UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period ended December 31, 2013

or

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

For transition period from                      to                     

Commission File Number 001-34593

OBA FINANCIAL SERVICES, INC.

(Exact Name of Registrant as Specified in Charter)

Maryland	27-1898270
(State or Other Jurisdiction of Incorporation)	(I.R.S. Employer Identification No.)
20300 Seneca Meadows Parkway, Germantown, Maryland	20876
(Address of Principal Executive Offices)	(Zip Code)

(301) 916-0742

Registrant’s telephone number, including area code

Not Applicable

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

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

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

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

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

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

4,038,006 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of February 7, 2014.

OBA FINANCIAL SERVICES, INC. AND SUBSIDIARY

Form 10-Q Quarterly Report

Table of Contents

PART I – FINANCIAL INFORMATION
	Forward-Looking Statements Disclosure	3
Item 1.	Financial Statements
	Consolidated Statements of Condition (Unaudited) as of December 31, 2013 and June 30, 2013	5
	Consolidated Statements of Income (Unaudited) for the three and six months ended December 31, 2013 and 2012	6
	Consolidated Statements Comprehensive Income (Loss) (Unaudited) for the three and six months ended December  31, 2013 and 2012	7
	Consolidated Statements of Stockholders’ Equity (Unaudited) for the six months ended December 31, 2013 and 2012	8
	Consolidated Statements of Cash Flows (Unaudited) for the six months ended December 31, 2013 and 2012	9
	Notes to Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	37
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	38
Signatures		39

2

Forward-looking Statements

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• changes in other economic, competitive, governmental, regulatory, and technological factors, including shutdowns of the federal government, affecting the Company’s operations, pricing, products, and services; and

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

3

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

4

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

OBA Financial Services, Inc. and Subsidiary

Consolidated Statements of Condition (Unaudited)

	December 31, 2013			June 30, 2013
(In thousands, except share data)
Assets:
Cash and due from banks	$	14,545		$	16,006
Federal funds sold		1,313			167
Cash and cash equivalents		15,858			16,173
Interest bearing deposits with other banks		4,456			6,692
Securities available for sale		43,818			37,174
Securities held to maturity (fair value of $1,286 and $1,520)		1,211			1,445
Federal Home Loan Bank stock, at cost		1,160			1,160
Loans held for sale		—			414
Loans		303,918			303,276
Less: allowance for loan losses		3,494			3,473
Net loans		300,424			299,803
Premises and equipment, net		5,376			5,624
Bank owned life insurance		9,314			9,182
Other assets		3,938			3,944
Total assets	$	385,555		$	381,611
Liabilities:
Deposits:
Noninterest-bearing	$	47,250		$	42,422
Interest-bearing		241,928			240,841
Total deposits		289,178			283,263
Securities sold under agreements to repurchase		6,672			8,544
Federal Home Loan Bank advances		15,560			15,623
Advance payments from borrowers for taxes and insurance		302			1,324
Other liabilities		1,524			1,553
Total liabilities		313,236			310,307
Stockholders’ Equity:
Preferred stock (par value $.01); authorized 50,000,000 shares; no shares issued or outstanding		—			—
Common stock (par value $.01); authorized 100,000,000 shares; issued and outstanding 4,038,006 and 4,048,436 shares at December 31, 2013 and June 30, 2013, respectively		40			40
Additional paid-in capital		34,163			33,726
Unearned ESOP shares		(2,962	)		(3,055	)
Retained earnings		41,156			40,531
Accumulated other comprehensive income (loss)		(78	)		62
Total stockholders’ equity		72,319			71,304
Total liabilities and stockholders’ equity	$	385,555		$	381,611

See notes to consolidated financial statements.

5

OBA Financial Services, Inc. and Subsidiary

Consolidated Statements of Income (Unaudited)

	Three Months Ended December 31,					Six Months Ended December 31,
	2013		2012			2013		2012
(In thousands, except share and per share data)
Interest and Dividend Income:
Loans receivable, including fees	$	3,689	$	3,684		$	7,287	$	7,285
Investment securities:
Interest - taxable		234		277			460		547
Dividends		9		14			17		21
Federal funds sold		19		9			34		23
Total interest and dividend income		3,951		3,984			7,798		7,876
Interest Expense:
Deposits		304		314			618		666
Federal Home Loan Bank advances		169		219			339		457
Securities sold under agreements to repurchase		7		47			12		94
Total interest expense		480		580			969		1,217
Net interest income		3,471		3,404			6,829		6,659
Provision for loan losses		15		(17	)		20		95
Net interest income after provision for loan losses		3,456		3,421			6,809		6,564
Non-Interest Income:
Customer service fees		86		93			179		183
Loan servicing fees		5		5			9		10
Bank owned life insurance income		67		71			132		144
Net gains (losses)		7		(24	)		32		(24	)
Other non-interest income		55		30			89		62
Total non-interest income		220		175			441		375
Non-Interest Expense:
Salaries and employee benefits		1,778		1,734			3,633		3,504
Occupancy and equipment		396		380			784		768
Data processing		275		189			511		386
Directors’ fees		101		89			192		183
FDIC assessments		50		69			78		138
Other non-interest expense		544		447			983		850
Total non-interest expense		3,144		2,908			6,181		5,829
Income before income taxes		532		688			1,069		1,110
Income tax expense		221		291			444		453
Net income	$	311	$	397		$	625	$	657
Basic earnings per share	$	0.08	$	0.10		$	0.17	$	0.17
Diluted earnings per share	$	0.08	$	0.10		$	0.17	$	0.17
Basic weighted average shares outstanding		3,737,188		3,799,778			3,736,005		3,812,501
Diluted weighted average shares outstanding		3,777,943		3,871,539			3,775,269		3,862,525

See notes to consolidated financial statements.

6

OBA Financial Services, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

	Three Months Ended December 31,						Six Months Ended December 31,
	2013			2012			2013			2012
(In thousands)
Net income	$	311		$	397		$	625		$	657
Other comprehensive income (loss):
Net unrealized gains (losses) on available for sale securities, net of tax benefit of $82, $148, $90 and $3, respectively		(129	)		(231	)		(140	)		(4	)
Other comprehensive income (loss)		(129	)		(231	)		(140	)		(4	)
Comprehensive income	$	182		$	166		$	485		$	653

See notes to consolidated financial statements.

7

OBA Financial Services, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity (Unaudited)

Six Months Ended December 31, 2013 and 2012

	Common Stock		Additional Paid-in Capital			Unearned ESOP Shares			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total
(In thousands)
Balances at July 1, 2013	$	40	$	33,726		$	(3,055	)	$	40,531	$	62		$	71,304
Net income										625					625
Other comprehensive income (loss), net of tax												(140	)		(140	)
Purchase and retirement of 1,000 shares of Company stock				(18	)										(18	)
Retirement of 9,430 shares for tax payments				(173	)										(173	)
Share-based compensation expense				478											478
Tax benefit of 49,985 restricted shares vesting				70											70
ESOP shares committed to be released (9,258 shares)				80			93					—			173
Balances, December 31, 2013	$	40		34,163		$	(2,962	)	$	41,156	$	(78	)	$	72,319
Balances at July 1, 2012	$	43	$	38,695		$	(3,240	)	$	39,409	$	808		$	75,715
Net income										657					657
Other comprehensive income (loss), net of tax												(4	)		(4	)
Purchase and retirement of 85,600 shares of Company stock				(1,321	)										(1,321	)
Share-based compensation expense				469											469
Tax benefit of 49,485 restricted shares vesting				21											21
ESOP shares committed to be released (9,258 shares)				54			92								146
Balances, December 31, 2012	$	43	$	37,918		$	(3,148	)	$	40,066	$	804		$	75,683

See notes to consolidated financial statements.

8

OBA Financial Services, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended December 31,
(in thousands)	2013			2012
Operating Activities:
Net income	$	625		$	657
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		20			95
Depreciation and amortization of premises and equipment		307			331
Net amortization of securities premiums and discounts		119			193
Proceeds from sales of loans held for sale		1,627			1,105
Originated loans held for sale		(1,181	)		(1,504	)
Net gains on sales of loans		(32	)		(16	)
Amortization of net deferred loan fees		(149	)		(18	)
Loss on other real estate owned		—			40
Bank owned life insurance income		(132	)		(144	)
ESOP expense		173			146
Share-based compensation expense		478			469
Amortization of mortgage servicing rights		2			5
Amortization of brokered deposit premiums		15			—
Tax benefit from vesting of restricted shares		(70	)		(21	)
Changes in other assets and liabilities, net		120			(11	)
Total adjustments		1,297			670
Net cash provided by operating activities		1,922			1,327
Investing Activities:
Principal collections and maturities of securities available for sale		3,971			7,334
Principal collections and maturities of securities held to maturity		233			532
Purchases of securities available for sale		(10,963	)		(16,384	)
Redemption of Federal Home Loan Bank stock, net		—			384
Decrease in interest bearing deposits with other banks, net		2,236			957
Loan originations less principal collections, net		(492	)		(1,310	)
Purchases of premises and equipment		(59	)		(82	)
Net cash used in investing activities		(5,074	)		(8,569	)
Financing Activities:
Increase (decrease) in deposits		5,915			(2,919	)
Decrease in securities sold under agreements to repurchase		(1,872	)		(6,643	)
Proceeds from FHLB advances		—			5,000
Repayment of FHLB advances		(63	)		(5,061	)
Net decrease in advance payments from borrowers for taxes and insurance		(1,022	)		(1,398	)
Tax benefit from vesting of restricted shares		70			21
Purchase and retirement of Company stock		(191	)		(1,321	)
Net cash provided by (used in) financing activities		2,837			(12,321	)
Decrease in cash and cash equivalents		(315	)		(19,563	)
Cash and cash equivalents at beginning of period		16,173			31,525
Cash and cash equivalents at end of period	$	15,858		$	11,962
Supplemental Disclosures:
Interest paid	$	963		$	1,258
Income taxes paid, net		475			154

See notes to consolidated financial statements.

