BCSB Bancorp 10-Q 2010 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2009

OR

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

For the transition period from            to            

Commission File Number: 0-53163

BCSB BANCORP, INC.

(Exact name of registrant as specified in its charter)

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

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

(Address of principal executive offices) (Zip Code)

(410) 256-5000

Registrant’s telephone number, including area code)

N/A

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

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

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

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

Large Accelerated Filer	¨                                             Accelerated Filer  ¨
Non-Accelerated Filer	¨  (Do not check if a smaller reporting company)	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

As of January 31, 2010 the issuer had 3,120,945 shares of Common Stock issued and outstanding.

CONTENTS

		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Financial Condition as of December 31, 2009 (unaudited) and September 30, 2009	3
	Consolidated Statements of Operations for the Three Months Ended December 31, 2009 and 2008 (unaudited)	4
	Consolidated Statements of Comprehensive Income (Loss) for Three Months Ended December 31, 2009 and 2008 (unaudited)	5
	Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2009 and 2008 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Submission of Matters to a Vote of Security Holders	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
SIGNATURES		34

2

PART I.FINANCIAL INFORMATION

Item 1. Financial Statements

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	December 31, 2009			September 30, 2009
	(unaudited)
	(dollars in thousands)
Assets
Cash and due from banks	$	5,525		$	5,535
Interest-bearing deposits in other banks		2,787			3,786
Federal funds sold		54,931			30,931
Cash and cash equivalents		63,243			40,252
Interest bearing time deposits		100			100
Loans receivable, net of allowances ($4,228) and ($3,927)		397,431			401,011
Mortgage-backed securities, available for sale		86,689			90,478
Foreclosed real estate and repossessed assets		13			639
Premises and equipment, net		8,278			9,024
Federal Home Loan Bank of Atlanta stock, at cost		1,485			1,485
Bank owned life insurance		15,159			15,001
Core deposit intangible		93			101
Accrued interest and other assets		13,249			11,347
Total assets	$	585,740		$	569,438
Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Non-interest bearing	$	27,342		$	25,529
Interest-bearing		475,868			462,460
Total deposits		503,210			487,989
Junior subordinated debentures		17,011			17,011
Other liabilities		5,415			5,305
Total liabilities		525,636			510,305
Stockholders’ Equity
Preferred stock (par value $.01 - 5,000,000 authorized, 10,800 shares issued and outstanding at December 31, 2009 and September 30, 2009, respectively)		10,383			10,383
Common stock (par value $.01 – 50,000,000 authorized, 3,120,945 shares issued and outstanding at December 31, 2009 and September 30, 2009, respectively)		31			31
Stock warrants		395			481
Additional paid-in capital		39,116			38,984
Obligation under rabbi trust		1,035			1,035
Retained earnings		12,630			12,117
Accumulated other comprehensive loss (net of taxes)		(1,420	)		(1,812	)
Employee stock ownership plan		(1,080	)		(1,100	)
Stock held by rabbi trust		(986	)		(986	)
Total stockholders’ equity		60,104			59,133
Total liabilities and stockholders’ equity	$	585,740		$	569,438
				��

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

3

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended December 31,
	2009			2008
	(dollars in thousands except per share data)
Interest Income
Interest and fees on loans	$	6,237		$	6,287
Interest on mortgage backed securities		1,171			1,288
Interest and dividends on investment securities		1			17
Other interest income		36			82
Total interest income		7,445			7,674
Interest Expense
Interest on deposits		2,367			3,509
Interest on borrowings – short term		—			113
Other interest expense		154			345
Total interest expense		2,521			3,967
Net interest income		4,924			3,707
Provision for losses on loans		300			150
Net interest income after provision for losses on loans		4,624			3,557
Other Income
Gain on repossessed assets		7			172
Mortgage banking operations		24			13
Fees on transaction accounts		218			293
Income from bank owned life insurance		151			36
Miscellaneous income		300			89
Total other income		700			603
Non-Interest Expenses
Salaries and related expense		2,348			1,789
Occupancy expense		586			578
Data processing expense		413			413
Federal deposit insurance premiums		222			125
Property and equipment expense		194			232
Professional fees		280			240
Advertising		95			95
Telephone, postage and office supplies		80			90
Other expenses		78			185
Total non-interest expenses		4,296			3,747
Income before tax expense		1,028			413
Income tax expense		358			173
Net income		670			240
Preferred stock dividends and discount accretion		(156	)		(10	)
Net income available to common shareholders	$	514		$	230
Per Share Data: (1)
Basic and diluted earnings per common share	$	0.18		$	0.08
Dividends per common share	$	—		$	—

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

4

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	For the Three Months Ended December 31,
	2009		2008
	( in thousands)
Net income available to common shareholders	$	514	$	230
Other comprehensive income ( loss), net of tax:
Unrealized net holding gains (losses) on Available-for-sale portfolios, net of tax of $255 and $(898), respectively		392		(1,427	)
Comprehensive Income (Loss)	$	906	$	(1,197	)

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

5

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the Three Months Ended December 31,
	2009			2008
	(dollars in thousands)
Operating Activities
Net income	$	670		$	240
Adjustments to reconcile net income to net cash provided by operating activities
Amortization of deferred loan fees and cost, net		65			(74	)
Non-cash compensation under stock-based benefit plan		44			45
Provision for losses on loans		300			150
Amortization of purchase premiums and discounts, net		120			59
Provision for depreciation		238			253
Gains on sale of real estate and repossessed assets		(7	)		(172	)
Increase in cash surrender value of bank owned life insurance		(151	)		(36	)
Increase in accrued interest and other assets		(2,158	)		(76	)
Gain on sale of loans		(26	)		(2	)
Loans originated for sale		(2,266	)		(222	)
Proceeds from loans sold		2,292			224
(Decrease) increase in other liabilities		(51	)		499
Decrease in obligation under Rabbi Trust		—			(10	)
Net cash (used) provided by operating activities		(930	)		878
Cash Flows from Investing Activities
Purchase of bank owned life insurance		(7	)		(27	)
Net decrease in loans		3,088			4,512
Purchase of mortgage-backed securities – available for sale		—			(10,162	)
Principal collected on mortgage-backed securities		4,421			1,827
Proceeds from sales of foreclosed real estate		639			1,455
Proceeds from sales of repossessed assets		24			12
Increase in accounts payable trade date securities		—			2,029
Investment in premises and equipment		(56	)		(8	)
Proceeds from sale of fixed assets		564			—
Net cash provided (used) by investing activities		8,673			(362	)

