Poage Bankshares (PBSK) 10-Q 2012 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period ended December 31, 2011

Or

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

For transition period from              to             

Commission File Number001-35295

Poage Bankshares, Inc.

(Exact Name of Registrant as Specified in Charter)

Maryland	45-3204393
(State of Other Jurisdiction Of Incorporation	(I.R.S Employer Identification Number)
1500 Carter Avenue, Ashland, KY 41101	41101
(Address of Principal Executive Officer)	(Zip Code)

606-324-7196

Registrant’s telephone number, including area code

Not Applicable

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

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

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

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

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

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

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

As of February 10, 2012, 3,372,375 shares of the Registrant’s common stock, par value $.01 per share, were outstanding.

POAGE BANKSHARES, INC.

Form 10-Q Quarterly Report

Table of Contents

	PART I. FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS – POAGE BANKSHARES, INC.	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF POAGE BANKSHARES, INC.	17
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	23
ITEM 4.	CONTROLS AND PROCEDURES	23
	PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	24
ITEM 1A.	RISK FACTORS	24
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	24
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	24
ITEM 4.	[REMOVED AND RESERVED]	24
ITEM 5.	OTHER INFORMATION	24
ITEM 6.	EXHIBITS	24
SIGNATURES		25

PART I

ITEM 1. FINANCIAL STATEMENTS

POAGE BANKSHARES, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

	December 31, 2011			September 30, 2011
	(in thousands)
ASSETS
Cash and due from financial institutions	$	17,769		$	48,440
Securities available for sale		100,940			76,745
Loans held for sale		269			1,012
Loans, net of allowance of $1,533, and $1,658		181,640			183,696
Federal Home Loan Bank stock, at cost		1,906			1,906
Other real estate owned, net		693			87
Premises and equipment, net		6,289			6,322
Company owned life insurance		6,523			6,467
Accrued interest receivable		1,516			1,491
Other assets		1,783			1,786
	$	319,328		$	327,952
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing	$	878		$	1,139
Interest bearing		235,255			241,583
Total deposits		236,133			242,722
Federal Home Loan Bank advances		21,987			23,117
Accrued interest payable		70			435
Other liabilities		1,397			2,590
Total liabilities		259,587			268,864
Commitments and contingent liabilities		—			—
Shareholders’ equity
Common stock, $.01 par value, 30,000,000 shares authorized, 3,372,375 issued and oustanding		34			34
Additional paid-in-capital		31,958			31,955
Retained earnings		29,368			28,757
Unearned Employee Stock Ownership Plan (ESOP) shares		(2,664	)		(2,698	)
Accumulated other comprehensive income		1,045			1,040
Total shareholders’ equity		59,741			59,088
	$	319,328		$	327,952

See notes to unaudited consolidated financial statements.

1

POAGE BANKSHARES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

	Three months ended December 31,
	2011		2010
	(in thousands)
Interest and dividend income
Loans, including fees	$	2,733	$	2,745
Taxable securities		335		103
Tax exempt securities		228		274
Federal funds sold and other		35		22
		3,331		3,144
Interest expense
Deposits		775		1,016
Federal Home Loan Bank advances and other		176		224
		951		1,240
Net interest income		2,380		1,904
Provision for loan losses		38		150
Net interest income after provision for loan losses		2,342		1,754
Non-interest income
Service charges on deposits		104		98
Other service charges		6		3
Net gains on sales of loans		138		193
Net gains on sales of securities		10		—
Income from company owned life insurance		56		59
Other		4		3
		318		356
Non-interest expense
Salaries and employee benefits		968		815
Occupancy and equipment		193		170
Data processing		157		147
Federal deposit insurance		51		83
Foreclosed assets, net		42		20
Advertising		72		58
Other		385		324
		1,868		1,617
Income before income taxes		792		493
Income tax expense		181		56
Net income	$	611	$	437
Earnings per share:
Basic	$	0.20		N/A
Diluted	$	0.20		N/A

See notes to unaudited consolidated financial statements.

2

POAGE BANKSHARES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Three months ended December 31,
	2011			2010
	(in thousands)
Net income	$	611		$	437
Other comprehensive income (loss):
Unrealized holding gains (losses) on available for sale securities		17			(1,580	)
Reclassification adjustments for (gains) losses recognized in income		(10	)		—
Net unrealized holding gains (losses) on available for sale securities		7			(1,580	)
Tax effect		(2	)		537
Other comprehensive income (loss):		5			(1,043	)
Comprehensive income (loss)	$	616		$	(606	)

See notes to unaudited consolidated financial statements.

3

POAGE BANKSHARES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY

	Common Stock		Additional Paid-In Capital		Retained Earnings		Unearned ESOP Shares			Accumulated Other Comprehensive Income		Total Shareholders’ Equity
	(in thousands)
Balances, October 1, 2011	$	34	$	31,955	$	28,757	$	(2,698	)	$	1,040	$	59,088
Net income		—		—		611		—			—		611
ESOP compensation earned		—		3		—		34					37
Change in unrealized gain (loss) on securities available for sale, net of taxes		—		—		—		—			5		5
Balances, December 31, 2011	$	34	$	31,958	$	29,368	$	(2,664	)	$	1,045	$	59,741

See notes to unaudited consolidated financial statements.