9

OBA Financial Services, Inc. and Subsidiary

Notes to the Consolidated Financial Statements (Unaudited)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business

OBA Bank (“Bank”) is a community-oriented banking institution providing a variety of financial services to individuals and small businesses through its offices in Montgomery, Anne Arundel, and Howard Counties, Maryland. Its primary deposits are checking, money market, and time certificate accounts and its primary lending products are commercial mortgage, commercial business, construction, and residential mortgage loans.

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

On January 21, 2010, OBA Bancorp, MHC completed its plan of conversion and reorganization from a mutual holding company to a stock holding company. In accordance with the plan, OBA Bancorp, MHC and OBA Bancorp, Inc. ceased to exist and a newly formed stock holding company, OBA Financial Services, Inc. (of which OBA Bank became a wholly owned subsidiary) sold shares of capital stock to eligible depositors of OBA Bank. OBA Financial Services, Inc.’s common stock is quoted on the NASDAQ Capital Market under the symbol “OBAF.”

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

Basis of Presentation

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

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

Operating results for the three and six months ended December 31, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2014 or any other interim period. The consolidated financial statements presented in this report should be read in conjunction with the audited consolidated financial statements and the accompanying notes filed on Form 10-K for the fiscal year ended June 30, 2013.

In preparing the accompanying consolidated financial statements, the Company has evaluated subsequent events through the financial statement issue date. There were no subsequent events identified by the Company as a result of the evaluation that require recognition or disclosure in the consolidated financial statements.

Use of Estimates

In preparing the consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Statement of Condition and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly sensitive to change in the near term relates to the determination of the allowance for loan losses, values related to the share-based incentive plans, and other than temporary impairment of investment securities.

10

Reclassifications

From time to time, certain amounts in the prior period consolidated financial statements are reclassified to conform with current period presentation. Such reclassifications, if any, have no material impact on consolidated net income or total stockholders’ equity.

Recent Accounting Pronouncements

There are no recent accounting pronouncements that have had or are expected to have a material impact to the Company’s consolidated financial statements that have not been previously disclosed.

NOTE 2 — COMPREHENSIVE INCOME (LOSS)

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

Accumulated other comprehensive income (loss) consists of the following:

	December 31, 2013			June 30, 2013
	(In thousands)
Unrealized gains (losses) on available for sale securities	$	(128	)	$	102
Tax effect		(50	)		40
Total	$	(78	)	$	62

11

NOTE 3 — SECURITIES

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
			(In thousands)
December 31, 2013
Securities available for sale:
Debt Securities:
Residential mortgage-backed securities (1)	$	43,863	$	601	$	(728	)	$	43,736
Trust preferred security		33		—		(1	)		32
Total debt securities available for sale		43,896		601		(729	)		43,768
Equity securities		50		—		—			50
Total securities available for sale		43,946		601		(729	)		43,818
Securities held to maturity:
Debt Securities:
Residential mortgage-backed securities (1)		1,211		75		—			1,286
Total debt securities held to maturity		1,211		75		—			1,286
Total investment securities	$	45,157	$	676	$	(729	)	$	45,104
June 30, 2013
Securities available for sale:
Debt Securities:
Residential mortgage-backed securities (1)	$	36,981	$	616	$	(513	)	$	37,084
Trust preferred security		41		—		(1	)		40
Total debt securities available for sale		37,022		616		(514	)		37,124
Equity securities		50		—		—			50
Total securities available for sale		37,072		616		(514	)		37,174
Securities held to maturity:
Debt Securities:
Residential mortgage-backed securities (1)		1,445		75		—			1,520
Total debt securities held to maturity		1,445		75		—			1,520
Total investment securities	$	38,517	$	691	$	(514	)	$	38,694

⁽¹⁾  All residential mortgage-backed securities were issued by FNMA, FHLMC, or GNMA.

12

The amortized cost and fair value of debt securities by contractual maturity at December 31, 2013 are as follows:

	Available for sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
			(In thousands)
Due after ten years	$	33	$	32	$	—	$	—
Residential mortgage-backed securities		43,863		43,736		1,211		1,286
Total	$	43,896	$	43,768	$	1,211	$	1,286

At December 31, 2013 the market value of securities securing customer repurchase agreements was $16.3 million. There were no dealer repurchase agreements. At June 30, 2013, the market value of securities securing customer repurchase agreements was $12.5 million.

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

	Less than 12 Months				12 Months or More				Total
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Number of Securities		Gross Unrealized Losses		Fair Value
					(In thousands)
December 31, 2013
Residential mortgage-backed securities	$	619	$	26,027	$	109	$	2,196		9	$	728	$	28,223
Trust preferred security		1		32		—		—		1		1		32
Total	$	620	$	26,059	$	109	$	2,196		10	$	729	$	28,255
June 30, 2013
Residential mortgage-backed securities	$	513	$	18,870	$	—	$	—		6	$	513	$	18,870
Trust preferred security		1		40		—		—		1		1		40
Total	$	514	$	18,910	$	—	$	—		7	$	514	$	18,910

At December 31, 2013 and at June 30, 2013, all residential mortgage backed securities and their contractual cash flows were guaranteed by FNMA, FHLMC, or GNMA. The Company’s sole trust preferred security is a variable rate pool of trust preferred securities issued by insurance companies or their holding companies. These positions and the related unrealized losses are not material to the Company’s consolidated financial position or results of operations. The decline in the residential mortgage backed securities has been primarily caused by the movement in market interest rates. The Company has no intent or requirement to sell these securities.

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

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

The Bank maintains an allowance for loan losses at an amount estimated to equal all credit losses in the loan portfolio that are both probable and reasonably estimable at the consolidated statement of condition date. The Bank’s determination as to the classification of loans is subject to review by the Bank’s primary federal regulator, the Office of the Comptroller of the Currency (“OCC”). The Bank regularly reviews the loan portfolio to determine whether any loans require classification in accordance with applicable regulations.

13

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

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

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

Construction loans generally have greater credit risk compared to residential mortgage loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment expectations on construction loans typically depend on the successful completion of the project and the operation of the related business and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy.

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

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

The classes of loans are as follows:

	December 31, 2013			June 30, 2013
	(In thousands)
Commercial business	$	38,441		$	42,321
Commercial real estate		153,020			140,104
Construction		11,787			13,044
Residential mortgage		74,972			80,529
Home equity loans and lines of credit		25,726			27,336
Loans		303,946			303,334
Net deferred commercial loan fees		(267	)		(320	)
Net deferred home equity costs		239			262
Loans net of deferred (fees) costs		303,918			303,276
Allowance for loan losses		(3,494	)		(3,473	)
Total loans, net	$	300,424		$	299,803

14

The following tables present the classes of the loan portfolio summarized by loan rating within the Bank’s internal risk rating system:

December 31, 2013:

	Pass		Special Mention		Substandard		Doubtful		Total
(In thousands)
Commercial business	$	35,796	$	1,197	$	1,448	$	—	$	38,441
Commercial real estate		146,628		—		6,392		—		153,020
Construction		11,787		—		—		—		11,787
Residential mortgage		72,847		—		2,125		—		74,972
Home equity loans and lines of credit		25,620		75		31		—		25,726
Total	$	292,678	$	1,272	$	9,996	$	—	$	303,946

June 30, 2013:

	Pass		Special Mention		Substandard		Doubtful		Total
(In thousands)
Commercial business	$	38,149	$	3,302	$	870	$	—	$	42,321
Commercial real estate		133,711		1,578		4,815		—		140,104
Construction		13,044		—		—		—		13,044
Residential mortgage		78,393		—		2,136		—		80,529
Home equity loans and lines of credit		26,833		75		428		—		27,336
Total	$	290,130	$	4,955	$	8,249	$	—	$	303,334

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

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

December 31, 2013:

	31-60 Days Past Due		61-90 Days Past Due		Over 90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Total Non-Accrual Loans
(In thousands)
Commercial business	$	—	$	—	$	—	$	—	$	38,441	$	38,441	$	—
Commercial real estate		—		—		—		—		153,020		153,020		—
Construction		—		—		—		—		11,787		11,787		—
Residential mortgage		317		—		622		939		74,033		74,972		622
Home equity loans and lines of credit		189		—		—		189		25,537		25,726		75
Total	$	506	$	—	$	622	$	1,128	$	302,818	$	303,946	$	697

June 30, 2013:

	31-60 Days Past Due		61-90 Days Past Due		Over 90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Total Non-Accrual Loans
(In thousands)
Commercial business	$	—	$	—	$	—	$	—	$	42,321	$	42,321	$	—
Commercial real estate		82		—		—		82		140,022		140,104		—
Construction		—		—		—		—		13,044		13,044		—
Residential mortgage		—		—		622		622		79,907		80,529		622
Home equity loans and lines of credit		75		—		—		75		27,261		27,336		75
Total	$	157	$	—	$	622	$	779	$	302,555	$	303,334	$	697

15

There are no loans over 90 days past due that are still accruing at the dates indicated.

