First Advantage Bancorp (FABK) 10-Q 2011 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q

[X]         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE   ACT OF 1934

For the quarterly period ended June 30, 2011

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: 001-33682

FIRST ADVANTAGE BANCORP

(Exact name of registrant as specified in its charter)

Tennessee (State or other jurisdiction of incorporation or organization)	26-0401680 (I.R.S. Employer Identification No.)
1430 Madison Street, Clarksville, Tennessee  (Address of principal executive offices)	37040 (Zip Code)

Registrant’s telephone number, including area code:  (931) 552-6176

Former name, former address and former fiscal year, if changed since last report.  N/A

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 Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes _X__  No ___

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

(Check one):        Large Accelerated Filer [    ]                                                             Accelerated Filer [    ]

Non-accelerated Filer [    ]                                                                Smaller Reporting Company [ X ]

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

The number of shares outstanding of the registrant’s common stock as of August 9, 2011 was 4,563,294.

FIRST ADVANTAGE BANCORP

Table of Contents

		Page
	Part I. Financial Information
Item 1.	Condensed Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010	1
	Unaudited - Condensed Consolidated Statements of Income for the Three Months and   Six Months Ended June 30, 2011 and 2010	2
	Unaudited - Condensed Consolidated Statements of Shareholders’ Equity for the Six Months Ended June 30, 2011 and 2010	3
	Unaudited - Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40
	Part II.  Other Information
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	(Removed and Reserved)	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
	SIGNATURES	43

First Advantage Bancorp
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)
	June 30,			December 31,
	2011			2010
	(Unaudited)
Assets
Cash and due from banks	$	3,955		$	4,151
Interest-bearing demand deposits with banks		14,585			1,387
Federal funds sold		300			2,250
Cash and cash equivalents		18,840			7,788
Available-for-sale securities, at fair value		67,210			74,214
Other investments		1,743			3,486
Loans held for sale		2,786			3,155
Loans, net of allowance for loan losses of $3,921 and $3,649 at    June 30, 2011 and December 31, 2010, respectively		241,724			238,346
Premises and equipment, net		7,460			7,553
Other real estate owned and repossessed assets		672			663
Federal Home Loan Bank stock		2,988			2,988
Accrued interest receivable		1,506			1,420
Refundable income taxes		1,870			1,515
Deferred tax assets		1,910			2,199
Other assets		1,751			1,925
Total assets	$	350,460		$	345,252
Liabilities and Shareholders' Equity
Liabilities
Deposits
Demand	$	29,853		$	19,681
Savings, checking and money market		123,955			120,859
Time certificates		71,634			78,964
Total deposits		225,442			219,504
Securities sold under agreement to repurchase		5,109			6,215
Federal Home Loan Bank advances		13,000			13,000
Borrowings with other banks		35,000			35,000
Interest payable and other liablilities		4,166			4,806
Total liabilities		282,717			278,525
Commitments and contingencies		-			-
Shareholders' Equity
Preferred stock, $0.01 par value, 10,000,000 shares authorized    no shares outstanding at June 30, 2011 or December 31, 2010		-			-
Common stock, $0.01 par value 50,000,000 shares authorized,    4,612,294 shares issued and 4,086,674 outstanding at    June 30, 2011 and 4,632,494 shares issued and    4,107,818 outstanding at December 31, 2010		46			46
Additional paid-in-capital		46,861			46,626
Common stock acquired by benefit plans:
Restricted stock		(1,134	)		(1,085	)
Common stock held by:
Employee Stock Ownership Plan trust		(3,198	)		(3,198	)
Benefit plans		(2,172	)		(2,159	)
Retained earnings		24,302			23,923
Accumulated other comprehensive income		3,038			2,574
Total shareholders' equity		67,743			66,727
Total liabilities and shareholders' equity	$	350,460		$	345,252
See accompanying notes to unaudited condensed consolidated financial statements.

1

First Advantage Bancorp
Unaudited - Condensed Consolidated Statements of Income
(Dollars in thousands, except share and per share data)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Interest and dividend income
Loans	$	3,649	$	3,388	$	7,176	$	6,608
Investment securities		729		953		1,506		2,043
Other		59		68		125		123
Total interest and dividend income		4,437		4,409		8,807		8,774
Interest expense
Deposits		553		821		1,144		1,735
Borrowings		444		463		882		906
Total interest expense		997		1,284		2,026		2,641
Net interest income		3,440		3,125		6,781		6,133
Provision for loan losses		233		232		488		459
Net interest income after provision for loan losses		3,207		2,893		6,293		5,674
Noninterest income
Service charges on deposit accounts and other fees		328		298		610		604
Loan servicing and other fees		24		24		41		45
Net gains on sales of mortgage loans held for sale		292		342		499		563
Net realized gain on sales of available-for-sale securities		-		70		-		77
Insurance and brokerage commissions		30		25		56		70
Other		9		8		56		12
Total noninterest income		683		767		1,262		1,371
Noninterest expense
Salaries and employee benefits		1,595		1,623		3,327		3,149
Net occupancy		171		168		337		336
Equipment		169		186		356		362
Data processing		222		217		445		444
Professional fees		174		96		358		197
Marketing		176		68		252		136
Office expense		76		64		148		136
Loan collection and repossession expense		-		49		0		126
Other		483		450		960		917
Total noninterest expense		3,066		2,921		6,183		5,803
Income before income taxes		824		739		1,372		1,242
Provision for income taxes		338		408		528		584
Net income	$	486	$	331	$	844	$	658
Per common share:
Basic net income per common share	$	0.12	$	0.08	$	0.21	$	0.15
Diluted net income per common share	$	0.11	$	0.08	$	0.20	$	0.15
Dividends declared per common share	$	0.05	$	0.05	$	0.10	$	0.10
Basic weighted average common shares outstanding		4,105,910		4,303,639		4,106,856		4,404,871
Diluted weighted average common shares outstanding		4,290,171		4,342,942		4,298,744		4,438,658
See accompanying notes to unaudited condensed consolidated financial statements.

2

First Advantage Bancorp
Unaudited - Condensed Consolidated Statements of Shareholders' Equity
Six Months Ended June 30, 2011 and 2010
(Dollars in thousands, except share and per share amounts)
															Common			Accumulated
									Additional						Stock			Other		Total
	Comprehensive		Common Stock						Paid-in			Retained			Acquired by			Comprehensive		Shareholders'
	Income		Shares			Stock			Capital			Earnings			Benefit Plans			Income		Equity
Balance at January 1, 2010				5,171,395		$	52		$	51,915		$	23,210		$	(7,106	)	$	2,455	$	70,526
Comprehensive income, net of tax:
Net income	$	658					-			-			658			-			-		658
Change in unrealized appreciation of      available-for-sale securities, net of tax		823					-						-			-			823		823
Total comprehensive income	$	1,481					-			-			-			-			-		1,481
Treasury stock purchase/retire				(375,600	)		(4	)		(4,015	)										(4,019	)
Dividends paid ($0.10 per common share)							-						(505	)		-			-		(505	)
Stock-based compensation										624						-					624
Purchase of restricted stock plan shares							-			-			-			(53	)		-		(53	)
Balance at June 30, 2010				4,795,795		$	48		$	48,524		$	23,363		$	(7,159	)	$	3,278		68,054
Balance at January 1, 2011				4,632,494		$	46		$	46,626		$	23,923		$	(6,442	)	$	2,574	$	66,727
Comprehensive income, net of tax:
Net income	$	844					-			-			844			-			-		844
Change in unrealized appreciation of    available-for-sale securities, net of tax		464																	464		464
Total comprehensive income	$	1,308					-			-			-			-			-		1,308
Treasury stock purchase/retire				(20,200	)		-			(259	)		-								(259	)
Dividends paid ($0.10 per common share)							-			-			(465	)		-			-		(465	)
Stock-based compensation							-			494			-			-			-		494
Purchase of restricted stock plan shares							-			-			-			(62	)		-		(62	)
Balance at June 30, 2011				4,612,294		$	46		$	46,861		$	24,302		$	(6,504	)	$	3,038	$	67,743
See accompanying notes to unaudited condensed financial statements.

3

First Advantage Bancorp
Unaudited - Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
	Six Months Ended
	June 30,
	2011			2010
Operating activities
Net income	$	844		$	658
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		488			459
Depreciation, amortization and accretion		389			468
Deferred income taxes		-			(22	)
Funding of mortgage loans held for sale		(20,549	)		(25,409	)
Proceeds from sales of mortgage loans held for sale		21,417			25,400
Net gains on sales of mortgage loans held for sale		(499	)		(563	)
Net realized gain on available-for-sale securities		-			(77	)
Stock-based compensation		494			624
Decrease in other assets		91			318
(Decrease) increase in other liabilities		(995	)		384
Net cash provided by operating activities		1,680			2,240
Investing activities
Purchases of other investments		-			(996	)
Proceeds from maturities of other investments		1,743			-
Purchases of securities available for sale		(850	)		(3,000	)
Proceeds from call/maturities and repayments of securities available-for-sale		8,517			26,548
Net increase in loans		(3,891	)		(16,158	)
Purchases of premises and equipment		(206	)		(228	)
Proceeds from sale of other real estate owned and repossessed assets		13			323
Net cash provided by investing activities		5,326			6,489
Financing activities
Net increase in demand deposits, money market, checking and savings accounts		13,268			6,099
Net decrease in time deposits		(7,330	)		(4,101	)
Net (decrease) increase in repurchase agreement and other short-term borrowings		(1,106	)		1,688
Cash paid for dividends		(465	)		(505	)
Stock repurchased/retired  - repurchase program		(259	)		(4,019	)
Stock purchased - restricted stock compensation plans		(62	)		(53	)
Net cash provided by (used in) financing activities		4,046			(891	)
Increase in cash and cash equivalents		11,052			7,838
Cash and cash equivalents, beginning of period		7,788			11,865
Cash and cash equivalents, end of period	$	18,840		$	19,703
Supplemental cash flow information:
Other real estate owned acquired through foreclosure of real estate loans		140			647
Transfer of other real estate from loans		28			140
See accompanying notes to unaudited condensed consolidated financial statements.