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

6

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)

	For the Three Months Ended December 31,
	2009			2008
	(dollars in thousands)
Cash Flows from Financing Activities
Net increase in deposits	$	15,220		$	2,324
Net increase in advances by borrowers for taxes and insurance		163			83
Net proceeds from preferred stock offering (Troubled Asset Relief Program “TARP”)		—			10,800
Dividends paid on preferred stock		(135	)		—
Net cash provided (used) by financing activities		15,248			13,207
Increase in cash equivalents		22,991			13,723
Cash and cash equivalents at beginning of period		40,252			34,983
Cash and cash equivalents at end of period	$	63,243		$	48,706
Supplemental Disclosures of Cash Flows Information:
Cash paid during the period for:
Interest	$	2,468		$	3,892
Income taxes	$	45		$	20

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

7

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 -Principles of Consolidation

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

Note 2 -Basis for Financial Statement Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions to Form 10-Q. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, (none of which were other than normal recurring accruals) necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. The financial statements of the Company are presented on a consolidated basis with those of the Bank. The results for the three months ended December 31, 2009 are not necessarily indicative of the results of operations that may be expected for the year ending September 30, 2010. The Company has evaluated subsequent events for potential recognition and/or disclosure through February 10, 2010, the date the consolidated financial statements included in this Quarterly Report on Form 10-Q were issued. The consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes which are incorporated by reference in BCSB Bancorp, Inc.’s Annual Report on Form 10-K for the year ended September 30, 2009.

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

Note 3 - Organization

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

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

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

8

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 3 - Organization - continued

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

9

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 4 -Mortgage-Backed Securities

The amortized cost and estimated fair values of mortgage-backed securities are as follows as of December 31, 2009 and September 30, 2009:

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
December 31, 2009
GNMA certificates	$	3,684	$	96	$	—		$	3,780
Collateralized mortgage obligations		21,299		—		(5,178	)		16,121
FNMA certificates		46,411		1,937		(50	)		48,298
FHLMC participating certificates		17,640		850		—			18,490
	$	89,034	$	2,883	$	(5,228	)	$	86,689
September 30, 2009
GNMA certificates	$	3,716	$	250	$	—		$	3,966
Collateralized mortgage obligations		21,866		—		(6,095	)		15,771
FNMA certificates		49,450		2,026		(44	)		51,432
FHLMC participating certificates		18,438		871		—			19,309
	$	93,470	$	3,147	$	(6,139	)	$	90,478

There were no sales of available for sale mortgage-backed securities during the three months ended December 31, 2009 or the year ended September 30, 2009.

10

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 4 -Mortgage-Backed Securities - continued

Below is a schedule of mortgage backed securities with unrealized losses as of December 31, 2009 and the length of time the individual security has been in a continuous unrealized loss position.

	Less than 12 months					12 months or more					Total
(in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Mortgage-backed securities	$	6,097	$	(50	)	$	—	$	—		$	6,097	$	(50	)
Collateralized mortgage obligations		—		—			16,121		(5,178	)		16,121		(5,178	)
Total temporarily impaired securities	$	6,097	$	(50	)	$	16,121	$	(5,178	)	$	22,218	$	(5,228	)

At December 31, 2009 the Company has eight securities in an unrealized loss position.

During the quarter ended December 31, 2009, we determined that, based on our most recent estimate of cash flows, no additional other-than-temporary-impairment (“OTTI”) had occurred with respect to one of our mortgage-backed securities that had previously resulted in a pre-tax charge to earnings of $500,000. This security was rated “AAA” by Standard & Poors at origination. This security had an original principle balance of $5.0 million and has a current principle balance of $3.2 million and its underlying collateral is comprised of “ALT A” mortgages originated in 2006. This security has an estimated fair value of $1.8 million at December 31, 2009. Most of the decline in fair value related to this security is principally due to non-credit factors. Under the revised guidance for recognition and presentation of other-than-temporary impairments, impairment recognition for the Company’s investment and mortgage-backed securities are now segmented into credit and non credit related components. Any fair value adjustment due to identified credit-related components will be record as an adjustment to current period earnings, while non-credit-related fair value adjustments will be recorded through other comprehensive income.

11

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 5 -Cash Flow Presentation

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

Note 6 -Earnings Per Share

Basic per share amounts are based on the weighted average shares of common stock outstanding. Diluted earnings per share assume the conversion, exercise or issuance of all potential common stock instruments such as options and warrants, unless the effect is to reduce a loss or increase earnings per share. The basic and diluted weighted average common shares outstanding for three month periods ended December 31, 2009 and 2008 are as follows:

	For the Three Months Ended December 31,
	2009							2008
	(in thousands except per share data)
	Income			Shares	Per Share			Income			Shares	Per Share
Basic EPS
Net Income	$	670		2,917	$	.23		$	240		2,900	$	.08
Less preferred dividend		(156	)	2,917		(.05	)		(10	)	—		—
Income available to common shareholders		514		2,917		.18			230		2,900		.08
Diluted EPS
Effect of dilutive shares		—		3		—			—		9		—
Income available to common shareholders plus assumed conversions	$	514		2,920	$	.18		$	230		2,909		.08

Options to purchase 74,175 shares which were outstanding at December 31, 2009 and 86,151 shares which were outstanding December 31, 2008, were not included in the computation of diluted EPS because the effect would have been anti-dilutive.

12

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 7 -Preferred Stock

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

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

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

The Series A preferred stock and the warrants were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. Neither the Series A preferred stock nor the warrant will be subject to any contractual restrictions on transfer.

Note 8 -Regulatory Capital

The following table sets forth the Bank’s capital position at December 31, 2009.

