UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

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

For the quarterly period ended March 31, 2008

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

For the transition period from              to             

Commission File Number 0-24935

SERVICE BANCORP, INC.

(Exact name of small business issuer as specified in its charter)

Massachusetts	04-3430806
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

81 Main Street,

Medway, Massachusetts 02053

(Address of principal executive offices)

(888) 578-7282

(Issuer’s telephone number, including area code)

Not Applicable

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

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act)    YES  ¨    NO  x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practical date: At April 30, 2008, there were 1,655,793 shares of common stock outstanding, par value $0.01 per share.

Transitional Small Business Disclosure Format (Check one):    YES  ¨    NO  x

SERVICE BANCORP, INC. AND SUBSIDIARY

FORM 10-QSB

Index

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements - Unaudited
	Consolidated Balance Sheets as of March 31, 2008 and June 30, 2007	1
	Consolidated Statements of Operations for the three and nine months ended March 31, 2008 and 2007	2
	Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended March 31, 2008 and 2007	3
	Consolidated Statements of Cash Flows for the nine months ended March 31, 2008 and 2007	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis	9
Item 3.	Controls and Procedures	16
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults upon Senior Securities	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
Item 5.	Other Information	17
Item 6.	Exhibits	17
	Signatures	18

PART I—FINANCIAL INFORMATION

ITEM 1. Financial Statements—Unaudited

SERVICE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (unaudited)

(Dollars in thousands, except share amounts)

	March 31, 2008			June 30, 2007
ASSETS
Cash and due from banks	$	5,029		$	8,434
Short-term investments		4,610			951
Total cash and cash equivalents		9,639			9,385
Securities available for sale, at fair value		52,421			52,346
Securities held to maturity, at amortized cost		1,274			1,480
Federal Home Loan Bank stock, at cost		6,513			5,871
Loans		334,099			333,164
Less allowance for loan losses		(3,371	)		(3,144	)
Loans, net		330,728			330,020
Premises and equipment, net		5,071			5,365
Accrued interest receivable		1,727			1,939
Bank-owned life insurance		5,166			5,026
Net deferred tax asset		2,128			1,782
Other real estate owned		1,128			306
Other assets		1,778			1,539
Total assets	$	417,573		$	415,059
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	258,196		$	274,165
Borrowings		124,792			106,417
Subordinated debentures		3,093			3,093
Other liabilities		2,469			2,076
Total liabilities		388,550			385,751
Commitments and contingencies (Note 3)
Stockholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued		—			—
Common stock, $.01 par value; 12,000,000 shares authorized, 1,712,630 issued		17			17
Additional paid-in capital		8,423			8,475
Retained earnings		22,457			22,598
Accumulated other comprehensive loss		(625	)		(427	)
Treasury stock, at cost – (60,837 shares at March 31, 2008 and 63,737 shares at June 30, 2007)		(1,190	)		(1,203	)
Unearned restricted stock – (5,415 shares at March 31, 2008 and 5,952 shares at June 30, 2007)		(59	)		(152	)
Total stockholders’ equity		29,023			29,308
Total liabilities and stockholders’ equity	$	417,573		$	415,059

See accompanying notes to consolidated financial statements.

-1-

SERVICE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(Dollars in thousands, except share amounts)

	Three Months Ended March 31,					Nine Months Ended March 31,
	2008			2007		2008			2007
Interest and dividend income:
Interest and fees on loans	$	5,094		$	5,293	$	15,484		$	15,775
Interest and dividends on securities and Federal Home Loan Bank stock		839			755		2,380			2,332
Interest on short-term investments		32			9		60			22
Total interest and dividend income		5,965			6,057		17,924			18,129
Interest expense:
Interest on deposits		1,789			1,882		5,555			5,408
Interest on borrowings		1,391			1,436		4,298			4,230
Interest on subordinated debentures		56			64		184			196
Total interest expense		3,236			3,382		10,037			9,834
Net interest income		2,729			2,675		7,887			8,295
Provision for loan losses		265			10		1,125			538
Net interest income, after provision for loan losses		2,464			2,665		6,762			7,757
Non-interest income:
Customer service fees		290			246		931			771
Mortgage banking gains, net		20			29		31			108
Securities sales gains, net		152			41		352			272
Other income		114			129		394			379
Total non-interest income		576			445		1,708			1,530
Non-interest expense:
Salaries and employee benefits		1,494			1,457		4,403			4,392
Occupancy		390			341		1,144			871
Data processing		307			247		935			704
Equipment		116			86		349			253
Professional fees		155			109		514			338
Advertising		81			86		239			257
Other general and administrative		459			324		1,304			1,040
Total non-interest expense		3,002			2,650		8,888			7,855
Income (loss) before income taxes		38			460		(418	)		1,432
Provision (benefit) for income taxes		(65	)		127		(277	)		444
Net income (loss)	$	103		$	333	$	(141	)	$	988
Weighted average shares outstanding – basic		1,646,367			1,642,195		1,645,111			1,641,278
Weighted average shares outstanding – diluted		1,652,592			1,663,838		1,645,111			1,662,876
Earnings (loss) per share – basic	$	0.06		$	0.20	$	(0.09	)	$	0.60
Earnings (loss) per share – diluted	$	0.06		$	0.20	$	(0.09	)	$	0.59

See accompanying notes to consolidated financial statements.