4

POAGE BANKSHARES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three months ended December 31,
	2011			2010
	(in thousands)
OPERATING ACTIVITY
Net income	$	611		$	437
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		95			90
Provision for loan losses		38			150
Loss (gain) on sale of securities		(10	)		—
Loss (gain) on sale of other real estate owned		—			7
Net amortization on securities		144			123
Deferred income tax (benefit) expense		63			(16	)
Net gain on sale of loans		(138	)		(193	)
Origination of loans held for sale		(3,013	)		(5,502	)
Proceeds from loans held for sale		3,894			7,183
Increase in cash value of life insurance		(56	)		(59	)
Decrease (increase) in:
Accrued interest receivable		(25	)		20
Other assets		(62	)		74
Increase (decrease) in:
Accrued interest payable		(365	)		(421	)
Other liabilities		(1,193	)		(516	)
Net cash from (used in) operating activities		(17	)		1,377
INVESTING ACTIVITIES
Securities available for sale:
Proceeds from calls		8,757			6,000
Purchases		(33,780	)		(35,579	)
Principal payments received		700			—
Term deposits in other financial institutions:
Proceeds from maturities		—			100
Loan originations and principal payments on loans, net		1,450			151
Proceeds from the sale of other real estate owned		—			18
Purchase of office properties and equipment		(62	)		(95	)
Net cash from (used in) investing activities		(22,935	)		(29,405	)
FINANCING ACTIVITIES
Net change in deposits		(6,589	)		1,783
Payments on Federal Home Loan Bank borrowings		(1,130	)		(3,679	)
Net cash (used in) financing activities		(7,719	)		(1,896	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(30,671	)		(29,924	)
Cash and cash equivalents at beginning of year		48,440			43,233
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	17,769		$	13,309
Additional cash flows and supplementary information:
Cash paid during the year for:
Interest on deposits and advances	$	1,316		$	1,661
Income taxes		—			—
Real estate acquired in settlement of loans	$	606		$	14

See notes to unaudited consolidated financial statements.

5

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements of Poage Bankshares, Inc. (the “Company”) and its wholly owned subsidiary Home Federal Savings and Loans Association (the “Association”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

The preparation of financial statements in conformity with U.S. 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 as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates used in the preparation of the financial statements are based on various factors including the current interest rate environment and the general strength of the local economy. Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities. Actual results could differ from those estimates used in the preparation of the financial statements.

In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company’s financial position as of December 31, 2011 and September 30, 2011 and the results of operations and cash flows for the interim periods ended December 31, 2011 and 2010. All interim amounts have not been audited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the year. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto filed as part of the Company’s 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

In the opinion of management, all adjustments considered necessary for a fair presentation have been reflected in the accompanying unaudited financial statements. Those adjustments consist only of normal recurring adjustments. Results of interim periods are not necessarily indicative of results to be expected for the full fiscal year. The consolidated balance sheet of the Company as of December 31, 2011 has been derived from the unaudited consolidated balance sheet of the Company as of that date.

NOTE 2 – ADOPTION OF NEW ACCOUNTING STANDARDS

In April 2011, the FASB amended existing guidance for assisting a creditor in determining whether a restructuring is a troubled debt restructuring. The amendments clarify the guidance for a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. With regard to determining whether a concession has been granted, the ASU clarifies that creditors are precluded from using the effective interest method to determine whether a concession has been granted. In the absence of using the effective interest method, a creditor must now focus on other considerations such as the value of the underlying collateral, evaluation of other collateral or guarantees, the debtor’s ability to access other funds at market rates, interest rate increases and whether the restructuring results in a delay in payment that is insignificant. This guidance is effective for interim and annual reporting periods beginning after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. For purposes of measuring impairment on newly identified troubled debt restructurings, the amendments should be applied prospectively for the first interim or annual period beginning on or after June 15, 2011. The adoption of this guidance did not have a material impact on the Company’s financial statements.

In May, 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

6

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholder’s equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

NOTE 3 – SECURITIES AVAILABLE FOR SALE

The amortized cost and fair value of securities available for sale at December 31, 2011 and September 30, 2011 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
December 31, 2011
States and political subdivisions	$	31,359	$	1,373	$	(1	)	$	32,731
U.S. Government agencies and sponsored entities		46,118		178		(42	)		46,254
Government sponsored entities residential mortgage-backed:
FNMA		12,611		75		(12	)		12,673
FHLMC		9,270		12		—			9,282
Total securities	$	99,358	$	1,638	$	(55	)	$	100,940
September 30, 2011
States and political subdivisions	$	32,132	$	1,305	$	(20	)	$	33,417
U.S. Government agencies and sponsored entities		39,093		249		(11	)		39,331
Government sponsored entities residential mortgage-backed:
FNMA		3,944		58		(5	)		3,997
Total securities	$	75,169	$	1,612	$	(36	)	$	76,745

The proceeds from calls of securities and the associated gross gains and losses are listed below (in thousands):

	Three months ended December 31,
	2011		2010
Proceeds	$	8,757	$	—
Gross gains		10		—
Gross losses		—		—

The provision for income taxes related to net realized gains and losses was $3,000 for the three months ended December 31, 2011, based on an income tax rate of 34%.

