effect of dilutive shares                                               |  |                                      |     |   |        |      |           |   |     |               |  |        |    |           | 12    |  |   |   
|                                                                        |  |                                      |      |   |        |       |           |   |      |               |  |        |     |           |       |  |   |    
|Income available to common shareholders plus assumed conversions        |  | $                                    | (398 | ) |        | 2,906 |           | $ | (.14 | )             |  | $      | 434 |           | 3,064 |  |   | .14
|                                                                        |  |                                      |      |   |        |       |           |   |      |               |  |        |     |           |       |  |   |    
|                                                                        | 
|                                                                        |  | For the Three Months June 30,       
|                                                                        |  | 2009                                 |      |   | 2008  
|                                                                        |  | (in thousands except per share data)
|                                                                        |  | Income (Loss)                        |      |   | Shares |       | Per Share |   |      | Income (Loss) |  | Shares |     | Per Share
|Basic EPS                                                               |  |                                      |      |   |        |       |           |   |      |               |  |        |     |           |       |  |   |    
|Net Income                                                              |  | $                                    | (418 | ) |        | 2,909 |           | $ | (.14 | )             |  | $      | 285 |           | 2,925 |  | $ | .09
|Less preferred dividend                                                 |  |                                      | (157 | ) |        | 2,909 |           |   | (.06 | )             |  |        |    |           |      |  |   |   
|                                                                        |  |                                      |      |   |        |       |           |   |      |               |  |        |     |           |       |  |   |    
|Income (loss) available to common shareholders                          |  |                                      | (575 | ) |        | 2,909 |           |   | (.20 | )             |  |        | 285 |           | 2,925 |  |   | .09
|Diluted EPS                                                             |  |                                      |      |   |        |       |           |   |      |               |  |        |     |           |       |  |   |    
|Effect of dilutive shares                                               |  |                                      |     |   |        |      |           |   |     |               |  |        |    |           | 10    |  |   |   
|                                                                        |  |                                      |      |   |        |       |           |   |      |               |  |        |     |           |       |  |   |    
|Income (loss) available to common shareholders plus assumed conversions |  | $                                    | (575 | ) |        | 2,909 |           | $ | (.20 | )             |  | $      | 285 |           | 2,935 |  | $ | .09
|                                                                        |  |                                      |      |   |        |       |           |   |      |               |  |        |     |           |       |  |   |    

Options to purchase 85,971 shares which were outstanding at June 30, 2009 and 86,151 shares
which were outstanding June 30, 2008, were not included in the computation of diluted EPS because the effect of which would have been anti-dilutive.



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 8 - Preferred Stock

On December 23, 2008, as part of the Troubled Asset Relief Program (TARP) Capital Purchase Program, the Company entered into a Letter Agreement, and the related Securities Purchase Agreement  Standard Terms
(collectively, the Purchase Agreement), with the United States Department of the Treasury (Treasury), pursuant to which the Company issued (i) 10,800 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A,
liquidation preference $1,000 per share (Series A preferred stock), and (ii) a warrant to purchase 183,465 shares of the Companys common stock, par value $0.01 per share, for an aggregate purchase price of $10,800,000 in cash.

The Series A preferred stock qualifies as Tier 1 capital and pays cumulative dividends at a rate of 5% per annum until
February 15, 2014. Beginning February 16, 2014, the dividend rate will increase to 9% per annum. On and after February 15, 2012, the Company may, at its option, redeem shares of Series A preferred stock, in whole or in part, at
any time and from time to time, for cash at a per share amount equal to the sum of the liquidation preference per share plus any accrued and unpaid dividends to but excluding the redemption date. Under the original terms of the Purchase Agreement,
the Company is prohibited from redeeming the Series A preferred stock within the first three years unless it completed a qualified equity offering whereby it received aggregate gross proceeds of not less than $2.7 million. However, the provisions
introduced by the American Recovery and Reinvestment Act of 2009 indicate that once the Company notifies Treasury that it would like to redeem the Series A preferred stock, the Treasury must permit the Company to do so subject to consultation with
the OTS. The Company will be subject to existing supervisory procedures for approving redemption requests for capital instruments. The OTS will weigh the Companys desire to redeem the Series A preferred stock against the contribution of
Treasury capital to the Companys overall soundness, capital adequacy and ability to lend, including confirming that the Company has a comprehensive internal capital assessment process.

The warrant is exercisable at $8.83 per share at any time on or before December 23, 2018. The number of shares of common stock issuable upon
exercise of the warrant and the exercise price per share will be adjusted if specific events occur.

The Series A preferred stock and the
warrants were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. Neither the Series A preferred stock nor the warrant will be subject to any contractual restrictions on transfer,
except that Treasury may not transfer a portion of the warrant with respect to, or exercise the warrant for, more than one-half of the shares of common stock underlying the warrant prior to the earlier of (a) the date on which the Company has
received aggregate gross proceeds of not less than $10,800,000 from one or more qualified equity offerings and (b) December 31, 2009.

Note 9 -
Regulatory Capital

The following table sets forth the Banks capital position at June 30, 2009.



|                   |  |                                   |        |            |                              |   |                |                                                               |            |  |      |                |  |            |        |  |       |     
|------------------ |  | --------------------------------- | ------ | ---------- | ---------------------------- | - | -------------- | ------------------------------------------------------------- | ---------- |  | ---- | -------------- |  | ---------- | ------ |  | ----- | ----
|                   |  | Actual                            |        |            | For CapitalAdequacy Purposes |   |                | To Be WellCapitalized UnderPrompt CorrectiveAction Provisions |           
|                   |  | ActualAmount                      |        | % ofAssets |                              |   | RequiredAmount |                                                               | % ofAssets |  |      | RequiredAmount |  | % ofAssets |       
|                   |  | (Unaudited)(dollars in thousands) |       
|Tangible (1)       |  | $                                 | 64,518 |            | 11.16                        | % |                | $                                                             | 8,672      |  | 1.50 | %              |  | $          | N/A    |  | N/A   | %(3)
|Tier I capital (2) |  |                                   | 64,518 |            | 16.74                        |   |                |                                                               | N/A        |  | N/A  | (3)            |  |            | 23,126 |  | 6.00  |     
|Core (1)           |  |                                   | 64,518 |            | 11.16                        |   |                |                                                               | 23,125     |  | 4.00 |                |  |            | 28,906 |  | 5.00  |     
|Risk-weighted (2)  |  |                                   | 67,382 |            | 17.48                        |   |                |                                                               | 30,835     |  | 8.00 |                |  |            | 38,544 |  | 10.00 |     



|(1) | To adjust total assets
|--- | ----------------------



|(2) | To risk-weighted assets
|--- | -----------------------



|(3) | Not applicable
|--- | --------------



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 10 - Stock Option Plans

The Company has a stock option plan (the Plan) whereby 120,366 shares of common stock have been reserved for issuance under the Plan. Options granted under the Plan may be Incentive Stock Options within
the meaning of Section 422 of the Internal Revenue Code of 1986 as amended or Non-Qualified Stock Options. Options are exercisable in annual installments at the market price of common stock at the date of grant. The Options must be exercised
within ten years from the date of grant. There were 43,428 options granted during the year ended September 30, 2002, 15,792 options granted during the year ended September 30, 2007, 22,193 options granted during the year ended
September 30, 2008 and 11,796 options granted during the nine months ended June 30, 2009.

At the May 20, 2009 annual
meeting the Company approved a 2009 equity incentive plan, the aggregate number of shares of common stock reserved and available for issuances pursuant to awards granted under the 2009 Plan is 268,437, of which the Committee may grant up to 76,697
in the form of restricted stock and/or performance awards and 191,740 in the form of stock options. For the period ending June 30, 2009 there were no options granted from this plan.

At June 30, 2009 there were 9,738 shares under option with an exercise price of $15.19 and a weighted average remaining life of .02 years, 26,451
shares with an exercise price of $21.60 and a weighted average remaining life of 3.00 years, 4,211 shares with an exercise price of $28.44 and a weighted average remaining life of 7.50 years, 1,053 shares with an exercise price of $17.95 and a
weighted average life of 8.50 years, and 5,549 shares with an exercise price of $11.61 and a weighted average life of 8.75 years. The total exercisable shares of 47,002 have a weighted average remaining life of 3.50 years, and an aggregate intrinsic
value of $0.

In connection with the second-step conversion completed in April 10, 2008 all outstanding options and shares were
adjusted based upon the .5264 exchange ratio. The number of shares subject to options and the exercise prices were adjusted to reflect the proportional change in values that resulted from the exchange.



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table presents the activity related to options under all plans for the three months ended June 30,
2009.



|                                  |  |         |   |  |                                |      
|--------------------------------- |  | ------- | - |  | ------------------------------ | -----
|                                  |  | Shares  |   |  | Weighted AverageExercise Price
|Outstanding at September 30, 2008 |  | 86,151  |   |  | $                              | 18.99
|Options exercised                 |  |        |   |  |                                |     
|Forfeited                         |  | (11,976 | ) |  |                                | 20.26
|Granted                           |  | 11,796  |   |  |                                | 8.25 
|                                  |  |         |   |  |                                |      
|Outstanding at June 30, 2009      |  | 85,971  |   |  | $                              | 17.08
|                                  |  |         |   |  |                                |      
|Exercisable at June 30, 2009      |  | 47,002  |   |  | $                              | 19.63
|                                  |  |         |   |  |                                |      

There were 11,796 options granted during the nine months ended June 30, 2009 and 22,193 were
granted during the nine months ended June 30, 2008. The fair values of our options granted were calculated using the Black-Scholes option-pricing model with the following weighted average assumptions for the nine months ended June 30, 2009
and for the nine months ended June 30, 2008.



|                        |  |      |           |   |      |   |             |  
|----------------------- |  | ---- | --------- | - | ---- | - | ----------- | -
|                        |  | 2009 |           |   | 2008 |  
|Dividend Yield          |  | $    | 0         | % |      | $ | 0           | %
|Expected volatility     |  |      | 37.41     |   |      |   | 29.42       |  
|Risk-free interest rate |  |      | .76       |   |      |   | 3.15        |  
|Expected lives          |  |      | 7.5 years |   |      |   | 10.00 years |  
|                        |  |      |           |   |      |   |             |  



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 11 - Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141, Revised 2007 (SFAS 141R), Business Combinations. SFAS 141Rs objective is to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after
December 31, 2008. The adoption of this standard did not have a material impact on the Companys consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements SFAS 160s objective is to improve the relevance, comparability, and transparency of the financial
information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for deconsolidation of a subsidiary. SFAS 160 shall be
effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008. The adoption of this standard did not have a material impact on the Companys consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB
Statement No. 133. This statement changes the disclosure requirements for derivative instruments and hedging activities. SFAS No. 161 requires enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entitys financial
position, financial performance, and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of this standard did not have a material
impact on our consolidated financial statements.

In April 2009, the FASB issuedStaff Positions FAS 107-1 and APB 28-1, FAS 157-4, FAS
115-2 and FAS 124-2, Other Than Temporary Impairment. FASB has issued FSPs to address concerns regarding (1) determining whether a market is not active and a transaction is not orderly, (2) recognition and presentation of
other-than-temporary impairments and (3) interim disclosures of fair values of financial instruments. The FSPs will be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009. The Company adopted the FSPs effective for the period ending June 30, 2009 As a result of the adoption of the FSPs, impairment recognition for the Companys investment and mortgage-backed securities are now
segmented into credit and non credit related components. Any fair value adjustment due to identified credit-related components will be recorded as an adjustment to current period earnings, while noncredit-related fair value adjustments will be
recorded through other comprehensive income.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS
165), which sets forth general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 was effective June 15, 2009 and
did not have a material impact on our Consolidate Financial Statements.