4

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated interim financial statements include the accounts of First Advantage Bancorp (the “Company”), First Federal Savings Bank (“First Federal” or the “Bank”) and the Bank’s subsidiaries.  First Federal is a federally chartered savings bank originally founded in 1953 and is headquartered in Clarksville, Tennessee.  The Company uses the premises, equipment and other property of First Federal with the payment of appropriate rental fees, as required by applicable laws and regulations, under the terms of an expense allocation agreement.   Accordingly, the information set forth in this interim report, including the condensed consolidated financial statements and related financial data contained herein relates primarily to First Federal.  These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q.  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) considered necessary for a fair presentation of the financial position, results of operations and cash flows for reporting the interim periods have been included.    The results of operations for the six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the full fiscal year or any other interim period.  The condensed consolidated financial statements and notes thereto included in this report should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the United States Securities and Exchange Commission (the “SEC”) on March 7, 2011.

Certain reclassifications considered to be immaterial have been made to prior period consolidated financial statements to conform to the current period consolidated financial statements.

In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and income and expenses during the reporting period.  Actual results could differ significantly from those estimates.

NOTE 2 – RECENT ACCOUNTING UPDATES

In January 2011, the FASB issued ASU No. 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20.”  The provisions of ASU No. 2010-20 required the disclosure of more granular information on the nature and extent of troubled debt restructurings and their effect on the allowance for loan and lease losses effective for the Company’s reporting period ended March 31, 2011.  The amendments in ASU No. 2011-01 defer the effective date related to these disclosures, enabling creditors to provide such disclosures after the FASB finalizes its guidance for determining what constitutes a troubled debt restructuring.  As the provisions of this ASU only defer the effective date of disclosure requirements related to troubled debt restructurings, the adoption of this ASU will have no impact on the Company’s statements of income and condition.

In April 2011, the FASB issued ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.”  The provisions of ASU No. 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, include factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibit creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower, and add factors for creditors to use in determining whether a borrower is experiencing financial difficulties.  A provision in ASU No. 2011-02 also ends the FASB’s deferral of the additional disclosures regarding troubled debt restructurings as required by ASU No. 2010-20.  The provisions of ASU No. 2011-02 are effective for the Company’s reporting period ending September 30, 2011.  The adoption of ASU No. 2011-02 is not expected to have a material impact on the Company’s consolidated financial statements.

5

NOTE 3 – EARNINGS PER COMMON SHARE

Basic earnings per share (“EPS”) is calculated by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed in a manner similar to that of basic EPS except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock equivalents (such as stock options and unvested restricted stock) were vested during the period.  The weighted average  common shares outstanding equals the gross number of common shares issued less unallocated shares held by the First Federal Savings Bank Employee Stock Ownership Plan (“ESOP”), nonvested restricted stock awards under the Company’s 2007 Deferred Compensation Plan and nonvested restricted stock awards under the Company’s 2008 Equity Incentive Plan.  Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued.  Potential common shares to be issued include any restricted shares authorized under the Company’s 2007 Deferred Compensation Plan and the 2008 Equity Incentive Plan.  Unallocated common shares held by the ESOP are shown as a reduction in stockholders’ equity and are included in the weighted-average number of common shares outstanding for diluted EPS calculations as they are committed to be released.

Basic and diluted earnings per share are computed as follows:

(Dollars in thousands, except share and per share amounts)	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Net income	$	486	$	331	$	844	$	658
Weighted-average shares - Basic EPS		4,105,910		4,303,639		4,106,856		4,404,871
Weighted-average restricted shares -
2007 Deferred Compensation Plan		20,133		7,137		20,101		6,140
2008 Equity Incentive Plan		65,759		3,966		74,059		-
Weighted-average shares -
ESOP committed to be released		98,369		28,200		97,728		27,647
Weighted-average shares - Diluted EPS		4,290,171		4,342,942		4,298,744		4,438,658
Basic earnings per common share	$	0.12	$	0.08	$	0.21	$	0.15
Diluted earnings per common share	$	0.11	$	0.08	$	0.20	$	0.15

6

NOTE 4 –LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans

The Company’s primary lending activity is the origination of loans secured by real estate.  The Company originates one-to-four family mortgage loans, multi-family loans, nonresidential real estate loans, commercial business loans and construction loans.  To a lesser extent, we also originate land loans and consumer loans.

The following table summarizes the composition of our total net loans receivable at June 30, 2011 and December 31, 2010:

	June 30, 2011						December 31, 2010
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
Permanent loans:
One-to-four family	$	42,209			17.2	%	$	43,695			18.1	%
Multi-family		12,540			5.1			13,592			5.6
Nonresidential		83,025			33.8			77,089			31.9
Construction loans:
One-to-four family		19,166			7.8			20,373			8.4
Multi-family		1,846			0.8			357			0.1
Nonresidential		6,164			2.5			5,929			2.5
Land loans		25,949			10.6			26,394			10.9
Total real estate loans		190,899			77.8			187,429			77.5
Consumer:
Home equity loans and lines of credit		19,684			8.0			18,761			7.7
Auto loans		492			0.2			639			0.3
Deposit loans		456			0.2			377			0.2
Overdrafts		43			-			47			-
Other		1,865			0.8			2,193			0.9
Total consumer loans		22,540			9.2			22,017			9.1
Commercial loans		32,075			13.0			32,460			13.4
Total loans		245,514			100.0	%		241,906			100.0	%
Allowance for loan losses		(3,921	)					(3,649	)
Net deferred loan costs		131						89
Loans receivable, net	$	241,724					$	238,346

7

The following table sets forth certain information at June 30, 2011 and December 31, 2010 regarding the dollar amount of loan principal repayments becoming due during the periods indicated.  The table does not include any estimate of prepayments which may significantly shorten the average life of loans and may cause our actual repayment experience to differ from that shown below.  Demand loans having no stated schedule of repayments and no state maturity are reported as due in one year or less.

	At June 30, 2011
			Multi-family
			and
	One- to		Nonresidential										Total
	Four-Family		Real Estate		Construction		Land		Consumer		Commercial		Loans
	(Dollars in thousands)
Amounts due in:
One year or less	$	9,760	$	11,942	$	26,704	$	14,198	$	13,845	$	17,567	$	94,016
More than one year to three years		13,844		53,454		472		7,178		1,227		9,018		85,193
More than three years to five years		4,963		26,031		-		3,982		1,300		2,772		39,048
More than five years to fifteen years		6,332		4,138		-		591		6,168		2,718		19,947
More than fifteen years		7,310		-		-		-		-		-		7,310
Total	$	42,209	$	95,565	$	27,176	$	25,949	$	22,540	$	32,075	$	245,514
	At December 31, 2010
				Multi-family
				and
		One- to		Nonresidential										Total
	Four-Family		Real Estate		Construction		Land		Consumer		Commercial		Loans
	(Dollars in thousands)
Amounts due in:
One year or less	$	10,016	$	9,952	$	26,373	$	12,650	$	13,344	$	13,730	$	86,065
More than one year to three years		15,737		49,584		286		9,497		1,929		10,789		87,822
More than three years to five years		3,760		27,483		-		4,030		1,333		3,678		40,284
More than five years to fifteen years		5,849		3,662		-		217		5,411		4,263		19,402
More than fifteen years		8,333		-		-		-		-		-		8,333
Total	$	43,695	$	90,681	$	26,659	$	26,394	$	22,017	$	32,460	$	241,906

8

Thefollowing tables set forth the dollar amount of all loans at June 30, 2011 that are due after June 30, 2012, and at December 31, 2010 that are due after December 31, 2011, and have either fixed interest rates or floating or adjustable interest rates.

 

As of June 30, 2011			Floating or
	Fixed Rates		Adjustable Rates		Total
	(Dollars in thousands)
One-to-four family	$	31,206	$	1,242	$	32,448
Multi-family and nonresidential		75,239		8,385		83,624
Construction		136		336		472
Land		3,320		8,430		11,750
Consumer		3,395		5,300		8,695
Commercial		11,088		3,420		14,508
Total	$	124,384	$	27,113	$	151,497
As of December 31, 2010			Floating or
	Fixed Rates		Adjustable Rates		Total
	(Dollars in thousands)
One-to-four family	$	32,364	$	1,315	$	33,679
Multi-family and nonresidential		69,632		11,097		80,729
Construction		-		286		286
Land		2,112		11,632		13,744
Consumer		4,053		4,620		8,673
Commercial		12,079		6,651		18,730
Total	$	120,240	$	35,601	$	155,841

Our adjustable-rate mortgage loans do not adjust downward below the initial discounted contract rate.  When market rates rise, as has occurred in recent periods, the interest rates on these loans may increase based on the contract rate (the index plus the margin) exceeding the initial interest rate floor.

Nonperforming Assets

We consider repossessed assets and loans that are 90 days or more past due to be nonperforming assets.  Loans are placed on non-accrual status when, in management’s opinion, the borrower is unable to meet payment obligations, which typically occurs when principal and interest payments are 90 days delinquent at which time the accrual of interest ceases and the allowance for any uncollectible accrued interest is established and charged against operations.  Typically, payments received on a non-accrual loan are first applied to the outstanding principal balance.  At June 30, 2011 and December 31, 2010, non-accruing loans were $2.9 million and $3.0 million, respectively.  Had non-accrual loans performed in accordance with their original contract terms, the Company would have recognized additional interest income, net of tax, of approximately $40,000 for the first six months of 2011 and $57,000 for the year ended December 31, 2010.  No interest income was recognized on non-accrual loans on a cash basis during the first six months of 2011 or during 2010.

Other real estate owned and repossessed assets which are acquired through, or in lieu, of foreclosure are held for sale and initially recorded at fair value, less estimated selling cost when acquired, establishing a new cost basis.  Costs after acquisition are generally expensed.  Any changes in fair value of the asset are recorded through expense.  The valuations of other real estate owned and a repossessed asset are subjective in nature and may be adjusted in the future because of changes in economic conditions.