The amortized cost and fair value of the securities portfolio at December 31, 2011 and September 30, 2011 are shown by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

7

	December 31, 2011				September 30, 2011
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
(in thousands)
Within one year	$	520	$	526	$	520	$	530
One to five years		32,116		32,372		32,649		33,011
Five to ten years		29,733		30,348		24,673		25,300
Beyond ten years		15,108		15,739		13,383		13,907
Mortgage-backed securities		21,881		21,955		3,944		3,997
Total	$	99,358	$	100,940	$	75,169	$	76,745

The following table summarizes the securities with unrealized losses at December 31, 2011 and September 30, 2011, aggregated by major security type and length of time in a continuous unrealized loss position:

	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
(Dollars in thousands)
December 31, 2011
States and political subdivisions	$	1,047	$	(1	)	$	—	$	—		$	1,047	$	(1	)
U.S. Government agencies and sponsored entities		14,136		(42	)		—		—			14,136		(42	)
Government sponsored entities residential mortgage-backed
FNMA		3,405		(12	)		—		—			3,405		(12	)
Total securities	$	18,588	$	(55	)	$	—	$	—		$	18,588	$	(55	)
September 30, 2011
States and political subdivisions	$	—	$	—		$	1,747	$	(20	)	$	1,747	$	(20	)
U.S. Government agencies and sponsored entities		5,102		(11	)		—		—			5,102		(11	)
Government sponsored entities residential mortgage-backed
FNMA		1,547		(5	)		—		—			1,547		(5	)
Total securities	$	6,649	$	(16	)	$	1,747	$	(20	)	$	8,396	$	(36	)

Unrealized losses on bonds have not been recognized into income because the issuers of the bonds are of high credit quality, management does not intend to sell and it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the bond(s) approach maturity.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement, and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

8

NOTE 4 – LOANS

Loans at December 31, 2011 and September 30, 2011 were as follows:

	December 31, 2011		September 30, 2011
	(in thousands)
Real estate:
One to four family	$	144,040	$	147,733
Multi-family		1,968		2,016
Commercial Real Estate		9,676		9,786
Construction and land		6,969		5,209
		162,653		164,744
Commercial and Industrial		3,659		3,722
Consumer
Home equity lines of credit		5,823		5,796
Motor vehicle		7,327		7,299
Other		3,809		3,885
		16,959		16,980
Total		183,271		185,446
Less: Net deferred loan fees		98		92
Allowance for loan losses		1,533		1,658
	$	181,640	$	183,696

The following table summarizes the scheduled maturities of our loan portfolio at December 31, 2011. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Loans are presented net of loans in process.

December 31, 2011	One- to Four- Family		Home Equity		Multi-Family and Commercial Real Estate		Construction and Land		Commercial Business		Consumer		Total
	(In thousands)
Amounts due in:
One year or less	$	123	$	54	$	50	$	4,553	$	1,405	$	395	$	6,580
More than one to two years		157		—		13		—		378		592		1,140
More than two to three years		140		10		118		—		69		1,694		2,031
More than three to five years		1,306		—		45		14		1,369		4,852		7,586
More than five to ten years		9,681		5,756		1,019		196		438		1,723		18,813
More than ten to fifteen years		20,671		3		2,015		2,191		—		32		24,912
More than fifteen years		111,962		—		8,384		15		—		1,848		122,209
Total	$	144,040	$	5,823	$	11,644	$	6,969	$	3,659	$	11,136	$	183,271

9

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of December 31, 2011 and September 30, 2011. Accrued interest receivable of $881,000 and $872,000 at December 31, 2011 and September 30, 2011, respectively, and net deferred loans fees of $98,000 and $92,000 at December 31, 2011 and September 30, 2011, respectively, are not considered significant and therefore are not included in the loan balances presented in the table bellow (in thousands):

December 31, 2011:
	Allowance for Loan Losses						Loan Balances
Loan Segment	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Real estate	$	—	$	1,259	$	1,259	$	—	$	162,653	$	162,653
Commercial and industrial		—		49		49		—		3,659		3,659
Consumer		—		225		225		—		16,959		16,959
Total	$	—	$	1,533	$	1,533	$	—	$	183,271	$	183,271

September 30, 2011:
	Allowance for Loan Losses						Loan Balances
Loan Segment	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Real estate	$	—	$	1,368	$	1,368	$	—	$	164,744	$	164,744
Commercial and industrial		—		49		49		—		3,722		3,722
Consumer		—		241		241		—		16,980		16,980
Total	$	—	$	1,658	$	1,658	$	—	$	185,446	$	185,446

10

The following table sets forth an analysis of our allowance for loan losses for the three months ended December 31, 2011 and 2010:

	(Dollars in thousands)
	Three months ended December 31,
	2011			2010
Balance at beginning of period	$	1,658		$	1,134
Provision for loan losses:
Commercial		—			—
Commercial real estate		4			22
Residential real estate		34			113
Consumer		—			15
Total provision		38			150
Amounts charged off:
Commercial		—			—
Commercial real estate		—			—
Residential real estate		(148	)		—
Consumer		(20	)		—
Total loans charged off		(168	)		—
Recoveries of amounts previously charged off:
Commercial		—			—
Commercial real estate		—			—
Residential real estate		1			—
Consumer		4			—
Total recoveries		5			—
Net charge-offs		—			—
Balance at end of period	$	1,533		$	1,284

There were no impaired loans as of or during the three months ended December 31, 2011 or 2010, or as of or during the year ended September 30, 2011.