-2-

SERVICE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

NINE MONTHS ENDED MARCH 31, 2008 AND 2007

(Dollars in thousands, except share amounts)

	Common Stock		Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Treasury Stock			Unearned ESOP Shares			Unearned Restricted Stock			Total
Balance at June 30, 2006	$	17	$	8,319		$	21,350	$	(721	)	$	(1,023	)	$	(51	)	$	(221	)	$	27,670
Comprehensive income:
Net income		—		—			988		—			—			—			—			988
Net unrealized gain on securities available for sale, net of tax and reclassification adjustment		—		—			—		683			—			—			—			683
Total comprehensive income																					1,671
Common stock held by ESOP released and committed to be released (4,829 shares)		—		97			—		—			—			49			—			146
Purchase of treasury stock (5,186 shares)		—		—			—		—			(159	)		—			—			(159	)
Stock option exercises (800 shares)		—		(2	)		—		—			14			—			—			12
Income tax benefit on options exercised		—		5			—		—			—			—			—			5
Amortization of restricted stock (2,999 shares)		—		12			—		—			—			—			54			66
Stock option compensation		—		20			—		—			—			—						20
Balance at March 31, 2007	$	17	$	8,451		$	22,338	$	(38	)	$	(1,168	)	$	(2	)	$	(167	)	$	29,431

	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Unearned Restricted Stock			Total
Balance at June 30, 2007	$	17	$	8,475		$	22,598		$	(427	)	$	(1,203	)	$	(152	)	$	29,308
Comprehensive loss:
Net loss		—		—			(141	)		—			—			—			(141	)
Net unrealized loss on securities available for sale, net of tax and reclassification adjustment		—		—			—			(198	)		—			—			(198	)
Total comprehensive loss																			(339	)
Purchase of treasury stock (3,600 shares)		—		—			—			—			(87	)		—			(87	)
Forfeiture of restricted stock (3,000 shares)		—		—			—			—			(81	)		61			(20	)
Stock option exercises (9,500 shares)		—		(57	)		—			—			181			—			124
Income tax benefit on options exercised		—		2			—			—			—			—			2
Amortization of restricted stock (1,284 shares)		—		3			—			—			—			32			35
Balance at March 31, 2008	$	17	$	8,423		$	22,457		$	(625	)	$	(1,190	)	$	(59	)	$	29,023

See accompanying notes to consolidated financial statements.

-3-

SERVICE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(Dollars in thousands)

	Nine Months Ended March 31,
	2008			2007
Cash flows from operating activities:
Net income (loss)	$	(141	)	$	988
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		1,125			538
Securities sales gains, net		(352	)		(272	)
Portfolio loan sales gains, net		—			(5	)
Loans originated for sale		(4,663	)		(13,176	)
Sales of loans originated for sale		5,076			12,738
Net amortization (accretion) of securities		(152	)		18
Depreciation and amortization expense		345			246
Stock-based compensation		35			86
Decrease (increase) in accrued interest receivable		212			(193	)
Net amortization of deferred loan costs and premiums		141			92
Bank-owned life insurance income		(140	)		(133	)
Deferred tax benefit		(250	)		(222	)
Other, net		79			(152	)
Net cash provided by operating activities		1,315			553
Cash flows from investing activities:
Activity in securities available for sale:
Sales		18,329			5,805
Maturities, prepayments and calls		4,755			4,242
Purchases		(22,945	)		(10,087	)
Activity in securities held to maturity:
Maturities, prepayments and calls		203			788
Net increase in loans, excluding loan purchases and sales		(3,569	)		(6,021	)
Sale of portfolio loans		—			807
Sale of other real estate owned		454			—
Purchase of banking premises and equipment		(89	)		(1,409	)
Purchase of Federal Home Loan Bank stock		(642	)		(563	)
Net cash used in investing activities		(3,504	)		(6,438	)
Cash flows from financing activities:
Net (decrease) increase in deposits		(15,969	)		492
Proceeds from long term borrowings		55,500			20,000
Repayment of long term borrowings		(28,075	)		(6,073	)
Net decrease in short-term borrowings		(9,050	)		(8,800	)
Purchase of treasury stock		(87	)		(159	)
Stock option exercises		124			12
Net cash provided by financing activities		2,443			5,472
Net change in cash and cash equivalents		254			(413	)
Cash and cash equivalents at beginning of period		9,385			8,763
Cash and cash equivalents at end of period	$	9,639		$	8,350
Supplementary information:
Interest paid on deposits	$	5,638		$	5,452
Interest paid on borrowings and subordinated debentures		4,368			4,361
Loan transferred to other real estate owned		1,182			—
Income taxes paid		34			763

See accompanying notes to consolidated financial statements.

-4-

SERVICE BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (unaudited)

(1) Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements include the accounts of Service Bancorp, Inc. (the “Company”) and its wholly-owned subsidiary, Strata Bank (the “Bank”), a Massachusetts chartered savings bank, and the Bank’s wholly-owned subsidiaries, Medway Security Corporation and Franklin Village Security Corporation, both of which engage solely in the purchase and sale of securities. All significant intercompany balances and transactions have been eliminated in consolidation.

These unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions for Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation have been included. Interim results are not necessarily indicative of the results that may be expected for the entire year. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been omitted. A summary of significant accounting policies followed by the Company is set forth in the Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2007.

(2) Earnings per Share

Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects additional common shares (common stock equivalents) that would have been outstanding if dilutive potential shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options and unvested restricted stock and are determined using the treasury stock method.

Weighted average diluted shares outstanding have been calculated based on the following:

	Quarter Ended March 31,		Nine Months Ended March 31,
	2008	2007	2008	2007
Weighted average shares outstanding	1,646,367	1,642,195	1,645,111	1,641,278
Effect of dilutive stock options	6,225	21,090	—	20,930
Effect of unvested shares of restricted stock	—	553	—	668
Weighted average diluted shares outstanding	1,652,592	1,663,838	1,645,111	1,662,876

For the quarter ended March 31, 2008, an average of 600 stock options were anti-dilutive and therefore excluded from the earnings per share calculations. For the nine months ended March 31, 2008, as a result of the company reporting a net loss, all outstanding stock options and unvested shares of restricted stock were deemed anti-dilutive. For the quarter and nine months ended March 31, 2007, an average of 600 and 780 stock options, respectively, were anti-dilutive and therefore excluded from the earnings per share calculations.

(3) Commitments and Contingencies

At March 31, 2008, the Company had outstanding commitments to originate loans of $12.3 million. Unused lines of credit and open commitments available to customers at March 31, 2008 amounted to $55.2 million, of which $34.2 million were home equity lines of credit.

In the ordinary course of business, various legal claims arise from time to time. In the opinion of management, none of these claims pending as of March 31, 2008 will have a material effect on the Company’s consolidated financial statements.

-5-

SERVICE BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (unaudited)(continued)

(4) Securities

The following table sets forth the Company’s securities at the dates indicated.