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Actual Amount		% of Assets		Required Amount		% of Assets		Required Amount		% of Assets
	(Unaudited)(dollars in thousands)
Tangible (1)	$	66,496	11.40	%	$	8,748	1.50	%	$	N/A	N/A	%(3)
Tier I capital (2)		66,496	17.53			N/A	N/A	(3)		22,759	6.00
Core (1)		66,496	11.40			23,329	4.00			29,161	5.00
Risk-weighted (2)		69,771	18.39			30,345	8.00			37,931	10.00

(1) To adjust total assets

(2) To risk-weighted assets

(3) Not applicable

13

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 9 -Stock Option Plans

On July 15, 1999, the Company established a Stock Option Plan (the “1999 Plan”) whereby 120,366 shares of common stock have been reserved for issuance under the 1999 Plan. Options granted under the Plan may be Incentive Stock Options within the meaning of Section 422 of the Internal Revenue Code of 1986 as amended or Non-Qualified Stock Options. Options are exercisable in four or five annual installments at the market price of common stock at the date of grant. The Options must be exercised within ten years from the date of grant. There were 43,428 options granted during the year ended September 30, 2002. There were 15,792 options granted during the year ended September 30, 2007, 22,193 options granted during the year ended September 30, 2008 and 11,796 options granted during the year ended September 30, 2009. No options were granted during the years ended September 30, 2003 through 2006. There were no options granted during the three months ended December 31, 2009.

The following table summarizes the shares under the Company’s stock option plan at September 30, 2009:

Number of Shares	Price		Weighted Average     Contractual Life
26,452	$	21.61	2.4
10,528		28.41	7.0
5,264		17.95	8.0
22,193		11.61	8.2
11,796		8.25	10.0

The total exercisable shares of 39,369 have a weighted average contractual life of 4.3 years, and an aggregate intrinsic value of $0.

At the annual shareholders meeting held in May 2009 the Company approved an additional Stock Option Plan (the “2009 Plan”) whereby 191,740 shares of common stock have been reserved for issuance under the 2009 Plan. Options granted under the Plan may be Incentive Stock Options within the meaning of Section 422 of the Internal Revenue Code of 1986 as amended or Non-Qualified Stock Options. Options are exercisable in four or five annual installments at the market price of common stock at the date of grant. The Options must be exercised within ten years from the date of grant. There were no options granted during the three months ended December 31, 2009.

14

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the activity related to options under all plans for the three months ended December 31, 2009.

	Shares	Weighted Average Exercise Price
Outstanding at September 30, 2009	76,233	$	17.32
Options exercised	—		—
Forfeited	—		—
Granted	—		—
Outstanding at December 31, 2009	76,233	$	17.32
Exercisable at December 31, 2009	39,369	$	21.20

There were no options granted during the three months ended December 31, 2009 and 2008.

15

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 10 -Recent Accounting Pronouncements

All pending but not yet effective Accounting Standards Updates (“ASU”) were evaluated and only those listed below could have a material impact on the Company’s financial condition or results of operations.

In June 2009, the FASB issued guidance on, “Accounting for Transfers of Financial Assets” that requires enhanced disclosures about the transfer of financial assets and a company’s continuing involvement in transferred assets. This guidance is effective for financial statements issued for fiscal years beginning after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. This statement changes the derecognition guidance for transferors of financial assets, including entities that sponsor securitizations.

In June 2009 FASB issued guidance which eliminates the concept of a qualifying special purpose entity (“QSPE”). The guidance eliminates any reference to a QSPE and requires a transferor to evaluate transfers to such entities under the amended guidance. This guidance also introduces the concept of a participating interest. A participating interest is defined as a proportionate interest ownership interest in a financial asset in which the cash flows from the asset are allocated to the participating interest holders in proportion to their ownership share.

Additionally, this guidance significantly modifies the conditions required for a transfer of a financial asset or a participating interest therein to qualify as a sale and also changes the measurement guidance for transfers of financial assets in that it requires that a transferor recognize and initially measure at fair value any servicing assets, servicing liabilities, and any other assets obtained and liabilities incurred in a sale. The statement amends the disclosure requirements that will allow financial statement users to understand the nature and extent of the transferor’s continuing involvement with financial assets that have been transferred. The Company does not expect that the adoption of this statement will have a material impact on its financial position, results of operations or cash flows.

In June 2009, the FASB issued guidance, which 1) replaces the quantitative-based risks and rewards calculations for determining whether an enterprise is the primary beneficiary in a variable interest entity with an approach that is primarily qualitative, 2) requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity, and 3) requires additional disclosure about an enterprise’s involvement in variable interest entities. This guidance is effective for financial statements issued for fiscal years beginning after November 15, 2009. We do not expect the adoption of the guidance to have a material impact, if any on the Company’s consolidated financial condition or results of operations.

Note 11 -Guarantees

The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company has $983,000 of standby letters of credit as of December 31, 2009. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payment required under the corresponding guarantees. The current amount of the liability as of December 31, 2009 for guarantees under standby letters of credit issued is not considered to be material.

Note 12 -Fair Value Measurements

Effective October 1, 2008, the Company adopted FASB guidance for – “Fair Value Measurements” . This guidance defined the concept of fair value, established a framework for measuring fair value in GAAP, and expands disclosure about fair value measurements. This guidance applies only to fair value measurements required or permitted under current accounting pronouncements, but does not require any new fair value measurements. Fair value is defined as

16

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 12 -Fair Value Measurements - continued

the price to sell an asset or to transfer a liability in an orderly transaction between willing market participants as of the measurement date. The statement also expands disclosures about financial instruments that are measured at fair value and eliminates the use of large position discounts for financial instruments quoted in active markets. The disclosure’s emphasis is on the inputs used to measure fair value and the effect on the measurement on earnings for the period. The adoption of this guidance did not have any effect on the Company’s financial position or results of operations.

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

• Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

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

• Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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

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

Securities Available for Sale

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

The following table presents the financial instruments measured at fair value on the recurring basis as of December 31, 2009 on the Consolidated Statement of Financial Condition utilizing the hierarchy discussed above.

	At December 31, 2009
($ in thousands)	Total		Level 1		Level 2		Level 3		Total changes In fair values Included in Period Earnings
Securities available for sale	$	86,689	$	—	$	86,689	$	—	$	—

Nonrecurring fair value changes

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

Impaired Loans

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

17

BCSB BANCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Foreclosed Real Estate and Repossessed Assets

Once an asset is determined to be uncollectible, the underlying collateral is repossessed and reclassified to Foreclosed Real Estate and Repossessed Assets. These assets are carried at lower of cost or fair value of the collateral, less costs to sell. There was no Foreclosed Real Estate at December 31, 2009.