The Bank provides for loan losses based upon the consistent application of the documented allowance for loan loss methodology. All loan losses are charged to the allowance for loan losses and all recoveries are credited to the same. Additions to the allowance for loan losses are provided by charges to income based on various factors which, in Management’s judgment, deserve current recognition in estimating probable losses. Management regularly reviews the loan portfolio and makes provisions for loan losses in order to maintain the allowance for loan losses in accordance with U.S. GAAP. The Bank considers residential mortgage loans and home equity loans and lines of credit as small, homogeneous loans, which are evaluated for impairment collectively based on historical loss experience. Commercial real estate and commercial business loans are reviewed individually. Loans are considered impaired if the probability exists that the Bank will be unable to collect contractually obligated principal and interest cash flows. The allowance for loan losses consists primarily of three components:

(1) specific allowances established for impaired loans (as defined by U.S. GAAP). For a non-collateral dependent loan, the amount of impairment, if any, is estimated as the difference between the estimated present value based on Management’s assumptions regarding future cash flows and discounted at the loan’s original yield and the carrying value of the loan. Impaired loans for which the estimated present value of the loan exceeds the carrying value of the loan do not reduce specific allowances;

(2) general allowances established for loan losses on a portfolio basis for loans that do not meet the definition of impaired loans. The portfolio is grouped into similar risk characteristics, primarily loan type. The Bank applies an estimated loss rate to each loan group. The loss rates applied are based upon loss experience adjusted, as appropriate, for the environmental factors discussed below. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions; and

(3) unallocated allowances established to provide for probable losses that have been incurred as of the reporting date but are not reflected in the allocated allowance.

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

The adjustments to historical loss experience are based on Management’s evaluation of several qualitative and environmental factors, including, but not limited to:

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

• changes in the number and amount of non-accrual loans, watch list loans, and past due loans;

• changes in national, state, and local economic trends;

• changes to other external influences including, but not limited to, legal, accounting, peer, and regulatory changes;

• changes in the types of loans in the loan portfolio;

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

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

• changes in lending strategies; and

• changes in lending policies and procedures.

The following table summarizes activity in the allowance for loan losses:

	Three Months Ended					Six Months Ended
	December 31,					December 31,
(In thousands)	2013		2012			2013		2012
Balance at beginning of period	$	3,479	$	3,140		$	3,473	$	3,035
Provision for loan losses		15		(17	)		20		95
Charge-offs		—		—			—		(8	)
Recoveries		—		2			1		3
Balance at end of period	$	3,494	$	3,125		$	3,494	$	3,125

16

The following tables set forth the activity in and allocation of the allowance for loan losses by loan portfolio class for the periods as listed:

Three Months Ended December 31, 2013

											Home
	Commercial			Commercial				Residential			equity loans and lines
	business			real estate		Construction		mortgage			of credit			Unallocated			Total
(In thousands)
Allowance for loan losses:
Beginning Balance	$	421		$	1,608	$	98	$	820		$	281		$	251		$	3,479
Charge-offs		—			—		—		—			—			—			—
Recoveries		—			—		—		—			—			—			—
Provisions		(4	)		81		18		(22	)		(8	)		(50	)		15
Ending balance	$	417		$	1,689	$	116	$	798		$	273		$	201		$	3,494

Six Months Ended December 31, 2013

												Home equity loans
	Commercial			Commercial					Residential			and lines
	business			real estate		Construction			mortgage			of credit		Unallocated			Total
(In thousands)
Allowance for loan losses:
Beginning Balance	$	429		$	1,573	$	122		$	847		$	270	$	232		$	3,473
Charge-offs		—			—		—			—			—		—			—
Recoveries		—			1		—			—			—		—			1
Provisions		(12	)		115		(6	)		(49	)		3		(31	)		20
Ending balance	$	417		$	1,689	$	116		$	798		$	273	$	201		$	3,494

Three Months Ended December 31, 2012

											Home
	Commercial		Commercial					Residential			equity loans and lines
	business		real estate			Construction		mortgage			of credit			Unallocated		Total
(In thousands)
Allowance for loan losses:
Beginning Balance	$	698	$	1,156		$	6	$	815		$	380		$	85	$	3,140
Charge-offs		—		—			—		—			—			—		—
Recoveries		—		2			—		—			—			—		2
Provisions		84		(81	)		7		(97	)		(5	)		75		(17	)
Ending balance	$	782	$	1,077		$	13	$	718		$	375		$	160	$	3,125

Six Months Ended December 31, 2012

											Home equity loans
	Commercial		Commercial					Residential			and lines
	business		real estate			Construction		mortgage			of credit			Unallocated			Total
(In thousands)
Allowance for loan losses:
Beginning Balance	$	670	$	955		$	7	$	772		$	390		$	241		$	3,035
Charge-offs		—		(8	)		—		—			—			—			(8	)
Recoveries		—		3			—		—			—			—			3
Provisions		112		127			6		(54	)		(15	)		(81	)		95
Ending balance	$	782	$	1,077		$	13	$	718		$	375		$	160		$	3,125

17

The following tables present the balance in the allowance for loan losses and the recorded in investment in loans by portfolio class and based on impairment method:

December 31, 2013:

									Home
									equity loans
	Commercial		Commercial				Residential		and lines
	business		real estate		Construction		mortgage		of credit		Unallocated		Total loans
(In thousands)
Allowance for Loan Losses:
Ending allowance balance related to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	147	$	—	$	—	$	147
Collectively evaluated for impairment		417		1,689		116		651		273		201		3,347
Total ending allowance balance	$	417	$	1,689	$	116	$	798	$	273	$	201	$	3,494
Loans:
Ending loan balance
Individually evaluated for impairment	$	117	$	2,536	$	—	$	1,504	$	31			$	4,188
Collectively evaluated for impairment		38,324		150,484		11,787		73,468		25,695				299,758
Total ending loan balance	$	38,441	$	153,020	$	11,787	$	74,972	$	25,726			$	303,946

June 30, 2013:

									Home
									equity loans
	Commercial		Commercial				Residential		and lines
	business		real estate		Construction		mortgage		of credit		Unallocated		Total loans
(In thousands)
Allowance for Loan Losses:
Ending allowance balance related to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	148	$	—	$	—	$	148
Collectively evaluated for impairment		429		1,573		122		699		270		232		3,325
Total ending allowance balance	$	429	$	1,573	$	122	$	847	$	270	$	232	$	3,473
Loans:
Ending loan balance
Individually evaluated for impairment	$	121	$	1,329	$	—	$	1,515	$	428			$	3,393
Collectively evaluated for impairment		42,200		138,775		13,044		79,014		26,908				299,941
Total ending loan balance	$	42,321	$	140,104	$	13,044	$	80,529	$	27,336			$	303,334

18

The following tables summarize information in regards to impaired loans by portfolio class as of and for the periods ended:

							December 31, 2013
	At December 31, 2013						Three Months Ended				Six Months Ended
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
(In thousands)
With No Related Allowance Recorded:
Commercial business	$	117	$	117	$	—	$	118	$	—	$	119	$	—
Commercial real estate		2,536		2,625		—		1,926		19		1,932		38
Commercial construction		—		—		—		—		—		—		—
Residential mortgage		546		546		—		547		6		548		19
Home equity loans and lines of credit		31		31		—		230		—		230		3
Total with no allowance recorded	$	3,230	$	3,319	$	—	$	2,821	$	25	$	2,829	$	60
With an Allowance Recorded:
Commercial business	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate		—		—		—		—		—		—		—
Commercial construction		—		—		—		—		—		—		—
Residential mortgage		958		958		147		960		13		887		20
Home equity loans and lines of credit		—		—		—		—		—		—		—
Total with allowance recorded	$	958	$	958	$	147	$	960	$	13	$	887	$	20
Total:
Commercial business	$	117	$	117	$	—	$	118	$	—	$	119	$	—
Commercial real estate		2,536		2,625		—		1,926		19		1,932		38
Commercial construction		—		—		—		—		—		—		—
Residential mortgage		1,504		1,504		147		1,507		19		1,435		39
Home equity loans and lines of credit		31		31		—		230		—		230		3
Total	$	4,188	$	4,277	$	147	$	3,781	$	38	$	3,716	$	80

							December 31, 2012
	At December 31, 2012						Three Months Ended				Six Months Ended
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
(In thousands)
With No Related Allowance Recorded:
Commercial business	$	7	$	7	$	—	$	8	$	—	$	8	$	—
Commercial real estate		6,240		6,329		—		6,245		19		6,341		38
Commercial construction		—		—		—		—		—		—		—
Residential mortgage		75		75		—		266		—		266		10
Home equity loans and lines of credit		32		32		—		33		1		33		1
Total with no allowance recorded	$	6,354	$	6,443	$	—	$	6,552	$	20	$	6,648	$	49
With an Allowance Recorded:
Commercial business	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate		—		—		—		—		—		—		—
Commercial construction		—		—		—		—		—		—		—
Residential mortgage		970		970		149		971		14		972		20
Home equity loans and lines of credit		—		—		—		—		—		—		—
Total with allowance recorded	$	970	$	970	$	149	$	971	$	14	$	972	$	20
Total:
Commercial business	$	7	$	7	$	—	$	8	$	—	$	8	$	—
Commercial real estate		6,240		6,329		—		6,245		19		6,341		38
Commercial construction		—		—		—		—		—		—		—
Residential mortgage		1,045		1,045		149		1,237		14		1,238		30
Home equity loans and lines of credit		32		32		—		33		1		33		1
Total	$	7,324	$	7,413	$	149	$	7,523	$	34	$	7,620	$	69