	March 31, 2008				June 30, 2007
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Securities available for sale:
Government sponsored enterprise obligations	$	7,314	$	7,524	$	16,280	$	16,110
Government sponsored enterprise mortgage-backed securities		21,018		21,368		22,182		21,706
Other debt securities		14,468		13,778		10,156		10,100
Municipal securities		1,797		1,777		1,797		1,753
Total debt securities available for sale		44,597		44,447		50,415		49,669
Marketable equity securities		8,769		7,974		2,583		2,677
Total securities available for sale	$	53,366	$	52,421	$	52,998	$	52,346
Securities held to maturity:
Government sponsored enterprise mortgage-backed securities	$	1,274	$	1,320	$	1,480	$	1,498

(5) Loans

The following table presents data relating to the composition of the Company’s loan portfolio by type of loan at the dates indicated.

	March 31, 2008					June 30, 2007
	Amount			Percent		Amount			Percent
	(Dollars in thousands)
Real estate loans:
One-to four-family residential	$	163,628		49.12	%	$	149,147		44.88	%
Residential construction		610		0.18	%		4,542		1.37	%
Residential loans held for sale		—		0.00	%		417		0.13	%
Commercial and multi-family		88,235		26.48	%		96,728		29.11	%
Commercial construction		25,917		7.78	%		24,462		7.36	%
Total real estate loans		278,390		83.56	%		275,296		82.85	%
Commercial loans		31,100		9.33	%		32,360		9.74	%
Consumer loans:
Home equity		16,531		4.96	%		17,808		5.36	%
Second mortgages		6,311		1.89	%		5,814		1.75	%
Passbook secured		233		0.07	%		216		0.07	%
Other		626		0.19	%		778		0.23	%
Total consumer loans		23,701		7.11	%		24,616		7.41	%
Total gross loans		333,191		100.00	%		332,272		100.00	%
Net deferred loan costs and premiums		908					892
Allowance for loan losses		(3,371	)				(3,144	)
Total loans, net	$	330,728				$	330,020

-6-

SERVICE BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (unaudited)(continued)

(6) Deposits

The following table indicates types and balances in deposit accounts at the dates indicated.

	March 31, 2008				June 30, 2007
	Amount		Percent		Amount		Percent
	(Dollars in thousands)
Demand	$	37,087	14.36	%	$	39,181	14.29	%
NOW		19,387	7.51	%		29,319	10.69	%
Money market deposits		11,608	4.50	%		13,893	5.07	%
Regular and other savings		54,066	20.93	%		56,068	20.45	%
Total non-certificate accounts		122,148	47.30	%		138,461	50.50	%
Term certificates of $100,000 or greater		51,845	20.08	%		43,802	15.98	%
Term certificates less than $100,000		79,203	30.68	%		77,902	28.41	%
Brokered term deposits		5,000	1.94	%		14,000	5.11	%
Total certificate accounts		136,048	52.70	%		135,704	49.50	%
Total deposits	$	258,196	100.00	%	$	274,165	100.00	%

(7) Borrowings

As of March 31, 2008 there were no overnight borrowings with the Federal Home Loan Bank of Boston (“FHLB”), compared to federal funds purchased of $1.1 million at June 30, 2007. In addition, borrowings included the following advances from the FHLB. The advances are presented by the earlier of the maturity date or the date callable by the FHLB.

	March 31, 2008				June 30, 2007
	Amount		Percent		Amount		Percent
	(Dollars in thousands)
Less than one year	$	52,000	41.67	%	$	42,500	40.34	%
One to three years		65,060	52.13	%		56,121	53.26	%
Greater than three years		7,732	6.20	%		6,746	6.40	%
Total	$	124,792	100.00	%	$	105,367	100.00	%

(8) Subordinated Debentures

In March 2004, Service Capital Trust I (“Trust I”), a newly formed trust sponsored by the Company, participated in a pooled offering of trust-preferred securities. In connection with this offering, Trust I issued $3.1 million of trust preferred securities and reinvested the proceeds in a 30-year $3.1 million junior subordinated debenture issued by the Company. Interest is calculated on the subordinated debenture and trust preferred securities at a rate equal to the three-month London Interbank Offering Rate plus 285 basis points. The junior subordinated debenture represents the sole asset of Trust I. The Company has guaranteed, on a subordinated basis, distribution and other payments due on the trust preferred securities (the “Guarantee”). The Guarantee, when taken together with the Company’s obligations under (i) the junior subordinated debenture; (ii) the indenture pursuant to which the junior subordinated debentures was issued; and (iii) the Amended and Restated Declaration of Trust governing Trust I, constitutes a full and unconditional guarantee of Trust I’s obligations under the trust preferred securities.

Under regulatory capital guidelines, trust preferred securities, within certain limitations, qualify as regulatory capital. Trust I, consistent with the Financial Accounting Standards Board Interpretation No. 46, “Variable Interest Entities”, is not consolidated in the consolidated financial statements of the Company. Therefore, the Company presents, in its consolidated financial statements, junior subordinated debt as a liability and its investment in Trust I as a component of other assets.

-7-

SERVICE BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (unaudited)(concluded)

(9) Stock Repurchase Plan

In February 2003, the Board of Directors of the Company approved a Stock Repurchase Plan under which the Company is authorized to acquire up to 4% of the outstanding common stock, or up to approximately 65,925 shares of the issued and outstanding shares of its common stock in the open market or in private transactions. Under the Stock Repurchase Plan, shares may be repurchased from time to time and in such amounts as market conditions warrant, subject to regulatory considerations. The following table provides information on the purchases of common stock under the Stock Repurchase Plan for the nine months ended March 31, 2008.