Impaired loans , Foreclosed Real Estate and Repossessed Assets are classified as Level 3 within the valuation hierarchy.

	At December 31, 2009
($ in thousands)	Total		Level 1		Level 2		Level 3
Impaired Loans	$	3,397	$	—	$	—	$	3,397
Foreclosed Real Estate and Repossessed Assets	$	13	$	—	$	—	$	13
Total	$	3,410	$	—	$	—	$	3,410

($ in thousands)	Impaired Loans, Foreclosed Real Estate and Repossessed Assets
Balance at September 30, 2009	$	8,329
Total net gains for the year		—
Net transfers in/(out) Level 3		(4,919	)
Balance at December 31, 2009	$	3,410
Net realized gains included in net income for the year to date relating to sales of repossessed assets.	$	7

18

BCSB BANCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 -Disclosures About Fair Value of Financial Instruments

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

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

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

19

BCSB BANCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 -Disclosures About Fair Value of Financial Instruments - Continued

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

	December 31, 2009				September 30, 2009
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(Amounts in Thousands)
Financial Assets
Cash	$	5,525	$	5,525	$	5,535	$	5,535
Interest-bearing deposits in other banks		2,787		2,787		3,786		3,786
Federal funds sold		54,931		54,931		30,931		30,931
Interest-bearing time deposits		100		100		100		100
Loans Receivable
Mortgage loans		389,372		399,687		391,560		399,425
Share loans		632		632		661		661
Consumer loans		7,427		10,819		8,790		9,053
Mortgage-backed securities – available for sale		86,689		86,689		90,478		90,478
Federal Home Loan Bank of Atlanta stock		1,485		1,485		1,485		1,485
Accrued interest receivable		2,338		2,338		2,306		2,306
Mortgage servicing rights		270		270		296		296
Financial Liabilities
Deposits	$	503,210	$	504,884	$	487,989	$	488,756
Junior Subordinated Debt		17,011		17,011		17,011		17,011
Accrued interest payable		63		67		51		51

20

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

General

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

BCSB Bankcorp, Inc., a federal corporation, was the former mid-tier stock holding company for the Bank. BCSB Bankcorp was organized in conjunction with the Bank’s reorganization from the mutual savings association to the mutual holding company structure in 1998. Baltimore County Savings Bank, M.H.C., a federal mutual holding company, was the mutual holding company parent of BCSB Bankcorp, Inc. and originally owned 63.3% of BCSB Bankcorp, Inc.’s outstanding stock. As a result of treasury stock purchases, this stake increased to approximately 64.5% of BCSB Bankcorp’s outstanding stock at the time of the second-step conversion. On April 10, 2008, a second-step conversion was completed after which Baltimore County Savings Bank, M.H.C. and BCSB Bankcorp, Inc. ceased to exist. A newly organized Maryland corporation BCSB Bancorp, Inc., became the holding company for the Bank. The second-step conversion was accounted for as a change in corporate form with no resulting change in the historical basis of the former BCSB Bankcorp, Inc.’s assets, liabilities and equity. A total of 1,976,538 new shares of the Company were sold at $10.00 per share in the subscription, community and syndicated community offerings through which the Company received proceeds of approximately $17.1 million, net of offering costs of approximately $2.6 million. The Company contributed $8.5 million or approximately 50% of the net proceeds to the Bank in the form of a capital contribution. The Company loaned $1.2 million to the Bank’s Employee Stock Ownership Plan (the “ESOP”) and the ESOP used those funds to acquire 122,197 shares of the Company’s common stock at $10 per share. As part of the conversion, outstanding public shares of BCSB Bankcorp, Inc. were exchanged for .5264 shares of the new holding company of the Bank. No fractional shares were issued. Instead, cash was paid to shareholders at $10.00 per share for any fractional shares that would otherwise be issued. The exchange resulted in an additional 1,144,407 outstanding shares of the Company for a total of 3,120,945 outstanding shares as of the closing of the second-step conversion on April 10, 2008. Information herein for dates and periods prior to April 10, 2008 reflect such information for BCSB Bankcorp, Inc.

The Company’s net income is dependent primarily on its net interest income, which is the difference between interest income earned on its interest-earning assets and interest paid on interest-bearing liabilities. Net interest income is determined by (i) the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (“interest rate spread”) and (ii) the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. To a lesser extent, the Company’s net income also is affected by the level of other income, which primarily consists of fees and charges, and levels of non-interest expenses such as salaries and related expenses.

The operations of the Company are significantly affected by prevailing economic conditions, competition and the monetary, fiscal and regulatory policies of governmental agencies. Lending activities are influenced by the demand for and supply of housing, competition among lenders, the level of interest rates and the availability of funds. Deposit flows and costs of funds are influenced by prevailing market rates of interest, primarily on competing investments, account maturities and the levels of personal income and savings in the Company’s market area.

Critical Accounting Policies and Estimates

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

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

21

business and economic conditions and management’s estimation of losses. The use of different estimates or assumptions could produce different provisions for loan losses.

Securities are evaluated periodically to determine whether a decline in their value is other than temporary. The term “other than temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Under the revised guidance, for recognition and presentation of other-than-temporary impairments the amount of other-than-temporary impairment that is recognized through earnings for debt securities is determined by comparing the present value of the expected cash flows to the amortized cost of the security. The revised guidance also requires that an evaluation be done to determine whether the Company has the intent to sell or is more likely than not required to sell these securities. The discount rate used to determine the credit loss is the expected book yield on the security.

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

Available Information

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

22

Recent Developments

Sale of Branches

On January 12, 2010, BCSB Bancorp, Inc. (the “Company”) announced that on January 12, 2010 its subsidiary, Baltimore County Savings Bank, F.S.B. (the “Bank”) entered into a definitive Purchase and Assumption Agreement (the “Agreement”) with American Bank (“American”) under which the Bank will sell four branch offices, located at 6335 Baltimore National Pike, Catonsville, Maryland,9416 Baltimore National Pike, Ellicott City, Maryland, 4228 Harford Road, Baltimore, Maryland, and 9231 Lakeside Boulevard, Owings Mills, Maryland(collectively, the “Branches”), to American. The agreement provides that American will assume the deposits associated with the Branches, which totaled approximately $81 million at December 31, 2009. Under the agreement, American will purchase the personal property, furniture, fixtures, leasehold improvements and equipment located at the Branches and the Bank’s right, title and interest in and to the real property on which the Hamilton Branch is located and the buildings and improvements situated thereon. American also will assume the leases for the premises for the Catonsville, Ellicott City and Owings Mills Branches. American will pay a premium equal to the lesser of 2% of the deposit liabilities it assumes or $1,350,000. For further information regarding the proposed sale of branches, including a copy of the Purchase and Assumption Agreement, see the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on January 15, 2010.