Nonaccrual loans and loans past due 90 days still on accrual consist of smaller balance homogeneous loans that are collectively evaluated for impairment.

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of December 31, 2011 and September 30, 2011 (in thousands):

	As of December 31, 2011				As of September 30, 2011
	Nonaccrual		Loans Past Due Over 90 Days Still Accruing		Nonaccrual		Loans Past Due Over 90 Days Still Accruing
Real estate:
One to four family	$	2,387	$	—	$	2,158	$	—
Multi-family		—		—		495		—
Commercial real estate		—		319		—		—
Construction and land		—		—		—		—
Commercial and industrial		9		—		—		—
Consumer:
Home equity loans and lines of credit		19		—		19		—
Motor vehicle		25		—		21		—
Other		—		—		4		—
Total	$	2,440	$	319	$	2,697	$	—

11

The following tables presents the aging of the recorded investment in past due loans as of December 31, 2011 by class of loans. Non-accrual loans of $2,759,000 as of December 31, 2011 and $2,697,000 at September 30, 2011 are included in the tables below and have been categorized based on their payment status (in thousands).

	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90  Days Past Due		Total Past Due		Loans Not Past Due		Total
December 31, 2011
Real estate:
One to four family	$	2,018	$	647	$	2,387	$	5,052	$	138,988	$	144,040
Multi-family		—		—				—		1,968		1,968
Commercial real estate		38		—		319		357		9,319		9,676
Construction and land		—		—				—		6,969		6,969
Commercial and industrial		2		—		9		11		3,648		3,659
Consumer:								—
Home equity loans and lines of credit		4		19		19		42		5,781		5,823
Motor vehicle		128		27		25		180		7,147		7,327
Other		19		—		—		19		3,790		3,809
Total	$	2,209	$	693	$	2,759	$	5,661	$	177,610	$	183,271

	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90  Days Past Due		Total Past Due		Loans Not Past Due		Total
September 30, 2011
Real estate:
One to four family	$	100	$	11	$	2,158	$	2,269	$	145,464	$	147,733
Multi-family		—		—		495		495		1,521		2,016
Commercial real estate		302		59		—		361		9,425		9,786
Construction and land		—		20		—		20		5,189		5,209
Commercial and industrial		1,030		1		—		1,031		2,691		3,722
Consumer:
Home equity loans and lines of credit		—		—		19		19		5,777		5,796
Motor vehicle		49		59		21		129		7,170		7,299
Other		7		1		4		12		3,873		3,885
Total	$	1,488	$	151	$	2,697	$	4,336	$	181,110	$	185,446

The Company had no troubled debt restructurings at December 31, 2011 or September 30, 2011. The Company has no classes of loans that are considered to be subprime.

12

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For all loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity on a quarterly basis. The following table presents the recorded investment in loans based on payment activity as of December 31, 2011 and September 30, 2011:

	December 31, 2011				September 30, 2011
	Performing		Nonperforming		Performing		Nonperforming
	(In thousands)				(In thousands)
Real estate:
One to four family	$	141,653	$	2,387	$	145,575	$	2,158
Multi-family		1,968		—		1,521		495
Commercial real estate		9,357		319		9,786		—
Construction and land		6,969		—		5,209		—
Commercial and industrial		3,650		9		3,722		—
Consumer:
Home equity loans and lines of credit		5,804		19		5,777		19
Motor vehicle		7,302		25		7,278		21
Other		3,809		—		3,881		4
	$	180,512	$	2,759	$	182,749	$	2,697

NOTE 5: FEDERAL HOME LOAN BANK ADVANCES

Advances from the FHLB at December 31, 2011 and September 30, 2011 were as follows: (in thousands)

	December 31, 2011		September 30, 2011
Maturities November 2011 through June 2024, fixed rate at rates from 1.94% to 6.75%, weighted average rate of 2.94% at December 31, 2011 and 2.95% at September 30, 2011	$	21,987	$	23,117

Payments contractually required over the next five years are as follows (in thousands):

	December 31,
2012	$	5,901
2013		4,159
2014		3,394
2015		2,763
2016		2,222
Total	$	18,439

NOTE 6: FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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The Company used the following methods and significant assumptions to estimate fair value:

Securities: The fair values for securities are determined by quoted market prices, if available (Level 1). If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments (Level 2). This includes the use of “matrix pricing” used to value debt securities absent the exclusive use of quoted prices. For securities where quoted prices or market prices of similar securities are not available, which include municipal securities, fair values are calculated using discounted cash flows (Level 3).