In June 2009, the FASB issued SFAS No. 168, The FASB
Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 (SFAS 168), which establishes the FASB Accounting Standards Codification as the
source of authoritative accounting principles recognized by the FASB to be applied in preparation of financial statements in conformity with generally accepted accounting principles. SFAS 168 explicitly recognizes rules and interpretive releases of
the Securities and Exchange Commission (SEC) under federal securities laws as authoritative GAAP for SEC registrants. SFAS 168 will become effective September 15, 2009, and will not have a material impact on our Consolidated
Financial Statements.



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 12 - Guarantees

The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit written are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. Generally, all letters of credit, when issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending
loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company has $1.3 million of standby letters of credit as of June 30, 2009. Management believes that the proceeds
obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payment required under the corresponding guarantees. The current amount of the liability as of June 30,
2009 for guarantees under standby letters of credit issued is not considered to be material.

Note 13 - Fair Value Measurements

Effective October 1, 2008, the Company adopted SFAS No. 157  Fair Value Measurements (SFAS No. 157). This
statement defined the concept of fair value, established a framework for measuring fair value in GAAP, and expands disclosure about fair value measurements. SFAS No. 157 applies only to fair value measurements required or permitted under
current accounting pronouncements, but does not require any new fair value measurements. Under FASB Staff Position No. 157-2, portions of SFAS No. 157 have been deferred until years beginning after November 15, 2008 for all
nonfinancial assets and nonfinancial liabilities recognized or disclosed at fair value in the financial statement on a recurring basis. Therefore, the Company has partially adopted the provisions of SFAS No. 157. Fair value is defined as the
price to sell an asset or to transfer a liability in an orderly transaction between willing market participants as of the measurement date. The statement also expands disclosures about financial instruments that are measured at fair value and
eliminates the use of large position discounts for financial instruments quoted in active markets. The disclosures emphasis is on the inputs used to measure fair value and the effect on the measurement on earnings for the period. The adoption
of SFAS No. 157 did not have any effect on the Companys financial position or results of operations.

SFAS No. 157
establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based on the inputs used to value the particular asset or liability at the measurement date. The three levels are defined as follows:



| |  |  | Level 1  inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2  inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted process of identical or
similar assets or liabilities in markets that are not active, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  inputs to the valuation methodology are unobservable and significant to the fair value measurement.
| | - |  | -------------------------------------------------------------------------------------------------------------

Each financial instruments level assignment with the valuation hierarchy is based upon the lowest level of input that is significant to the fair
value measurement for the particular category.

The following is a description of the valuation methodologies used for instruments measured
at fair value, as well as the general classification of each instrument under the valuation hierarchy.

Securities Available for Sale

Fair values of investment securities are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted
cash flows and are generally classified within Level 2 of the valuation hierarchy.



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 13 - Fair Value Measurements - continued

The following table presents the financial instruments measured at fair value on the recurring basis as of June 30, 2009 on the Consolidated Statement of Financial Condition utilizing the SFAS No. 157
hierarchy discussed above.



|                              |  |                  |        |         |   |         |  |         |        |                                                       |   |   |  |   |     |    
|----------------------------- |  | ---------------- | ------ | ------- | - | ------- |  | ------- | ------ | ----------------------------------------------------- | - | - |  | - | --- | ---
|                              |  | At June 30, 2009 |       
|($ in thousands)              |  | Total            |        | Level 1 |   | Level 2 |  | Level 3 |        | Total changesIn fair
valuesIncluded in PeriodEarnings |  
|Securities available for sale |  | $                | 91,083 |         | $ |        |  | $       | 91,083 |                                                       | $ |  |  | $ | 500 | (1)
|                              |  |                  |        |         |   |         |  |         |        |                                                       |   |   |  |   |     |    



|(1) | Represents other-than-temporary-impairment charges taken on certain Level 2 securities
|--- | --------------------------------------------------------------------------------------

Nonrecurring fair value changes

Certain assets and liabilities are measured at fair value on a nonrecurring
basis. These instruments are not measured at fair value on an ongoing basis, but are subject to fair value in certain circumstances, such as when there is evidence of impairment that may require write downs. The write-downs for the Companys
more significant assets or liabilities measured on a non-recurring basis are based on the lower of amortized cost or estimated fair value.

Impaired
Loans

The Company considers loans to be impaired when it becomes probable that the Company will be unable to collect all amounts due in accordance
with the contractual terms of the loan agreement. All non-accrual loans are considered impaired. The measurement of impaired loans is based on the present value of the expected cash flows discounted at the historical effective interest rate, the
market price of the loan, or the fair value of the underlying collateral asset.

Foreclosed Real Estate and Repossessed Assets

Once an asset is determined to be uncollectible, the underlying collateral is repossessed and reclassified to Foreclosed Real Estate and repossessed assets. These assets
are carried at lower of cost or fair value of the collateral, less costs to sell. Foreclosed real estate was $639,000 at June 30, 2009.

Impaired
loans are classified as Level 3 within the valuation hierarchy.



|                                              |  |                  |       |         |   |         |  |         |   |  |   |      
|--------------------------------------------- |  | ---------------- | ----- | ------- | - | ------- |  | ------- | - |  | - | -----
|                                              |  | At June 30, 2009
|($ in thousands)                              |  | Total            |       | Level 1 |   | Level 2 |  | Level 3
|Impaired Loans                                |  | $                | 3,680 |         | $ |        |  | $       |  |  | $ | 3,680
|Foreclosed Real Estate and Repossessed Assets |  | $                | 639   |         | $ |        |  | $       |  |  | $ | 639  
|                                              |  |                  |       |         |   |         |  |         |   |  |   |      
|Total                                         |  | $                | 4,319 |         | $ |        |  | $       |   |  | $ | 4,319
|                                              |  |                  |       |         |   |         |  |         |   |  |   |      



|                                                                                                        |  |               |      
|------------------------------------------------------------------------------------------------------- |  | ------------- | -----
|($ in thousands)                                                                                        |  | ImpairedLoans
|Balance at September 30, 2008                                                                           |  | $             | 835  
|Total net gains for the year                                                                            |  |               |     
|Net transfers in/(out) Level 3                                                                          |  |               | 3,484
|                                                                                                        |  |               |      
|Balance at June 30, 2009                                                                                |  | $             | 4,319
|                                                                                                        |  |               |      
|Net realized gains included in net income for the year to date relating to sales of repossessed assets. |  | $             | 196  
|                                                                                                        |  |               |      



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 14 - Disclosures About Fair Value of Financial Instruments

The estimated fair values of the Banks financial instruments are summarized below. The fair values of a significant portion of these financial
instruments are estimates derived using present value techniques prescribed by the FASB and may not be indicative of the net realizable or liquidation values. Also, the calculation of estimated fair values is based on market conditions at a specific
point in time and may not reflect current or future fair values.

The carrying amount is a reasonable estimate of fair value for cash,
federal funds and interest-bearing deposits in other banks. Fair value is based on bid prices and pricing models received from third party pricing services for investment securities and mortgage backed securities. The carrying amount of Federal Home
Loan Bank of Atlanta stock is a reasonable estimate of fair value. Loans receivable were discounted using a single discount rate, comparing the current rates at which similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities. These rates were used for each aggregated category of loans as reported on the Office of Thrift Supervision Quarterly Report. The fair value of demand deposits, savings accounts and money market deposits is the amount
payable on demand at the reporting date. Trust Preferred Securities are considered to be at fair value. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered on deposits of similar remaining
maturities. The fair value of Federal Home Loan Bank advances is estimated using rates currently offered on advances of similar remaining maturities. The carrying amounts of accrued interest receivable, accrued interest payable, and mortgage
servicing rights approximate fair value. 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.

The Company charges fees for commitments to extend credit. Interest rates on loans for which these
commitments are extended are normally committed for periods of less than one month. Fees charged on standby letters of credit and other financial guarantees are deemed to be immaterial and these guarantees are expected to be settled at face amount
or expire unused. It is impractical to assign any fair value to these commitments.



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##### Table of Contents

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 14 - Disclosures About Fair Value of Financial Instruments - Continued

The estimated fair values of the Banks financial instruments are as follows:



|                                                |  |                |         |                        |   |                |  |                     |         |  |   |        
|----------------------------------------------- |  | -------------- | ------- | ---------------------- | - | -------------- |  | ------------------- | ------- |  | - | -------
|                                                |  | June 30, 2009  |         | September 30, 2008    
|                                                |  | CarryingAmount |         | Estimated FairValue    |   | CarryingAmount |  | Estimated FairValue
|                                                |  |                |         | (Amounts in Thousands) |   |               
|Financial Assets                                |  |                |         |                        |   |                |  |                     |         |  |   |        
|Cash                                            |  | $              | 8,324   |                        | $ | 8,324          |  | $                   | 8,305   |  | $ | 8,305  
|Interest-bearing deposits in other banks        |  |                | 30,712  |                        |   | 30,712         |  |                     | 5,741   |  |   | 5,741  
|Federal funds sold                              |  |                | 17,075  |                        |   | 17,075         |  |                     | 20,937  |  |   | 20,937 
|Interest-bearing time deposits                  |  |                | 100     |                        |   | 100            |  |                     | 100     |  |   | 100    
|Investment securities  available for sale      |  |                |        |                        |   |               |  |                     | 994     |  |   | 994    
|Loans Receivable                                |  |                |         |                        |   |                |  |                     |         |  |   |        
|Mortgage loans                                  |  |                | 387,621 |                        |   | 391,085        |  |                     | 383,459 |  |   | 385,515
|Share loans                                     |  |                | 739     |                        |   | 739            |  |                     | 758     |  |   | 758    
|Consumer loans                                  |  |                | 10,521  |                        |   | 10,819         |  |                     | 16,252  |  |   | 16,475 
|Mortgage-backed securities  available for sale |  |                | 91,083  |                        |   | 91,083         |  |                     | 89,956  |  |   | 89,956 
|Federal Home Loan Bank of Atlanta stock         |  |                | 1,485   |                        |   | 1,485          |  |                     | 1,559   |  |   | 1,559  
|Accrued interest receivable                     |  |                | 2,282   |                        |   | 2,282          |  |                     | 2,811   |  |   | 2,811  
|Mortgage servicing rights                       |  |                | 316     |                        |   | 316            |  |                     | 379     |  |   | 379    
|                                                |  |                |         |                       
|Financial Liabilities                           |  |                |         |                        |   |                |  |                     |         |  |   |        
|Deposits                                        |  | $              | 503,370 |                        | $ | 505,479        |  | $                   | 484,791 |  | $ | 485,306
|Federal Home Loan Bank of Atlanta advances      |  |                |        |                        |   |               |  |                     | 10,000  |  |   | 9,991  
|Junior Subordinated Debt                        |  |                | 17,011  |                        |   | 17,011         |  |                     | 17,011  |  |   | 17,011 
|Accrued interest payable                        |  |                | 67      |                        |   | 67             |  |                     | 41      |  |   | 41     



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

General

BCSB Bancorp, Inc. BCSB Bancorp (BCSB Bancorp or the
Company), a Maryland corporation, is the holding company for Baltimore County Savings Bank, F.S.B. and its subsidiaries (the Bank). The Companys primary asset is its investment in the Bank. The Company is primarily
engaged in the business of directing, planning, and coordinating the business activities of the Bank. The Companys most significant asset is its investment in the Bank. Accordingly, the information set forth in this Quarterly Report on Form
10-Q, including financial statements and related data, relates primarily to the Bank. In the future, the Company may become an operating company or acquire or organize other operating subsidiaries, including other financial institutions. Currently,
the Company does not maintain offices separate from those of the Bank or employ any persons other than officers of the Bank who are not separately compensated for such service. At June 30, 2009, the Company had total assets of $587.1 million,
total deposits of $503.4 million and stockholders equity of $59.6 million.