9

The following table provides information with respect to our nonperforming assets at the dates indicated.

Nonperforming Assets	At June 30,			At December 31,
	2011			2010
	(Dollars in thousands)
Non-accrual loans:
One- to four-family	$	1,420		$	1,266
Multi-family and nonresidential		677			541
Construction		-			-
Land		339			541
Consumer		247			240
Commercial		233			397
Total		2,916			2,985
Accruing loans past due 90 days or more:
One- to four-family		-			-
Multi-family and nonresidential		-			-
Construction		-			-
Land		-			-
Consumer		-			-
Commercial		-			-
Total		-			-
Total of non-accrual and 90 days or		2,916			2,985
more past due loans
Real estate owned		140			115
Other nonperforming assets		-			16
Total nonperforming assets	$	3,056		$	3,116
Total nonperforming loans to total loans		1.19	%		1.23	%
Total nonperforming loans to total assets		0.83	%		0.86	%
Total nonperforming assets to total assets		0.87	%		0.90	%

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable credit losses in the loan portfolio and represents management’s best estimate of known and inherent losses in the loan portfolio, based upon management’s evaluation of the portfolio’s collectability. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings. The recommendations for increases or decreases to the allowance are approved by the Asset Quality Review Committee and presented to the Board of Directors.

Our methodology for assessing the appropriateness of the allowance for loan losses consists of: (1) a specific allowance on identified problem loans; and (2) a general valuation allowance on the remainder of the loan portfolio. Management estimates a range of losses and then makes its best estimate of potential credit losses within that range. Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available for the entire portfolio.

Specific Allowance Required for Identified Problem Loans. We establish an allowance on certain identified problem loans based on such factors as: (1) the strength of the customer’s personal or business cash flows; (2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value of collateral; (5) the strength of our collateral position; and (6) the borrower’s effort to cure the delinquency.

10

General Valuation Allowance on the Remainder of the Loan Portfolio. We establish a general allowance for loans that are not currently classified in order to recognize the inherent losses associated with lending activities. This general valuation allowance is determined through two steps. First, we estimate potential losses on the portfolio by analyzing historical losses for each loan category. Second, we look at additional significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures; international, national, regional and local economic conditions; changes in the nature and volume of the portfolio; changes in the experience, ability and depth of lending management; changes in the volume of past dues, non-accruals and classified assets; changes in the quality of the loan review system; changes in the value of underlying collateral for collateral dependent loans; concentrations of credit, and other factors.

We also identify loans that may need to be charged-off as a loss by reviewing all delinquent loans, classified loans and other loans for which management may have concerns about collectability. For individually reviewed loans, the borrower’s inability to make payments under the terms of the loan or a shortfall in collateral value would result in our allocating a portion of the allowance to the loan that was impaired.

At June 30, 2011, our allowance for loan losses represented 1.6% of total gross loans and 134.6% of nonperforming loans.  At December 31, 2010, our allowance for loan losses represented 1.5% of total gross loans and 122.2% of nonperforming loans.  The allowance for loan losses increased $272,000 to $3.9 million at June 30, 2011 from $3.6 million at December 31, 2010 primarily due to increases in  classified loans.

The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated.

	At June 30,								At December 31,
	2011								2010
						% of								% of
			% of			Loans in					% of			Loans in
			Allowance			Category					Allowance			Category
			to Total			to Total					to Total			to Total
	Amount		Allowance			Loans			Amount		Allowance			Loans
	(Dollars in thousands)								(Dollars in thousands)
One-to-four family	$	371		9.5	%		17.2	%	$	545		14.9	%		18.1	%
Multi-family and nonresidential		1,098		28.0			38.8			1,061		29.1			37.5
Construction		325		8.3			11.1			325		8.9			11.0
Land		621		15.8			10.6			730		20.0			10.9
Consumer		250		6.4			9.2			250		6.9			9.1
Commercial		1,256		32.0			13.1			738		20.2			13.4
Total allowance for loan losses	$	3,921		100.0	%		100.0	%	$	3,649		100.0	%		100.0	%

Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with accepted accounting principles, there can be no assurance that our regulators, in reviewing our loan portfolio, will not require us to increase our allowance for loan losses. Our regulators may require us to increase our allowance for loan losses based on judgments different from ours. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

11

Analysis of Loan Loss Experience

The following table details allowance for loan losses and recorded investment in loans by portfolio segment for the six months ended June 30, 2011 and 2010:

Allowance for Loan Losses and Recorded Investment in Loans
For the Six Months Ended June 30, 2011
(Dollars in thousands)
	One-to-Four			Multi-family/							Consumer
	Family			Nonresidential		Construction		Land			and Other			Commercial			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	545		$	1,061	$	325	$	730		$	250		$	738		$	-	$	3,649
Charge offs		-			-		-		-			(13	)		(236	)		-		(249	)
Recoveries		-			-		-		-			6			27			-		33
Provision (Credit)		(174	)		37		-		(109	)		7			727			-		488
Ending balance	$	371		$	1,098	$	325	$	621		$	250		$	1,256		$	-	$	3,921
Ending balance individually   evaluated for impairment	$	40		$	-	$	-	$	-		$	-		$	628		$	-	$	668
Ending balance collectively   evaluated for impairment	$	331		$	1,098	$	325	$	621		$	250		$	628		$	-	$	3,253
Loans:
Ending balance	$	42,209		$	95,565	$	27,176	$	25,949		$	22,540		$	32,075		$	-	$	245,514
Ending balance individually   evaluated for impairment	$	488		$	249	$	-	$	292		$	160		$	628		$	-	$	1,817
Ending balance collectively   evaluated for impairment	$	41,721		$	95,316	$	27,176	$	25,657		$	22,380		$	31,447		$	-	$	243,697

12

Allowance for Loan Losses and Recorded Investment in Loans
For the Six Months Ended June 30, 2010
(Dollars in thousands)
	One-to-Four			Multi-family/							Consumer
	Family			Nonresidential			Construction		Land		and Other			Commercial			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	280		$	1,125		$	160	$	286	$	200		$	762		$	-	$	2,813
Charge offs		(284	)		-			-		-		(9	)		(8	)		-		(301	)
Recoveries		4			-			-		-		4			6			-		14
Provision (Credit)		280			(8	)		-		49		5			133			-		459
Ending balance	$	280		$	1,117		$	160	$	335	$	200		$	893		$	-	$	2,985
Ending balance individually   evaluated for impairment	$	-		$	-		$	-	$	-	$	-		$	-		$	-	$	-
Ending balance collectively   evaluated for impairment	$	280		$	1,117		$	160	$	335	$	200		$	893		$	-	$	2,985
Loans:
Ending balance	$	43,697		$	89,712		$	30,967	$	20,237	$	20,958		$	23,530		$	-	$	229,101
Ending balance individually   evaluated for impairment	$	-		$	-		$	-	$	-	$	-		$	-		$	-	$	-
Ending balance collectively   evaluated for impairment	$	43,697		$	89,712		$	30,967	$	20,237	$	20,958		$	23,530		$	-	$	229,101

13

The following table shows credit quality indicators at June 30, 2011 and December 31, 2010:

Credit Quality Indicators as of June 30, 2011
(Dollars in thousands)
	One-to-Four		Multi-family/						Consumer
	Family		Nonresidential		Construction		Land		and Other		Commercial		Total
Corporate Credit Exposures
Credit Risk Profile by  Internally Assigned Grade
Grade:
Pass	$	39,476	$	92,733	$	25,616	$	25,182	$	22,347	$	31,043	$	236,397
Special mention		847		1,989		1,189		180		18		404		4,627
Substandard		1,886		843		371		587		175		417		4,279
Doubtful		-		-		-		-		-		211		211
Total	$	42,209	$	95,565	$	27,176	$	25,949	$	22,540	$	32,075	$	245,514

Credit Quality Indicators as of December 31, 2010
(Dollars in thousands)
	One-to-Four	Multi-family/			Consumer
	Family	Nonresidential	Construction	Land	and Other	Commercial	Total
Corporate Credit Exposures
Credit Risk Profile by   Internally Assigned Grade
Grade:
Pass	$               41,389	$                  87,570	$               25,413	$           25,864	$               21,637	$                   31,703	$           233,576
Special mention	794	1,904	720	192	70	103	3,783
Substandard	1,512	1,207	526	338	310	442	4,335
Doubtful	-	-	-	-	-	212	212
Total	$              43,695	$                   90,681	$              26,659	$           26,394	$               22,017	$                   32,460	$           241,906

14

Credit risk by internally assigned grade

Loans assigned a grade of “Pass” range from loans with virtually no risk of default to loans including some or all of the following characteristics: borrower generally generates sufficient but strained cash flows to fund debt service, key ratios are generally slightly worse than peers, earnings may be trending downward, borrower is currently performing as agreed, risk of default is higher than normal but with prospects for improved financial performance, some borrower management team weaknesses may be evident, loans are protected by collateral that can be liquidated, industry outlook may be trending down but is generally acceptable.

Loans assigned a grade of “Special mention” characteristics include, but are not limited to, the following: weakened due to negative trends in the balance sheet and income statement, current cash flow may be insufficient to meet debt service, existence of documentation deficiencies, potential risk of payment default, collateral coverage is minimal, financial information may be inadequate to show the recent condition of the borrower, management of the borrower may not be adequately qualified or have limited experience, turnover in key positions and industry outlook is generally negative with reasonable expectations of a turnaround within 12 to 18 months.

Loans assigned a grade of “Substandard” characteristics include, but are not limited to, the following:  payment default and /or loss is possible but not yet probable, cash flow is insufficient to service debt, there is a likelihood that the collateral will have to be liquidated and/or the guarantor will be called upon to repay the debt, collateral coverage is marginal or nonexistent, guarantor has limited outside worth and is highly leveraged, management of the borrower has no prior experience with similar activities, capital base is weak and insufficient to absorb continuing losses and industry outlook is generally negative with reasonable expectations of a turnaround within 18 to 24 months.