	Repurchase Plan Information
Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plan	Maximum number of shares that may yet be purchased under the plan
July 1, 2007 – December 31, 2007	3,200	$	25.26	3,200	8,097
January 1, 2008 – January 31, 2008	—			—	8,097
February 1, 2008 – February 29, 2008	400	$	15.75	400	7,697
March 1, 2008 – March 31, 2008	—			—	7,697
Total	3,600	$	24.20	3,600	7,697

-8-

ITEM 2. Management’s Discussion and Analysis

General

This quarterly report on Form 10-QSB contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believe”, “anticipates”, “plans”, “expects” and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company’s actual results to differ materially from those contemplated by such forward-looking statements. These important factors include, without limitation, competitive conditions in the Bank’s marketplace generally, the Bank’s continued ability to originate quality loans, fluctuation in interest rates including fluctuations which may affect the Bank’s interest rate spread, real estate conditions in the Bank’s lending areas, changes in the securities or financial markets, changes in loan defaults and charge-off rates, general and local economic conditions, the Bank’s continued ability to attract and retain deposits, the Company’s and the Bank’s ability to control costs, new accounting pronouncements, and changing regulatory requirements. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Comparison of Financial Condition at March 31, 2008 and June 30, 2007

Total assets were $417.6 million at March 31, 2008, an increase of $2.5 million, or 0.6%, from the $415.1 million at June 30, 2007. Net loans increased $708,000, or 0.2%, to $330.7 million. The investment securities portfolio increased $511,000, or 0.9%, since June 30, 2007 to $60.2 million as of March 31, 2008. Short-term investments, which consists mostly of money market mutual fund investments and overnight federal funds sold, increased $3.7 million since June 30, 2007 to $4.6 million as of March 31, 2008. Total deposits decreased $16.0 million, or 5.8%, since June 30, 2007 to $258.2 million at March 31, 2008. The Company increased borrowings by $18.4 million, or 17.3%, since June 30, 2007, which more than offset the decrease in deposits.

Total investment securities, excluding FHLB stock, were $53.7 million at March 31, 2008, a decrease of $131,000 since June 30, 2007. Purchases of mortgage-back securities totaled $5.0 million and government-sponsored enterprise obligations totaled $1.0 million, equity securities purchased totaled $9.6 million and $7.4 million in corporate bonds were purchased. These purchases were more than offset by reductions in investment securities due to amortization and prepayment on mortgage-backed securities, and sales of equity securities totaling $3.4 million and $14.6 million of government-sponsored enterprise mortgage-backed securities. The Company’s investment in FHLB stock increased $642,000 to $6.5 million at March 31, 2008 consistent with the requirements for additional borrowings from the FHLB.

Residential real estate loans are originated through the residential mortgage division of the Bank, the Strata Mortgage Center. During the nine months ended March 31, 2008, the Strata Mortgage Center originated $28.0 million in residential real estate loans, which was $991,000, or 3.7%, higher than the same period last year. The Company expects to increase the amount of loans held in portfolio and have a reduction in residential loan sales compared to the year ended June 30, 2007 based on current residential lending and secondary market conditions. Accordingly, during the nine months ended March 31, 2008, the Bank sold $5.1 million in residential loans compared with residential loan sales of $13.5 million during the same period last year. At March 31, 2008 there were no residential loans held for sale, compared to $417,000 as of June 30, 2007. Total residential mortgage loans, net of principal payments, increased $10.1 million, or 6.6%, since June 30, 2007 to $164.2 million at March 31, 2008. Home equity and second mortgage loans decreased $780,000, or 3.3%, since June 30, 2007 to $22.8 million at March 31, 2008.

The Bank originated $8.8 million in commercial, commercial real estate and construction loans and lines of credit since June 30, 2007, which was $20.9 million, or 70.4%, lower than the $29.6 million originated during the same period last year. The lower level of commercial originations reflects the slower commercial real estate and construction loan market primarily due to declining new home sales and an excess inventory of residential properties in the market area. In addition, commercial lending remains price sensitive due to competitive pressures to offer lower interest rates in order to retain and increase our borrowing relationships. The net decrease in the total commercial loan portfolio since June 30, 2007 was $8.3 million, or 5.4%.

Total deposits decreased $16.0 million, or 5.8%, since June 30, 2007 to $258.2 million at March 31, 2008. Demand deposits decreased $2.1 million since June 30, 2007 to $37.1 million. NOW deposits decreased $9.9 million due mostly to lower balances in certain NOW accounts used by attorneys in connection with residential loan closings. These deposits typically fluctuate with the volume of residential loan closings in our market area. Money market and savings deposits decreased $2.3 million and $2.0 million, respectively and certificates of deposit increased $344,000.

Borrowings increased $18.4 million, or 17.3%, since June 30, 2007 to $124.8 million at March 31, 2008, as an alternative funding source to core deposits during the period. The Company expects to utilize several sources of funds to support loan growth, including, but not limited to, running aggressive promotional campaigns for both core deposits and certificates of deposit, additional borrowings from the FHLB and correspondent banks as well as brokered certificates of deposit.

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Stockholders’ equity decreased from $29.3 million, or 7.06% of total assets at June 30, 2007, to $29.0 million, or 6.95% of total assets at March 31, 2008. Book value per share was $17.63 at March 31, 2008 compared to $17.84 at June 30, 2007. The decrease in stockholders’ equity was due to an increase in accumulated other comprehensive loss of $198,000 and the current year-to-date net loss of $141,000. Accumulated other comprehensive loss, consisting of unrealized gains and losses on securities available for sale, net of tax, increased during the nine months ended March 31, 2008 due mostly to unfavorable changes in the market prices for corporate bonds and equity securities since June 30, 2007.

Non-Performing Assets and Allowance for Loan Losses – Critical Accounting Estimate

The following table sets forth the Company’s non-performing assets at the dates indicated.

	March 31, 2008			June 30, 2007
	(Dollars in thousands)
Non-accrual loans:
One-to-four family residential	$	—		$	—
Commercial and multi-family real estate		9,305			2,378
Consumer		—			—
Commercial business loans		1,300			854
Total		10,605			3,232
Accruing loans more than 90 days past due		345			1,548
Other real estate owned		1,128			306
Total non-performing assets	$	12,078		$	5,086
Total as a percentage of total assets		2.89	%		1.23	%

Non-accrual loans at March 31, 2008 were comprised of seven commercial real estate loan relationships that required a corresponding valuation allowance of $452,000, and six commercial business loan relationships that required a corresponding valuation allowance of $117,000. All of these loans were added to non-accrual status since June 30, 2007; and four commercial real estate loans totaling $2.0 million and five commercial business loans totaling $938,000 were added to non-accrual status during the quarter ended March 31, 2008. Due to the Company’s collection and disposition efforts during the quarter ended March 31, 2008, the net increase in non-accrual loans was $313,000 from $10.3 million at December 31, 2007. In addition, there was one accruing commercial construction loan that was more than 90 days past due at March 31, 2008.