Other Real Estate Owned: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

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

			Fair Value Measurements at December 31, 2011 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(Dollars in thousands)
Financial Assets
Securities:
States and political subdivisions	$	32,731	$	—	$	32,731	$	—
U.S. Government agencies and sponsored entitites		46,254		—		46,254		—
Mortgage backed securities: residential		21,955		—		21,955		—
Total securities	$	100,940	$	—	$	100,940	$	—

			Fair Value Measurements at September 30, 2011 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(Dollars in thousands)
Financial Assets
Securities:
States and political subdivisions	$	33,417	$	—	$	33,417	$	—
U.S. Government agencies and sponsored entitites		39,331		—		39,331		—
Mortgage backed securities: residential		3,997		—		3,997		—
Total securities	$	76,745	$	—	$	76,745	$	—

There are no assets or liabilities that have been measured at fair value on a non-recurring basis at December 31, 2011.

14

The carrying amounts and estimated fair values of financial instruments, at December 31, 2011 and September 30, 2011 are as follows:

December 31, 2011 (Dollars in thousands)	Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents	$	17,769	$	17,769
Securities		100,940		100,940
Federal Home Loan Bank stock		1,906		N/A
Loans held for sale		269		276
Loans, net		181,640		188,602
Accrued interest receivable		1,516		1,516
Financial liabilities
Deposits		236,133		238,166
Federal Home Loan Bank advances		21,987		23,437
Accrued interest payable		70		70

September 30, 2011 (Dollars in thousands)	Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents	$	48,440	$	48,440
Securities		76,745		76,745
Federal Home Loan Bank stock		1,906		N/A
Loans held for sale		1,012		1,037
Loans, net		183,696		190,737
Accrued interest receivable		1,491		1,491
Financial liabilities
Deposits		242,722	$	244,812
Federal Home Loan Bank advances		23,117		24,642
Accrued interest payable		435		435

The methods and assumptions, not previously presented, used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, interest bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt, advance payments by borrowers for taxes and insurance, and variable rate loans or deposits that reprice frequently and fully. The methods for determining the fair values for securities were described previously. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life. Fair value of debt is based on current rates for similar financing. It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. The fair value of off-balance sheet items and commitments to make loans held for sale is not considered material.

NOTE 7 – ESOP PLAN

Employees participate in an Employee Stock Option Plan (ESOP). The ESOP borrowed from the Company to purchase 269,790 shares of stock at $10 per share. The Company makes discretionary contributions to the ESOP, as well as paying dividends on unallocated shares to the ESOP, and the ESOP uses funds it receives to repay the loan. When loan payments are made, ESOP shares are allocated to participants based on relative compensation and expense is recorded. Dividends on allocated shares increase participant accounts.

Participants receive the shares at the end of employment. A participant may require stock received to be repurchased unless the stock is traded on an established market.

15

Contributions to the ESOP totaled $46,000 for the three months ended December 31, 2011. There was no contribution to the ESOP during the three months ended December 30, 2010.

Shares held by the ESOP at December 31, 2011 were as follows (dollars in thousands):

Allocated to participants		3,372
Unearned		266,418
Total ESOP shares		269,790
Fair value of unearned shares	$	2,946

NOTE 8 – EARNINGS PER SHARE

The factors used in the earnings per share computation, at December 31, 2011, follow (dollars in thousands):

Basic
Net income (October 1, 2011 to December 31, 2011)	$	611,000
Weighted average common shares outstanding		3,372,375
Less: Average unallocated ESOP shares		269,753
Average shares		3,102,622
Basic earnings per common share	$	0.20
Diluted
Net income	$	611,000
Weighted average common shares outstanding for basic earnings per common share		3,102,622
Add: Dilutive effects of assumed exercises of stock options		—
Average shares and dilutive potential common shares		3,102,622
Diluted earnings per common share	$	0.20

There were no potentially dilutive securities outstanding at December 31, 2011.

Earnings per share is not presented for the three months ended December 31, 2010 because the Company did not issue shares of common stock until September 12, 2011.

16

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

This Quarterly Report contains forward-looking statements, which can be identified by the use of such words as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may,” and similar expressions. These forward-looking statements include, but are not limited to:

• statements of our goals, intentions and expectations;

• statements regarding our business plans and prospects and growth and operating strategies;

• statements regarding the asset quality of our loan and investment portfolios; and

• estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.