The Companys and the Banks executive offices
are located at 4111 E. Joppa Road, Suite 300, Baltimore, Maryland 21236, and its main telephone number is (410) 256-5000.

Baltimore County Savings Bank, F.S.B.The Bank is a community-oriented financial institution dedicated to serving the financial service needs of consumers and businesses within its market area, which consists of
the Baltimore Metropolitan Area. The Bank is subject to extensive regulation, examination and supervision by the Office of Thrift Supervision, its primary federal regulator, and the Federal Deposit Insurance Corporation (FDIC), its
deposit insurer. The Bank attracts deposits from the general public and invests these funds in loans secured by first mortgages on owner-occupied, single-family residences in its market area and other real estate loans consisting of commercial real
estate loans, construction loans and single-family rental property loans. The Bank also originates consumer loans and commercial loans. The Bank derives its income primarily from interest earned on these loans, and to a lesser extent, interest
earned on investment securities and mortgage-backed securities. The Bank operates out of its main office in Baltimore County, Maryland and 18 branch offices in Baltimore County, Harford County, Howard County and Baltimore City in Maryland.

Available Information

The
Company and Bank maintain an Internet website at http://www.baltcosavings.com. The Company makes available its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to such reports filed with
the Securities and Exchange Commission (SEC) as well as other information related to the Company, free of charge. SEC reports are available on this site as soon as reasonably practicable after electronically filed.

Completed Reorganization

On April 10,
2008, a second-step conversion was completed after which Baltimore County Savings Bank, M.H.C. and BCSB Bankcorp, Inc. ceased to exist, a newly organized Maryland corporation, BCSB Bancorp, Inc., became the holding company for the Bank. As part of
the conversion a total of 1,976,538 shares the Companys common stock were sold at $10.00 per share in a public offering and the Company received net proceeds of approximately $17.1 million. The Company contributed $8.5 million or approximately
50% of the net proceeds to the Bank. The Company also loaned $1.2 million to the Banks Employee Stock Ownership Plan (the ESOP) and the ESOP used those funds to acquire 122,197 shares of the Companys common stock. As part of
the conversion, each outstanding public share of BCSB Bankcorp, Inc. was exchanged for 0.5264 shares of the Companys common stock. Information herein for dates and periods prior to April 10, 2008 reflects such information for BCSB
Bankcorp, Inc.



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##### Table of Contents

Recent Developments

FDIC Deposit Insurance Fund Restoration Plan Announced

On February 27, 2009, the FDIC
announced a proposed rule outlining its plan to implement an emergency special assessment on all insured depository institutions in order to restore the Deposit Insurance Fund to an acceptable level. The assessment, which is assessed as of
June 30, 2009 and is payable on September 30, 2009, is in addition to increases in regular premiums assessed by the FDIC. In addition, the proposed rule provides that after June 30, 2009, if the reserve ratio of the Deposit Insurance
Fund is estimated to fall to a level that the FDIC believes would adversely affect public confidence, or to a level which is close to or less than zero at the end of a calendar quarter, then an additional emergency special assessment may be imposed
on all insured depository institutions. The FDIC special assessment was estimated to be $270,000 for the period ended June 30, 2009.

Critical
Accounting Policies

Managements discussion and analysis of the Companys financial condition is based on the
consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Management evaluates its estimates, including those related to the allowance for loan losses.

Management believes the allowance for loan losses is a critical accounting policy that requires the most significant estimates and assumptions used in
the preparation of the consolidated financial statements. The allowance for loan losses is based on managements evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio. Management
believes the allowance for loan losses is a significant estimated loss and therefore regularly evaluates it for adequacy by taking into consideration factors such as prior loan loss experience, the character and size of the loan portfolio, business
and economic conditions and managements estimation of losses. The use of different estimates or assumptions could produce different provisions for loan losses.

Securities are evaluated periodically to determine whether a decline in their value is other than temporary. The term other than temporary is not intended to indicate a permanent decline in value. Rather,
it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Management reviews criteria such
as the magnitude and duration of the decline, as well as the reasons for the decline, to predict whether the loss in value is other than temporary. We adopted FSP No. 157-4 Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Indentifying Transactions That Are Not Orderly, and FSP No. FAS 115-1 and FAS 124-2, Recognition and Presentation of Other Than Temporary Impairments, for the quarter ended June 30,
1009.As a result of the adoption of the FSPs, impairment recognition is now segmented into credit and noncredit related components. Any fair value adjustment due to identified credit-related components will be recorded as an adjustment to
current period earnings, while noncredit-related fair value adjustments will be recorded through other comprehensive income.

Management
accounts for income taxes under the asset/liability method. Deferred tax assets are recognized for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax basis, as well as operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period indicated by the enactment date. A valuation allowance is established for deferred tax assets when,
in the judgment of management, it is more likely than not that such deferred tax assets will not become realizable. The judgment about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond
managements control. It is at least reasonably possible that managements judgment about the need for a valuation allowance for deferred tax assets could change in the near term.



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##### Table of Contents

Forward-Looking Statements

When used in this Quarterly Report on Form 10-Q, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate,
project or similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties
including changes in economic conditions in the Companys market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Companys market area, competition and information provided by
third-party vendors that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Companys financial performance and could cause the Companys actual results for future periods to differ materially
from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake, and
specifically disclaims any obligation, to publicly release the result of any revisions which 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.

Comparison of Financial Condition at June 30, 2009 and September 30, 2008

During the nine months ended June 30, 2009, assets increased by $20.0 million, or 3.5%, from $567.1 million at September 30, 2008 to $587.1
million at June 30, 2009. Our cash and cash equivalents increased $21.1 million, or 60.4% from $35.0 million at September 30, 2008 to $56.1 million at June 30, 2009 due to proceeds received from our participation in TARP as described
below and an increase in deposits. Net loans receivable decreased $1.6 million, or .40%, from $400.5 million at September 30, 2008 to $398.9 million at June 30, 2009. Managements lending strategy remains focused on commercial real
estate, commercial business and home equity lending. We have ceased our indirect auto lending program. The indirect loan portfolio, which was $4.4 million at June 30, 2009, is expected to decline over time as the loans are paid down.
Mortgage-backed securities available for sale increased by $1.1 million, or 1.2%, from $90.0 million at September 30, 2008 to $91.1 million at June 30, 2009 resulting from securities purchased during the period. At June 30, 2009, all
mortgage-backed securities were classified as available for sale for liquidity purposes. The cash surrender value on the bank owned life insurance increased $382,000, or 2.6% from $14.4 million at September 30, 2008 to $14.8 million at
June 30, 2009.

Deposits increased by $18.6 million, or 3.8 %, from $484.8 million at September 30, 2008 to $503.4 million
at June 30, 2009. The Banks current strategy remains focused on increasing core deposits such as checking and savings accounts. During the quarter ended June 30, 2009 the Bank repaid the $10.0 million in Federal Home Loan Bank
advances outstanding as of September 30, 2008. Advances may be used to fund loan demand when other available liquidity sources do not meet this demand.

Stockholders equity increased by $9.8 million, or 19.7%, from $49.8 million at September 30, 2008 to $59.6 million at June 30, 2009. On December 23, 2008, as part of the Troubled Asset Relief
Program (TARP) Capital Purchase Program, the Company entered into a Letter Agreement, and the related Securities Purchase Agreement  Standard Terms (collectively, the Purchase Agreement), with the United States
Department of the Treasury (Treasury), pursuant to which the Company issued (i) 10,800 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, liquidation preference $1,000 per share (Series A preferred
stock), and (ii) a warrant to purchase 183,465 shares of the Companys common stock, par value $0.01 per share, for an aggregate purchase price of $10,800,000 in cash. The Company contributed $5.5 million or approximately 51% of the
net proceeds to the Bank in the form of a capital contribution. This was partially offset by an increase in the accumulated other comprehensive loss of $808,000 from $(2.5) million at September 30, 2008 to $(3.3) million at June 30, 2009.

The Series A preferred stock qualifies as Tier 1 capital and pays cumulative dividends at a rate of 5% per annum until
February 15, 2014. Beginning February 16, 2014, the dividend rate will increase to 9% per annum. On and after February 15, 2012, the Company may, at its option, redeem shares of Series A preferred stock, in whole or in part, at
any time and from time to time, for cash at a per share amount equal to the sum of the liquidation preference per share plus any accrued and unpaid dividends to but excluding the redemption date. Under the original terms of the Purchase Agreement,
the Company is prohibited from redeeming the Series A preferred stock within the first three years unless it completed a qualified equity offering whereby it received aggregate gross proceeds of not less than $2.7 million. However, the provisions
introduced by the American Recovery and Reinvestment Act of 2009 indicate that once the Company notifies Treasury that it would like to redeem the Series A preferred stock, the Treasury must permit the Company to do so subject to consultation with
the OTS. The Company will be subject to existing supervisory procedures for approving redemption requests for capital instruments. The OTS will weigh the Companys desire to redeem the Series A preferred stock against the contribution of
Treasury capital to the Companys overall soundness, capital adequacy and ability to lend, including confirming that the Company has a comprehensive internal capital assessment process.



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##### Table of Contents

The warrant is exercisable at $8.83 per share at any time on or before December 23, 2018. The number
of shares of common stock issuable upon exercise of the warrant and the exercise price per share will be adjusted if specific events occur.

The Series A preferred stock and the warrants were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. Neither the Series A preferred stock nor the warrants will be
subject to any contractual restrictions on transfer, except that Treasury may not transfer a portion of the warrant with respect to, or exercise the warrant for, more than one-half of the shares of common stock underlying the warrant prior to the
earlier of (a) the date on which the Company has received aggregate gross proceeds of not less than $10,800,000 from one or more qualified equity offerings and (b) December 31, 2009.

Our accumulated other comprehensive loss net of taxes was $3.3 million at June 30, 2009, compared to accumulated other comprehensive loss net of
taxes of $2.5 million at September 30, 2008. At June 30, 2009, we had $7.8 million of gross unrealized losses related to collateralized mortgage obligations with an amortized cost of $22.7 million as of that date. These securities contain
mortgages with Alt-A characteristics. Gross unrealized losses for these same securities were approximately $4.0 million as of September 30, 2008. We recorded other-than-temporary impairment (OTTI) charges of $500,000 on these
securities during the three months ended June 30, 2009. We have the ability and intent to hold these securities to maturity, and, to date, the securities have performed in accordance with their terms. If in the future it is determined that
declines in market values with respect to these or any other securities are other than temporary, the Company would be required to recognize additional losses in its Consolidated Statement of Operations.

Comparison of Operating Results for the Nine Months Ended June 30, 2009 and 2008

Net Income. Net income decreased by $510,000 from $434,000 for the nine months ended June 30, 2008 to a loss of $76,000 for the nine months
ended June 30, 2009. The decrease was primarily due to the increase in the provision for losses on loans of $900,000, an other-than-temporary impairment charge of $500,000, increased FDIC insurance premiums and additional professional fees. The
decrease was partially offset by improved net interest income and gain on sale of foreclosed real estate and repossessed assets.