19

							June 30, 2013
	At June 30, 2013						For the year ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
(In thousands)
With No Related Allowance Recorded:
Commercial business loans	$	121	$	121	$	—	$	65	$	—
Commercial real estate		1,329		1,418		—		3,886		—
Commercial construction		—		—		—		—		—
Residential mortgages		551		551		—		542		33
Home equity loans and lines of credit		428		428		—		230		—
Total with no allowance recorded	$	2,429	$	2,518	$	—	$	4,723	$	33
With an Allowance Recorded:
Commercial business loans	$	—	$	—	$	—	$	—	$	—
Commercial real estate		—		—		—		—		72
Commercial construction		—		—		—		—		—
Residential mortgages		964		964		148		895		13
Home equity loans and lines of credit		—		—		—		—		2
Total with allowance recorded	$	964	$	964	$	148	$	895	$	87
Total:
Commercial business loans	$	121	$	121	$	—	$	65	$	—
Commercial real estate		1,329		1,418		—		3,886		72
Commercial construction		—		—		—		—		—
Residential mortgages		1,515		1,515		148		1,437		46
Home equity loans and lines of credit		428		428		—		230		2
Total	$	3,393	$	3,482	$	148	$	5,618	$	120

The following table presents troubled debt restructurings occurring during the three and six month periods listed below:

	December 31, 2013						December 31, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investments		Post-Modification Outstanding Recorded Investments		Number of Contracts		Pre-Modification Outstanding Recorded Investments		Post-Modification Outstanding Recorded Investments
(In thousands)
Three months ended December 31:
Commercial business		—	$	—	$	—		—	$	—	$	—
Commercial real estate		1		1,188		1,202		—		—		—
Residential mortgage		—		—		—		—		—		—
Total Troubled Debt Restructurings		1	$	1,188	$	1,202		—	$	—	$	—
Six months ended December 31:
Commercial business		—	$	—	$	—		—	$	—	$	—
Commercial real estate		1		1,188		1,202		—		—		—
Residential mortgage		—		—		—		—		—		—
Total Troubled Debt Restructurings		1	$	1,188	$	1,202		—	$	—	$	—

Generally, the Bank does not forgive principal or interest on loans or modify the interest rate on loans to rates that are below market rates based on the risks associated with the modified loans. Although, loans can be modified to make concessions to help a borrower remain current on the loan and to avoid foreclosure. These troubled debt restructurings include deferrals of interest and/or principal payments and temporary or permanent reductions in interest rates due to financial difficulties of the borrower. During the three and six months ended December 31, 2013 and 2012, no loans previously classified as troubled debt restructurings subsequently defaulted.

20

NOTE 5 — FAIR VALUE MEASUREMENTS AND DISCLOSURES

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

Level 1:	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2:	Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3:	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Transfers between fair value hierarchy levels are recognized as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between fair value hierarchy levels for the three and six months ended December 31, 2013 or 2012.

For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at the dates listed are as follows:

(In thousands)			(Level 1)
			Quoted Prices		(Level 2)
			in Active		Significant		(Level 3)
			Markets for		Other		Significant
	December 31,		Identical		Observable		Unobservable
Description	2013		Assets		Inputs		Inputs
Residential mortgage-backed securities (1)	$	43,736	$	—	$	43,736	$	—
Trust preferred security		32		—		—		32
Equity securities		50		—		50		—
Securities available for sale	$	43,818	$	—	$	43,786	$	32

			(Level 1)
			Quoted Prices		(Level 2)
			in Active		Significant		(Level 3)
			Markets for		Other		Significant
	June 30,		Identical		Observable		Unobservable
Description	2013		Assets		Inputs		Inputs
Residential mortgage-backed securities (1)	$	37,084	$	—	$	37,084	$	—
Trust preferred security		40		—		—		40
Equity securities		50		—		50		—
Securities available for sale	$	37,174	$	—	$	37,134	$	40

21

The following table presents a reconciliation of the securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended December 31, 2013 and 2012:

	Three Months Ended						Six Months Ended
	December 31,						December 31,
(In thousands)	2013			2012			2013			2012
Beginning balance	$	37		$	54		$	40		$	54
Principal repayments		(5	)		(18	)		(8	)		(22	)
Unrealized gains included in other comprehensive income		—			12			—			16
Ending balance	$	32		$	48		$	32		$	48

Level 3 securities consist of one trust preferred security at December 31, 2013 and 2012 and June 30, 2013.

For assets measured at fair value on a nonrecurring basis at the dates listed, the fair value measurements by level within the fair value hierarchy are as follows:

(In thousands)			(Level 1)
			Quoted Prices		(Level 2)
			in Active		Significant		(Level 3)
			Markets for		Other		Significant
	December 31,		Identical		Observable		Unobservable
Description	2013		Assets		Inputs		Inputs
Impaired loans	$	811	$	—	$	—	$	811
			(Level 1)
			Quoted Prices		(Level 2)
			in Active		Significant		(Level 3)
			Markets for		Other		Significant
	June 30,		Identical		Observable		Unobservable
Description	2013		Assets		Inputs		Inputs
Impaired loans	$	816	$	—	$	—	$	816

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

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate fair values at December 31, 2013 and June 30, 2013:

Cash and Cash Equivalents and Interest Bearing Deposits with Other Banks (Carried at Cost)

The carrying amounts of cash and short-term instruments approximate fair value and are classified within level 1 of the fair value hierarchy.

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Securities Available for Sale (Carried at Fair Value)

The fair values of securities available for sale, excluding trust preferred securities, are determined by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. Level 2 debt securities are valued by a third-party pricing service commonly used in the banking industry. Level 2 fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution date, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other pieces of information.

The market for pooled trust preferred securities is inactive. A significant widening of the bid/ask spreads in the markets in which these securities trade was followed by a significant decrease in the volume of trades relative to historical levels. The new issue market is also inactive and no new pooled trust preferred securities have been issued since 2007. Since there were limited observable market-based Level 1 and Level 2 inputs for trust preferred securities, the fair value of these securities was estimated using primarily unobservable Level 3 inputs. Fair value estimates for trust preferred securities were based on discounting expected cash flows using a risk-adjusted discount rate. The Company develops the risk-adjusted discount rate by considering the time value of money (risk-free rate) adjusted for an estimated risk premium for bearing the uncertainty in future cash flows and, given current adverse market conditions, a liquidity adjustment based on an estimate of the premium that a market participant would require assuming an orderly transaction. Management determined that sensitivity to inputs are not significant due to the immaterial nature of trust preferred securities as a level 3 asset.

Securities Held to Maturity (Carried at Amortized Cost)

The fair values of securities held to maturity are determined by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. Level 2 debt securities are valued by a third-party pricing service commonly used in the banking industry. Level 2 fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution date, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other pieces of information.

Federal Home Loan Bank Stock (Carried at Cost)

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

Loans Receivable (Generally Carried at Cost)

The fair values of loans (except impaired loans) are estimated using discounted cash flow analyses which use market rates at the statement of condition date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments, and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts. Loans are classified within Level 3 of the fair value hierarchy.

Loans Held for Sale (Carried at Cost)

The carrying amount of Loans Held for Sale approximates fair value and considers secondary market offerings for loans with similar characteristics. Loans Held for Sale are classified within Level 3 of the fair value hierarchy.

Impaired Loans (Generally Carried at Fair Value)

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

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

At origination, the Company estimates the fair value of mortgage servicing rights at 1% of the principal balances of loans sold. The Company amortizes that amount over the estimated period of servicing revenues or charges the entire amount to income upon prepayment of the related loan. Due to the immaterial balance of mortgage servicing rights, the Company did not perform any further analysis or estimate their fair values. Therefore, the Company has disclosed that the carrying amounts of mortgage servicing rights approximate fair value. Mortgage servicing rights are classified within Level 3 of the fair value hierarchy. Management determined that sensitivity to inputs are not significant due to the immaterial nature of the mortgage servicing rights as a Level 3 asset.

Deposit Liabilities (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities. Demand deposits and certificates of deposit are classified within Level 2 of the fair value hierarchy.

Federal Home Loan Bank Advances (Carried at Cost)

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms, and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party. Federal Home Loan Bank Advances are classified within Level 2 of the fair value hierarchy.

Securities Sold Under Agreement to Repurchase (Carried at Cost)

The carrying amounts of securities sold under agreements to repurchase approximate fair value for short-term obligations. The fair values for longer term repurchase agreements are based on current market interest rates for similar transactions. Securities sold under agreement to repurchase are classified within Level 2 of the fair value hierarchy.

Accrued Interest Receivable and Payable (Carried at Cost)

The carrying amounts of accrued interest approximate fair value. Accrued Interest Receivable and Payable are classified within Level 2 of the fair value hierarchy.