The following factors, among others, could cause the actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

• our ability to manage our operations during the current United States economic recession;

• our ability to manage the risk from the growth of our commercial real estate lending;

• significant increases in our loan losses, exceeding our allowance;

• changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments and inflation;

• further declines in the yield on our assets resulting from the current low interest rate environment;

• risks related to high concentration of loans secured by real estate located in our market area;

• significant increases in our loan losses;

• our ability to pay dividends;

• adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate values);

• general economic conditions, either nationally or in our market area;

• changes in consumer spending, borrowing and savings habits, including a lack of consumer confidence in financial institutions;

• potential increases in deposit assessments;

• significantly increased competition among depository and other financial institutions;

• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies and the authoritative accounting and auditing bodies;

• legislative or regulatory changes, including increased deposit or premium assessments and increased compliance costs, that adversely affect our business and earnings;

• changes in the level of government support of housing finance;

• significantly increased competition with financial institutions;

• risks and costs related to becoming a publicly traded company; and

• changes in our organization, compensation and benefit plans.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

17

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in Poage Bankshares, Inc.’s Annual Report on Form 10-K/A, as filed with the Securities and Exchange Commission on January 18, 2012.

Comparison of Financial Condition at December 31, 2011 and September 30, 2011

Our total assets decreased to $319.3 million at December 31, 2011 from $328.0 million at September 30, 2011. The decrease was primarily due to a decrease of cash and due from financial institutions of $30.7 million, or 63.4%, to $17.8 million at December 31, 2011 from $48.4 million at September 30, 2011, partially offset by an increase in securities available for sale of $24.2 million, or 31.6%, to $100.9 million at December 31, 2011 from $76.7 million at September 30, 2011.

Loans held for sale decreased to $269,000 at December 31, 2011 from $1.0 million at September 30, 2011. This decrease was largely due to reduced one-to-four family mortgage loan originations.

Loans receivable, net, decreased to $181.6 million at December 31, 2011 from $183.7 million at September 30, 2011. This decrease was largely due to reduced one-to-four family loan originations, caused by the reduced level of refinancing and transfers to other real estate owned. Non-performing loans increased slightly from $2.7 million at September 30, 2011 to $2.8 million at December 31, 2011.

Securities available for sale increased to $100.9 million at December 31, 2011 from $76.7 million at September 30, 2011. This increase was primarily due to the deployment of excess cash and cash equivalents for the purchase of higher-yielding obligations of the U.S. Government, and residential mortgage backed securities.

Deposits decreased $6.6 million, or 2.7%, to $236.1 million at December 31, 2011 from $242.7 million at September 30, 2011. The decrease was primarily attributable to a decrease in savings and NOW accounts of $3.0 million, or 3.2%, as well as a decrease of $3.6 million or 2.4% in certificates of deposit.

Federal Home Loan Bank advances declined $1.1 million or 4.8% to $22.0 million at December 31, 2011 from $23.1 million at September 30, 2011. This decrease in borrowings was primarily the result of regular principal payments and maturities.

Total shareholders’ equity increased slightly to $59.7 million at December 31, 2011, compared to $59.1 million at September 30, 2011. The increase resulted primarily from net income of $611,000 for the three months ended December 31, 2011.

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Average Balance and Yields

The following tables set forth average balance sheets, average yields and costs, and certain other information at the dates and for the periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income.

	For the Three Months Ended December 31,
	2011								2010
	Average Balance		Interest and Dividends			Yield/ Cost			Average Balance		Interest and Dividends			Yield/ Cost
Assets:
Interest-earning assets:
Loans	$	183,170	$	2,733			5.97	%	$	183,102	$	2,745			6.00	%
Investment securities		90,887		563			2.48	%		60,995		377			2.47	%
FHLB stock		1,906		19			3.99	%		1,882		19			4.04	%
Other interest-earning assets		8,069		16			0.79	%		23,379		3			0.00	%
Total interest-earning assets		284,032		3,331			4.69	%		269,358		3,144			4.67	%
Noninterest-earning assets		44,818								20,190
Total assets		328,850								289,548
Liabilities and equity:
Interest bearing liabilities:
Interest bearing deposits:
NOW, savings, money market, and other		108,129		127			0.47	%		67,364		153			0.91	%
Certificates of deposit		147,855		648			1.75	%		160,710		863			2.15	%
Total interest bearing deposits		255,984		775			1.21	%		228,074		1,016			1.78	%
FHLB advances		22,509		176			3.13	%		29,535		224			3.03	%
Total interest bearing liabilities		278,493		951			1.37	%		257,609		1,240			1.93	%
Non-interest bearing liabilities:
Non-interest bearing deposits		1,085								1,013
Accrued interest payable		551								670
Other liabilities		5,451								2,503
Total non-interest bearing liabilities		7,088								4,186
Total liabilities		285,581								261,795
Retained earnings		42,953								27,067
Accumulated other comprehensive income		316								667
Total equity		43,269								27,734
Total liabilities and equity	$	328,850							$	289,529
Net interest income				2,380								1,904
Interest rate spread							3.33	%							2.74	%
Net interest margin							3.35	%							2.83	%
Average interest-earning assets to average interest-bearing liabilities				101.99	%							104.56	%

19

Rate/Volume Analysis

The following table presents, for the periods indicated, the dollar amount of changes in interest income and interest expense for the major categories of Home Federal’s interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to changes in volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of these tables, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

Three Months Ended December 31,
2011 Compared to 2010	Volume			Rate			Net
	(In thousands)
Interest income:
Loans receivable	$	1		$	(13	)	$	(12	)
Investment securities		185			1			186
Other interest-earning assets		(3	)		16			13
Total		183			4			187
Interest expense:
Now, Savings, Money Market, and other		68			(94	)		(26	)
Certificates		(65	)		(150	)		(215	)
FHLB advances		(55	)		7			(48	)
Total		(52	)		(237	)		(289	)
Increase (decrease) in net interest income	$	235		$	241		$	476

Liquidity and Capital Resources

Our primary sources of funds are deposits and the proceeds from principal and interest payments on loans and investment securities. We also utilize Federal Home Loan Bank advances. While maturities and scheduled amortization of loans and securities are predicable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. We generally manage the pricing of our deposits to be competitive within our market and to increase core deposit relationships.