Other real estate owned at March 31, 2008 was comprised of two commercial construction properties that were acquired through foreclosure since June 30, 2007, including one property acquired during the three months ended March 31, 2008. The Company sold two commercial real estate properties with initial fair values at their dates of foreclosure of $454,000 during the nine months ended March 31, 2008, including one property with an initial fair value of $148,000 sold during the quarter ended March 31, 2008.

The allowance for loan losses totaled $3.4 million at March 31, 2008, compared to $3.1 million at June 30, 2007. The following table sets forth activity in the Company’s allowance for loan losses for the periods indicated:

	For the Three Months Ended March 31,						For the Nine Months Ended March 31,
	2008			2007			2008			2007
	(Dollars in thousands)
Balance at beginning of period	$	3,466		$	3,346		$	3,144		$	2,870
Provision for loan losses		265			10			1,125			538
Charge-offs:
One-to-four family residential		—			—			—			—
Commercial and multi-family real estate		—			—			(30	)		—
Consumer		(38	)		(7	)		(50	)		(13	)
Commercial business loans		(369	)		(74	)		(904	)		(153	)
Total		(407	)		(81	)		(984	)		(166	)
Recoveries		47			7			86			40
Net charge-offs		(360	)		(74	)		(898	)		(126	)
Balance at end of period	$	3,371		$	3,282		$	3,371		$	3,282
Ratio of net charge-offs (annualized) to average loans during the period		0.43	%		0.09	%		0.36	%		0.05	%

The allowance for loan losses as a percentage of loans was 1.01% at March 31, 2008, compared to 0.94% at June 30, 2007. This year’s higher loan loss provision and increase in allowance as a percentage of total loans were due mostly to a required allowance for

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loan losses allocation during the nine months ended March 31, 2008. These loan loss provisions were based primarily on management’s assessment of several key factors, including internal loan review classifications reflecting commercial relationships deemed by the Company to be impaired, historical loss experience, changes in portfolio size and composition, and current economic conditions.

While management believes that, based on information currently available, the allowance for loan losses is sufficient to cover losses inherent in the Bank’s loan portfolio at this time, no assurances can be given that the level of the allowance will be sufficient to cover loan losses or that future adjustments to the allowance will not be necessary if economic and/or other conditions differ substantially from the economic and other conditions considered by management in evaluating the adequacy of the current level of the allowance. In addition, the Federal Deposit Insurance Corporation (“FDIC”), as an integral part of their examination process, periodically reviews the Bank’s allowance for loan losses. The FDIC may require the Bank to adjust the allowance for loan losses based upon judgments different from those of management. For a further discussion of the allowance refer to “Allowance for Loan Losses” in Item 6 – Management’s Discussion and Analysis of the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2007.

Comparison of Operating Results for the Quarter and Nine Months Ended March 2008 and 2007

Overview

Operating results are primarily dependent on the Bank’s net interest income, which is the difference between the interest earned on the Bank’s earning assets (short-term investments, loans, and securities) and the interest paid on deposits and borrowings. Operating results are also affected by provisions for loan losses, the level of income from non-interest sources such as fees and sales of securities and residential loans, operating expenses and income taxes. Operating results are also significantly affected by general economic conditions, particularly changes in interest rates, as well as government policies and actions of regulatory authorities.

Net income for the quarter ended March 31, 2008 was $103,000, compared to net income of $333,000 for the quarter ended March 31, 2007, a decrease of $230,000, or 69.1%. The decrease in net income was the result of a higher loan loss provision of $255,000 and higher operating expenses of $352,000, or 13.3%, partially offset by higher net interest income of $54,000, or 2.0%, higher other operating income of $131,000, or 29.4%, and a lower provision for income taxes of $192,000. The net loss for the nine months ended March 31, 2008 was $141,000 compared to net income of $988,000 for the nine months ended March 31, 2007, a decrease of $1.1 million. The decrease in net income was due to lower net interest income of $408,000, or 4.9%, a higher loan loss provision of $587,000, and higher operating expenses of $1.0 million, or 13.2%. Partially offsetting these decreases to income was higher other operating income of $178,000, or 11.6%, and a lower provision for income taxes of $721,000.

Earnings per share for the quarter ended March 31, 2008 was $0.06 per share basic and diluted, compared to $0.20 per share basic and diluted for the quarter ended March 31, 2007. Earnings (loss) per share for the nine months ended March 31, 2008 was ($0.09) per share basic and diluted compared to $0.60 per share (basic) and $0.59 per share (diluted) for the nine months ended March 31, 2007. Return on average stockholders’ equity was 1.39% for the quarter ended March 31, 2008 and (0.63%) for the nine months ended March 31, 2008, compared to 4.59% and 4.54% for the respective periods of the prior fiscal year. Return on average assets was 0.10% for the quarter ended March 31, 2008 and (0.05%) for the nine months ended March 31, 2008, compared to 0.33% and 0.32% for the respective periods of the prior fiscal year.

Interest and Dividend Income

Total interest and dividend income for the quarter ended March 31, 2008 was $6.0 million, which was $92,000, or 1.5%, lower than the same quarter a year ago. Total interest and dividend income for the nine months ended March 31, 2008 was $17.9 million, which was $205,000, or 1.1%, lower than the same period a year ago. The yields on earning assets for the quarter and nine months ended March 31, 2008 were 6.06% and 6.09% respectively, compared to 6.27% and 6.26% for the same periods last year.

Interest and fees on loans decreased $199,000, or 3.8%, and $291,000, or 1.8%, for the quarter and nine months ended March 31, 2008, respectively, compared to the same periods last year. Average net loans for the quarter increased $1.7 million, or 0.5%, to $331.8 million, while the yield on loans decreased 32 basis points to 6.15%. Average net loans for the nine-month period increased $5.0 million, or 1.5%, while the yield on loans decreased 23 basis points to 6.21%. The decrease in yield on loans during the current quarter and the nine-month periods reflected the decrease over the past year in index rates used to set interest rates for new loans and for loan re-pricing, particularly home equity and certain commercial loans which are tied to prime and re-price daily or monthly.