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

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

Quantitative information about Level 3 Fair Value Measurement is included in the tables below:

(In thousands)	Quantitative Information about Level 3 Fair Value Measurements
					Estimated
	Fair Value		Valuation	Unobservable	Range
December 31, 2013	Estimate		Techniques	Inputs	(weighted average)
Impaired loans	$	811	Appraisal of	Appraisal	0.0% to –25.0%
			collateral	adjustments	(–6.5%)
				Liquidation	–3.0% to –5.0%
				expenses	(–3.3%)
(In thousands)	Quantitative Information about Level 3 Fair Value Measurements
					Estimated
	Fair Value		Valuation	Unobservable	Range
June 30, 2013	Estimate		Techniques	Inputs	(weighted average)
Impaired loans	$	816	Appraisal of	Appraisal	0.0% to –25.0%
			collateral	adjustments	(–6.5%)
				Liquidation	–3.0% to –5.0%
				expenses	(–3.3%)

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

					Fair Value Hierarchy at
					December 31, 2013
					Quoted Prices in
					Active Markets		Significant Other		Significant
	December 31, 2013				For Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
(In thousands)	Amount		Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	15,858	$	15,858	$	15,858	$	—	$	—
Interest bearing deposits with other banks		4,456		4,456		4,456		—		—
Securities available for sale		43,818		43,818		—		43,786		32
Securities held to maturity		1,211		1,286		—		1,286		—
Federal Home Loan Bank stock		1,160		1,160		—		1,160		—
Loans held for sale		—		—		—		—		—
Loans receivable, net		300,424		306,252		—		—		306,252
Accrued interest receivable		1,069		1,069		—		1,069		—
Mortgage servicing rights		25		25		—		—		25
Financial liabilities:
Deposits		289,178		289,168		—		289,168		—
Securities sold under agreements to repurchase		6,672		6,671		—		6,671		—
Federal Home Loan Bank Advances		15,560		16,948		—		16,948		—
Accrued interest payable		117		117		—		117		—
Off-Balance sheet financial instruments		—		—		—		—		—

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					Fair Value Hierarchy at
					June 30, 2013
					Quoted Prices in
					Active Markets		Significant Other		Significant
	June 30, 2013				For Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
(In thousands)	Amount		Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	16,173	$	16,173	$	16,173	$	—	$	—
Interest bearing deposits with other banks		6,692		6,692		6,692		—		—
Securities available for sale		37,174		37,174		—		37,134		40
Securities held to maturity		1,445		1,520		—		1,520		—
Federal Home Loan Bank stock		1,160		1,160		—		1,160		—
Loans held for sale		414		414		—		—		414
Loans receivable, net		299,803		303,770		—		—		303,770
Accrued interest receivable		1,111		1,111		—		1,111		—
Mortgage servicing rights		28		28		—		—		28
Financial liabilities:
Deposits		283,263		283,215		—		283,215		—
Securities sold under agreements to repurchase		8,544		8,543		—		8,543		—
Federal Home Loan Bank Advances		15,623		17,223		—		17,223		—
Accrued interest payable		111		111		—		111		—
Off-Balance sheet financial instruments		—		—		—		—		—

NOTE 6 — GUARANTEES

The Company has not issued any guarantees that would require liability recognition or disclosure other than its letters of credit. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, letters of credit, when issued, have expiration dates within one year. The credit risks involved in issuing letters of credit are essentially the same as those that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. As of December 31, 2013, the Company had $1.2 million of outstanding letters of credit. Management believes the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. Management believes the current amount of the liability as of December 31, 2013 for guarantees under letters of credit issued is not material.

NOTE 7 — EMPLOYEE STOCK OWNERSHIP PLAN

Effective January 1, 2010, the Company adopted an Employee Stock Ownership Plan (“ESOP”) for eligible employees. The ESOP borrowed $3.7 million from the Company and used those funds to acquire 370,300 shares, or 8.0%, of the total number of shares issued by the Company in its initial public offering. The shares were acquired at a price of $10.00 per share.

The loan is secured by the shares purchased with the loan proceeds and will be repaid by the ESOP over the 20 year term of the loan with funds from the Bank’s contributions to the ESOP and dividends payable on the stock, if any. The interest rate on the ESOP loan adjusts annually and is the prime rate on the first business day of the calendar year, as published in The Wall Street Journal.

Shares purchased by the ESOP are held by a trustee in an unallocated suspense account and shares are released annually from the suspense account on a pro-rata basis as principal and interest payments are made by the ESOP to the Company. The trustee allocates the shares released among participants on the basis of each participant’s proportional share of compensation relative to all participants. Total ESOP shares may be reduced as a result of employees leaving the Company as shares that have previously been released to those exiting employees may be removed from the plan and transferred to that employee. As shares are committed to be released from the suspense account, the Bank reports compensation expense based on the average fair value of shares committed to be released with a corresponding credit to stockholders’ equity. Compensation expense relating to the ESOP recognized for the six months ended December 31, 2013 and 2012 amounted to $173 thousand and $146 thousand, respectively. Compensation expense recognized for the three months ended December 31, 2013 and 2012 amounted to $88 thousand and $77 thousand, respectively.

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Shares held by the ESOP trust at the dates listed were as follows:

	December 31,
	2013		2012
Allocated shares		71,586		53,945
Unallocated shares		296,240		314,755
Total ESOP shares		367,826		368,700
Fair value of unallocated shares, in thousands	$	5,392	$	5,537

NOTE 8 — SHARE BASED COMPENSATION

In May 2011, the Company’s stockholders approved the OBA Financial Services, Inc. 2011 Equity Incentive Plan (“Plan”) which provides for awards of stock options and restricted stock to key officers and outside directors. Compensation expense is based on the fair value of the awards on the grant date. The fair value of restricted stock awards is based on the closing price of the Company’s stock on the grant date. The fair value of stock options is estimated using a Black-Scholes option pricing model using assumptions for dividend yield, stock price volatility, risk-free interest rate, and option term. These assumptions are based on management’s judgments regarding future events, are subjective in nature, and contain uncertainties inherent in an estimate. The cost of the awards are being recognized on a straight-line basis over the five-year vesting period during which participants are required to provide services in exchange for the awards. A portion of the restricted stock award vesting is contingent upon meeting certain Company-wide performance goals.

Until such time as awards of stock are granted and vest or options are exercised, shares of the Company’s common stock under the Plan shall be authorized but unissued shares. The maximum number of shares authorized under the plan is 648,025. Total share-based compensation expense for the six months ended December 31, 2013 and 2012 was $478 thousand and $469 thousand, respectively. Total share-based compensation expense for the three months ended December 31, 2013 and 2012 was $239 thousand and $234 thousand, respectively.

Stock Options

The table below presents the stock option activity for the period shown:

			Weighted
			average		Remaining
			exercise		contractual
	Options		price		life (years)
Options outstanding at June 30, 2013		281,150	$	14.92
Granted		—		—
Exercised		—		—
Forfeited		—		—
Expired		—		—
Options outstanding at December 31, 2013		281,150	$	14.92		7.6
			Weighted
			average		Remaining
			exercise		contractual
	Options		price		life (years)
Options outstanding at June 30, 2012		272,150	$	14.79
Granted		—		—
Exercised		—		—
Forfeited		—		—
Expired		—		—
Options outstanding at December 31, 2012		272,150	$	14.79		8.6

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As of December 31, 2013, the Company had $528 thousand of unrecognized compensation costs related to stock options. The cost of stock options will be amortized in equal annual installments over the five-year vesting period, of which three years remain. There were 56,230 options vested during the six months ended December 31, 2013. Stock option expense for the six months ended December 31, 2013 and 2012 was $103 thousand and $99 thousand, respectively. Stock option expense for the three months ended December 31, 2013 and 2012 was $52 thousand and $49 thousand, respectively.

Restricted Stock Awards

Restricted stock awards are accounted for as fixed grants using the fair value of the Company’s stock at the time of grant. Unvested restricted stock awards may not be disposed of or transferred during the vesting period. Restricted stock awards carry with them the right to receive dividends.

The table below presents the restricted stock award activity for the period shown:

	Service- Based		Weighted		Performance- Based		Weighted		Total		Weighted
	Restricted		average		Restricted		average		Restricted		average
	stock		grant date		stock		grant date		stock		grant date
	awards		fair value		awards		fair value		awards		fair value
Non-vested at June 30, 2013		111,596	$	14.86		88,872	$	14.81		200,468	$	14.84
Granted		—				—		—		—
Vested		27,767	$	14.84		22,218	$	14.81		49,985	$	14.83
Forfeited		—		—		—		—		—		—
Non-vested at December 31, 2013		83,829	$	14.87		66,654	$	14.81		150,483	$	14.84
	Service- Based		Weighted		Performance- Based		Weighted		Total		Weighted
	Restricted		average		Restricted		average		Restricted		average
	stock		grant date		stock		grant date		stock		grant date
	awards		fair value		awards		fair value		awards		fair value
Non-vested at June 30, 2012		136,363	$	14.77		111,090	$	14.81		247,453	$	14.79
Granted		—				—		—		—
Vested		27,267	$	14.77		22,218	$	14.81		49,485	$	14.79
Forfeited		—		—		—		—		—		—
Non-vested at December 31, 2012		109,096	$	14.77		88,872	$	14.81		197,968	$	14.79

As of December 31, 2013, the Company had $1.9 million of unrecognized compensation cost related to restricted stock awards. The cost of the restricted stock awards will be amortized in equal annual installments over the five-year vesting period, of which three remain. The vesting of the performance-based stock awards is contingent upon meeting certain Company-wide performance goals. If such goals are not met, no compensation cost is recognized and any recognized compensation cost is reversed. Restricted stock expense for the six months ended December 31, 2013 and 2012 was $375 thousand and $370 thousand, respectively. Restricted stock expense for the three months ended December 31, 2013 and 2012 was $187 thousand and $185 thousand, respectively.