Forward-Looking Statements

When used in this Quarterly Report on Form 10-Q, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Company’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company’s market area, whether regulatory approval will be obtained for the branch sales described above under “Sale of Branches”, competition and information provided by third-party vendors that could cause actual results to differ materially from historical earnings and those presently anticipated or projected and the risk factors described in Item 1A of the Company’s Annual Report on Form 10-K for the year ended September 30, 2009. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Comparison of Financial Condition at December 31, 2009 and September 30, 2009

During the three months ended December 31, 2009, assets increased by $16.3 million, or 2.9%, from $569.4 million at September 30, 2009 to $585.7 million at December 31, 2009. Our cash and cash equivalents increased $23.0 million, or 57.1% from $40.3 million at September 30, 2009 to $63.2 million at December 31, 2009, primarily due to an increase in deposits and principal repayments on loans receivable and mortgage-backed securities. Net loans receivable decreased $3.6 million, or .90%, from $401.0 million at September 30, 2009 to $397.4 million at December 31, 2009. Management’s lending strategy remains focused on commercial real estate, commercial business and home equity lending. We have ceased our indirect auto lending program. Mortgage-backed securities available for sale decreased by $3.8 million, or 4.2%, from $90.5 million at September 30, 2009 to $86.7 million at December 31, 2009 resulting primarily from principal payments received during the period. At December 31, 2009, all mortgage-backed securities were classified as available for sale for liquidity purposes. The cash surrender value on the bank owned life insurance increased $158,000, or 1.0% from $15.0 million at September 30, 2009 to $15.1 million at December 31, 2009. Accrued interest and other assets increased $1.9 million from $11.3 million at September 30, 2009 to $$13.2 million at December 31, 2009 primarily due to the prepayment of the FDIC premium.

Deposits increased by $15.2 million, or 3.1%, from $488.0 million at September 30, 2009 to $503.2 million at December 31, 2009. The Bank has been successful in attracting new deposits without increasing the overall cost for such funds.

23

Stockholders’ equity increased by $971,000, or 1.6%, from $59.1 million at September 30, 2009 to $60.1 million at December 31, 2009. This increase was due to net income during the period and a decline in accumulated other comprehensive loss. Our accumulated other comprehensive loss net of taxes was $1.4 million at December 31, 2009, compared to accumulated other comprehensive loss net of taxes of $1.8 million at September 30, 2009. At December 31, 2009, we had $5.2 million of gross unrealized losses related to collateralized mortgage obligations with an amortized cost of $21.3 million as of that date. These securities contain mortgages with Alt-A characteristics. Gross unrealized losses for these same securities were approximately $6.1 million as of September 30, 2009. We recorded other-than-temporary impairment (“OTTI”) charges of $500,000 on these securities during the year ended September 30, 2009. We do not intend to sell, nor is it more likely than not we will be required to sell these securities before maturity or recovery. If in the future it is determined that declines in market values with respect to these or any other securities are other than temporary, the Company would be required to recognize additional losses in its Consolidated Statement of Operations.

Comparison of Operating Results for the Three Months Ended December 31, 2009 and 2008

Net Income. Net income available to common shareholders increased by $284,000 or 123.5%, from $230,000 for the three months ended December 31, 2008 to $514,000 for the three months ended December 31, 2009. The increase was primarily due to improved net interest income and other income, partially offset by increases in loan loss provisions and non-interest expenses.

Net Interest Income. Net interest income increased by $1.2 million, or 32.8%, from $3.7 million for the three months ended December 31, 2008 to $4.9 million for the three months ended December 31, 2009. The increase in net interest income primarily was attributable to reduced cost of funds on the deposit portfolio during the period. The net interest margin increased 86 basis points from 2.80% for the three months ended December 31, 2008 to 3.66% for the three months ended December 31, 2009.

Interest Income. Interest income decreased by $229,000, or 3.0% from $7.7 million for the three months ended December 31, 2008 to $7.4 for the three months ended December 31, 2009. This was primarily due to a decrease in the average rate earned on all interest earning assets during the period. The average rate earned on total interest-earning assets declined by 26 basis points from 5.79% for the three months ended December 31, 2009 to 5.53 % for the three months ended December 31, 2009. Changes in average balances of loans receivable and mortgage-backed securities during the period were not significant.

Interest Expense. Interest expense, which consists of interest on deposits, interest on borrowed money and other interest expense decreased from $4.0 million for the three months ended December 31, 2008 to $2.5 million for the three months ended December 31, 2009, a decrease of $1.4 million or 36.4%. Interest on deposits decreased $1.1 million from $3.5 million for the three months ended December 31, 2008 to $2.4 million for the three months ended December 31, 2009. This decrease was due to the decrease in the average cost of deposits of 100 basis points from 2.90% for the three months ended December 31, 2008 to 1.90% for the three months ended December 31, 2009. This was partially offset by an increase in the average balance of deposits of $14.7 million from $484.6 million for the three months ended December 31, 2008 to $499.3 million for the three months ended December 31, 2009. Interest on short-term borrowings decreased by $113,000 for the three months ended December 31, 2009 as there were no short-term borrowings outstanding during the period. Other interest expense decreased by $191,000 or 55.4% from $345,000 for the three months ended December 31, 2008 to $154,000 for the three months ended December 31, 2009. This was due to the decline in interest expense on Junior Subordinated Debentures. The average cost of funds on the debt decreased by 449 basis points, from 8.11% for the three months ended December 31, 2008 to 3.62% for the three months ended December 31, 2009. The rates on the Junior Subordinated Debentures are based on LIBOR and adjust quarterly.

24

Average Balance Sheet. The following table sets forth certain information relating to the Company’s average balance sheet and reflects the average yield on assets and cost of liabilities for the periods indicated and the yields earned and rates paid. Such yields and costs are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the three month periods ended December 31, 2009 and 2008. Total average assets are computed using month-end balances.