Loans assigned a grade of “Doubtful” include all of the characteristics of “Substandard”, but available information suggests it is unlikely that the loan will be paid back in its entirety. Cash flows are insufficient to service the debt, the borrower has had a series of substantial losses, key ratios are at unacceptable levels, and industry outlook is negative with an undeterminable recovery time. If the current adverse trends continue, it is unlikely the borrower will have the ability to meet the terms of the loan agreement. The probability of incurring a loss is greater than 50%. All loans classified as doubtful are placed on nonaccrual status.

These internally assigned grades are updated on a continual basis throughout the course of the year and represent management’s most updated judgment regarding grades at June 30, 2011.

Credit risk by payment activity

Loans that do not receive an internally assigned grade are separated into two categories: performing and nonperforming. Performing loans are generally abiding by the terms of their loan contract and are less than 90 days past due. Loans are deemed nonperforming typically when they reach nonaccrual status or are 90 days past due or greater. The information presented by payment activity is updated as of June 30, 2011 based upon past due status as of that date.

15

The following table shows an aging analysis of past due loans as of the dates indicated:

Age Analysis of Past Due Loans
As of June 30, 2011
(Dollars in thousands)
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Loans >90 Days and Accruing
One-to-four family	$	1,099	$	373	$	155	$	1,627	$	40,582	$	42,209	$	-
Multifamily/nonresidential		-		237		77		314		95,251		95,565		-
Construction		-		-		-		-		27,176		27,176		-
Land		-		-		541		541		25,408		25,949		-
Consumer and other		163		3		38		204		22,336		22,540		-
Commercial		192		38		342		572		31,503		32,075		-

Age Analysis of Past Due Loans
As of December 31, 2010
(Dollars in thousands)
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Loans >90 Days and Accruing
One-to-four family	$	675	$	168	$	693	$	1,536	$	42,159	$	43,695	$	-
Multifamily/nonresidential		-		-		-		-		90,681		90,681		-
Construction		-		-		-		-		26,659		26,659		-
Land		-		-		541		541		25,853		26,394		-
Consumer and other		661		137		436		1,234		20,783		22,017		-
Commercial		-		-		-		-		32,460		32,460		-

16

The following tables set forth details regarding impaired loans as of the periods indicated:

Impaired Loans
For the Six Months Ended June 30, 2011
(Dollars in thousands)
	Recorded Investment		Unpaid Principal Blance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One-to-four family	$	448	$	448	$	-	$	457	$	-
Multifamily/nonresidential		249		249		-		249		-
Construction		-		-		-		-		-
Land		292		292		-		292		-
Consumer and other		160		160		-		160		-
Commercial		-		-		-		-		-
Subtotal		1,149		1,149		-		1,158		-
With an allowance recorded:
One-to-four family		40		40		21		40		-
Multifamily/nonresidential		-		-		-		-		-
Construction		-		-		-		-		-
Land		-		-		-		-		-
Consumer and other		-		-		-		-		-
Commercial		628		628		258		651		14
Subtotal		668		668		279		691		14
Total:
One-to-four family		488		488		21		497		-
Multifamily/nonresidential		249		249		-		249		-
Construction		-		-		-		-		-
Land		292		292		-		292		-
Consumer and other		160		160		-		160		-
Commercial		628		628		258		651		14
Total	$	1,817	$	1,817	$	279	$	1,849	$	14

17

Impaired Loans
For the Twelve Months Ended December 31, 2010
(Dollars in thousands)
	Recorded Investment		Unpaid Principal Blance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One-to-four family	$	-	$	-	$	-	$	-	$	-
Multifamily/nonresidential		249		249		-		252		5
Construction		-		-		-		-		-
Land		-		-		-		-		-
Consumer and other		160		160		-		160		6
Commercial		212		270		-		251		5
Subtotal		621		679		-		663		16
With an allowance recorded:
One-to-four family		461		461		195		465		23
Multifamily/nonresidential		-		-		-		-		-
Construction		-		-		-		-		-
Land		292		292		71		292		5
Consumer and other		-		-		-		-		-
Commercial		-		-		-		-		-
Subtotal		753		753		266		757		28
Total:
One-to-four family		461		461		195		465		23
Multifamily/nonresidential		249		249		-		252		5
Construction		-		-		-		-		-
Land		292		292		71		292		5
Consumer and other		160		160		-		160		6
Commercial		212		270		-		251		5
Total	$	1,374	$	1,432	$	266	$	1,420	$	44

No interest was recognized on impaired loans on a cash basis during the six month period ended June 30, 2011 or the twelve month period ended December 31, 2010.

18

Troubled Debt Restructurings

The following table sets forth information about modifications which were considered Troubled Debt Restructurings (“TDRs”) as of June 30, 2011.  There were no troubled debt restructurings as of June 30, 2010.

Modifications
As of June 30, 2011
(Dollars in thousands)
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings
Commercial		1	$	178	$	178
Troubled Debt Restructurings That Subsequently Defaulted	Number of Contracts		Pre-Modification Outstanding Recorded Investment
Troubled debt restructurings
Commercial		-	$	-

For these loans, the Company measures the level of impairment based on the present value of the estimated projected cash flows, the estimated value of the collateral or, if available, observable market prices.  If current valuations are lower than the current book balance of the credit, the negative differences are reviewed and, if deemed appropriate, charged-off.  If a charge-off is not deemed appropriate, a specific reserve is established for the individual loan in question.  The allowance allocated to TDRs, excluding specifically-impaired loans referred to above, totaled $0 at June 30, 2011 and 2010. The TDR total of $178 at June 30, 2011 is comprised of a single commercial real estate loan for which the Company agreed to accept interest only payments for one year. The difference in net present values of the cash flows for the restructured loan compared to the original loan terms was immaterial and, therefore, no specific reserve was established for the loan.

Residential Mortgage Loan Foreclosure

The Company evaluates its residential mortgage loan foreclosure processes and documentation procedures prior to any formal action being taken against the subject properties.  The Company processes a relatively low volume of residential mortgage foreclosures and many of the relevant processes are manual in nature. The Company believes that its procedures for reviewing and validating the information in its documentation pertaining to residential mortgage loan foreclosures are sound.

19

NOTE 5 – INVESTMENT SECURITIES

For securities available-for-sale, the following table shows the amortized cost, unrealized gains and losses (pre-tax) included in accumulated other comprehensive income, and estimated fair value by security type as of the dates indicated.

June 30, 2011
(Dollars in thousands)
			Gross		Gross			Approximate
	Amortized		Unrealized		Unrealized			Fair
Available-for-sale	Cost		Gains		Losses			Value
U. S. Treasury	$	4,711	$	1,339	$	-		$	6,050
U. S. Government agencies and corporations		7,999		10		(32	)		7,977
Mortgage-backed securities		36,851		2,772		-			39,623
Collateralized mortgage obligations		3,192		-		(13	)		3,179
State and political subdivisions		9,523		303		(60	)		9,766
Corporate debt securities		10		605		-			615
Total	$	62,286	$	5,029	$	(105	)	$	67,210
December 31, 2010
(Dollars in thousands)
			Gross		Gross			Approximate
	Amortized		Unrealized		Unrealized			Fair
Available-for-sale	Cost		Gains		Losses			Value
U. S. Treasury	$	4,730	$	1,363	$	-		$	6,093
U. S. Government agencies and corporations		7,999		38		(119	)		7,918
Mortgage-backed securities		43,748		2,603		(2	)		46,349
Collateralized mortgage obligations		3,993		87		-			4,080
State and political subdivisions		9,555		180		(18	)		9,717
Corporate debt securities		18		39		-			57
Total	$	70,043	$	4,310	$	(139	)	$	74,214

Contractual maturities of debt securities at June 30, 2011 were as follows.  Securities not due at a single maturity or with no maturity date, primarily mortgage-backed securities and collateralized mortgage obligations, are shown separately.

	June 30, 2011
	Amortized		Fair
	Cost		Value
	(Dollars in thousands)
Within one year	$	-	$	-
One to five years		5,013		6,365
Five to 10 years		5,510		5,746
After 10 years		14,912		15,476
		25,435		27,587
Mortgage-backed securities		36,851		39,623
Total	$	62,286	$	67,210

20

The following tables show the fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, as of the dates indicated.

	June 30, 2011
	(Dollars in thousands)
	Less Than 12 months					12 months or more					Total
	Approximate		Gross			Approximate		Gross			Approximate		Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Available-for-sale	Value		Losses			Value		Losses			Value		Losses
U. S. Government agencies and corporations	$	2,968	$	(32	)	$	-	$	-		$	2,968	$	(32	)
Mortgage-backed securities		-		-			-		-	��		-		-
Collateralized mortgage obligations		3,179		(13	)		-		-			3,179		(13	)
State and political subdivisions		2,290		(60	)		-		-			2,290		(60	)
Trust preferred securities		-		-			-		-			-		-
Total	$	8,437	$	(105	)	$	-	$	-		$	8,437	$	(105	)
	December 31, 2010
	(Dollars in thousands)
	Less Than 12 months					12 months or more					Total
	Approximate		Gross			Approximate		Gross			Approximate		Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Available-for-sale	Value		Losses			Value		Losses			Value		Losses
U. S. Government agencies and corporations	$	6,881	$	(119	)	$	-	$	-		$	6,881	$	(119	)
Mortgage-backed securities		3,598		(2	)		-		-			3,598		(2	)
Collateralized mortgage obligations		-		-			-		-			-		-
State and political subdivisions		1,252		(18	)		-		-			1,252		(18	)
Trust preferred securities		-		-			-		-			-		-
Total	$	11,731	$	(139	)	$	-	$	-		$	11,731	$	(139	)

Declines in fair value of available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses.  In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than amortized cost, (ii) the financial condition and near-term prospects of the issuer, (iii) whether the market decline was affected by macroeconomic conditions, and (iv) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery.  The assessment of whether an other-than-temporary impairment decline exists involves a high degree of subjectivity and is based on information available to management at a point in time.