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NOTE 9 — EARNINGS PER SHARE

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period exclusive of unallocated ESOP shares and unvested restricted stock. Stock options and unvested restricted stock are regarded as potential common stock and are considered in the diluted earnings per share calculations to the extent they would have a dilutive effect if converted to common stock, computed using the Treasury Stock method. The table below sets forth the dilutive effect of the stock options and unvested restricted shares.

	Three Months Ended				Six Months Ended
	December 31,				December 31,
(Dollars in thousands, except share data)	2013		2012		2013		2012
Net income	$	311	$	397	$	625	$	657
Weighted average number of shares used in:
Basic earnings per share		3,737,188		3,799,778		3,736,005		3,812,501
Diluted common stock equivalents		40,755		71,761		39,264		50,024
Diluted earnings per share		3,777,943		3,871,539		3,775,269		3,862,525
Net income per common share, basic	$	0.08	$	0.10	$	0.17	$	0.17
Net income per common share, diluted	$	0.08	$	0.10	$	0.17	$	0.17

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FINANCIAL REVIEW

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

Overview of Income and Expenses

Income

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

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

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

Expenses

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

Salaries and employee benefits expense consists primarily of the salaries and wages paid to employees and payroll tax, healthcare, retirement, ESOP, Equity Incentive Plan, and other employee benefit expenses.

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

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

29

Data processing fees are paid to third party vendors primarily for various data processing services.

Other expenses include expenses for professional services, including, but not limited to, attorney, accountant and consultant fees, advertising and marketing, charitable contributions, insurance, office supplies, postage, telephone, and other miscellaneous operating expenses.

Critical Accounting Policies and Estimates

There are no material changes to the critical accounting policies disclosed in OBA Financial Services, Inc.’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013.

Comparison of Financial Condition at December 31, 2013 and June 30, 2013

Assets. Total assets increased $3.9 million to $385.6 million at December 31, 2013 from $381.6 million at June 30, 2013. The increase was primarily due to an increase securities partially offset by decreases in interest bearing deposits with other banks.

Cash and Cash Equivalents. At December 31, 2013, cash and cash equivalents were effectively unchanged at $15.9 million, from $16.2 million, at June 30, 2013.

Loans. At December 31, 2013, total gross loans were $303.9 million, a slight increase of $642 thousand, as compared to $303.3 million at June 30, 2013. The commercial loan portfolio increased $7.8 million to $203.2 million at December 31, 2013 from $195.5 million at June 30, 2013 as the Company continued its focus on originating commercial loans. The commercial real estate loan portfolio increased $12.9 million, to $153.0 million, at December 31, 2013 from $140.1 million at June 30, 2013. This increase was offset by decreases of $3.9 million, to $38.4 million, in the commercial business portfolio, $1.3 million, to $11.8 million, construction portfolio, $5.6 million, to $75.0 million, in the residential mortgage portfolio, and $1.6 million, to $25.7 million in the home equity loans and lines of credit portfolio. For further detail, see “Note 4 – Credit Quality of Loans and Allowance for Loan Losses” in the accompanying consolidated financial statements.

Allowance for Loan Losses.

The following table summarizes activity in the allowance for loan losses:

	Three Months Ended						Six Months Ended
	December 31,						December 31,
(in thousands)	2013			2012			2013			2012
Balance at beginning of period	$	3,479		$	3,140		$	3,473		$	3,035
Provision for loan losses		15			(17	)		20			95
Charge-offs		—			—			—			(8	)
Recoveries		—			2			1			3
Balance at end of period	$	3,494		$	3,125		$	3,494		$	3,125
Ratios:
Net charge-offs to average loans		—	%		—	%		—	%		—	%
Allowance for loan losses to loans		1.15			1.05			1.15			1.05

At December 31, 2013, the allowance for loan losses was $3.5 million compared with $3.1 million at December 31, 2012 and $3.5 million at June 30, 2013. The allowance for loan losses as a percentage of total loans at December 31, 2013 was 1.15% compared to 1.15% at September 30, 2013, 1.15% at June 30, 2013 and 1.05% at December 31, 2012. There were effectively no net recoveries or charge-offs as a percentage of average loans for the three months and six months ended December 31, 2013 and December 31, 2012. The Bank had $4.2 million in impaired loans at December 31, 2013 as compared to $3.4 million at June 30, 2013. For further detail, see “Note 4 – Credit Quality of Loans and Allowance for Loan Losses” in the accompanying financial statements.

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Non-performing Assets. Loans are generally placed on non-accrual status when payment of principal or interest is 90 days or more delinquent unless well secured and in the process of collection. Loans can also be placed on non-accrual status if collection of principal or interest in full is in doubt. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received. The loan may be returned to accrual status if both principal and interest payments are brought current, there has been a period of sustained performance (generally, six months), and full payment of principal and interest is expected. At December 31, 2013, the Company had $697 thousand in total non-performing assets, which was unchanged from June 30, 2013. These totals represent two residential mortgage loans and one home equity line of credit. Of the $697 thousand in non-performing assets at December 31, 2013, none were also troubled debt restructurings.

The following table summarizes non-performing assets:

	December 31,			June 30,
(dollars in thousands)	2013			2013
Non-performing assets
Non-accrual loans:
Residential mortgages	$	622			622
Home equity loans and lines of credit		75			75
Total non-accrual loans		697			697
Other real estate owned		—			—
Total non-performing assets	$	697		$	697
Asset quality ratios:
Non-performing loans to total loans		0.23	%		0.23	%
Non-performing assets to total assets		0.18			0.18

The non-performing loans to total loans ratio was 23 basis points at December 31, 2013 and 23 basis points at June 30, 2013. The non-performing assets to total assets ratio was 18 basis points at December 31, 2013 and 18 basis points at June 30, 2013. For further detail, see “Note 4 — Credit Quality of Loans and Allowance for Loan Losses” in the accompanying financial statements.

Troubled Debt Restructurings. At December 31, 2013 and June 30, 2013, the Company had $4.3 million and $3.5 million of loans, respectively, which were considered troubled debt restructurings. At December 31, 2013, the Bank had $1.6 million in residential mortgage loans and home equity loans and lines of credit that were considered troubled debt restructurings and $2.7 million in commercial real estate loans that were considered troubled debt restructurings. At June 30, 2013, the Bank had $1.9 million in residential mortgage loans and home equity loans and lines of credit that were considered troubled debt restructurings and $1.6 million in commercial real estate loans that were considered troubled debt restructurings. Of the $4.3 million in loans considered troubled debt restructurings, none were also non-performing loans. For further detail, see “Note 4 — Credit Quality of Loans and Allowance for Loan Losses” in the accompanying financial statements.

Securities. At December 31, 2013, the securities portfolio totaled $45.0 million, or 11.7% of total assets, as compared to $38.6 million, or 10.1% of total assets, at June 30, 2013.

Deposits. At December 31, 2013, deposits increased $5.9 million to $289.2 million from $283.3 million at June 30, 2013. Total checking accounts increased $8.4 million to $122.0 million at December 31, 2013. Total certificates of deposits increased $4.6 million to $76.4 million at December 31, 2013. These increases were primarily offset by a decrease of $7.1 million, to $84.1 million, in money market accounts at December 31, 2013.

Borrowings. At December 31, 2013, total borrowings decreased $1.9 million to $22.2 million from $24.2 million at June 30, 2013. Customer repurchase agreements decreased $1.9 million to $6.7 million at December 31, 2013 from $8.5 million at June 30, 2013. At December 31, 2013 and June 30, 2013, Federal Home Loan Bank advances totaled $15.6 million.

At December 31, 2013, the Company had access to additional Federal Home Loan Bank advances of up to $46.5 million.

31

Equity. Equity totaled $72.3 million at December 31, 2013 and $71.3 million at June 30, 2013. At December 31, 2013, the Company had repurchased 160,098 shares of its common stock of the 210,252 shares approved in its third share repurchase program. The Company’s initial share repurchase program was completed as of May 3, 2012, having repurchased the 462,875 shares approved in that initial program. The Company’s second share repurchase program was completed on April 17, 2012, having repurchased 208,294 shares. The Company’s Board of Directors adopted a third share repurchase program, previously disclosed in the Company’s Form 8-K filed on April 29, 2013.

Capital and Liquidity. The Bank intends to maintain a strong capital position that supports its strategic goals while exceeding regulatory standards. At December 31, 2013, the Bank met the definition of a “well-capitalized” institution by exceeding all regulatory minimum capital requirements. The following tables summarize the consolidated and Bank capital ratios:

	Ratios at
	December 31,			June 30,			“Well-Capitalized”
	2013			2013			Minimums
Consolidated Capital Ratios:
Total Capital to risk-weighted assets		25.68	%		25.64	%		—
Tier 1 Capital to risk-weighted assets		24.50	%		24.45	%		—
Tier 1 Leverage		18.77	%		18.67	%		—
Bank Capital Ratios:
Total Capital to risk-weighted assets		22.69	%		22.53	%		10.00	%
Tier 1 Capital to risk-weighted assets		21.50	%		21.34	%		6.00	%
Tier 1 Leverage		16.47	%		16.30	%		5.00	%

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

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

Comparison of Operating Results for the Three Months Ended December 31, 2013 and 2012

General. Net income decreased $86 thousand, to $311 thousand, for the three months ended December 31, 2013 from net income of $397 thousand for the three months ended December 31, 2012. The decrease in net income was primarily a result of an increase in non-interest expense of $236 thousand and provision for loan losses of $32 thousand offset by an increase in net interest income of $67 thousand and non-interest income of $45 thousand and a decrease in tax expense of $70 thousand.