Net
Interest Income. Net interest income increased by $1.1 million, or 10.3%, from $10.7 million for the nine months ended June 30, 2008 to $11.8 million for the nine months ended June 30, 2009. The increase in net interest income
primarily was due to an improved net interest margin resulting from reduced cost of funds on the deposit portfolio during the period. The net interest margin increased 46 basis points from 2.47% for the nine months ended June 30, 2008 to 2.93%
for the nine months ended June 30, 2009.

Interest Income. Interest income decreased by $3.6 million, or 13.7% from $26.1
million for the nine months ended June 30, 2008 to $22.5 million for the nine months ended June 30, 2009. Interest and fees on loans decreased by $1.7 million, or 8.4%, from $20.1 million for the nine months ended June 30, 2008 to
$18.4 million for the nine months ended June 30, 2009. This was partially due to a decrease in the average balance of loans receivable of $15.7 million from $412.8 million for the nine months ended June 30, 2008 to $397.0 million for the
nine months ended June 30, 2009. The average rate earned on loans also declined by 30 basis points from 6.50% for the nine months ended June 30, 2008 to 6.20% for the nine months ended June 30, 2009. Interest income on mortgage-backed
securities decreased by $291,000 or 6.9%, from $4.2 million for the nine months ended June 30, 2008 to $3.9 million for the nine months ended June 30, 2009. This decrease was primarily due to a decrease in the average balance of
mortgage-backed securities from $102.0 million for the nine months ended June 30, 2008 to $92.3 million for the nine months ended June 30, 2009. Interest and dividends on investment securities decreased by $158,000, or 82.7% from $191,000
for the nine months ended June 30, 2008 to $33,000 for the nine months ended June 30, 2009. This was primarily due to a decrease in the average balance from $4.3 million for the nine months ended June 30, 2008 to $2.2 million for the
nine months ended June 30, 2009 as these securities matured. Other interest income, which primarily consists of the investment in overnight federal funds decreased by $1.4 million, or 90.2% from $1.6 million for the nine months ended
June 30, 2008 to $156,000 for the nine months ended June 30, 2009. The decrease was primarily due to a decrease in the average yield on other investments of 308 basis points, from 3.52% for the nine months ended June 30, 2008 to
..44 % for the nine months ended June 30, 2009 due to drastic declines in interest rates over the period. The average balance of other interest earning assets also decreased by $13.4 million, from $60.5 million for the nine months ended
June 30, 2008 to $47.0 million for the nine months ended June 30, 2009.



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##### Table of Contents

Interest Expense. Interest expense, which consists of interest on deposits, interest on borrowed
money and other interest expense decreased from $15.4 million for the nine months ended June 30, 2008 to $10.7 million for the nine months ended June 30, 2009, a decrease of $4.7 million or 30.3%. Interest on deposits decreased $3.7
million from $13.4 million for the nine months ended June 30, 2008 to $9.7 million for the nine months ended June 30, 2009. This decrease was due to the decrease in the average cost of deposits of 71 basis points from 3.34% for the nine
months ended June 30, 2008 to 2.63% for the nine months ended June 30, 2009. There was also a decrease in the average balance of deposits of $44.9 million from $537.0 million for the nine months ended June 30, 2008 to $492.1 million
for the nine months ended June 30, 2009. The Banks current strategy is to focus on increasing core deposits such as checking and savings accounts. This strategy is at least partially responsible for the decrease in the average cost of
deposits. Interest on long-term borrowings decreased by $306,000 for the nine months ended June 30, 2009 as there were no long term borrowings outstanding during the period. Interest expense on the Junior Subordinated Debentures decreased by
$592,000 or 44.9% from $1.3 million for the nine months ended June 30, 2008 to $727,000 for the nine months ended June 30, 2009 due to the payoff of approximately $6.2 million of this debt during June 2008. Also contributing to the decline
in interest expense on Junior Subordinated Debentures was a decrease in the average cost of funds on the debt of 189 basis points, from 7.59% for the nine months ended June 30, 2008 to 5.70% for the nine months ended June 30, 2009. The
rates on the Junior Subordinated Debentures are based on LIBOR and adjust quarterly.



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##### Table of Contents

Average Balance Sheet. The following table sets forth certain information relating to the
Companys average balance sheet and reflects the average yield on assets and cost of liabilities for the periods indicated and the yields earned and rates paid. Such yields and costs are derived by dividing income or expense by the average
daily balance of assets or liabilities, respectively, for the nine month periods ended June 30, 2009 and 2008. Total average assets are computed using month-end balances.

The table also presents information for the periods indicated with respect to the differences between the average yield earned on interest-earning assets
and average rate paid on interest-bearing liabilities, or interest rate spread, which banks have traditionally used as an indicator of profitability. Another indicator of net interest income is net interest margin, which is
net interest income divided by the average balance of interest-earning assets.



|                                                                   |  |                                    |         |          |      |             |  |        |                |  |          |         |             |   |        |  |       |  
|------------------------------------------------------------------ |  | ---------------------------------- | ------- | -------- | ---- | ----------- |  | ------ | -------------- |  | -------- | ------- | ----------- | - | ------ |  | ----- | -
|                                                                   |  | For the Nine Months Ended June 30, |        
|                                                                   |  | 2009                               |         |          | 2008 |            
|                                                                   |  | AverageBalance                     |         | Interest |      | AverageRate |  |        | AverageBalance |  | Interest |         | AverageRate |  
|                                                                   |  | (Dollars in thousands)             |        
|Interest-earning assets:                                           |  |                                    |         |          |      |             |  |        |                |  |          |         |             |   |        |  |       |  
|Loans receivable, net                                              |  | $                                  | 397,040 |          | $    | 18,449      |  | 6.20   | %              |  | $        | 412,772 |             | $ | 20,131 |  | 6.50  | %
|Mortgage-backed securities                                         |  |                                    | 92,277  |          |      | 3,911       |  | 5.65   |                |  |          | 101,988 |             |   | 4,202  |  | 5.49  |  
|Investment securities                                              |  |                                    | 2,241   |          |      | 33          |  | 1.96   |                |  |          | 4,332   |             |   | 191    |  | 5.88  |  
|Other interest earning assets                                      |  |                                    | 47,049  |          |      | 156         |  | .44    |                |  |          | 60,464  |             |   | 1,594  |  | 3.52  |  
|                                                                   |  |                                    |         |          |      |             |  |        |                |  |          |         |             |   |        |  |       |  
|Total Interest-earning assets                                      |  |                                    | 538,607 |          |      | 22,549      |  | 5.58   |                |  |          | 579,556 |             |   | 26,118 |  | 6.01  |  
|Bank Owned Life Insurance                                          |  |                                    | 14,658  |          |      |             |  |        |                |  |          | 14,045  |             |   |        |  |       |  
|Noninterest-earning assets                                         |  |                                    | 29,017  |          |      |             |  |        |                |  |          | 29,197  |             |   |        |  |       |  
|                                                                   |  |                                    |         |          |      |             |  |        |                |  |          |         |             |   |        |  |       |  
|Total assets                                                       |  | $                                  | 582,282 |          |      |             |  |        |                |  | $        | 622,798 |             |   |        |  |       |  
|                                                                   |  |                                    |         |          |      |             |  |        |                |  |          |         |             |   |        |  |       |  
|Interest-bearing liabilities:                                      |  |                                    |         |          |      |             |  |        |                |  |          |         |             |   |        |  |       |  
|Deposits                                                           |  | $                                  | 492,150 |          | $    | 9,720       |  | 2.63   | %              |  | $        | 537,038 |             | $ | 13,441 |  | 3.34  | %
|Short-term FHLB Advances                                           |  |                                    | 8,425   |          |      | 284         |  | 4.49   |                |  |          | 10,000  |             |   | 337    |  | 4.49  |  
|Long-term FHLB Advances                                            |  |                                    |        |          |      |            |  |       |                |  |          | 8,462   |             |   | 306    |  | 4.82  |  
|Junior Subordinated Debentures                                     |  |                                    | 17,011  |          |      | 727         |  | 5.70   |                |  |          | 23,175  |             |   | 1,319  |  | 7.59  |  
|Other liabilities                                                  |  |                                    | 1,839   |          |      |            |  | .00    |                |  |          | 1,455   |             |   |       |  | .00   |  
|                                                                   |  |                                    |         |          |      |             |  |        |                |  |          |         |             |   |        |  |       |  
|Total interest-bearing liabilities                                 |  |                                    | 519,425 |          |      | 10,731      |  | 2.75   |                |  |          | 580,130 |             |   | 15,403 |  | 3.54  |  
|                                                                   |  |                                    |         |          |      |             |  |        |                |  |          |         |             |   |        |  |       |  
|Noninterest-bearing liabilities                                    |  |                                    | 5,338   |          |      |             |  |        |                |  |          | 1,941   |             |   |        |  |       |  
|                                                                   |  |                                    |         |          |      |             |  |        |                |  |          |         |             |   |        |  |       |  
|Total liabilities                                                  |  |                                    | 524,763 |          |      |             |  |        |                |  |          | 582,071 |             |   |        |  |       |  
|Stockholders Equity                                               |  |                                    | 57,519  |          |      |             |  |        |                |  |          | 40,727  |             |   |        |  |       |  
|                                                                   |  |                                    |         |          |      |             |  |        |                |  |          |         |             |   |        |  |       |  
|Total liabilities and stockholders equity                         |  | $                                  | 582,282 |          |      |             |  |        |                |  | $        | 622,798 |             |   |        |  |       |  
|                                                                   |  |                                    |         |          |      |             |  |        |                |  |          |         |             |   |        |  |       |  
|Net interest income                                                |  |                                    |         |          | $    | 11,818      |  |        |                |  |          |         |             | $ | 10,715 |  |       |  
|                                                                   |  |                                    |         |          |      |             |  |        |                |  |          |         |             |   |        |  |       |  
|Interest rate spread                                               |  |                                    |         |          |      |             |  | 2.83   | %              |  |          |         |             |   |        |  | 2.47  | %
|                                                                   |  |                                    |         |          |      |             |  |        |                |  |          |         |             |   |        |  |       |  
|Net interest margin                                                |  |                                    |         |          |      |             |  | 2.93   | %              |  |          |         |             |   |        |  | 2.47  | %
|                                                                   |  |                                    |         |          |      |             |  |        |                |  |          |         |             |   |        |  |       |  
|Ratio average interest earning assets/interest-bearing liabilities |  |                                    |         |          |      |             |  | 103.69 | %              |  |          |         |             |   |        |  | 99.90 | %
|                                                                   |  |                                    |         |          |      |             |  |        |                |  |          |         |             |   |        |  |       |  



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##### Table of Contents

Rate/Volume Analysis.The table below sets forth certain information regarding changes in interest
income and interest expense for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to: (i) changes in volume (changes in volume multiplied by old
rate); (ii) changes in rates (change in rate multiplied by old volume); and (iii) changes in rate/volume (changes in rate multiplied by the changes in volume).