Interest and dividends on securities increased $84,000, or 11.1%, and $48,000, or 2.1%, for the quarter and nine months ended March 31, 2008, respectively, compared to the same periods last year. The average securities portfolio balance decreased $635,000, or 1.1%, this quarter, and the yield on the securities portfolio increased 63 basis points to 5.79%. Average securities for the nine-month period decreased $1.6 million, or 2.8%, and the yield on investment securities increased 26 basis points to 5.51%. The increases in

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interest and dividends on securities and the related yields was primarily due to purchases of preferred stocks of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation totaling $6.2 million during the nine months ended March 31, 2008.

Interest Expense

Total interest expense decreased $146,000, or 4.3%, for the quarter ended March 31, 2008 to $3.2 million compared to the same quarter last year due a decrease in the cost of interest-bearing liabilities of 28 basis points to 3.70%, partially offset by an increase in average interest-bearing liabilities of $6.0 million, or 1.7%, to $348.7 million. Total interest expense increased $203,000, or 2.1%, for the nine-months ended March 31, 2008 to $10.0 million compared to the same period last year due to an increase in average interest-bearing liabilities of $7.2 million, or 2.1%, to $345.8 million, partially offset by a decrease in the cost of interest-bearing liabilities of one basis point to 3.83%.

Interest expense on deposits decreased $93,000, or 4.9%, to $1.8 million for the quarter ended March 31, 2008 and increased $147,000, or 2.7%, to $5.6 million for the nine months ended March 31, 2008, compared with the same periods last year. Average interest-bearing deposits decreased $4.2 million and $2.3 million for the quarter and nine months ended March 31, 2008, respectively, compared with the same periods last year. The average cost of deposits decreased 14 basis points to 3.27% for the quarter and increased 11 basis points to 3.35% for the nine-months ended March 31, 2008, compared with the same periods last year. The higher cost of deposits for the nine months ended March 31, 2008 reflected the combination of the competitive market that the Bank operates in for certain deposits and increased use of higher cost certificates of deposit as a source of funding, although the Bank’s interest rates on deposits declined along with those in the market during the most recent quarter.

Interest expense on borrowings and subordinated debt decreased $53,000, or 3.5%, to $1.4 million for the quarter ended March 31, 2008 and increased $56,000, or 1.3%, to $4.5 million for the nine months ended March 31, 2008, compared with the same periods last year. Average borrowings increased $10.2 million and $9.5 million for the quarter and nine months ended March 31, 2008, respectively, compared with the same periods last year, due mainly to an increased level of FHLB borrowings in support of funding for loan growth and core deposit outflows. The average cost of borrowings decreased 61 basis points to 4.44% and 34 basis points to 4.67% for the quarter and nine months ended March 31, 2008, compared to the same periods last year, which reflected reductions in interest rates on FHLB borrowings during the current fiscal year periods.

Net Interest Income

Net interest income for the quarter ended March 31, 2008 increased $54,000, or 2.0%, and decreased $408,000 for the nine months ended March 31, 2008, or 4.9%, respectively, compared with the same periods last year. The positive effect on interest income from loan portfolio growth was partially offset primarily by lower earning asset yields and the increase in interest expense due to the increase in interest-bearing liabilities as FHLB borrowings increased to fund core deposit outflows. Although the Bank would prefer to rely primarily on, and intends to continue to seek, growth in core deposits to fund future loan growth, management expects that during the current fiscal year the Bank will need to rely more on higher-cost certificates of deposit and borrowings from the FHLB to meet its future funding requirements.

The interest rate spread (the difference between yields earned on earning assets and rates paid on deposits and borrowings) increased seven basis points to 2.36% and decreased 16 basis points to 2.26% for the quarter and nine months ended March 31, 2008, respectively, compared to the same periods last year. The net interest rate margin (net interest income divided by average earning assets) increased two basis points to 2.79% and decreased 17 basis points to 2.71% for the quarter and nine months ended March 31, 2008, respectively, compared to the same periods last year. A decline in market interest rates resulted in widening of the Bank’s net interest spread and margin, as the Bank’s interest-bearing liabilities repriced into lower rates faster than its interest earning assets, as evidenced by the net interest spread for the quarter ended March 31, 2008 being greater than the net interest spread for the nine months ended March 31, 2008. The Bank expects that this widening of its net interest rate spread and margin will continue for at least the next several months, though no assurances can be given that the widening will occur at the same rate if at all.

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The interest rate spread and margin for the periods indicated are as follows:

	Quarter Ended March 31,				Nine Months Ended March 31,
	2008		2007		2008		2007
Weighted average yield earned on:
Short-term investments	2.89	%	5.13	%	3.52	%	5.16	%
Securities	5.79	%	5.16	%	5.51	%	5.25	%
Total loans, net	6.15	%	6.47	%	6.21	%	6.44	%
All interest-earning assets	6.06	%	6.27	%	6.09	%	6.26	%
Weighted average rate paid on:
Deposits	3.27	%	3.41	%	3.35	%	3.24	%
Borrowed funds	4.44	%	5.05	%	4.67	%	5.01	%
All interest-bearing liabilities	3.70	%	3.98	%	3.83	%	3.84	%
Interest rate spread	2.36	%	2.29	%	2.26	%	2.42	%
Net interest margin	2.79	%	2.77	%	2.71	%	2.88	%

Non-interest Income

Total non-interest income increased $131,000, or 29.4%, to $576,000 for the quarter ended March 31, 2008 from $445,000 for the same quarter last year. For the nine months ended March 31, 2008, non-interest income increased $178,000, or 11.6%, to $1.7 million from the same period last year. Non-interest income in the current year periods reflected higher customer service fee income, lower gains from mortgage banking activities as a result of reduced residential loan sales, and higher gains from sales of investment securities than the same periods last year.

Non-interest Expense

Total non-interest expense for the quarter ended March 31, 2008 increased $352,000, or 13.3%, to $3.0 million compared to the same quarter last year, primarily due to increases in occupancy and equipment expenses of $79,000, technology costs of $60,000, and professional fees and other operating expenses of $181,000. For the nine months ended March 31, 2008, non-interest expense increased $1.0 million, or 13.2%, to $8.9 million from the same period last year, primarily due to increases in occupancy and equipment expenses of $369,000, technology costs of $231,000, and professional fees and other operating expenses of $440,000. The increases in occupancy and equipment expenses were the result of the consolidation of the executive and operations center to a central location within the Company’s market area during the last quarter of fiscal year 2007. The increases in technology costs are primarily related to increased data processing and computer software costs that support the Company’s growth in operations. The increases in professional fees and other operating expenses were due in large part to expenses associated with problem loans and foreclosed properties, as well as legal expenses related to pending shareholder litigation.