21

NOTE 6 –FAIR VALUE

FASB’s ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  In general, fair values of financial instruments are based upon quoted market prices, where available.  If such quoted market prices are not available, fair value is primarily determined by matrix pricing, and in some cases, fair value is determined by an independent third party.  Valuation adjustments may be made to ensure that financial statements are recorded at fair value.  These adjustments may include amounts to reflect counterparty credit quality as well as unobservable parameters.  Any such valuation adjustments are applied consistently over time. The fair value hierarchy gives the highest priority to a valuation based on quoted prices in active markets for identical assets and liabilities (Level 1), moderate priority to a valuation based on quoted prices in active markets for similar assets and liabilities and/or based on assumptions that are observable in the market (Level 2), and the lowest priority to a valuation based on assumptions that are not observable in the market (Level 3).  The following methods and assumptions are used by the Company to estimate the fair values of the Company’s financial assets and liabilities on a recurring basis:

Available-for-Sale Securities

The fair values of securities available for sale are determined by a matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.  Level 2 securities include U. S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions, asset-backed and other securities.  Level 3 securities include preferred term securities that are not traded in an active market with a fair value determined by an independent third party.

22

Fair Value of Assets Measured on a Recurring Basis

Assets measured at fair value on a recurring basis are summarized below:

June 30, 2011		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(Dollars in thousands)
Assets:
Available for sale securities
U. S. Treasury	$	6,050	$	6,050	$	-	$	-
U. S. Government		7,977				7,977
Mortgage-backed securities		39,623				39,623
Collateralized mortgage obligations		3,179				3,179
State and political subdivisions		9,766				9,766
Corporate debt securities		615						615

Activity in assets measured using Level 3 inputs during the year was as follows:
Balance, January 1, 2011	$	57
Paydowns		(5	)
Unrealized gains included in other comprehensive income		563
Balance, June 30, 2011	$	615

23

December 31, 2010		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(Dollars in thousands)
Assets:
Available for sale securities:
U.S. Treasury	$	6,093	$	6,093	$	-	$	-
U.S. Government agencies		7,918		-		7,918		-
Mortgage-backed securities		46,349		-		46,349		-
Collateralized mortgage obligations		4,080		-		4,080		-
State and political subdivisions		9,717		-		9,717		-
Corporate debt securities		57		-		-		57

Activity in assets measured using Level 3 inputs during the year was as follows:
Balance, January 1, 2010	$	30
Paydowns		(12	)
Unrealized gains included in other comprehensive income		39
Balance, December 31, 2010	$	57

Fair Value of Assets Measured on a Nonrecurring Basis

Certain assets may be recorded at fair value on a nonrecurring basis.  These nonrecurring fair value adjustments typically result from the application of lower of cost or market accounting or a write-down occurring during the period.  The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related individual assets as of June 30, 2011 and December 31, 2010.

June 30, 2011	Level 1		Level 2		Level 3		Nonrecurring Fair Value Adjustments Six Months Ended June 30, 2011
(Dollars in thousands)
Impaired loans		--		--	$	1,817	$	(295	)

December 31, 2010	Level 1		Level 2		Level 3		Nonrecurring Fair Value Adjustments Twelve Months Ended December 31, 2010
(Dollars in thousands)
Impaired loans		--		--	$	1,432	$	(58	)
Other real estate owned		--		--		115		( 38	)

24

The following methods and assumptions are used by the Company to estimate the fair values of the Company’s financial assets and liabilities on a nonrecurring basis:

Mortgage Loans Held For Sale

Mortgage loans held for sale are carried at the lower of cost or fair value.  They consist of residential mortgage loans held for sale that are valued based on traded market value of similar assets where available and/or discounted cash flows at market interest rates. They are recorded at cost in the consolidated balance sheets at June 30, 2011 and December 31, 2010.

Other Real Estate Owned and Repossessed Assets

Other real estate owned and repossessed assets are carried at lower of cost or estimated fair value.  The estimated fair value of the real estate or repossessed asset is determined through current appraisals, or management’s best estimate of the value and adjusted as necessary, by management, to reflect current market conditions.  As such, other real estate owned and repossessed assets are generally classified as Level 3.

Impaired Loans

While the overall loan portfolio is not carried at fair value, the Company periodically records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral dependent loans when establishing the allowance for loan losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan. In determining the value of real estate collateral, the Company relies on external appraisals and assessment of property values by its internal staff. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgments based on the experience and expertise of internal specialists. Because many of these inputs are not observable, the measurements are classified as Level 3.

The “Fair Value Measurement and Disclosures” topic of the FASB ASC requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The estimated fair value approximates carrying value for cash and cash equivalents and the cash surrender value of life insurance policies. The methodologies for other financial assets and financial liabilities are discussed below.

25

The year-end estimated fair values of financial instruments were as follows for the dates indicated:

	At June 30, 2011					At December 31, 2010
	Carrying Amount		Fair Value			Carrying Amount		Fair Value
	(Dollars in thousands)
Financial assets
Cash and cash equivalents	$	18,840	$	18,840		$	7,788	$	7,788
Other investments		1,743		1,743			3,486		3,486
Available-for-sale securities		67,210		67,210			74,214		74,214
Loans held for sale		2,786		2,786			3,155		3,155
Loans, net of allowance for loan losses		241,724		242,345			238,346		237,770
FHLB stock		2,988		2,988			2,988		2,988
Forward sale commitments		-		-			21		21
Financial liabilities
Deposits	$	225,442	$	225,667		$	219,504	$	219,808
Securities sold under agreement to repurchase		5,109		5,109			6,215		6,215
FHLB advances		13,000		13,794			13,000		13,790
Other borrowings		35,000		37,541			35,000		37,455
Interest rate lock commitments		-		(1	)		21		21

General

For short-term financial instruments realizable in three months or less, the carrying amount approximates fair value.

Cash and Cash Equivalents and Interest Receivable

The carrying amount approximates fair value, primarily due to their short-term nature.

Federal Home Loan Bank Stock

The fair value of stock in the Federal Home Loan Bank equals the carrying value reported in the balance sheet.  This stock is redeemable at full par value only by the Federal Home Loan Bank.

Other Investments

Other investments consist of time deposits placed with other banks and is calculated based on present value of future cash flows.

Available-for-Sale Securities

The fair values of securities available for sale are determined by a matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.  Level 2 securities include U. S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions, asset-backed and other securities.  Level 3 securities include preferred term securities that are not traded in an active market with a fair value determined by an independent third party.

26

Loans

The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.  Loans with similar characteristics were aggregated for purposes of the calculations.

Deposits

The fair values disclosed for demand deposits, both interest-bearing and noninterest-bearing, are, by definition, equal to the amount payable on demand at the reporting date. The fair values of certificates of deposit and individual retirement accounts are estimated using a discounted cash flow based on currently effective interest rates for similar types of accounts.

Securities Sold Under Agreement to Repurchase

Securities sold under agreement to repurchase are transacted with customers as a way to enhance our customers’ interest-earning ability.  The Company does not consider customer repurchase agreements to be a wholesale funding source, but rather an additional treasury management service provided to our customer base. Our customer repurchase agreements are based on an overnight investment sweep that can fluctuate based on our customers’ operating account balances.

Federal Home Loan Bank Advances

Rates currently available to the Bank for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.

Other Borrowings

On April 30, 2008, the Bank entered into two balance sheet leverage transactions whereby it borrowed a total of $35 million in multiple rate repurchase agreements and invested the proceeds in U. S. Agency pass-through Mortgage Backed Securities, which were pledged as collateral.  The fair values disclosed are based on third party modeling of the debt structure.

Commitments to Originate Loans, Forward Sale Commitments, Letters of Credit and Lines of Credit

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of forward sale commitments is estimated based on current market prices for loans of similar terms and credit quality.  The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.

27

NOTE 7 –TRANSFERS OF FINANCIAL ASSETS

Under the provisions of the FASB Accounting Standards Update 2009-16, “Accounting for Transfers of Financial Assets” (ASU 2009-16) and the amendments to ASC 860, “Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” which modify the criteria for achieving sale accounting for transfers of financial assets and define the term participating interest to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale.   Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. A participating interest is a portion of an entire financial asset that (1) conveys proportionate ownership rights with equal priority to each participating interest holder (2) involves no recourse (other than standard representations and warranties) to, or subordination by, any participating interest holder, and (3) does not entitle any participating interest holder to receive cash before any other participating interest holder.

The Company’s transfers of financial assets consist solely of one loan participation.

As of June 30, 2011, the Company had one participation loan which was a commercial line of credit that did not qualify as a sale under the provisions of ASU 2009-16 and, therefore, approximately $2.3 million was recorded on the balance sheet as a participation loan and a corresponding amount was recorded in other liabilities as a secured borrowing.   The principal amount outstanding on this participation loan varies from day-to-day in relation to the borrowing needs of the customer; the maximum participation amount outstanding at any time will not exceed $5.0 million under the terms of the participation agreements.

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

Management’s discussion and analysis of the Company’s financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company.  The information contained in this section should be read in conjunction with the unaudited condensed consolidated financial statements and footnotes appearing in Part I, Item 1 of this report and the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on March 7, 2011.

Forward-Looking Statements.

This quarterly report contains forward-looking statements that are based on assumptions and may describe future plans, strategies, and expectations of First Advantage Bancorp. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiary include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in First Federal Savings Bank’s market area, changes in real estate market values in First Federal Savings Bank’s market area, changes in relevant accounting principles and guidelines and the inability of third party service providers to perform.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

28

General.

The Bank provides commercial and retail banking services, including commercial loans, commercial real estate loans, one-to-four family residential mortgage loans, home equity loans and lines of credit and consumer loans as well as certificates of deposit, checking accounts, money-market accounts and savings accounts within its market area.  At June 30, 2011, the Company had total assets of $350.5 million, deposits of $225.4 million and shareholders’ equity of $67.7 million. Unless otherwise indicated, all references to the Company refer collectively to the Company and the Bank.

Recent Developments.