|                                   |  |                                |        |   |      |   |        |   |  |             |  |   |       |   |  |   |        |  
|---------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------ | - |  | ----------- |  | - | ----- | - |  | - | ------ | -
|                                   |  | For Nine Months Ended June 30, |       
|                                   |  | 2009                           |        |   | Vs.  |   | 2008   |  
|                                   |  | Increase (Decrease) Due to     |       
|                                   |  | Volume                         |        |   | Rate |   |        |   |  | Rate/Volume |  |   | Total |  
|                                   |  | (In Thousands)                 |       
|Interest income:                   |  |                                |        |   |      |   |        |   |  |             |  |   |       |   |  |   |        |  
|Loans receivable, net              |  | $                              | (786   | ) |      | $ | (931   | ) |  |             |  | $ | 35    |   |  | $ | (1,682 | )
|Mortgage-backed securities         |  |                                | (401   | ) |      |   | 122    |   |  |             |  |   | (12   | ) |  |   | (291   | )
|Investment securities              |  |                                | (92    | ) |      |   | (127   | ) |  |             |  |   | 61    |   |  |   | (158   | )
|Other interest-earning assets      |  |                                | (351   | ) |      |   | (1,397 | ) |  |             |  |   | 310   |   |  |   | (1,438 | )
|                                   |  |                                |        |   |      |   |        |   |  |             |  |   |       |   |  |   |        |  
|Total interest-earning assets      |  |                                | (1,630 | ) |      |   | (2,333 | ) |  |             |  |   | 394   |   |  |   | (3,569 | )
|Interest expense:                  |  |                                |        |   |      |   |        |   |  |             |  |   |       |   |  |   |        |  
|Deposits                           |  |                                | (1,123 | ) |      |   | (2,834 | ) |  |             |  |   | 236   |   |  |   | (3,721 | )
|Short-term FHLB advances           |  |                                | (53    | ) |      |   |       |   |  |             |  |   |      |   |  |   | (53    | )
|Long-term FHLB advances            |  |                                | (306   | ) |      |   |       |   |  |             |  |   |      |   |  |   | (306   | )
|Junior Subordinated Debentures     |  |                                | (350   | ) |      |   | (329   | ) |  |             |  |   | 87    |   |  |   | (592   | )
|                                   |  |                                |        |   |      |   |        |   |  |             |  |   |       |   |  |   |        |  
|Total interest-bearing liabilities |  |                                | (1,832 | ) |      |   | (3,163 | ) |  |             |  |   | 323   |   |  |   | (4,672 | )
|                                   |  |                                |        |   |      |   |        |   |  |             |  |   |       |   |  |   |        |  
|Change in net interest income      |  | $                              | 202    |   |      | $ | 830    |   |  |             |  | $ | 71    |   |  | $ | 1,103  |  
|                                   |  |                                |        |   |      |   |        |   |  |             |  |   |       |   |  |   |        |  

Provision for Loan Losses. We charge or credit to income provisions for loan losses to
maintain the total allowance for loan losses at a level we consider adequate to provide for losses inherent in the loan portfolio as of the balance sheet date. In determining the provision, we consider a number of factors such as existing loan
levels, prior loss experience, current economic conditions and the probability of these conditions affecting existing loans. We established an additional $900,000 provision for losses on loans during the nine months ended June 30, 2009 as
compared to no provision for the nine months ended June 30, 2008. Additional loan loss provisions during the three months ended June 30, 2009 were necessary to address increases in troubled assets and the continued decline in overall
economic conditions. Loan charge-offs for the nine months ended June 30, 2009 were $291,000 as compared to $190,000 for the nine months ended June 30, 2008, a increase of $101,000. Loan recoveries were $176,000 for the nine months ended
June 30, 2009 compared to $215,000 for the nine months ended June 30, 2008. Nonperforming loans at June 30, 2009 were $1.8 million as compared to $835,000 at September 30, 2008. In establishing such provisions, we considered an
analysis of the risk inherent in the loan portfolio. For additional information see Asset Quality.

Other Income.Other income decreased $241,000, from $1.4 million for the nine months ended June 30, 2008 to $1.2 million for the nine months ended June 30, 2009. The decrease in other income for the nine months ended June 30, 2009 was primarily
attributable to an other-than-temporary impairment charge of $500,000 on the Alt-A mortgage backed securities. The decrease was partially offset by an increase of $259,000 from the gains on the sale of foreclosed real estate and repossessed assets
and an $83,000 increase in miscellaneous income which was primarily due to increased commissions from investment services.

Non-interest
Expenses.Total non-interest expenses increased by $720,000, or 6.2%, from $11.6 million for the nine months ended June 30, 2008 to $12.3 million for the nine months ended June 30, 2009. This was primarily due to the increase in
professional fees of $374,000, or 117.0% from $320,000 for the nine months ended June 30, 2008 to $694,000 for the nine months ended June 30, 2009. The increase in professional fees was primarily due to increased legal and consulting
services. Federal deposit insurance premiums also increased by $345,000, from $444,000 for the nine months ended June 30, 2008 to $789,000 for the nine months ended June 30, 2009. This increase was due to the increase in FDIC premiums and
the special assessment of $270,000. Data processing fees increased $59,000, or 5.3%, from $1.1 million for the nine months ended June 30, 2008 to $1.2 million for the nine months ended June 30, 2009. This increase was due to the increase
in the data processors contract fees. Occupancy expense increased by $74,000, or 4.3%, from $1.7 million for the nine months ended June 30, 2008 to $1.8 million for the nine months ended June 30, 2009. Other expenses also increased
by $184,000, or 60.3% from $305,000 for the nine months ended June 30, 2008 to $489,000 for the nine months ended June 30, 2009 due to a combination of certain one time expenses, including foreclosure expenses. These increases were
partially offset by a decrease in salaries and related



27



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##### Table of Contents

expenses of $111,000, or 1.8%, from $6.1 million for the nine months ended June 30, 2008 to $6.0 million for the nine months ended June 30, 2009.
The decrease in salaries was primarily related to initiatives to improve efficiency, which resulted in staff reductions during the later part of fiscal year ended September 30, 2008. Property and equipment expenses decreased by $147,000, or
17.2%, from $855,000 for the nine months ended June 30, 2008 to $708,000 for the nine months ended June 30, 2009. Telephone postage and office supplies decreased by $20,000, or 6.6% from $304,000 for the nine months ended June 30,
2008 to $284,000 for the nine months ended June 30, 2009. Advertising expense decreased by $38,000, or 8.6%, from $442,000 for the nine months ended June 30, 2008 to $404,000 for the nine months ended June 30, 2009.

Income Taxes. Our income tax expense (benefit) was $82,000 and $(166,000) for the nine months ended June 30, 2008 and 2009, respectively. The
change in income taxes for the nine months ended June 30, 2009 as compared to the same period in the prior year was primarily due to decreased pretax earnings and fluctuations in income from bank owned life insurance, which impacts our
effective tax rate since it is not subject to income taxes.

Comparison of Operating Results for the Three Months Ended June 30, 2009 and 2008

Net Income. Net income decreased by $703,000, or 246.7%, from $285,000 for the three months ended June 30, 2008 to a loss of
$418,000 for the three months ended June 30, 2009. The decrease in income was primarily due to $600,000 in loan loss provisions, $500,000 in recognized credit losses for investment securities deemed by management to be other than temporarily
impaired, and a special assessment of FDIC premiums of $270,000.

Net Interest Income. Net interest income increased by $442,000, or
12.0%, from $3.7 million for the three months ended June 30, 2008 to $4.1 million for the three months ended June 30, 2009. The increase in net interest income primarily was due to an improved net interest margin resulting from reduced
cost of funds on the deposit portfolio during the period. The net interest margin increased 45 basis points from 2.57% for the three months ended June 30, 2008 to 3.02% for the three months ended June 30, 2009.

Interest Income. Interest income decreased by $874,000, or 10.6% from $8.2 million for the three months ended June 30, 2008 to $7.4 million
for the three months ended June 30, 2009. Interest and fees on loans decreased by $484,000, or 7.4%, from $6.5 million for the three months ended June 30, 2008 to $6.0 million for the three months ended June 30, 2009. This was
primarily due to the decrease in the average rate earned on loans which declined by 28 basis points from 6.41% for the three months ended June 30, 2008 to 6.13% for the three months ended June 30, 2009. The average balance of loans
receivable decreased $13.0 million from $408.1 million for the three months ended June 30, 2008 to $395.1 million for the three months ended June 30, 2009. Interest income on mortgage-backed securities remained stable at $1.3 million for
the three months ended June 30, 2008 and 2009. Interest and dividends on investment securities decreased by $41,000, or 95.4% from $43,000 for the three months ended June 30, 2008 to $2,000 for the three months ended June 30, 2009.
This was primarily due to the decline in the average rate on investments of 557 basis points, from 6.06% for the three months ended June 30, 2008 to .49% for the three months ended June 30, 2009. The average balance decreased from $2.8
million for the three months ended June 30, 2008 to $1.6 million for the three months ended June 30, 2009 as these securities matured Other interest income, which primarily consists of the investment in overnight federal fund decreased by
$319,000, or 89.4% from $357,000 for the three months ended June 30, 2008 to $38,000 for the three months ended June 30, 2009. This was due primarily to the decrease in yield of 196 basis points, from 2.22% for the three months ended
June 30, 2008 to .26% for the three months ended June 30, 2009 due to drastic declines in interest rates over the period.

Interest Expense. Interest expense, which consists of interest on deposits, interest on borrowed money and other interest expense decreased from $4.6 million for the three months ended June 30, 2008 to $3.2 million for the three
months ended June 30, 2009, a decrease of $1.3 million or 28.8%. Interest on deposits decreased $1.0 million from $4.0 million for the three months ended June 30, 2008 to $3.0 million for the three months ended June 30, 2009 due to a
decrease in the average cost of deposits of 69 basis points from 3.08% for the three months ended June 30, 2008 to 2.39% for the three months ended June 30, 2009. The average balance of deposits decreased $21.6 million from $523.2 million
for the three months ended June 30, 2008 to $501.6 million for the three months ended June 30, 2009. Interest on short-term borrowings decreased by $62,000, from $121,000 for the three months ended June 30, 2008 to $59,000 for the
three months ended June 30, 2009. Interest on long-term borrowings decreased by $60,000 for the three months ended June 30, 2009. There were no long term borrowings outstanding during the three months ended June 30, 2009. Interest
expense on the Junior Subordinated Debentures decreased by $169,000 from $358,000 for the three months ended June 30, 2008 to $189,000 for the three months ended June 30, 2009 due to the payoff of approximately $6.2 million of this debt
during June 2008. Also contributing to the decline in interest expense on Junior Subordinated Debentures was a decrease in the average cost of funds on the debt of 175 basis points, from 6.19% for the three months ended June 30, 2008 to 4.44%
for the three months ended June 30, 2009. The rates on the Junior Subordinated Debentures are based on LIBOR and adjust quarterly.



28



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##### Table of Contents

Average Balance Sheet. The following table sets forth certain information relating to the
Companys average balance sheet and reflects the average yield on assets and cost of liabilities for the periods indicated and the yields earned and rates paid. Such yields and costs are derived by dividing income or expense by the average
daily balance of assets or liabilities, respectively, for the three month periods ended June 30, 2009 and 2008. Total average assets are computed using month-end balances.