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

	For the Three Months Ended December 31,
	2009						2008
	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net	$	400,751	$	6,237	6.23	%	$	397,999	$	6,287	6.32	%
Mortgage-backed securities		89,390		1,171	5.24			90,393		1,288	5.70
FHLB stock and Investment securities		1,485		1	.27			2,539		17	2.68
Other interest-earning assets		46,817		36	.31			38,951		82	.84
Total Interest-earning assets		538,443		7,445	5.53			529,882		7,674	5.79
Bank Owned Life Insurance		15,057						14,382
Noninterest-earning assets		25,615						30,253
Total assets	$	579,115					$	574,517
Interest-bearing liabilities:
Deposits	$	499,308	$	2,367	1.90	%	$	484,599	$	3,509	2.90	%
Short-term FHLB Advances		—		—	—			10,000		113	4.52
Junior Subordinated Debentures		17,011		154	3.62			17,011		345	8.11
Other liabilities		955		—	—			2,087		—	—
Total interest-bearing liabilities		517,274		2,521	1.95			513,697		3,967	3.09
Noninterest-bearing liabilities		1,808						7,559
Total liabilities		519,082						521,256
Stockholders’ Equity		60,033						53,261
Total liabilities and stockholders’ equity	$	579,115					$	574,517
Net interest income			$	4,924					$	3,707
Interest rate spread					3.58	%					2.70	%
Net interest margin					3.66	%					2.80	%
Ratio average interest-earning assets/interest-bearing liabilities					104.09	%					103.15	%

25

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

	For Three Months Ended December 31,
	2009 Vs. 2008
	Increase (Decrease) Due to
	Volume			Rate			Rate/Volume			Total
	(In Thousands)
Interest income:
Loans receivable, net	$	43		$	(92	)	$	(1	)	$	(50	)
Mortgage-backed securities		(14	)		(104	)		1			(117	)
Investment securities		(7	)		(15	)		6			(16	)
Other interest-earning assets		17			(53	)		(10	)		(46	)
Total interest-earning assets		39			(264	)		(4	)		(229	)
Interest expense:
Deposits		107			(1,212	)		(37	)		(1,142	)
Short-term FHLB advances		(113	)		—			—			(113	)
Junior Subordinated Debentures		—			(191	)		—			(191	)
Total interest-bearing liabilities		(6	)		(1,403	)		(37	)		(1,446	)
Change in net interest income	$	45		$	1,139		$	33		$	1,217

Provision for Loan Losses. We charge or credit to income provisions for loan losses to maintain the total allowance for loan losses at a level we consider adequate to provide losses inherent in the loan portfolio as of the balance sheet date. In determining the provision, we consider a number of factors such as existing loan levels, prior loss experience, current economic conditions and the probability of these conditions affecting existing loans. During the three months ended December 31, 2009 we established additional provisions for losses on loans of $300,000, as compared to a provision of $150,000 for the three months ended December 31, 2008. Nonperforming assets have increased substantially during the quarter ended December 31, 2009 as compared to the same quarter in the prior year, warranting increased loss reserve levels. Loan charge-offs for the three months ended December 31, 2009 were $41,000 as compared to $81,000 for the three months ended December 31, 2008. Loan recoveries were $42,000 for the three months ended December 31, 2009 compared to $90,000 for the three months ended December 31, 2008. In establishing such provisions, we considered an analysis of the risk inherent in the loan portfolio. For additional information see “Asset Quality.”

Other Income.Other income increased $97,000, or 16.1%, from $603,000 for the three months ended December 31, 2008 to $700,000 for the three months ended December 31, 2009. The increase in other income for the three months ended December 31, 2009 was primarily attributable to increased income from the Bank Owned Life Insurance of $115,000 and an increase in miscellaneous income of $211,000, which was primarily due to increased commissions from investment services. These increases were partially offset by a decrease in gains on repossessed assets of $165,000 and a decrease of $75,000 in fees on transaction accounts.

Noninterest Expenses.Total non-interest expenses increased by $549,000, or 14.6%, from $3.7 million for the three months ended December 31, 2008 to $4.3 million for the three months ended December 31, 2009. This was primarily due to an increase of $559,000, or 31.2% in salaries and related expenses related to additional personnel and increased benefit costs. Federal deposit insurance premiums increased by $97,000, or 77.6% from $125,000 for the three months ended December 31, 2008 to $222,000 for the three months ended December 31, 2009. This increase was due to higher premiums arising from recent bank failures. Professional fees increased by $40,000, or 16.7% from $240,000 for the three months ended December 31, 2008 to $280,000 for the three months ended December 31, 2009. The increase in professional fees was primarily due to increased legal and consulting services. These increases were partially offset by a decrease in property and equipment expenses of $38,000, or 16.4%, from $232,000 for the three months ended December 31, 2008 to $194,000 for the three months ended December 31, 2009. Other expenses also decreased by $107,000, or 57.8%, from $185,000 for the three months ended December 31, 2008 to $78,000 for the three months ended December 31, 2009. This was primarily due to decreased losses on dishonored checks and ATM disputes and a decrease in bank service charges.

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Income Taxes. Our income tax expense was $358,000 and $173,000 for the three months ended December 31, 2009 and 2008, respectively. The change in income taxes for the three months ended December 31, 2009 as compared to the same period in the prior year was primarily due to increased income. Our effective tax rate is impacted by income received from Bank Owned Life Insurance, which is not subject to income taxes.