Liquidity management is both a daily and long-term responsibility of management. We adjust our investments in liquid assets based upon management’s assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and investment securities, and (iv) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning overnight deposits, federal funds sold, and short and intermediate-term investment securities. If we require funds beyond our ability to generate them internally we have additional borrowing capacity with the Federal Home Loan Bank of Cincinnati. At December 31, 2011, we had $22.0 million in advances from the Federal Home Loan Bank of Cincinnati and an additional borrowing capacity of $51.7 million.

The Association is subject to various regulatory capital requirements administered by its primary federal regulator, the Office of the Comptroller of the Currency (“OCC”). Failure to meet the minimum regulatory capital requirements can initiate certain mandatory, and possible additional discretionary actions by regulators, that if undertaken, could have a direct material effect on the Association and the consolidated financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines involving quantitative measures of the Association’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.

The Association’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios of: total risk-based capital and Tier I capital to risk-weighted assets (as defined in the regulations), Tier I capital to adjusted total assets (as defined), and tangible capital to adjusted total assets (as defined).

20

As of December 31, 2011, based on the most recent notification from the OCC, the Association was categorized as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the most recent notification that management believes have changed the Association’s prompt corrective action category.

Actual and required capital amounts (in thousands) and ratios for the Association are presented below at December 31, 2011 and year-end:

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2011:
Total Risk-Based Capital (to Risk-weighted Assets)	$	44,271		30.15	%	³	$11,749	³	8.00	%	$	14,686		10.00	%
Tier I Capital (to Risk-weighted Assets)		42,738		29.10	%	³	5,875	³	4.00	%		8,812		6.00	%
Tier I Capital (to Adjusted Total Assets)		42,738		13.43	%	³	12,730	³	4.00	%		15,913		5.00	%
Tangible Capital (to Adjusted Total Assets)		42,738		13.43	%	³	4,774	³	1.50	%		N/A		N/A

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2011:
Total Risk-Based Capital (to Risk-weighted Assets)	$	43,748		28.52	%	³	$12,270	³	8.00	%	$	15,388		10.00	%
Tier I Capital (to Risk-weighted Assets)	$	42,090		27.44	%	³	$  6,135	³	4.00	%	$	9,203		6.00	%
Tier I Capital (to Adjusted Total Assets)	$	42,090		12.88	%	³	$13,076	³	4.00	%	$	16,346		5.00	%
Tangible Capital (to Adjusted Total Assets)	$	42,090		12.88	%	³	$  4,904	³	1.50	%		N/A		N/A

Off-Balance Sheet Arrangements.In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. 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.

Comparison of Operating Results for the Three Months Ended December 31, 2011 and December 31, 2010

General. Net income increased to $611,000 for the three months ended December 31, 2011 from $437,000 for the three months ended December 31, 2010. The increase reflected an increase in net interest income of $476,000 for the three months ended December 31, 2011, offset by an increase in non-interest expense to $1.9 million for the three months ended December 31, 2011 from $1.6 million for the three months ended December 31, 2010.

Interest Income. Interest income increased $187,000, or 5.9%, to $3.3 million for the three months ended December 31, 2011 from $3.1 million for the three months ended December 31, 2010. The increase was largely due to a $232,000 increase in interest income on taxable securities, partially offset by a decrease of $46,000 in interest income from tax exempt securities.

21

Interest income on loans remained constant at $2.7 million for the three months ended December 31, 2011. Likewise, the average yields on loans remained relatively constant at 5.97% for the three months ended December 31, 2011, compared to 6.0% for the three months ended December 31, 2010. Interest income on investment securities increased to $563,000 for the three months ended December 31, 2011 from $377,000 for the three months ended December 31, 2010, reflecting an increase in the average balance of such securities to $90.9 million at December 31, 2011 from $61.0 million at December 31, 2010. The average yield was relatively constant at 2.48% for the three months ended December 31, 2011, compared to 2.47% for the three months ended December 31, 2010.

Interest Expense.Interest expense decreased $289,000, or 23.3%, to $1.0 million for the three months ended December 31, 2011 from $1.2 million for the three months ended December 31, 2010. The decrease reflected a decrease in the average rate paid on deposits to 1.21% for the three months ended December 31, 2011 from 1.78% for the three months ended December 31, 2010, which more than offset increases in the average balance of such deposits. Interest expense on Federal Home Loan Bank Advances decreased $48,000 or 21.4% to $176,000 for the three months ended December 31, 2011 from $224,000 for the three months ended December 31, 2010. This decrease was due to a decrease of $7.0 million in the average balance of these borrowings, partially offset by a 10 basis point increase in the average rate paid on these borrowings.