On July 14, 2011, the Bank filed a notice of intent to convert from a federally-chartered savings bank to that of a Tennessee-chartered commercial bank (the “Charter Conversion”) with the Office of Thrift Supervision (“OTS”) and the Tennessee Department of Financial Institutions (“TDFI”).  Upon completion of the Charter Conversion, the Bank would become a Tennessee state-chartered commercial bank regulated by the TDFI and the Federal Deposit Insurance Corporation (“FDIC”).  Upon completion of the Charter Conversion the Company will seek approval by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) of the Company’s bank holding company application to become a bank holding company regulated by the Federal Reserve Board.  Completion of the Charter Conversion is subject to, among other conditions, the approval of the TDFI and the Federal Reserve Board.   There will be no changes to the directors, officers or employees of the Bank as a result of the Charter Conversion.  The Bank’s FDIC insurance coverage, and rates and terms of loans and deposits, will not change as a result of the Charter Conversion.  

Application of Critical Accounting Policies.

The discussion and analysis of the Company’s financial condition and results of operation is based upon the Company’s unaudited condensed consolidated financial statements, which have been prepared in conformity with GAAP for interim financial information and with the instructions for Form 10-Q.  The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions 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.  The Company considers the allowance for loan losses and other-than-temporary impairment of securities to be its only critical accounting policies.

Allowance for Loan Losses.  The Company maintains the allowance for loan losses at a level that it considers to be adequate to provide for credit losses inherent in its loan portfolio.  Management determines the level of the allowance by performing a quarterly analysis that considers concentrations of credit, past loss experience, current economic conditions, the amount and composition of the loan portfolio (including nonperforming and potential problem loans), the estimated fair value of underlying collateral, and other information relevant to assessing the risk of loss inherent in the loan portfolio.  As a result of management’s analysis, a range of potential amounts of the allowance for loan losses is determined.

Currently, management closely monitors the impact of troop deployments at Fort Campbell Military Base, a local U. S. Army installation that plays a significant role in the economy of the Bank’s primary market area.  Additionally, given the Bank’s concentration in real estate secured loans, management is continuing to closely monitor trends in the local real estate market to assess any related impact on the loan portfolio and potential delinquencies or credit losses.

The Company continually monitors the adequacy of the allowance for loan losses and makes additions to the allowance in accordance with the analysis described above. Because of uncertainties inherent in estimating the appropriate level of the allowance for loan losses, actual results may differ from management’s estimate of credit losses and the related allowance.

29

Other-than-temporary Impairment of Securities.  Investments that we currently own could suffer declines in fair value that are other-than-temporary.  We monitor our portfolio continuously and actively manage our investments to preserve values whenever possible.  When, in the opinion of management, a decline in the fair value of an investment is considered to be other-than-temporary, such investment is written-down to its fair value.  The amount written-down is recorded in earnings as an other-than-temporary impairment on investments.  We did not record any other-than-temporary impairment of securities during the first six months of 2011.

Comparison of Financial Condition at June 30, 2011 and December 31, 2010

Total Assets. At June 30, 2011, total assets were $350.5 million, an increase of $5.2 million, or 1.5%, compared to $345.3 million at December 31, 2010.

Cash and Cash Equivalents. Cash and cash equivalents were $18.8 million at June 30, 2011 compared to $7.8 million at December 31, 2010.

Investments.  Our investment securities portfolio consists primarily of U.S. government and callable federal agency bonds and U.S. government agency mortgage-backed securities, with a relatively smaller investment in obligations of state and political subdivisions and other securities.  Total securities were $67.2 million at June 30, 2011, a decrease of $7.0 million, or 9.4%, compared to $74.2 million as of December 31, 2010.

Loans.  Net loans were $241.7 million, an increase of $3.4 million, or 1.4% at June 30, 2011 compared to $238.3 million as of December 31, 2010.  Our primary lending activity is the origination of loans secured by real estate, which grew to $190.9 million at June 30, 2011 compared to $187.4 million as of December 31, 2010.  The Company does not originate sub-prime residential mortgage loans, nor does it hold any in its loan portfolio or hold any investment securities that are collateralized by sub-prime residential mortgage loans.

Allowance for Loan Losses.  The allowance for loan losses increased by $272,000, or 7.5%, to $3.9 million at June 30, 2011 compared to $3.6 million as of December 31, 2010.

There was a 57.8% increase in the level of classified assets from $5.9 million at June 30, 2010 to $9.3 million at June 30, 2011 primarily related to the construction and multi-family/nonresidential loan portfolios.  Classified assets are primarily loans rated special mention or substandard in accordance with regulatory guidance.  These assets warrant and receive increased management oversight and loan loss reserves have been established to account for the increased credit risk of these assets.

Deposits. Total deposits increased by $5.9 million, or 2.7%  to $225.4 million at June 30, 2011 compared to $219.5 million as of December 31, 2010.

Borrowings.   Total borrowings with other banks remained unchanged and totaled $35.0 million at both June 30, 2011 and at December 31, 2010.  FHLB advances also remained unchanged and totaled $13.0 million at both June 30, 2011 and December 31, 2010.   Securities sold under agreements to repurchase totaled $5.1 million as of June 30, 2011 compared to $6.2 million as of December 31, 2010.

30

Interest Payable and Other Liabilities.  Total interest payable and other liabilities totaled $4.2 million at June 30, 2011 compared to $4.8 million at December 31, 2010.  The decrease was primarily due to the change in the outstanding balance of one participation loan consisting of a commercial line of credit that did not qualify as a sale under the provisions of ASU 2009-16.  Under the provisions of ASU 2009-16, this participation loan was recorded on the balance sheet as a participation loan and a corresponding amount recorded in other liabilities as a secured borrowing.  The outstanding balance at June 30, 2011 was approximately $2.3 million, compared to an outstanding balance of approximately $3.0 million at December 31, 2010.  See “Note 7 – Transfers of Financial Assets.”

Shareholders’ Equity.  Total shareholders’ equity increased slightly to $67.7 million as of June 30, 2011, compared to $66.7 million as of December 31, 2010.

Comparison of Operating Results for the Three Months Ended June 30, 2011 and 2010

General.  Net income for the three months ended June 30, 2011 was $486,000, an increase of 46.8% compared to net income of $331,000 for the three months ended June 30, 2010.  The increase was primarily due to an increase of $314,000 in net interest income after the provision for loan which was somewhat offset by a decrease of $84,000 in non-interest income and an increase of $145,000 in non-interest expense.

Net Interest Income.  Net interest income increased $315,000, or 10.1%, to $3.4 million for the three months ended June 30, 2011 compared to the three months ended June 30, 2010.  Total interest income totaled $4.4 million for the three months ended June 30, 2011, unchanged from the three months ended June 30, 2010.

Interest income on loans increased by 7.7% to $3.6 million for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 as average outstanding loans increased by $13.5 million, or 5.8%, to $244.0 million, while the yield on the portfolio had a slight increase of 11 basis points from the same period one year ago.

Interest income on investment securities decreased by $224,000, or 23.5%, to $729,000 for the three months ended June 30, 2011 from the same period one year ago as average balances decreased $13.9 million and average yields decreased 37 basis points.  The primary reason for the decline in average balances during the period was accelerated prepayments on mortgage backed securities due to falling interest rates.

Total interest expense decreased by $287,000 or 22.4% to $1.0 million for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010.  The average balance of interest-bearing deposits decreased 1.5% to $197.2 million for the quarter ended June 30, 2011 as compared to the quarter ended June 30, 2010.  Interest paid on interest-bearing deposits decreased by $268,000, or 32.6%, to $553,000 for the three-month period ended June 30, 2011 as the average interest rate paid declined 52 basis points, primarily as a result of lower interest rates paid to customers as higher rate fixed-term deposits matured and on transaction accounts as market rates declined.  The average interest rate paid on FHLB advances and other borrowings, which consisted of long-term FHLB advances and securities sold under agreement to repurchase, decreased by 11 basis points in the second quarter of 2011 as average balances of FHLB advances and other borrowings decreased to an average of $18.2 million for the quarter ended June 30, 2011 compared to average balances of $19.8 million for the quarter ended June 30, 2010.  The average balance of long-term borrowings at other banks remained unchanged at $35.0 million for the quarter ended June 30, 2011 compared to the quarter ended June 30, 2010, as the interest rate paid on the borrowings decreased by three basis points during the same period.

31

The following table summarizes average balances and average yields and costs for the three months ended June 30, 2011 and 2010.

			Average Balance Sheet for the
			Three Months Ended June 30,
			2011							2010
			Interest							Interest
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Rate			Balance		Expense		Rate
			(Dollars in thousands)
ASSETS:
Interest-earning assets:
Interest-earning deposits at other banks	$	8,979	$	10		0.45	%	$	9,910	$	4		0.16	%
Loans		244,010		3,649		6.00	%		230,535		3,388		5.89	%
Investment securities		67,670		729		4.32	%		81,570		953		4.69	%
Other interest-earning assets		4,491		49		4.38	%		5,658		64		4.54	%
Total interest-earning assets		325,150		4,437		5.47	%		327,673		4,409		5.40	%
Noninterest-earning assets		17,394							18,671
Total	$	342,544						$	346,344
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits		197,212		553		1.12	%		200,246		821		1.64	%
FHLB advances and other borrowings		18,179		115		2.54	%		19,808		131		2.65	%
Long-term borrowings at other banks		35,000		329		3.77	%		35,000		332		3.80	%
Total interest-bearing liabilities		250,391		997		1.60	%		255,054		1,284		2.02	%
Noninterest-bearing deposits		21,401							17,752
Other noninterest-bearing liabilities		3,065							5,041
Shareholders' equity		67,687							68,497
Total	$	342,544						$	346,344
Net Interest Income			$	3,440						$	3,125
Net Interest Margin						4.24	%						3.83	%
Interest rate spread						3.87	%						3.38	%
Average interest-earning assets to
average interest-bearing liabilities						129.86	%						128.47	%

32

Rate/Volume Analysis.  The following table sets forth the effects of changing rates and volumes on our net interest income.  The rate column shows the effects attributable to changes in rates (changes in rate multiplied by prior volume).  The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate).  The net column represents the sum of the prior columns.  Changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately between rate and volume.