The operating efficiency ratio (total non-interest expense divided by the sum of net interest income plus total non-interest income) for the quarter ended March 31, 2008 was 84.2% compared with 84.9% for the same quarter a year ago. The operating efficiency ratio for the nine months ended March 31, 2008 was 90.2% compared with 79.9% for the same nine-month period a year ago.

Income Taxes

Income tax expense decreased $192,000 for the quarter ended March 31, 2008 to a tax benefit of $65,000. For the nine months ended March 31, 2008 income tax expense decreased $721,000 to a tax benefit of $277,000. The effective income tax rates were 171.1% and 66.3% for the quarter and nine months ended March 31, 2008, respectively, compared with effective income tax rates of 27.6% and 31.0%, respectively, for the same periods last year. The effective tax rates reflect the utilization by the Company of certain tax preference items such as bank-owned life insurance, dividends received deductions and security corporation subsidiaries to reduce the statutory corporate tax rates. Due to the current year-to-date pre-tax loss, the impact of such tax preference items resulted in the large variances in effective tax rates for the quarter and nine months ended March 31, 2008 compared with effective tax rates for the same periods last year.

Asset/Liability Management

A principal operating objective of the Bank is to produce stable earnings by achieving a favorable interest rate spread that can be sustained during fluctuations in prevailing interest rates. Since the Bank’s principal interest-earning assets generally have longer terms to maturity than its primary source of funds, i.e., deposit liabilities, increases in general interest rates will generally result in an

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increase in the Bank’s cost of funds before the yield on its asset portfolio adjusts upward. Financial institutions have generally sought to reduce their exposure to adverse changes in interest rates by attempting to achieve a closer match between the repricing periods of interest rate sensitive assets and liabilities. Such matching, however, is carefully monitored so as not to sacrifice net interest margin performance for the perfect matching of these interest rate sensitive instruments. The Bank has established an Asset/Liability Management Committee (“ALCO”) made up of the chief executive officer, the chief financial officer, the senior loan officer, and others to assess the asset/liability mix and recommend strategies that will enhance income while seeking to mitigate the Bank’s vulnerability to changes in interest rates. This committee meets regularly to discuss interest rate conditions and potential product lines that would enhance the Bank’s income performance.

Certain strategies have been implemented to improve the match between interest rate sensitive assets and liabilities. These strategies include, but are not limited to: daily monitoring of the Bank’s cash requirements, originating adjustable and fixed rate mortgage loans, both residential and commercial, for the Bank’s own portfolio, selling loans, managing the cost and structure of deposits, short and long-term borrowings and using matched borrowings to fund specific purchases of loan packages and large loan originations. Occasionally, management may choose to deviate from specific matching of maturities of assets and liabilities if an attractive opportunity to enhance yield becomes available.

ALCO modeling, which is performed quarterly with the assistance of an outside advisor, projects the Bank’s financial performance over the next twenty four months using loan and deposit projections, projections of changes in interest rates, and anticipated changes in other income and operating expenses to reveal the full impact of the Bank’s operating strategies on financial performance. The results of the ALCO process are reported to the Board of Directors at least on a quarterly basis.

Liquidity and Capital Resources

The Bank’s primary sources of funds consist of deposits, borrowings, repayment and prepayment of loans, sales of loans and securities, maturities and early calls of securities, and funds provided from operations. While scheduled repayments of loans and maturities of securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by the general level of interest rates, economic conditions, and competition. The Bank primarily uses its liquidity resources to fund existing and future loan commitments, to fund net deposit outflows, to invest in other interest-earning assets, to maintain liquidity, and to pay operating expenses.

The Bank utilizes advances from the FHLB primarily in connection with its management of the interest rate sensitivity of its assets and liabilities. Total advances outstanding at March 31, 2008 amounted to $124.8 million. The Bank’s ability to borrow from the FHLB is dependent upon the amount and type of collateral the Bank has to secure the loans. Such collateral consists of, but is not limited to, one-to-four family owner-occupied residential property and certain investment securities. As of March 31, 2008, the Bank had a borrowing capacity with the FHLB to borrow an additional $17.1 million, for a total of $141.9 million. The Bank also has additional capacity to borrow federal funds from other banks.

A significant portion of the Bank’s liquidity consists of cash and cash equivalents, short-term investments and investment securities. The level of these assets is dependent upon the Bank’s operating, lending, and financing activities during any given period.

At March 31, 2008, the Company had outstanding commitments to originate loans of $12.3 million. Unused lines of credit and open commitments available to customers at March 31, 2008 amounted to $55.2 million, of which $34.2 million were home equity lines of credit. Certificates of deposit, which are scheduled to mature in one year or less, totaled $114.9 million at March 31, 2008. Based upon historical experience, management believes that a significant portion of such deposits will remain with the Bank.

At March 31, 2008, the Company continued to exceed all regulatory capital requirements with Tier 1 capital of $32.1 million and a Tier 1 capital to average assets ratio of 7.71%, which was above the required level of $16.7 million or 4.00%. The Tier 1 capital to risk-weighted assets ratio was 10.11%, which was above the required level of $12.7 million or 4.00%. In addition, with total capital of $35.5 million, the total capital to risk-weighted assets ratio was 11.17%, which was above the required level of $25.4 million, or 8.00%.

In February 2003, the Board of Directors of the Company approved a Stock Repurchase Plan under which the Company is authorized to acquire up to 4% of the outstanding common stock, or up to approximately 65,925 shares of the issued and outstanding shares of its common stock in the open market or in private transactions. Under the Stock Purchase Plan, shares may be repurchased from time to time and in such amounts as market conditions warrant, and subject to regulatory considerations. The repurchased shares are expected to be used by the Company for general corporate purposes. As of March 31, 2008, 58,228 shares of the Company’s common stock had been repurchased under the Stock Purchase Plan at an average price of $25.42 per share.

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Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement is effective for the Company on July 1, 2008, and is not expected to have a material impact on the Company’s consolidated financial statements.