Commitments, Contingencies and Off-Balance Sheet Risk

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

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

	At December 31 2009		At September 30, 2009
	(In thousands)
Commitments to originate new loans	$	8,228	$	5,866
Unfunded commitments to extend credit under existing equity line and commercial lines of credit		34,371		33,859
Commercial letters of credit		983		1,038

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

Loans Receivable

Loans receivable at December 31, 2009 and September 30, 2009 consist of the following:

(in thousands)	December 31, 2009			September 30, 2009
Single-family residential mortgages	$	134,606		$	140,991
Single-family rental property loans		54,385			51,698
Commercial real estate loans		139,826			136,106
Construction loans		26,202			28,869
Commercial loans secured		939			296
Commercial loans unsecured		318			322
Commercial lease loans		2,331			2,855
Commercial lines of credit		7,565			8,832
Automobile loans		5,890			7,322
Home equity lines of credit		31,316			29,167
Other consumer loans		2,359			2,443
		405,737			408,901
Add – purchase accounting premiums, net		42			62
Less – undisbursed portion of loans in process		(3,825	)		(3,664	)
- unearned interest		(82	)		(127	)
- deferred loan origination fees and costs		(213	)		(234	)
- allowance for loans losses		(4,228	)		(3,927	)
	$	397,431		$	401,011

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Asset Quality

At December 31, 2009, we had $7.0 million in non-performing assets, consisting of nonaccrual loans and repossessed assets representing 1.20% of total assets. At September 30, 2009 non-performing assets were $8.3 million or 1.46% of assets. Our net recoveries (charge-offs) for the three months ended December 31, 2009 and December 31, 2008 were $1,000 and $9,000, respectively. Our allowance for loan losses was $4.2 million at December 31, 2009 compared to $3.9 million at September 30, 2009.

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

	At December 30, 2009			At September 30, 2009
	(In thousands)
Nonperforming loans (1):
Nonaccrual loans:
Single family residential	$	1,161		$	1,186
Multi-family residential		—			—
Commercial real estate		5,805			6,269
Construction		—			—
Commercial leases		25			235
Land		—			—
Consumer Loans		11			—
Total nonaccrual loans		7,002			7,690
Loans 90 days past due and accruing		—			—
Restructured loans		—			—
Total non-performing loans		7,002			7,690
Other non-performing assets		13			639
Total nonperforming assets	$	7,015		$	8,329
Nonperforming loans to loans receivable		1.76	%		1.88	%
Nonperforming assets as a percentage of loans, foreclosed real estate and repossessed assets		1.76	%		2.07	%
Nonperforming assets to total assets		1.20	%		1.46	%
Loans modified in Troubled Debt Restructuring	$	3,858		$	3,863

(1) Nonperforming status denotes loans on which, in the opinion of management, the collection of additional interest is questionable. Also included in this category are Troubled Debt Restructurings (TDRs). At December 31, 2009 and September 30, 2009, TDRs totaled $3.9 million, of which $3.4 million and $3.7 million respectively, were not delinquent. Reporting guidance requires disclosure of these loans as nonperforming even though they may be current in terms of principal and interest payments.

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

	For the Three months Ended December 31,
	2009			2008
	(Dollars in thousands)
Balance at beginning of period	$	3,927		$	2,672
Loans charged-off:
Real estate mortgages:
Single-family residential		—			—
Multi-family residential		—			—
Commercial					—
Construction		—			—
Commercial Leases		(15	)		(27	)
Consumer		(26	)		(54	)
Total charge-offs		(41	)		(81	)
Recoveries:
Real estate mortgage:
Single-family residential		—			—
Multi-family residential		—			—
Commercial		—			31
Construction		—			—
Commercial loans secured		—			—
Consumer		42			59
Total recoveries		42			90
Net loans recovered (charged-off)		1			9
Provision for loan losses		300			150
Balance at end of period	$	4,228		$	2,831
Ratio of net recoveries (charge-offs) to average loans outstanding during the period		.00	%		.01	%

Regulations require that we classify assets on a regular basis. There are three classifications for problem assets: substandard, doubtful and loss. We regularly review our assets to determine whether any assets require classification or re-classification. At December 31, 2009, the Company had $2.9 million in classified assets, consisting of $2.9 million in substandard and loss loans, and $13,000 in repossessed assets. At September 30, 2009, the Company had $4.9 million in classified assets consisting of $4.3 million in substandard and loss loans, and $639,000 in foreclosed property or other real estate owned.

In addition to regulatory classifications, we also classify as “special mention” assets that are currently performing in accordance with their contractual terms but may exhibit some form of credit weakness and may become classified or non-performing assets in the future. At December 31, 2009, we have identified approximately $13.0 million in assets classified as special mention. At September 30, 2009, $14.7 million in assets were classified as special mention.

The Bank’s methodology for establishing the allowance for loan losses takes into consideration probable losses that have been identified in connection with specific assets as well as losses that have not been identified but are expected to have occurred. Management conducts regular reviews of the Banks’ assets and evaluates the need to establish allowances on the basis of these reviews. Allowances are established by management and reviewed by the Board of Directors on a quarterly basis based on an assessment of risk in the Bank’s assets taking into consideration the composition and quality of the portfolio, delinquency trends, current charge-off and loss experience, loan concentrations, the state of the real estate market, regulatory reviews conducted in the regulatory examination process and economic conditions generally. Additional provisions for losses on loans are made in order to bring the allowance to a level deemed adequate. Specific reserves will be provided for individual assets, or portions of assets, when ultimate collection is considered improbable by management based on the current payment status of the assets and the fair value of the collateral.

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Liquidity and Capital Resources

At December 31, 2009, the Bank exceeded all regulatory minimum capital requirements. For information comparing the Bank’s tangible, core and risk-based capital levels to the regulatory requirements, see Note 8 of the Notes to Consolidated Financial Statements.

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

The primary investing activities of the Company are the origination of loans and the purchase of investment securities and mortgage-backed securities. During the three months ended December 31, 2009 and 2008, the Company had $18.3 million and $13.4 million, respectively, of gross loan originations. During the three months ended December 31, 2009 and 2008, the Company did not purchase any investment or mortgage-backed securities. The primary financing activity of the Company is the attraction of savings deposits.

The Company has other sources of liquidity if there is a need for funds. The Bank has the ability to obtain advances from the FHLB of Atlanta in excess of $140.0 million as of December 31, 2009. In addition, securities in the available for sale portfolio provide liquidity and the Company has the immediately liquid resources of cash and cash due from banks, federal funds sold and securities purchased under resale agreements, if needed.

The Bank is required to maintain adequate levels of liquid assets as defined by OTS regulations. The Bank’s average daily liquidity ratio for the month of December was approximately 31.1%. Management seeks to maintain a relatively high level of liquidity in order to retain flexibility in terms of investment opportunities and deposit pricing. Because liquid assets generally provide for lower rates of return, the Bank’s relatively high liquidity will, to a certain extent, result in lower rates of return on assets.