	Three Months Ended
	June 30, 2011 Compared to June 30, 2010
	Increase (Decrease) Due To
	Volume			Rate			Net
	(Dollars in thousands)
Interest earned on:
Interest-earning assets:
Interest-earning demand deposits	$	(13	)	$	19		$	6
Loans		18			243			261
Investment securities		22			(246	)		(224	)
Other interest-earning assets		(7	)		(8	)		(15	)
Total Earning Assets		20			8			28
Interest paid on:
Interest bearing deposits		714			(982	)		(268	)
FHLB advances and other borrowings		5			(21	)		(16	)
Long-term borrowings at other banks		8			(11	)		(3	)
Total Interest-Bearing Liabilities		727			(1,014	)		(287	)
Change in Net Interest Income	$	(707	)	$	1,022		$	315

Provision for Loan Losses.  The Company recorded a provision for loan losses of $233,000 for the three months ended June 30, 2011 compared to a provision of $232,000 for the three months ended June 30, 2010.  The Bank’s management reviews the level of the allowance for loan losses on a regular basis and establishes the provision for loan losses based upon the volume and types of lending, delinquency levels, loss experience, the amount of impaired and classified loans, economic conditions and other relevant factors related to the collectability of the loan portfolio.

Non-interest Income. The following table summarizes non-interest income for the three months ended June 30, 2011 and 2010 and the percentage change for each category of income.

	Three Months Ended June 30,
	2011		2010		% Change
			(Dollars in thousands)
Non-interest Income
Service charges on deposit accounts and other fees	$	328	$	298		10.07	%
Loan servicing and other fees		24		24		-	%
Net gains on sales of mortgage loans held for sale		292		342		(14.62	) %
Net realized gain on sales of available-for-sale securities		-		70		(100.00	) %
Insurance and brokerage commissions		30		25		20.00	%
Other		9		8		12.50	%
Total noninterest income	$	683	$	767		(10.95	) %

Non-interest income for the three months ended June 30, 2011 decreased by $84,000 to a total of $683,000, compared to $767,000 for the three months ended June 30, 2010.  The decline in total noninterest income for the three months ended June 30, 2011 was primary driven the fact that we did not have any net realized gains on sales of available-for-sale securities during the second quarter of 2011 compared to net realized gains on sales of available-for-sale securities in the amount of $70,000 which occurred in the second quarter of 2010.  Declines in net gains on mortgage loans held for sale of $50,000 or 14.6% also contributed to the decrease as refinancing activity slowed during the second quarter of 2011 compared to the second quarter of 2010.  These negative impacts to noninterest income were somewhat offset by an increase of $30,000 in services charges on deposit accounts and other fees during the second quarter of 2011 compared to the second quarter of 2010.

33

Non-interest Expense. The following table summarizes non-interest expense for the three months ended June 30, 2011 and 2010 and the percentage change for each expense category.

	Three Months Ended June 30,
	2011		2010		% Change
	(Dollars in Thousands)
Non-interest Expense
Salaries and employee benefits	$	1,595	$	1,623		(1.73	) %
Net occupancy		171		168		1.79	%
Equipment		169		186		(9.14	) %
Data processing		222		217		2.30	%
Professional fees		174		96		81.25	%
Marketing		176		68		158.82	%
Office expense		76		64		18.75	%
Loan collection and repossession expense		-		49		(100.00	) %
Other		483		450		7.33	%
Total non-interest expense	$	3,066	$	2,921		4.96	%

Total non-interest expense increased by $145,000, or 5.0% to $3.1 million for the three months ended June 30, 2011 as compared to the same period in 2010.  The increase was primarily found in marketing expense, which increased by $108,000 or 158.8%, and professional fees which increased by $78,000 or 81.3%, mostly related to costs associated with the change of our name in conjunction with our pending conversion from a federally-chartered savings bank to a state-chartered bank.  These increases in non-interest expense were somewhat offset by decreases in loan collection and repossession expense of $49,000 for the three months ended June 30, 2011 as foreclosure activity and the quantity of other real estate owned dropped during the quarter compared to the three months ended June 30, 2010.   Salaries and employee benefit expense decreased $28,000 during the second quarter of 2011 compared to the second quarter of 2010 as the result of a one-time reversal of accrued stock-based compensation expense due to forfeitures.

Income Taxes. Income tax expense for the three months ended June 30, 2011 was $338,000 compared to $408,000 for the same period in 2010. The effective income tax rate for the three months ended June 30, 2011 was 41.0% compared to 55.2% for the three months ended June 30, 2010.  During the second quarter of 2011 management adjusted the income tax accrual to more accurately reflect the Company’s income tax position.

34

Comparison of Operating Results for the Six Months Ended June 30, 2011 and 2010

General.  Net income for the six months ended June 30, 2011 was $844,000, an increase of 28.3% compared to net income of $658,000 for the six months ended June 30, 2010.  The increase was primarily due to an increase of $619,000 in net interest income after the provision for loan losses.  This positive impact to earnings was partially offset by an increase of $380,000 in non-interest expense and  decrease of $109,000 in non-interest income.

Net Interest Income.  The Company experienced an increase of $648,000, or 10.6% in net interest income to $6.8 million for the six months ended June 30, 2011 compared to $6.1 million for the six months ended June 30, 2010.  Total interest income remained relatively unchanged at $8.8 million for the six months ended June 30, 2011 compared to the prior year period.

Interest income on loans increased 8.6% to $7.2 million during the six months ended June 30, 2011 as the average outstanding balance increased by 7.3% or $16.4 million to $241.7 million, while the yield on the portfolio gained a modest seven basis points from the same period one year ago.

Interest income on investment securities decreased by $537,000, or 26.3%, to $1.5 million for the six months ended June 30, 2011 from the same prior year period  as average balances decreased by 20.6% or $18.1 million and average yields decreased 33 basis points.  The primary reason for the decline in average balances during the period was accelerated prepayments on mortgage backed securities due to falling interest rates.

Total interest expense decreased by $615,000 or 23.3% to $2.0 million for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010.  The average balance of interest-bearing deposits remained declined slightly to $196.7 million for the six months ended June 30, 2011 compared to an average balance of $199.6 million for the six months ended June 30, 2010.  Interest paid on interest-bearing deposits declined by $591,000, or 34.1%, to $1.1 million for the six month period ended June 30, 2011 as the average interest rate paid declined 58 basis points, primarily as a result of lower interest rates paid to customers as higher rate fixed-term deposits matured and lower rates paid on transaction accounts as market rates declined.  Interest paid on FHLB advances and other borrowings, which consisted of long-term FHLB advances and securities sold under agreements to repurchase, decreased slightly by $24,000 or 9.4% while average balances on FHLB advances and other borrowings decreased to $18.0 million at June 30, 2011, compared to $19.6 million as of June 30, 2010 and the average interest rate paid decreased four basis points.  The average balance of long-term borrowings at other banks remained unchanged at $35.0 million for the six months ended June 30, 2011 compared to the six months ended June 30, 2010, as the interest rate paid on the borrowings remained unchanged.

35

The following table summarizes average balances and average yields and costs for the six months ended June 30, 2011 and 2010.

			Average Balance Sheet for the
			Six Months Ended June 30,
			2011							2010
			Interest							Interest
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Rate			Balance		Expense		Rate
			(Dollars in thousands)
ASSETS:
Interest-earning assets:
Interest-earning deposits	$	7,507	$	21		0.56	%	$	7,159	$	7		0.20	%
Loans		241,667		7,176		5.99	%		225,254		6,608		5.92	%
Investment securities		69,708		1,506		4.36	%		87,806		2,043		4.69	%
Other interest-earning assets		4,610		104		4.55	%		5,039		116		4.64	%
Total interest-earning assets		323,492		8,807		5.49	%		325,258		8,774		5.44	%
Noninterest-earning assets		17,683							22,896
Total	$	341,175						$	348,154
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits		196,707		1,144		1.17	%		199,623		1,735		1.75	%
FHLB advances and other borrowings		18,017		232		2.60	%		19,553		256		2.64	%
Long-term borrowings at other banks		35,000		650		3.75	%		35,000		650		3.75	%
Total Interest-Bearing Liabilities		249,724		2,026		1.64	%		254,176		2,641		2.10	%
Noninterest-bearing deposits		21,537							17,430
Other noninterest-bearing liabilities		2,566							3,769
Shareholders' equity		67,348							69,441
Total	$	341,175						$	344,816
Net Interest Income			$	6,781						$	6,133
Net Yield on Earning Assets						4.23	%						3.80	%
Interest rate spread						3.85	%						3.34	%
Average interest-earning assets to
average interest-bearing liabilities						129.54	%						127.97	%

36

Rate/Volume Analysis.  The following table sets forth the effects of changing rates and volumes on our net interest income.  The rate column shows the effects attributable to changes in rates (changes in rate multiplied by prior volume).  The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate).  The net column represents the sum of the prior columns.  Changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately between rate and volume.

	Six Months Ended
	June 30, 2011 Compared to June 30, 2010
	Increase (Decrease) Due To
	Volume			Rate			Net
	(Dollars in thousands)
Interest earned on:
Interest-earning assets:
Interest-earning demand deposits	$	(14	)	$	28		$	14
Loans		407			161			568
Investment securities		(269	)		(268	)		(537	)
Other interest-earning assets		(7	)		(5	)		(12	)
Total Earning Assets		117			(84	)		33
Interest paid on:
Interest bearing deposits		535			(1,126	)		(591	)
FHLB advances and other borrowings		(16	)		(8	)		(24	)
Long-term borrowings at other banks		-			-			-
Total Interest-Bearing Liabilities		519			(1,134	)		(615	)
Change in Net Interest Income	$	(402	)	$	1,050		$	648

Provision for Loan Losses.  The Company recorded a provision for loan losses of $488,000 for the six months ended June 30, 2011 compared to a provision of $459,000 for the six months ended June 30, 2010.  The Bank’s management reviews the level of the allowance for loan losses on a regular basis and establishes the provision for loan losses based upon the volume and types of lending, delinquency levels, loss experience, the amount of impaired and classified loans, economic conditions and other relevant factors related to the collectability of the loan portfolio.  The provision was higher for the first two quarters of 2011 primarily due to growth in the loan portfolio and increases in the levels of classified loans.