Net Interest Income. Net interest income increased by $67 thousand to $3.5 million for the three months ended December 31, 2013 as compared to $3.4 million for the three months ended December 31, 2012. Total interest expense decreased $100 thousand, or 17.2%, to $480 thousand for the three months ended December 31, 2013 as compared to $580 thousand for the three months ended December 31, 2012. The decrease in interest expense was primarily the result of the Bank decreasing deposit rates while maintaining its competitive position within the local market, paying off matured higher costing brokered certificates of deposit exclusive of the core customer-based Certificate of Deposit Account Registry Service (“CDARS”) program and higher costing term Federal Home Loan Bank advances, and reducing the rate on customer repurchase agreements. Interest and dividend income was effectively unchanged at $4.0 million for the three months ended December 31, 2013 as compared to the three months ended December 31, 2012.

The net interest margin was 3.90% for the three months ended December 31, 2013 compared to 3.80% for the three months ended December 31, 2012. The increase in the net interest margin was primarily a result of a 17 basis point decrease in the average yield of interest-bearing liabilities as compared to a one basis point decrease in the average yield of interest-earning asset. Net interest-earning

32

assets decreased $9.1 million as average interest-earning assets decreased $3.0 million to $352.9 million for the period ended December 31, 2013 compared to $355.9 million for the period ended December 31, 2012. Average interest-bearing liabilities increased $6.1 million to $275.5 million for the period ended December 31, 2013 as compared to $269.4 million for the period ended December 31, 2012.

Interest and Dividend Income. Interest and dividend income was effectively unchanged at $4.0 million for the three months ended December 31, 2013 and 2012. Interest income on investments decreased to $234 thousand for the period ended December 31, 2013 from $277 thousand for the period ended December 31, 2012. Interest income on loans increased slightly to $3.7 million for the period ended December 31, 2013. Interest of Federal Funds sold increased $10 thousand to $19 thousand for the period ended December 31, 2013.

The average yield on loans decreased 13 basis points, to 4.80%, for the three months ended December 31, 2013 from 4.93% for the three months ended December 31, 2012. Total average loans increased $7.8 million to $304.6 million, reflecting an increase in the average balance of commercial loans of $25.1 million to $201.2 million for the three months ended December 31, 2013. The increase in average commercial loans was offset by a decrease in average residential mortgage loans of $12.5 million to $76.8 million and a decrease in average consumer loans of $4.8 million to $26.6 million for the three months ended December 31, 2013 as compared to $89.3 million and $31.4 million, respectively, for the three months ended December 31, 2012.

The average yield on securities increased 20 basis points to 2.25% for the three months ended December 31, 2013 from 2.05% for the three months ended December 31, 2012, reflecting the increase in market interest rates that slowed prepayments on the existing portfolio and the use of investment cash flows to purchase replacement bonds which contain higher yields due to the increase in market interest rates.

Interest Expense. Interest expense decreased $100 thousand to $480 thousand from $580 thousand for the three months ended December 31, 2013 and 2012, respectively. Deposit expense decreased $10 thousand from $314 thousand for the three months ended December 31, 2013 as the average rate paid on deposits decreased five basis points to 0.49% for the three months ended December 31, 2013 from 0.54% for three months ended December 31, 2012.

Interest expense on borrowings decreased $90 thousand to $176 thousand for the three months ended December 31, 2013 as compared to $266 thousand for the three months ended December 31, 2012. The average cost of borrowings decreased 14 basis points to 2.50% for the three months ended December 31, 2013 as compared to 2.64% at December 31, 2012 as a result of paying off matured higher costing term Federal Home Loan Bank advances. Interest expense on securities sold under agreement to repurchase decreased $40 thousand to $7 thousand for the period ended December 31, 2013.

Provision for Loan Losses. The Company’s provision for loan losses for the three months ended December 31, 2013 was $15 thousand, or an increase of $32 thousand from a credit of $17 thousand for the three months ended December 31, 2012. For further discussion related to the provision for loan losses, see “Allowance for Loan Losses” in the “Comparison of Financial Condition at December 31, 2013 and June 30, 2013.” For further discussions related to loan portfolio performance, see “Non-performing Assets” in the “Comparison of Financial Condition at December 31, 2013 and June 30, 2013” and Note 4 of the notes to the consolidated financial statements.

Non-Interest Income. The following table summarizes changes in non-interest income:

	Three Months Ended December 31,					Change
	2013		2012			$			%
	(In thousands)
Customer service fees	$	86	$	93		$	(7	)		(7.5	)%
Loan servicing fees		5		5			—			—
Bank owned life insurance income		67		71			(4	)		(5.6	)
Other non-interest income		55		30			25			83.3
Non-interest income before net gains (losses)		213		199			14			7.0
Net gain on sale of loans		7		16			(9	)		(56.3	)
Write-down of other real estate property		—		(40	)		40			(100.0	)
Net gains (losses)		7		(24	)		31			(129.2	)
Total non-interest income	$	220	$	175		$	45			25.7

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Total non-interest income increased $45 thousand, to $220 thousand, for the three months ended December 31, 2013 compared to $175 thousand for the three months ended December 31, 2012. The increase in total non-interest income was the result of an increase of $14 thousand in non-interest income before net gains (losses) and an increase in net gains (losses) of $31 thousand for the three month period ended December 31, 2013. The increase in non-interest income before net gains (losses) was the result of an increase in other non-interest income of $25 thousand, to $55 thousand, for the period ended December 31, 2013 primarily offset by decreases in bank owned life insurance income of $4 thousand, to $67 thousand, and customer service fees of $7 thousand, to $86 thousand. The increase in other non-interest income was primarily the result of an increase of $14 thousand in rental income for the three month period ended December 31, 2013.

The increase in net gains (losses) for the period ending December 31, 2013 was due to a decrease in the write-down of other real estate property as the Company had previously written-down its sole other real estate owned property to zero, offset by a decrease of $9 thousand, to $7 thousand, on net gains on sale of loans.

Non-Interest Expense. The following table summarizes changes in non-interest expense:

	Three Months Ended December 31,				Change
	2013		2012		$			%
	(In thousands)
Salaries and employee benefits	$	1,778	$	1,734	$	44			2.5	%
Occupancy and equipment		396		380		16			4.2
Data processing		275		189		86			45.5
Directors’ fees		101		89		12			13.5
FDIC assessments		50		69		(19	)		(27.5	)
Other non-interest expense		544		447		97			21.7
Total non-interest expense	$	3,144	$	2,908	$	236			8.1

Total non-interest expense increased slightly to $3.1 million, an increase of $236 thousand, for the three months ended December 31, 2013 compared to the three months ended December 31, 2012. Data processing expenses increased $86 thousand, to $275 thousand, for the three months ended December 31, 2013 as compared to $189 thousand for the three months ended December 31, 2012 primarily due to the recent core system conversion undertaken by the Company. Other non-interest expense increased $97 thousand, to $544 thousand, for the period ended December 31, 2013 from $447 thousand primarily due to costs associated with the implementation of the new core system and a fraud perpetrated on a Bank customer in which the Bank made the customer whole. FDIC assessments decreased $19 thousand, to $50 thousand, for the period ended December 31, 2013 compared to $69 thousand for the period ended December 31, 2012 as a result of lower non-performing loans and its positive impact on the FDIC assessment calculation.

Income Taxes. The Company recorded income tax expense of $221 thousand for the three months ended December 31, 2013, reflecting an effective tax rate of 41.5%, compared to income tax expense of $291 thousand for the three months ended December 31, 2012, reflecting an effective tax rate of 42.3%. The lower effective tax rate for the three months ended December 31, 2012 as compared to December 31, 2013 is primarily the result of tax-exempt BOLI income representing a larger portion of pre-tax income. The difference from the effective tax rate to the statutory tax rate reflects the amount of income received from bank-owned life insurance, which is tax-exempt for federal and state tax purposes, relative to total pre-tax income for each period.

Comparison of Operating Results for the Six Months Ended December 31, 2013 and 2012

General. Net income decreased $32 thousand to $625 thousand for the six months ended December 31, 2013 from net income of $657 thousand for the six months ended December 31, 2012. The decrease in net income was primarily a result of an increase in non-interest expense of $352 thousand partially offset by increases in net interest income of $170 thousand and non-interest income of $66 thousand and a decrease in the provision for loan losses of $75 thousand.