The table also presents information for the periods indicated with respect to the differences between the average yield earned on interest-earning assets
and average rate paid on interest-bearing liabilities, or interest rate spread, which banks have traditionally used as an indicator of profitability. Another indicator of net interest income is net interest margin, which is
net interest income divided by the average balance of interest-earning assets.



|                                                                   |  |                                     |         |          |      |             |  |        |                |  |          |         |             |   |       |  |        |  
|------------------------------------------------------------------ |  | ----------------------------------- | ------- | -------- | ---- | ----------- |  | ------ | -------------- |  | -------- | ------- | ----------- | - | ----- |  | ------ | -
|                                                                   |  | For the Three Months Ended June 30, |        
|                                                                   |  | 2009                                |         |          | 2008 |            
|                                                                   |  | AverageBalance                      |         | Interest |      | AverageRate |  |        | AverageBalance |  | Interest |         | AverageRate |  
|                                                                   |  | (Dollars in thousands)              |        
|Interest-earning assets:                                           |  |                                     |         |          |      |             |  |        |                |  |          |         |             |   |       |  |        |  
|Loans receivable, net                                              |  | $                                   | 395,094 |          | $    | 6,058       |  | 6.13   | %              |  | $        | 408,124 |             | $ | 6,542 |  | 6.41   | %
|Mortgage-backed securities                                         |  |                                     | 92,355  |          |      | 1,282       |  | 5.55   |                |  |          | 98,533  |             |   | 1,312 |  | 5.33   |  
|Investment securities                                              |  |                                     | 1,628   |          |      | 2           |  | .49    |                |  |          | 2,840   |             |   | 43    |  | 6.06   |  
|Other interest earning assets                                      |  |                                     | 57,560  |          |      | 38          |  | .26    |                |  |          | 64,236  |             |   | 357   |  | 2.22   |  
|                                                                   |  |                                     |         |          |      |             |  |        |                |  |          |         |             |   |       |  |        |  
|Total Interest-earning assets                                      |  |                                     | 546,637 |          |      | 7,380       |  | 5.40   |                |  |          | 573,733 |             |   | 8,254 |  | 5.75   |  
|Bank Owned Life Insurance                                          |  |                                     | 14,658  |          |      |             |  |        |                |  |          | 14,190  |             |   |       |  |        |  
|Noninterest-earning assets                                         |  |                                     | 26,468  |          |      |             |  |        |                |  |          | 27,697  |             |   |       |  |        |  
|                                                                   |  |                                     |         |          |      |             |  |        |                |  |          |         |             |   |       |  |        |  
|Total assets                                                       |  | $                                   | 587,763 |          |      |             |  |        |                |  | $        | 615,620 |             |   |       |  |        |  
|                                                                   |  |                                     |         |          |      |             |  |        |                |  |          |         |             |   |       |  |        |  
|Interest-bearing liabilities:                                      |  |                                     |         |          |      |             |  |        |                |  |          |         |             |   |       |  |        |  
|Deposits                                                           |  | $                                   | 501,634 |          | $    | 3,001       |  | 2.39   | %              |  | $        | 523,212 |             | $ | 4,026 |  | 3.08   | %
|Short-term FHLB Advances                                           |  |                                     | 5,275   |          |      | 59          |  | 4.47   |                |  |          | 10,000  |             |   | 121   |  | 4.84   |  
|Long-term FHLB Advances                                            |  |                                     |        |          |      |            |  |       |                |  |          | 5,385   |             |   | 60    |  | 4.46   |  
|Junior Subordinated Debentures                                     |  |                                     | 17,011  |          |      | 189         |  | 4.44   |                |  |          | 23,131  |             |   | 358   |  | 6.19   |  
|Other liabilities                                                  |  |                                     | 2,154   |          |      |            |  | .00    |                |  |          | 2,087   |             |   |      |  | .00    |  
|                                                                   |  |                                     |         |          |      |             |  |        |                |  |          |         |             |   |       |  |        |  
|Total interest-bearing liabilities                                 |  |                                     | 526,074 |          |      | 3,249       |  | 2.47   |                |  |          | 563,815 |             |   | 4,565 |  | 3.24   |  
|                                                                   |  |                                     |         |          |      |             |  |        |                |  |          |         |             |   |       |  |        |  
|Noninterest-bearing liabilities                                    |  |                                     | 2,017   |          |      |             |  |        |                |  |          | 1,371   |             |   |       |  |        |  
|                                                                   |  |                                     |         |          |      |             |  |        |                |  |          |         |             |   |       |  |        |  
|Total liabilities                                                  |  |                                     | 528,091 |          |      |             |  |        |                |  |          | 565,186 |             |   |       |  |        |  
|Stockholders Equity                                               |  |                                     | 59,672  |          |      |             |  |        |                |  |          | 50,434  |             |   |       |  |        |  
|                                                                   |  |                                     |         |          |      |             |  |        |                |  |          |         |             |   |       |  |        |  
|Total liabilities and stockholders equity                         |  | $                                   | 587,763 |          |      |             |  |        |                |  | $        | 615,620 |             |   |       |  |        |  
|                                                                   |  |                                     |         |          |      |             |  |        |                |  |          |         |             |   |       |  |        |  
|Net interest income                                                |  |                                     |         |          | $    | 4,131       |  |        |                |  |          |         |             | $ | 3,689 |  |        |  
|                                                                   |  |                                     |         |          |      |             |  |        |                |  |          |         |             |   |       |  |        |  
|Interest rate spread                                               |  |                                     |         |          |      |             |  | 2.93   | %              |  |          |         |             |   |       |  | 2.52   | %
|                                                                   |  |                                     |         |          |      |             |  |        |                |  |          |         |             |   |       |  |        |  
|Net interest margin                                                |  |                                     |         |          |      |             |  | 3.02   | %              |  |          |         |             |   |       |  | 2.57   | %
|                                                                   |  |                                     |         |          |      |             |  |        |                |  |          |         |             |   |       |  |        |  
|Ratio average interest earning assets/interest-bearing liabilities |  |                                     |         |          |      |             |  | 103.91 | %              |  |          |         |             |   |       |  | 101.76 | %
|                                                                   |  |                                     |         |          |      |             |  |        |                |  |          |         |             |   |       |  |        |  



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##### Table of Contents

Rate/Volume Analysis.The table below sets forth certain information regarding changes in interest
income and interest expense for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to: (i) changes in volume (changes in volume multiplied by old
rate); (ii) changes in rates (change in rate multiplied by old volume); and (iii) changes in rate/volume (changes in rate multiplied by the changes in volume).



|                                   |  |                                     |      |   |      |   |        |   |  |             |  |   |       |   |  |   |        |  
|---------------------------------- |  | ----------------------------------- | ---- | - | ---- | - | ------ | - |  | ----------- |  | - | ----- | - |  | - | ------ | -
|                                   |  | For The Three Months Ended June 30, |     
|                                   |  | 2009                                |      |   | Vs.  |   | 2008   |  
|                                   |  | Increase (Decrease) Due to          |     
|                                   |  | Volume                              |      |   | Rate |   |        |   |  | Rate/Volume |  |   | Total |  
|                                   |  | (In Thousands)                      |     
|Interest income:                   |  |                                     |      |   |      |   |        |   |  |             |  |   |       |   |  |   |        |  
|Loans receivable, net              |  | $                                   | (184 | ) |      | $ | (309   | ) |  |             |  | $ | 9     |   |  | $ | (484   | )
|Mortgage-backed securities         |  |                                     | (86  | ) |      |   | 59     |   |  |             |  |   | (3    | ) |  |   | (30    | )
|Investment securities              |  |                                     | (19  | ) |      |   | (39    | ) |  |             |  |   | 17    |   |  |   | (41    | )
|Other interest-earning assets      |  |                                     | (34  | ) |      |   | (315   | ) |  |             |  |   | 30    |   |  |   | (319   | )
|                                   |  |                                     |      |   |      |   |        |   |  |             |  |   |       |   |  |   |        |  
|Total interest-earning assets      |  |                                     | (323 | ) |      |   | (604   | ) |  |             |  |   | 53    |   |  |   | (874   | )
|Interest expense:                  |  |                                     |      |   |      |   |        |   |  |             |  |   |       |   |  |   |        |  
|Deposits                           |  |                                     | (166 | ) |      |   | (896   | ) |  |             |  |   | 37    |   |  |   | (1,025 | )
|Short-term FHLB advances           |  |                                     | (57  | ) |      |   | (9     | ) |  |             |  |   | 4     |   |  |   | (62    | )
|Long-term FHLB advances            |  |                                     | (60  | ) |      |   |       |   |  |             |  |   |      |   |  |   | (60    | )
|Junior Subordinated Debentures     |  |                                     | (95  | ) |      |   | (101   | ) |  |             |  |   | 27    |   |  |   | (169   | )
|                                   |  |                                     |      |   |      |   |        |   |  |             |  |   |       |   |  |   |        |  
|Total interest-bearing liabilities |  |                                     | (378 | ) |      |   | (1,006 | ) |  |             |  |   | 68    |   |  |   | (1,316 | )
|                                   |  |                                     |      |   |      |   |        |   |  |             |  |   |       |   |  |   |        |  
|Change in net interest income      |  | $                                   | 55   |   |      | $ | 402    |   |  |             |  | $ | (15   | ) |  | $ | 442    |  
|                                   |  |                                     |      |   |      |   |        |   |  |             |  |   |       |   |  |   |        |  

Provision for Loan Losses. We charge or credit to income provisions for loan losses to
maintain the total allowance for loan losses at a level we consider adequate to provide for losses inherent in the loan portfolio as of the balance sheet date. In determining the provision, we consider a number of factors such as existing loan
levels, prior loss experience, current economic conditions and the probability of these conditions affecting existing loans. We established an additional $600,000 provision for losses on loans during the three months ended June 30, 2009 as
compared to no provision for the three months ended June 30, 2008. Additional loan loss provisions were necessary to address increases in troubled assets and the continued decline in overall economic conditions. Loan charge-offs for the three
months ended June 30, 2009 were $162,000 as compared to $45,000 for the three months ended June 30, 2008, an increase of $117,000. Loan recoveries were $46,000 for the three months ended June 30, 2009 compared to $46,000 for the three
months ended June 30, 2008. Nonperforming loans at June 30, 2009 were $1.8 million as compared to $835,000 at September 30, 2008. We also had real estate owned through foreclosure of $639,000 at June 30, 2009, compared to $1.2
million at September 30, 2008. In establishing such provisions, we considered an analysis of the risk inherent in the loan portfolio. For additional information see Asset Quality.

Other Income.Other income decreased $402,000, from $540,000 for the three months ended June 30, 2008 to $138,000 for the three months
ended June 30, 2009. The decrease in other income for the three months ended June 30, 2009 was primarily attributable charges for other-than-temporary impairments on available for sale securities of $500,000. Fees on transaction accounts
decreased $54,000, or 20.0%, from $270,000 for the three months ended June 30, 2008 to $216,000 for the three months ended June 30, 2009. These decreases were partially offset by an increase of $27,000 from the sale of foreclosed real
estate and repossessed assets, and an $84,000 increase in miscellaneous income, which was primarily due to increased commissions from investment services. Income from Bank Owned Life Insurance (BOLI) also increased $44,000 for the three
months ended June 30, 2009 from $128,000 for the three months ended June 30, 2008, to $172,000 for the three months ended June 30, 2009. This increase was due to an adjustment in the rate of dividends earned on the BOLI investment.

Non-interest Expenses.Total non-interest expenses increased by $633,000, or 16.6%, from $3.8 million for the three months ended
June 30, 2008 to $4.4 million for the three months ended June 30, 2009. This was primarily due to the increase in FDIC premiums due to the special assessment of $270,000. FDIC premiums increased by $356,000, or 280.0%, from $127,000 for
the three months ended June 30, 2008 to $483,000 for the three months ended June 30, 2009. Also contributing to the increase were professional fees which increased $102,000, or 75.6% from $135,000 for the three months ended June 30,
2008 to $237,000 for the three months ended June 30, 2009. The increase in professional fees was primarily due to increased legal and consulting services. Other expenses increased by $123,000, or 236.5% from $52,000 for the three months ended
June 30, 2008 to $175,000 for the three months ended June 30, 2009. This was primarily due to increased foreclosure expenses.



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##### Table of Contents

Income Taxes. Our income tax (benefit) expense was $(356,000) and $134,000 for the three months
ended June 30, 2009 and 2008, respectively. The change in income taxes for the three months ended June 30, 2009 as compared to the same period in the prior year was primarily due to decreased pretax earnings and fluctuations in income from
bank owned life insurance, which impacts our effective tax rate since it is not subject to income taxes.