On February 15, 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which provides companies with an option to report selected financial assets and liabilities at fair value. Statement No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective for the Company’s 2009 fiscal year, and is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued Statement No. 141 (revised), “Business Combinations.” This Statement replaces FASB Statement No. 141, and applies to all business entities, including mutual entities that previously used the pooling-of-interests method of accounting for certain business combinations. Under Statement No. 141 (revised) an acquirer is required to recognize at fair value the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date. This replaces the cost-allocation process under Statement No. 141, which resulted in the non-recognition of some assets and liabilities at the acquisition date and in measuring some assets and liabilities at amounts other than their fair values at the acquisition date. This Statement requires that acquisition costs and expected restructuring costs be recognized separately from the acquisition, and that the acquirer in a business combination achieved in stages recognize the identifiable assets and liabilities, as well as the non-controlling interest in the acquired, at the full amounts of their fair values. This Statement also requires an acquirer to recognize assets acquired and liabilities assumed arising from contractual contingencies as of the acquisition date, while Statement 141 allowed for the deferred recognition of pre-acquisition contingencies until certain recognition criteria were met, and an acquirer is only required to recognize assets or liabilities arising from all other contingencies if it is more likely than not that they meet the definition of an asset or a liability. Under this Statement, an acquirer is required to recognize contingent consideration at the acquisition date, whereas contingent consideration obligations usually were not recognized at the acquisition date under Statement 141. Further, this Statement eliminates the concept of negative goodwill and requires gain recognition in instances in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any non-controlling interest in the acquired. This Statement makes significant amendments to other Statements and other authoritative guidance, and applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date.

In December 2007, the FASB issued Statement No. 160, “Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.” This Statement establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement is effective for fiscal years beginning on or after December 15, 2008.

In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.” This Statement changes disclosure requirements for derivative instruments and hedging activities accounted for under Statement No. 133 and its related interpretations, including enhanced disclosures regarding use, methodology and financial impacts. This Statement is effective for fiscal years and interim periods beginning after November 15, 2008.

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ITEM 3. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s management conducted an evaluation with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of the Company’s disclosure controls and procedures, as of the end of the last fiscal quarter. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that they believe the Company’s disclosure controls and procedures were effective as of March 31, 2008 to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, except as described below:

Following the Company’s press release issued on April 29, 2008 announcing earnings for the quarter and nine months ended March 31, 2008, management, as part of its evaluation of the effectiveness of disclosure controls and procedures, identified errors that overstated by $260,000 interest and dividend income from investment securities during the quarter. These errors were corrected in the financial statements included in this report. Specifically, the Company determined that a control related to validation of input into its investment accounting system did not detect incorrect dividend accrual rates for investments in fixed income preferred stock, and subsequent financial analysis and review discovered these errors. An adjustment was also necessary to reduce the provision for income taxes by $270,000 for the quarter and nine months ended March 31, 2008 due to the tax effects associated with the correction that reduced dividend income. The net effect of these adjustments was to increase net income by $10,000 for the quarter ended March 31, 2008, and reduce the net loss by $10,000 for the nine months ended March 31, 2008, from that reported in the April 29, 2008 press release. Management believes that the Company remediated this material weakness in internal controls and procedures with additional controls and enhanced reviews now in place. Further, management believes that this material weakness in internal controls and procedures that existed at March 31, 2008 did not materially affect the reliability of the Company’s financial reporting for any prior fiscal period. The Company initially purchased the fixed income preferred stock investment in late December 2007, and therefore the overstatement of interest and dividend income for the quarter and six months ended December 31, 2007 ($5,000) was not material to the Company’s operating results for those periods, and based upon testing of the Company’s investment accounting system subsequent to April 29, 2008, management believes that the investment accounting system has correctly accrued for other investment security income.

As the Company prepares for its first management report on internal control over financial reporting, we intend to continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and we may from time to time make changes to the disclosure controls and procedures to enhance their effectiveness and to ensure that our systems evolve with our business. In designing and evaluating the Company’s disclosure controls and procedures, the Company and its management recognize that any controls and procedures, no matter how well designed and operated, can provide only a reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures.

(b) Changes in internal controls over financial reporting.

Except as disclosed in the immediately preceding section of this report, there were no changes in the Company’s internal controls over financial reporting identified in connection with the Company’s evaluation of its disclosure controls and procedures that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings

Except as described below, the Company is not involved in any pending legal proceeding other than legal proceedings occurring in the ordinary course of business which, in the aggregate, involve amounts believed by management to be immaterial to the financial condition and operations of the Company.

On January 31, 2008, an action, captioned as Lehman v. Service Bancorp, Inc., was filed in the Superior Court for Suffolk County, Massachusetts, and assigned to the Business Litigation Session. In the action, the plaintiff Kenneth R. Lehman seeks an injunction that would compel the Company to provide him with access to the Company’s record of shareholders and certain related documents and would order the Company to pay his unspecified costs, including attorney’s fees. According to filings with the Securities and Exchange Commission, the plaintiff is the beneficial owner of approximately 10.8% of the shares of Company Common Stock now outstanding. Simultaneous with the filing of the Complaint, the plaintiff filed a motion for a preliminary injunction and request for expedited hearing. The Company opposed plaintiff’s motion. On February 13, 2008, the court entered an order denying plaintiff’s motion for a preliminary injunction without prejudice. On March 25, 2008, the plaintiff served the Company with a renewed motion for a preliminary injunction seeking access to the Company’s record of shareholders and certain related documents and his unspecified costs, including attorney’s fees. The Company opposed the plaintiff’s renewed motion for a preliminary injunction. The court has not yet scheduled a hearing regarding the plaintiff’s renewed motion.

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

(a) Not applicable.

(b) Not applicable.

(c) A description of the Company’s Stock Repurchase Plan is incorporated herein by reference to Note 9 of the Consolidated Financial Statements, included in Part I, Item 1 of this report.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Submission of Matters to a Vote of Security Holders

Not applicable.

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits

Exhibits

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

In accordance with 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.

	SERVICE BANCORP, INC.
Date: May 15, 2008	By:	/s/ PAMELA J. MONTPELIER
		Pamela J. Montpelier
		President and Chief Executive Officer
Date: May 15, 2008	By:	/s/ MARK L. ABBATE
		Mark L. Abbate
		Chief Financial Officer

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