Net Interest Income. Net interest income increased by $170 thousand, to $6.8 million for the six months ended December 31, 2013 as compared to $6.7 million for the six months ended December 31, 2012. Total interest expense decreased $248 thousand, or 20.4%, to

34

$969 thousand for the six months ended December 31, 2013 as compared to $1.2 million for the six months ended December 31, 2012. The decrease in interest expense was primarily the result of the Bank decreasing deposit rates while maintaining its competitive position within the local market, paying off all matured higher costing brokered certificates of deposit exclusive of the core customer-based Certificate of Deposit Account Registry Service (“CDARS”) program and several matured higher costing term Federal Home Loan Bank advances, and reducing the rate on customer repurchase agreements. Interest and dividend income decreased by $78 thousand to $7.8 million for the six months ended December 31, 2013 as compared to $7.9 million for the six months ended December 31, 2012. This decrease is primarily due to lower yields in the securities portfolio.

The net interest margin was 3.85% for the six months ended December 31, 2013 compared to 3.71% for the six months ended December 31, 2012. The increase in the net interest margin was primarily a result of a 20 basis point decrease in the average yield of interest-bearing liabilities as compared to a one basis point increase in the average yield on interest-earning assets. Net interest-earning assets decreased $9.1 million as average interest-earning assets decreased $5.0 million to $351.7 million for the period ended December 31, 2013 compared to $356.8 million for the period ended December 31, 2012. Average interest-bearing liabilities increased $4.1 million to $273.3 million for the period ended December 31, 2013 as compared to $269.2 million for the period ended December 31, 2012.

Interest and Dividend Income. Interest and dividend income decreased $78 thousand to $7.8 million from $7.9 million for the six months ended December 31, 2013 and 2012, respectively, as continued low market interest rates resulted in lower yields on new securities purchased. The decrease in interest and dividend income was primarily the result of a decrease in interest income on securities of $87 thousand to $460 thousand from $547 thousand for the periods ended December 31, 2013 and 2012, respectively, as low market interest rates produced continued pressure on investment security yields.

The average yield on loans decreased 12 basis points, to 4.77%, for the six months ended December 31, 2013 from 4.89% for the six months ended December 31, 2012. Total average loans increased $7.1 million to $303.0 million, reflecting an increase in the average balance of commercial loans of $24.6 million to $198.0 million for the six months ended December 31, 2013. The increase in average commercial loans was offset by a decrease in average residential mortgage loans of $12.9 million to $77.9 million and a decrease in average consumer loans of $4.6 million to $27.1 million for the six months ended December 31, 2013 as compared to $90.8 million and $31.8 million, respectively, for the six months ended December 31, 2012.

The average yield on securities increased seven basis points to 2.17% for the six months ended December 31, 2013 from 2.10% for the six months ended December 31, 2012, the increase in market interest rates that slowed prepayments on the existing portfolio and the use of investment cash flows to purchase replacement bonds which contain higher yields due to the increase in market interest rates.

Interest Expense. Interest expense decreased $248 thousand to $969 thousand from $1.2 million for the six months ended December 31, 2013 and 2012, respectively. Deposit expense decreased by $48 thousand to $618 thousand for the six months ended December 31, 2013 as the average rate paid on deposits decreased eight basis points to 0.50% for the six months ended December 31, 2013 from 0.58% for six months ended December 31, 2012.

Interest expense on borrowings decreased $200 thousand to $351 thousand for the six months ended December 31, 2013 from $551 thousand for the six months ended December 31, 2012. The average cost of borrowings decreased 15 basis points to 2.58% for the six months ended December 31, 2013 as a result of paying off higher costing term Federal Home Loan Bank advances and reducing the rate on customer repurchase agreements.

Provision for Loan Losses. The Company’s provision for loan losses for the six months ended December 31, 2013 was $20 thousand, a decrease of $75 thousand from $95 thousand, for the six months ended December 31, 2012. For further discussion related to the provision for loan losses, see “Allowance for Loan Losses” in the “Comparison of Financial Condition at December 31, 2013 and June 30, 2013.” For further discussions related to loan portfolio performance, see “Non-performing Assets” in the “Comparison of Financial Condition at December 31, 2013 and June 30, 2013” and Note 4 of the notes to the consolidated financial statements.

35

Non-Interest Income. The following table summarizes changes in non-interest income:

	Six Months Ended
	December 31,					Change
	2013		2012			$			%
	(In thousands)
Customer service fees	$	179	$	183		$	(4	)		(2.2	)%
Loan servicing fees		9		10			(1	)		(10.0	)
Bank owned life insurance income		132		144			(12	)		(8.3	)
Other non-interest income		89		62			27			43.5
Non-interest income before net gains (losses)		409		399			10			2.5
Net gain on sale of loans		32		16			16			100.0
Write-down of other real estate property		—		(40	)		40			(100.0	)
Net gains (losses)		32		(24	)		56			(233.3	)
Total non-interest income	$	441	$	375		$	66			17.6

Total non-interest income increased $66 thousand to $441 thousand for the six months ended December 31, 2013 as compared to $375 thousand for the six months ended December 31, 2012. The increase in total non-interest income was the result of an increase of $10 thousand in non-interest income before net gains (losses) and an increase in net gains (losses) of $56 thousand for the six months ended December 31, 2013. The increase in non-interest income before net gains (losses) was the result of an increase in other non-interest income of $27 thousand, to $89 thousand, for the period ended December 31, 2013 primarily offset by a decrease in Bank owned life insurance income of $12 thousand, to $132 thousand, for the period ended December 31, 2013. The increase in other non-interest income was primarily the result of an increase of $16 thousand in rental income for the period ended December 31, 2013.

The increase in net gains (losses) for the period ending December 31, 2013 was due to an increase of $16 thousand, to $32 thousand, on net gains on sale of loans and a decrease in the write-down of other real estate property as the Company had previously written-down it sole other real estate owned property to zero.

Non-Interest Expense. The following table summarizes changes in non-interest expense:

	Six Months Ended
	December 31,				Change
	2013		2012		$			%
	(In thousands)
Salaries and employee benefits	$	3,633	$	3,504	$	129			3.7	%
Occupancy and equipment		784		768		16			2.1
Data processing		511		386		125			32.4
Directors’ fees		192		183		9			4.9
FDIC assessments		78		138		(60	)		(43.5	)
Other non-interest expense		983		850		133			15.6
Total non-interest expense	$	6,181	$	5,829	$	352			6.0

Total non-interest expense increased $352 thousand to $6.2 million for the six months ended December 31, 2013 from $5.8 million at December 31, 2012. Data processing expenses increased $125 thousand, or 32.4%, to $511 thousand for the six months ended December 31, 2013 as compared to $386 thousand for the six months ended December 31, 2012 primarily as a result of the recent core system conversion undertaken by the Company. Other non-interest expense increased $133 thousand, to $983 thousand, for the period ended December 31, 2013 from $850 thousand primarily due to costs associated with the implementation of the new core system, increased legal and regulatory costs associated with the Company’s annual stockholders’ meeting, and a fraud perpetrated on a Bank customer in which the Bank made the customer whole. FDIC assessments decreased $60 thousand, to $78 thousand, for the period

36

ended December 31, 2013 compared to $138 thousand for the period ended December 31, 2012 as a result of lower non-performing loans and its positive impact on the FDIC assessment calculation. Salaries and employee benefits increased $129 thousand, to $3.6 million, for the period ended December 31, 2013 from $3.5 million for the period ended December 31, 2012 primarily as a result of the addition of one new lender and higher ESOP compensation expense as a result of the Company’s higher market price for its common stock.

Income Taxes. The Company recorded income tax expense of $444 thousand for the six months ended December 31, 2013, reflecting an effective tax rate of 41.5%, compared to income tax expense of $453 thousand for the six months ended December 31, 2012, reflecting an effective tax rate of 40.8%. The lower effective tax rate for the six months ended December 31, 2012 as compared to December 31, 2013 was primarily the result of tax-exempt BOLI income representing a larger portion of pre-tax income. The difference from the effective tax rate to the statutory tax rate reflects the amount of income received from bank-owned life insurance, which is tax-exempt for federal and state tax purposes, relative to total pre-tax income for each period.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2013. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended December 31, 2013, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

37

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As of December 31, 2013, the Company was not subject to any legal actions, the outcome of which was expected to have a material effect on our financial condition or results of operations.

ITEM 1A. RISK FACTORS

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

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information in connection with repurchases of the Company’s shares of common stock for the period of October 1, 2013 through December 31, 2013. All shares repurchased during the three months ended December 31, 2013 have been retired. On April 23, 2013, the Board of Directors authorized the repurchase of up to 210,377 shares, or approximately 5% of the Company’s common stock outstanding at the completion of the Company’s second repurchase program approved on March 16, 2012. The repurchase authorization has no expiration date.

Period	Total Number of Shares		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number Shares That May be Purchased the Plans or Programs
October 1, 2013 through October 31, 2013		—	$	—		—		50,279
November 1, 2013 through November 30, 2013		—		—		—		50,279
December 1, 2013 through December 31, 2013		—		—		—		50,279
Total		—				—		50,279

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

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

38

SIGNATURES

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

Date: February 14, 2014	OBA FINANCIAL SERVICES, INC. (Registrant)
	/S/    CHARLES E. WELLER
	Charles E. Weller
	President and Chief Executive Officer
Date: February 14, 2014	/S/    DAVID A. MILLER
	David A. Miller
	Senior Vice President and Chief Financial Officer

39

EXHIBIT INDEX

Exhibit Number	Description
31.1	Certification of Charles E. Weller, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.2	Certification of David A. Miller, Senior Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
32	Certification of Charles E. Weller, President and Chief Executive Officer, and David A. Miller, Senior Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income (Loss), (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.

40