The Company’s most liquid assets are cash, interest-bearing deposits in other banks and federal funds sold, which are short-term, highly liquid investments with original maturities of less than three months that are readily convertible to known amounts of cash. The levels of these assets are dependent on the Company’s operating, financing and investing activities during any given period. At December 31, 2009, cash, interest-bearing deposits in other banks and federal funds sold were $5.5 million, $2.8 million and $54.9 million, respectively.

We anticipate that we will have sufficient funds available to meet our current commitments. Certificates of deposit which are scheduled to mature in less than one year at December 31, 2009 totaled $184.1 million. Based on past experience, management believes that a significant portion of such deposits will remain with Baltimore County Savings Bank. Baltimore County Savings Bank is a party to financial instruments with off-balance-sheet risk made in the normal course of business to meet the financing needs of its customers. These financial instruments are standby letters of credit, lines of credit and commitments to fund mortgage loans and involve to varying degrees elements of credit risk in excess of the amount recognized in the statement of financial position. The contract amounts of those instruments express the extent of involvement Baltimore County Savings Bank has in this class of financial instruments and represents Baltimore County Savings Bank’s exposure to credit loss from nonperformance by the other party. Baltimore County Savings Bank generally requires collateral or other security to support financial instruments with off-balance-sheet credit risk. At December 31, 2009, Baltimore County Savings Bank had commitments under standby letters of credit, lines of credit and commitments to originate loans of $983,000, $34.4 million and $8.2 million, respectively.

In December 2002, BCSB Bankcorp issued $12,887,000 of junior subordinated debentures to BCSB Bankcorp Capital Trust I, a Delaware business trust, in which BCSB Bancorp now owns all of the common equity. The debentures carry a rate of 3.65% over the three month LIBOR rate, and reset quarterly. The rate was 3.9% at December 31, 2009. The debentures are the sole asset of BCSB Bankcorp Capital Trust I. BCSB Bankcorp Capital Trust I issued $12,500,000 of mandatory redeemable preferred securities to investors. BCSB Bancorp’s obligation under the debentures and related documents, taken together, constitute a full and unconditional guarantee by BCSB Bancorp of BCSB Bankcorp Capital Trust I obligations under the preferred securities. The Company used a portion of the net proceeds that it retained from the 2008 completed stock offering to redeem $6.0 million of the $12.5 million in outstanding trust preferred securities issued by a trust wholly owned by the Company.

In September 2003, BCSB Bankcorp issued $10,310,000 of junior subordinated debentures to BCSB Bankcorp Capital Trust II, a Delaware business trust, in which BCSB Bancorp now owns all of the common equity. The debentures carry

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a rate of 3.00% over the three month LIBOR rate, and reset quarterly. The rate was 3.28% at December 31, 2009. The debentures are the sole asset of BCSB Bankcorp Capital Trust II. BCSB Bankcorp Capital Trust II issued $10,000,000 of mandatory redeemable preferred securities to investors. BCSB Bancorp’s obligation under the debentures and related documents, taken together, constitute a full and unconditional guarantee by BCSB Bancorp of BCSB Bankcorp Capital Trust II obligations under the preferred securities.

Pursuant to these trust preferred securities, the Company, must make quarterly interest payments, which totaled $892,000 during the year ended September 30, 2009 and $154,000 during the three months ended December 31, 2009.

The Company has outstanding (i) 10,800 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, liquidation preference $1,000 per share (“Series A preferred stock”), and (ii) a warrant to purchase 183,465 shares of the Company’s common stock, par value $0.01 per share, for an aggregate purchase price of $10,800,000 in cash.

The Series A preferred stock qualifies as Tier 1 capital and pays cumulative dividends at a rate of 5% per annum until February 15, 2014. Beginning February 16, 2014, the dividend rate will increase to 9% per annum. The Company must remit dividends quarterly. Payments remitted totaled $135,000 during the three months ended December 31, 2009. On and after February 15, 2012, the Company may, at its option, redeem shares of Series A preferred stock, in whole or in part, at any time and from time to time, for cash at a per share amount equal to the sum of the liquidation preference per share plus any accrued and unpaid dividends to but excluding the redemption date. Under the original terms of the Purchase Agreement, the Company is prohibited from redeeming the Series A preferred stock within the first three years unless it completed a qualified equity offering whereby it received aggregate gross proceeds of not less than $2.7 million. However, the provisions introduced by the American Recovery and Reinvestment Act of 2009 indicate that once the Company notifies Treasury that it would like to redeem the Series A preferred stock, the Treasury must permit the Company to do so subject to consultation with the OTS. The Company will be subject to existing supervisory procedures for approving redemption requests for capital instruments. The OTS will weigh the Company’s desire to redeem the Series A preferred stock against the contribution of Treasury capital to the Company’s overall soundness, capital adequacy and ability to lend, including confirming that the Company has a comprehensive internal capital assessment process.

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

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

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

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

PART II.OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding the Company’s legal proceedings see “Legal Proceedings,” in the Company’s Form 10-K for the fiscal year ended September 30, 2009 filed with the Securities and Exchange Commission on December 23, 2009. As of December 31, 2009, the legal proceedings of the Company have not changed materially from those reported in the Form 10-K

In addition from time to time the Company and/or Bank are a party to various legal proceedings incident to its business. There were no legal proceedings to which the Company or the Bank was a party, or to which any of their property was subject which were expected by management to result in a material loss to the Company or Bank. There are no pending regulatory proceedings to which the Company, the Bank and their subsidiaries are a part or to which any of their properties are subject which are currently expected to result in a material loss.

Item 1A. Risk Factors

For information regarding the Company’s risk factors see “Risk Factors,” in the Company’s Form 10-K for the fiscal year ended September 30, 2009 filed with the Securities and Exchange Commission on December 23, 2009. As of December 31, 2009, the risk factors of the Company have not changed materially from those reported in the Form 10-K

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

(a) None

(b) None

(c) None

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

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Item 6. Exhibits

The following exhibits are filed herewith:

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

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SIGNATURES

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

	BCSB BANCORP, INC.
Date: February 12, 2010	/s/ Joseph J. Bouffard
	Joseph J. Bouffard
	President
	(Principal Executive Officer)
Date: February 12, 2010	/s/ Anthony R. Cole
	Anthony R. Cole
	Executive Vice President
	(Principal Financial and Accounting Officer)

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