Loans Receivable

Loans receivable at June 30, 2009 and September 30, 2008 consist of the following:



|                                               |  |              |         |   |                   |   |         |  
|---------------------------------------------- |  | ------------ | ------- | - | ----------------- | - | ------- | -
|(in thousands)                                 |  | June 30,2009 |         |   | September 30,2008 |  
|Single-family residential mortgages            |  | $            | 146,432 |   |                   | $ | 165,341 |  
|Single-family rental property loans            |  |              | 49,610  |   |                   |   | 41,819  |  
|Commercial real estate loans                   |  |              | 133,812 |   |                   |   | 127,596 |  
|Construction loans                             |  |              | 25,111  |   |                   |   | 24,967  |  
|Commercial loans unsecured                     |  |              | 323     |   |                   |   | 329     |  
|Commercial lease loans                         |  |              | 3,241   |   |                   |   | 4,612   |  
|Commercial lines of credit                     |  |              | 8,394   |   |                   |   | 8,328   |  
|Automobile loans                               |  |              | 8,980   |   |                   |   | 15,490  |  
|Home equity lines of credit                    |  |              | 25,925  |   |                   |   | 17,914  |  
|Other consumer loans                           |  |              | 2,546   |   |                   |   | 2,124   |  
|                                               |  |              |         |   |                   |   |         |  
|                                               |  |              | 404,374 |   |                   |   | 408,520 |  
|Add  purchase accounting premiums, net        |  |              | 83      |   |                   |   | 158     |  
|Less  undisbursed portion of loans in process |  |              | (1,633  | ) |                   |   | (4,595  | )
|- unearned interest                            |  |              | (191    | ) |                   |   | (534    | )
|- deferred loan origination fees and costs     |  |              | (295    | ) |                   |   | (408    | )
|- allowance for loans losses                   |  |              | (3,457  | ) |                   |   | (2,672  | )
|                                               |  |              |         |   |                   |   |         |  
|                                               |  | $            | 398,881 |   |                   | $ | 400,469 |  
|                                               |  |              |         |   |                   |   |         |  

Commitments, Contingencies and Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk including commitments to extend credit under existing lines of credit and
commitments to sell loans. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

Off-balance sheet financial instruments whose contract amounts represent credit and interest rate risk are summarized as follows:



|                                                                                                |  |                 |        |                      |   |       
|----------------------------------------------------------------------------------------------- |  | --------------- | ------ | -------------------- | - | ------
|                                                                                                |  | At June 30,2009 |        | At September 30,2008
|                                                                                                |  | (In thousands) 
|Commitments to originate new loans                                                              |  | $               | 11,000 |                      | $ | 1,725 
|Unfunded commitments to extend credit under existing equity line and commercial lines of credit |  |                 | 31,395 |                      |   | 26,242
|Commercial letters of credit                                                                    |  |                 | 1,265  |                      |   | 920   

Commitments to originate new loans or to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract. Loan commitments generally expire within 30 to 45 days. Most equity line commitments for the unfunded portion of equity lines are for a term of 20 years, and commercial
lines of credit are generally renewable on an annual basis. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on managements credit evaluation of the borrower.



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##### Table of Contents

Asset Quality

At June 30, 2009, we had $2.4 million in non-performing assets, consisting of nonaccrual loans and repossessed assets representing .41% of total assets. At September 30, 2008, non-performing assets were $2.1 million or .37% of
assets. Our net recoveries (charge-offs) for the three months ended June 30, 2009 and June 30, 2008 were $46,000 and $46,000, respectively. Our allowance for loan losses was $3.5 million at June 30, 2009 compared to $2.7 million at
September 30, 2008.

The increase in nonperforming commercial real estate is primarily represented by one loan for which the borrower
is attempting to sell the property. Management does not anticipate that the disposition of this property will result in losses to the Company.

The following table presents an analysis of the Companys non-performing assets:



|                                                                         |  |                 |       |   |                      |   |       |  
|------------------------------------------------------------------------ |  | --------------- | ----- | - | -------------------- | - | ----- | -
|                                                                         |  | At June 30,2009 |       |   | At September 30,2008 |  
|                                                                         |  | (In thousands)  |      
|Nonperforming loans:                                                     |  |                 |       |   |                      |   |       |  
|Nonaccrual loans:                                                        |  |                 |       |   |                      |   |       |  
|Single family residential                                                |  | $               | 467   |   |                      | $ | 291   |  
|Multi-family residential                                                 |  |                 |      |   |                      |   |      |  
|Commercial real estate                                                   |  |                 | 1,303 |   |                      |   | 369   |  
|Construction                                                             |  |                 |      |   |                      |   |      |  
|Commercial leases                                                        |  |                 |      |   |                      |   | 173   |  
|Land                                                                     |  |                 |      |   |                      |   |      |  
|Consumer Loans                                                           |  |                 | 2     |   |                      |   | 2     |  
|                                                                         |  |                 |       |   |                      |   |       |  
|Total nonaccrual loans                                                   |  |                 | 1,772 |   |                      |   | 835   |  
|Loans 90 days past due and accruing                                      |  |                 |      |   |                      |   |      |  
|Restructured loans                                                       |  |                 |      |   |                      |   |      |  
|                                                                         |  |                 |       |   |                      |   |       |  
|Total non-performing loans                                               |  |                 | 1,772 |   |                      |   | 835   |  
|Other non-performing assets                                              |  |                 | 639   |   |                      |   | 1,244 |  
|                                                                         |  |                 |       |   |                      |   |       |  
|Total nonperforming assets                                               |  | $               | 2,411 |   |                      | $ | 2,079 |  
|                                                                         |  |                 |       |   |                      |   |       |  
|Nonperforming loans to loans receivable                                  |  |                 | .44   | % |                      |   | .21   | %
|Nonperforming assets as a percentage of loans and foreclosed real estate |  |                 | .60   | % |                      |   | .52   | %
|Nonperforming assets to total assets                                     |  |                 | .41   | % |                      |   | .37   | %



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##### Table of Contents

The following table sets forth an analysis of the Companys allowance for loan losses for the
periods indicated.



|                                                                                     |  |                                   |       |    |      |   |       |  
|------------------------------------------------------------------------------------ |  | --------------------------------- | ----- | -- | ---- | - | ----- | -
|                                                                                     |  | For the Nine months Ended June 30 |      
|                                                                                     |  | 2009                              |       |    | 2008 |  
|                                                                                     |  | (Dollars in thousands)            |      
|Balance at beginning of period                                                       |  | $                                 | 2,672 |    |      | $ | 2,650 |  
|Loans charged-off:                                                                   |  |                                   |       |    |      |   |       |  
|Real estate mortgages:                                                               |  |                                   |       |    |      |   |       |  
|Single-family residential                                                            |  |                                   |      |    |      |   |      |  
|Multi-family residential                                                             |  |                                   |      |    |      |   |      |  
|Commercial                                                                           |  |                                   | (240  | )  |      |   |      |  
|Construction                                                                         |  |                                   |      |    |      |   |      |  
|Commercial Loans                                                                     |  |                                   |      |    |      |   |      |  
|Consumer                                                                             |  |                                   | (51   | )  |      |   | (190  | )
|                                                                                     |  |                                   |       |    |      |   |       |  
|Total charge-offs                                                                    |  |                                   | (291  | )  |      |   | (190  | )
|Recoveries:                                                                          |  |                                   |       |    |      |   |       |  
|Real estate mortgage:                                                                |  |                                   |       |    |      |   |       |  
|Single-family residential                                                            |  |                                   |      |    |      |   |      |  
|Multi-family residential                                                             |  |                                   |      |    |      |   |      |  
|Commercial                                                                           |  |                                   | 31    |    |      |   |      |  
|Construction                                                                         |  |                                   |      |    |      |   |      |  
|Commercial loans secured                                                             |  |                                   |      |    |      |   |      |  
|Consumer                                                                             |  |                                   | 145   |    |      |   | 215   |  
|                                                                                     |  |                                   |       |    |      |   |       |  
|Total recoveries                                                                     |  |                                   | 176   |    |      |   | 215   |  
|Net loans recovered (charged-off)                                                    |  |                                   | (115  | )  |      |   | 25    |  
|Provision for loan losses                                                            |  |                                   | 900   |    |      |   |      |  
|                                                                                     |  |                                   |       |    |      |   |       |  
|Balance at end of period                                                             |  | $                                 | 3,457 |    |      | $ | 2,675 |  
|                                                                                     |  |                                   |       |    |      |   |       |  
|Ratio of net recoveries (charge-offs) to average loans outstanding during the period |  |                                   | (.03  | )% |      |   | .01   | %
|                                                                                     |  |                                   |       |    |      |   |       |  

Regulations require that we classify assets on a regular basis. There are three classifications
for problem assets: substandard, doubtful and loss. We regularly review our assets to determine whether any assets require classification or re-classification. At June 30, 2009, the Company had $2.6 million in classified assets, consisting of
$1.9 million in substandard and loss loans, and $639,000 in repossessed assets. At September 30, 2008, the Company had $3.45 million in classified assets consisting of $2.2 million in substandard and loss loans, and $1.25 million in foreclosed
property and other real estate owned.

In addition to regulatory classifications, we also classify as special mention assets
that are currently performing in accordance with their contractual terms but may exhibit some form of credit weakness and may become classified or non-performing assets in the future. At June 30, 2009, we have identified approximately $13.9
million in assets classified as special mention. At September 30, 2008, $10.5 million in assets were classified as special mention.

The Banks methodology for establishing the allowance for loan losses takes into consideration probable losses that have been identified in connection with specific assets as well as losses that have not been identified but are
expected to have occurred. Management conducts regular reviews of the Banks assets and evaluates the need to establish allowances on the basis of these reviews. Allowances are established by management and reviewed by the Board of Directors on
a quarterly basis based on an assessment of risk in the Banks assets taking into consideration the composition and quality of the portfolio, delinquency trends, current charge-off and loss experience, loan concentrations, the state of the real
estate market, regulatory reviews conducted in the regulatory examination process and economic conditions generally.

Additional provisions
for losses on loans are made in order to bring the allowance to a level deemed adequate. Specific reserves will be provided for individual assets, or portions of assets, when ultimate collection is considered improbable by management based on the
current payment status of the assets and the fair value of the collateral. For the quarter ended June 30, 2009 an additional provision of $600,000 was necessary to address increases in troubled assets and the continued decline in overall
economic conditions.



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##### Table of Contents

Liquidity and Capital Resources

At June 30, 2009, the Bank exceeded all regulatory minimum capital requirements. For information comparing the Banks tangible, core and risk-based capital levels to the regulatory requirements, see Note 7
of the Notes to Consolidated Financial Statements.

The Companys primary sources of funds are deposits and proceeds from maturing
investment securities and mortgage-backed securities and principal and interest payments on loans. While maturities and scheduled amortization of mortgage-backed securities and loans are a predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic conditions, competition and other factors.

The primary investing
activities of the Company are the origination of loans and the purchase of investment securities and mortgage-backed securities. During the nine months ended June 30, 2009 and 2008, the Company had $53.1 million and $59.0 million, respectively,
of gross loan originations. During the nine months ended June 30, 2009 and 2008, the Company did not purchase any investment securities. During the nine months ended June 30, 2009 and 2008 the Company purchased mortgage-backed securities
in the amounts of $16.2 million and $0, respectively. The primary financing activity of the Company is the attraction of savings deposits.