Non-interest Income. The following table summarizes non-interest income for the six months ended June 30, 2011 and 2010 and the percentage change for each category of income.

	Six Months Ended June 30,
	2011		2010		% Change
	(Dollars in thousands)
Non-interest income
Service charges on deposit accounts and other fees		610		604		0.99	%
Loan servicing and other fees		41		45		(8.89	) %
Net gains on sales of mortgage loans held for sale		499		563		(11.37	) %
Net realized gain on sales of available-for-sale securities		-		77		(100.00	) %
Insurance and brokerage commissions		56		70		(20.00	) %
Other		56		12		366.67	%
Total noninterest income	$	1,262	$	1,371		(7.95	) %

37

Non-interest income for the six months ended June 30, 2011 decreased to $1.3 million, compared to $1.4 million for the six months ended June 30, 2010.  The decrease in non-interest income was due primarily to a decrease of $77,000 or 100.0% in net realized gain on sales of available-for-sale securities,  a decrease of $64,000 or 11.4% in net gains on mortgage loan sales, as refinancing activity decreased during the first two quarters of 2011 compared to the first two quarters of 2010, and a decrease of $14,000 in income from insurance and brokerage commissions as sales volumes declined in the first two quarters of 2011 compared to the first two quarters of 2010.  This decrease was primarily offset by an increase of $44,000 in other non-interest income which was primarily related to the realization of profit on the sale of other real estate owned.

Non-interest Expense. The following table summarizes non-interest expense for the six months ended June 30, 2011 and 2010 and the percentage change for each expense category.

	Six Months Ended June 30,
	2011		2010		% Change
	(Dollars in thousands)
Non-interest Expense
Salaries and employee benefits	$	3,327	$	3,149		5.65	%
Net occupancy expense		337		336		0.30	%
Equipment expense		356		362		(1.66	) %
Data processing fees		445		444		0.23	%
Professional fees		358		197		81.73	%
Marketing expense		252		136		85.29	%
Office expense		148		136		8.82	%
Loan collection and repossession expense		-		126		(100.00	) %
Other		960		917		4.69	%
Total non-interest expense	$	6,183	$	5,803		6.55	%

Total non-interest expense increased $380,000, or 6.6% to $6.2 million for the six months ended June 30, 2011 as compared to the same period in 2010.  The increase in non-interest expense was primarily attributable to increased professional fees of $161,000, or 81.7% which was primarily related the Bank’s decision to perform a thorough review of systems related to information technology which impacted first quarter 2011 expense and initial legal fees associated with our conversion from a federally-chartered savings bank to a state-chartered bank which impacted expense during the second quarter of 2011.  Marketing expense increased $116,000 or 85.3% during the first six months of June 30, 2011 compared to the first six months of 2010 mostly due to costs associated with the change of our name in conjunction with our pending conversion from a federally-chartered savings bank to a state-chartered.  The increase in salaries and employee benefit expense of $178,000 or 5.7% for the first six months of 2011 compared to the first six months of 2010 was lessened by the benefit recognized as the result of a one-time reversal of accrued stock-based compensation expense due to forfeitures which occurred during the second quarter of 2011.  These increases in non-interest expense were somewhat offset by a decrease in loan collection and repossession expense of $126,000 for the six months ended June 30, 2011 as foreclosure activity and the quantity of other real estate owned dropped during the first six months ended June 30, 2011.

Income Taxes. Income tax expense for the six months ended June 30, 2011 was $528,000 compared to $584,000 for the same period in 2010. The effective income tax rate for the six months ended June 30, 2011 was 38.5% compared to 47.0% for the six months ended June 30, 2010.

38

Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Bank’s primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of investment securities and borrowings from the Federal Home Loan Bank of Cincinnati, Federal Reserve Bank, repurchase agreements and federal funds purchased. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

The Bank regularly adjusts our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management policy.

The Bank’s most liquid assets are cash and cash equivalents and interest-bearing deposits. The levels of these assets depend on its operating, financing, lending and investing activities during any given period. At June 30, 2011, cash and cash equivalents totaled $18.8 million. Securities classified as available-for-sale, totaling $67.2 million at June 30, 2011, provide additional sources of liquidity. In addition, at June 30, 2011, the Bank’s maximum collateral borrowing capacity was approximately $43.0 million from the Federal Home Loan Bank of Cincinnati and its maximum collateral borrowing capacity through the Discount Window at the Federal Reserve Bank was $50.7 million. At June 30, 2011, the Bank had $13.0 million of Federal Home Loan Bank advances outstanding.  At June 30, 2011, the Bank did not have any advances outstanding through the Discount Window.

At June 30, 2011, the Company (on an unconsolidated basis) had liquid assets of $12.1 million.  These funds are available to pay dividends, repurchase stock and for other general corporate purposes.

Capital Management.  The Bank is subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories and did not exceeded all of its regulatory capital requirements and was considered “well capitalized” under regulatory guidelines.

The following table includes the Bank’s capital ratios as of the dates indicated:

	June 30, 2011			December 31, 2010
Tier 1 Core Capital (to adjusted total assets)		14.08	%		13.89	%
Tangible Equity Ratio (to tangible assets)		14.08	%		13.89	%
Tier 1 Risk-Based Capital (to risk-weighted assets)		18.52	%		18.20	%
Total Risk-Based Capital (to risk-weighted assets)		19.57	%		19.24	%

Dividends.  The Board of Directors of the Company declared and paid dividends per common share of $0.10 during the first six months of 2011.  The dividend payout ratio for the first six months of 2011, representing dividends per share divided by diluted earnings per share, was 50.0%.  The dividend payout is continually reviewed by management and the Board of Directors.

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit.

For the six months ended June 30, 2011, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

39

Effects of Inflation and Changing Prices.  The unaudited condensed consolidated interim financial statements and related financial data presented in this interim report have been prepared according to GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation.  The primary impact of inflation on our operations is reflected in increased operating costs.  Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature.  As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation.  However, management is monitoring all developments in the credit and commodities markets in order to determine whether the Bank may be negatively impacted by a higher than normal increase in the inflation rate over the next several months.  Interest rates do not necessarily move in the same direction or the same extent as the prices of goods and services.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We believe that, at June 30, 2011, there has not been any material change in the disclosure regarding this item as set forth in our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on March 7, 2011.

Item 4.  Controls and Procedures.

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized, and reported within the time periods specified in the SEC’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. In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter ended June 30, 2011 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.

At June 30, 2011, the Company was not a party to any pending legal proceedings.  At June 30, 2011, First Federal Savings Bank was not a party to any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to the Bank’s financial condition and results of operations.

Item 1A. Risk Factors.

For information regarding the Company’s risk factors, see “Risk Factors” in (1) the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on March 7, 2011.  As of June 30, 2011, the risk factors of the Company have not changed materially from those disclosed in the Form 10-K.

40

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

The Company’s board of directors has authorized four stock repurchase programs.  The stock repurchase programs allow the Company to proactively manage its capital position and return excess capital to shareholders.  Under the first stock repurchase program, which was approved on December 17, 2008, the Company was authorized to repurchase up to 263,234 shares or 5.0%, of the Company’s issued common stock, through open market purchases or privately negotiated transactions, from time to time, depending on market conditions and other factors.  The first stock repurchase program was completed during the first quarter of 2010.  On March 4, 2010, a second repurchase program was approved which authorized the repurchase of up to 252,319 or 5.0% of the Company’s issued common stock, through open market purchases or privately negotiated transactions, from time to time, depending on market conditions and other factors.  The second stock repurchase program was completed during the third quarter of 2010.  On June 9, 2010, a third repurchase program was approved which authorized the repurchase of up to 240,524 or 5.0% of the Company’s issued common stock, through open market purchases or privately negotiated transactions, from time to time, depending on market conditions and other factors. On November 17,  2010, a fourth repurchase program was approved which authorized the repurchase of up to 231,624 or 5.0% of the Company’s issued common stock, through open market purchases or privately negotiated transactions, from time to time, depending on market conditions and other factors. There is no guarantee as to the exact number of shares to be repurchased by the Company.

The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common stock during the second quarter of 2011.

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs		Maximum Number of Shares That May Yet Be Purchased Under the Programs at the End of the Period
April 1, 2011 to April 30, 2011		-	$	-		-		369,817
May 1, 2011 to May 31, 2011		-		-		-		369,817
June 1, 2011 to June 30, 2011		20,300		12.750		20,300		349,517
Total		20,300	$	12.750		20,300		349,517

Item 3. Defaults Upon Senior Securities.

None

Item 4. (Removed and Reserved).

Item 5. Other Information.

None

41

Item 6. Exhibits

3.1	Charter of First Advantage Bancorp (1)
3.2	Bylaws of First Advantage Bancorp (1)
4.0	Form of Stock Certificate of First Advantage Bancorp (1)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.0	Section 1350 Certification
101*	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (Extenible Business Reporting Language):  (i)  the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of  Operations, (iii) the Condensed Consolidated Statements of Shareholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements
*	Furnished, not filed
(1)	Incorporated herein by reference to the exhibits to the Company’s Registration Statement on Form S-1 (File 333-144454), as amended, initially filed with the Securities and Exchange Commission on July 10, 2007.

SIGNATURES

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

 FIRST ADVANTAGE BANCORP

Dated:  August  15, 2011	By: /s/ Earl O. Bradley, III
	Earl O. Bradley, III
	Chief Executive Officer
Dated:  August  15, 2011	By: /s/ Bonita H. Spiegl
	Bonita H. Spiegl
	Chief Financial Officer

43