The Company has other sources of liquidity if there is a need for funds. The Bank has the ability to obtain advances from the FHLB of Atlanta in the amount of $146.8 million as of June 30, 2009. In addition, securities in the available
for sale portfolio provide liquidity and the Company has the immediately liquid resources of cash and cash due from banks, federal funds sold and securities purchased under resale agreements if needed.

The Bank is required to maintain adequate levels of liquid assets as defined by OTS regulations. The Banks average daily liquidity ratio for the
month of June was approximately 29.9%. Management seeks to maintain a relatively high level of liquidity in order to retain flexibility in terms of investment opportunities and deposit pricing. Because liquid assets generally provide for lower rates
of return, the Banks relatively high liquidity will, to a certain extent, result in lower rates of return on assets.

The
Companys most liquid assets are cash, interest-bearing deposits in other banks and federal funds sold, which are short-term, highly liquid investments with original maturities of less than three months that are readily convertible to known
amounts of cash. The levels of these assets are dependent on the Companys operating, financing and investing activities during any given period. At June 30, 2009, cash, interest-bearing deposits in other banks and federal funds sold were
$8.3 million, $30.8 million and $17.1 million, respectively.

We anticipate that we will have sufficient funds available to meet our
current commitments. Certificates of deposit which are scheduled to mature in less than one year at June 30, 2009 totaled $229.5 million. Based on past experience, management believes that a significant portion of such deposits will remain with
Baltimore County Savings Bank. Baltimore County Savings Bank is a party to financial instruments with off-balance-sheet risk made in the normal course of business to meet the financing needs of its customers. These financial instruments are standby
letters of credit, lines of credit and commitments to fund mortgage loans and involve to varying degrees elements of credit risk in excess of the amount recognized in the statement of financial position. The contract amounts of those instruments
express the extent of involvement Baltimore County Savings Bank has in this class of financial instruments and represents Baltimore County Savings Banks exposure to credit loss from nonperformance by the other party. Baltimore County Savings
Bank generally requires collateral or other security to support financial instruments with off-balance-sheet credit risk. At June 30, 2009, Baltimore County Savings Bank had commitments under standby letters of credit, lines of credit and
commitments to originate loans of $1.3 million, $31.4 million and $11.0 million, respectively.

In June 2002, BCSB Bankcorp issued
$12,887,000 of junior subordinated debentures to BCSB Bankcorp Capital Trust I, a Delaware business trust, in which BCSB Bancorp now owns all of the common equity. The debentures carry a rate of 3.65% over the three month LIBOR rate, and reset
quarterly. The rate was 4.78% at June 30, 2009. The debentures are the sole asset of BCSB Bankcorp Capital Trust I. BCSB Bankcorp Capital Trust I issued $12,500,000 of mandatory redeemable preferred securities to investors. BCSB Bancorps
obligation under the debentures and related documents, taken together, constitute a full and unconditional guarantee by BCSB Bancorp of BCSB Bankcorp Capital Trust I obligations under the preferred securities. The Company used a portion of the net
proceeds that it retained from the 2008 completed stock offering to redeem $6.0 million of the $12.5 million in outstanding trust preferred securities issued by a trust wholly owned by the Company.



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In September 2003, BCSB Bankcorp issued $10,310,000 of junior subordinated debentures to BCSB Bankcorp
Capital Trust II, a Delaware business trust, in which BCSB Bancorp now owns all of the common equity. The debentures carry a rate of 3.00% over the three month LIBOR rate, and reset quarterly. The rate was 4.13% at June 30, 2009. The debentures
are the sole asset of BCSB Bankcorp Capital Trust II. BCSB Bankcorp Capital Trust II issued $10,000,000 of mandatory redeemable preferred securities to investors. BCSB Bancorps obligation under the debentures and related documents, taken
together, constitute a full and unconditional guarantee by BCSB Bancorp of BCSB Bankcorp Capital Trust II obligations under the preferred securities.

Pursuant to these trust preferred securities, the Company, must make quarterly interest payments, which totaled $1.6 million during the year ended September 30, 2008 and $769,000 during the nine months ended
June 30, 2009.

The Series A preferred stock qualifies as Tier 1 capital and pays cumulative dividends at a rate of 5% per annum
until February 15, 2014. Beginning February 16, 2014, the dividend rate will increase to 9% per annum. The Company must remit dividends quarterly, payments remitted totaled $213,000 during the nine months ended June 30, 2009.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Item 3 is not necessary as the registrant is a smaller reporting company.



|Item 4T. | Controls and Procedures
|-------- | -----------------------

As of the end of the
period covered by this report, management of the Company carried out an evaluation, under the supervision and with the participation of the Companys principal executive officer and principal financial officer, of the effectiveness of the
Companys disclosure controls and procedures as that term is defined in Rule 13a-5(e). Based on this evaluation, the Companys principal executive officer and principal financial officer concluded that the Companys disclosure
controls and procedures are effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange Commissions rules and forms and (2) is accumulated and communicated to the Companys management, including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure.

It should be noted that the design of the Companys disclosure
controls and procedures is based in part upon certain reasonable assumptions about the likelihood of future events, and there can be no reasonable assurance that any design of disclosure controls and procedures will succeed in achieving its stated
goals under all potential future conditions, regardless of how remote, but the Companys principal executive and financial officers have concluded that the Companys disclosure controls and procedures are, in fact, effective at a
reasonable assurance level.

There have been no changes in the Companys internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Securities and Exchange Commission Rule 13a-15 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

None.



|Item 1A. | Risk Factors
|-------- | ------------

For information regarding the
Companys risk factors see Risk Factors, in the Companys Form 10-K for the fiscal year ended September 30, 2008 filed with the Securities and Exchange Commission on December 29, 2008. As of June 30, 2009, the
risk factors of the Company have not changed materially from those reported in the Form 10-K.



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

(a) None.

(b) None

(c) None



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



|Item 4. | Submission of Matters to a Vote of Security-Holders
|------- | ---------------------------------------------------

The Companys annual meeting of Shareholders was held on Wednesday, May 20, 2009 at 4:00 p.m. local time, pursuant to due notice. According to the certified list of shareholders which was presented at the meeting, there were
3,121,076 shares of common stock outstanding and entitled to vote at the meeting, and there are 2,848,182 present in person or by proxy at the meeting, representing 91.25% of the total votes eligible to be cast.

I. ELECTION AS DIRECTORS OF THE FOLLOWING NOMINEES:

For a term of three-years:



|                       |  |                |  |                         |          |  |                |  |                         |  
|---------------------- |  | -------------- |  | ----------------------- | -------- |  | -------------- |  | ----------------------- | -
|                       |  | FOR            |  |                         | WITHHELD | 
|                       |  | Numberof Votes |  | Percentageof Votes Cast |          |  | Numberof Votes |  | Percentageof Votes Cast |  
|Joseph J. Bouffard     |  | 2,802,624      |  | 98.4                    | %        |  | 45,558         |  | 1.6                     | %
|William J Kappauf, Jr. |  | 2,792,965      |  | 98.1                    | %        |  | 55,217         |  | 1.9                     | %
|Ernest A. Moretti      |  | 2,794,073      |  | 98.1                    | %        |  | 54,109         |  | 1.9                     | %

Accordingly, Joseph J. Bouffard, William J. Kappauf, Jr., and Ernest A. Moretti
were duly elected directors of the Company, each for a three-year term and until his successor is elected and qualified.



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II. PROPOSAL 2  RATIFICATION OF THE APPOINTMENT OF THE COMPANYS PUBLIC INDEPENDENT
REGISTERED ACCOUNTING FIRM

RESOLVED, that the appointment of Stegman & Company as independent registered accounting
firm of BCSB Bancorp, Inc. for the 2009 fiscal year, having been presented to and considered at this meeting, be and hereby is, ratified and approved in all respects.



|         |  |           |  |                      |  
|-------- |  | --------- |  | -------------------- | -
|         |  | Number    |  | Percent ofVotes Cast |  
|FOR:     |  | 2,823,977 |  | 99.2                 | %
|AGAINST: |  | 20,257    |  | 0.7                  | %
|ABSTAIN: |  | 3,945     |  | 0.1                  | %

There were no broker nonvotes on the matter

III. PROPOSAL 3  APPROVAL OF THE BCSB BANCORP, INC. 2009 EQUITY INCENTIVE PLAN



|         |  |           |  |                      |  
|-------- |  | --------- |  | -------------------- | -
|         |  | Number    |  | Percent ofVotes Cast |  
|FOR:     |  | 1,899,419 |  | 94                   | %
|AGAINST: |  | 100,850   |  | 5                    | %
|ABSTAIN: |  | 20,662    |  | 1                    | %

There were no broker nonvotes on the matter

Proposal 3 having received the affirmative vote of at least a majority of the votes cast at the meeting, the BCSB Bancorp, Inc. 2009 Equity Incentive Plan
was duly approved by shareholders.

IV. PROPOSAL 4  NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION

RESOLVED, that the shareholders approve the compensation of the named executive officers, as described in the tabular disclosure regarding named
executive officer compensation and the accompanying narrative disclosure in the proxy statement.



|         |  |           |  |                      |  
|-------- |  | --------- |  | -------------------- | -
|         |  | Number    |  | Percent ofVotes Cast |  
|FOR:     |  | 2,703,399 |  | 94.9                 | %
|AGAINST: |  | 99,563    |  | 3.1                  | %
|ABSTAIN: |  | 45,218    |  | 2.0                  | %

There were no broker nonvotes on the matter

Proposal 4, having received the affirmative vote of at least a majority of the vote cast at the meeting, was duly approved by shareholders.



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|Item 5. | Other Information
|------- | -----------------

The Company
currently expects to hold its 2010 annual meeting of stockholders on February 10, 2010, although such date has not been formally approved by the Companys Board of Directors. Under the Companys Articles of Incorporation, stockholder
proposals must be delivered or mailed to and received at the principal executive office of the Company not less than ninety (90) days prior to the date of the annual meeting; provided, however, that in the event that less than one
hundred (100) days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the
day on which such notice of the date of the annual meeting was mailed or such public disclosure was made.

In order to be
eligible for inclusion in the Companys proxy materials for the 2010 annual meeting of stockholders, any stockholder proposal to take action at such meeting must be received at the Companys principal executive office located at 4111 East
Joppa Road, Suite 300, Baltimore, Maryland 21236, no later than September 14, 2009. Any such proposal shall be subject to the requirements of the proxy rules adopted under the Securities Exchange Act of 1934, as amended.



|Item 6. | Exhibits
|------- | --------

The following exhibits
are filed herewith:



|              |  |                                                        
|------------- |  | -------------------------------------------------------
|ExhibitNumber |  | Title                                                  
|              | 
|31.1          |  | Rule 13a-14(a) Certification of Chief Executive Officer
|              | 
|31.2          |  | Rule 13a-14(a) Certification of Chief Financial Officer
|              | 
|32            |  | Section 1350 Certifications                            



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SIGNATURES

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



|                      |  |  |  |                                             
|--------------------- |  |  |  | --------------------------------------------
|                      |  |  |  | BCSB BANCORP, INC.                          
|                      |  | 
|Date: August 13, 2009 |  |  |  | /s/ Joseph J. Bouffard                      
|                      |  |  |  | Joseph J. Bouffard                          
|                      |  |  |  | President                                   
|                      |  |  |  | (Principal Executive Officer)               
|                      |  | 
|Date: August 13, 2009 |  |  |  | /s/ Anthony R. Cole                         
|                      |  |  |  | Anthony R. Cole                             
|                      |  |  |  | Executive Vice President                    
|                      |  |  |  | (Principal Financial and Accounting Officer)



39