Interest expense on certificates of deposit decreased $215,000, or 24.9%, to $648,000 for the three months ended December 31, 2011 from $863,000 for the three months ended December 31, 2010. This decrease reflected a decrease in the average rate paid on certificates of deposits for the three months ended December 31, 2011 to 1.75% from 2.15% for the three months ended December 31, 2010, as well as a decrease in the average balance of such certificates to $147.9 million from $160.7 million. Interest expense on money market deposits, savings, and NOW and demand deposits decreased $26,000, or 17.0%, to $127,000 for the three months ended December 31, 2011 from $153,000 for the three months ended December 31, 2010. The decrease was due to the lower average cost on the NOW and demand deposits as well as savings and money market accounts to 0.47% for the three months ended December 31, 2011 from 0.91% for the three months ended December 31, 2010.

Net Interest Income. Net interest income increased to $2.4 million for the three months ended December 31, 2011 from $1.9 million for the three months ended December 31, 2010. The interest rate spread increased to 3.33% from 2.74%, along with a slight decrease in the ratio of our average interest earning assets to average interest bearing liabilities to 101.99% from 104.56%. Our net interest margin increased to 3.35% from 2.83%. The increases in our interest rate spread and net interest margin were largely due to a reduction of rates paid on deposits.

Provision for Loan Losses. We recorded a provision for loan losses of $38,000 and $150,000, respectively, for the three months ended December 31, 2011 and 2010, reflecting the minimal levels of nonperforming loans and charge-offs during the periods, as well as management’s conservative lending policies. The decrease in the loan loss provision for the three months ended December 31, 2011 is a result of a $3.7 million decrease in residential mortgage loans, the partial charge off of residential real estate loans transferred to other real estate owned that was previously provided for, improvement in employment, and a stabilization of real estate values in our lending area. The provisions for each period were based on management’s quarterly calculations and resulted primarily from increased subjective factors applied to its loan portfolio.

Noninterest Income.Noninterest income decreased to $318,000 for the three months ended December 31, 2011 from $356,000 for the three months ended December 31, 2010. The decrease in noninterest income was primarily attributable to a decline in the net gains on sales of loans to $138,000 for the three months ended December 31, 2011 from $193,000 for the three months ended December 31, 2010, offset by an increase in net gains on sales of securities to $10,000 for the three months ended December 31, 2011.

Noninterest Expense.Noninterest expense increased $251,000, or 15.5%, to $1.9 million for the three months ended December 31, 2011, compared to the three months ended December 31, 2010. This increase was due largely to an increase in salaries and employee benefits due to an increase in the number of employees to $968,000 for the three months ended December 31, 2011 from $815,000 for the three months ended December 31, 2010.

Income Tax Expense.The provision for income taxes was $181,000 for the three months ended December 31, 2011, compared to $56,000 for the three months ended December 31, 2010. Our effective tax rates for the three months ended December 31, 2011 and 2010 were 22.9% and 11.4%, respectively. This increase in income tax expense is largely due to increased earnings during the three months ended December 31, 2011. The increase in the effective tax rate is largely due to a reduction in tax exempt income of $46,000 to $228,000 for the three months ended December 31, 2011 from $274,000 for the three months ended December 31, 2010.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Disclosures of quantitative and qualitative market risk are not required by smaller reporting companies, such as the Registrant.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by the report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Co-Chief Executive Officers and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended). Based on that evaluation, the Company’s management, including the Co-Chief Executive Officers and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended December 31, 2011, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company and its subsidiaries are subject to various legal actions that are considered ordinary routine litigation incidental to the business of the Company, and no claim for money damages exceeds ten percent of the Company’s consolidated assets. In the opinion of management, based on currently available information, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s results of operations.

ITEM 1A. RISK FACTORS

Disclosures of risk factors are not required by smaller reporting companies, such as the Company.

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

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. [REMOVED AND RESERVED]

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

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

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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.

Poage Bankshares, Inc.

Date: February 14, 2012

/s/ Darryl E. Akers

Darryl E. Akers

Vice Chairman, Co-President, & Co-Chief Executive Officer

/s/ Robert S. Curtis

Robert S. Curtis,

Vice Chairman, Co-President, & Co-Chief Executive Officer

/s/ Jeffery W. Clark

Jeffery W. Clark,

Chief Financial Officer

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INDEX TO EXHIBITS

Exhibit number	Description
31.1	Certification of Darryl E. Akers, Vice Chairman, Co-President, and Co-Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15-d-14(a).
31.2	Certification of Robert S. Curtis, Vice Chairman, Co-President, and Co-Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.3	Certification of Jeffery W. Clark, Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
32.1	Certification of Darryl E. Akers, Vice Chairman, Co-President, and Co-Chief Executive Officer, Robert S. Curtis, Vice Chairman, Co-President, and Co-Chief Executive Officer, and Jeffery W. Clark, Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following material from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2011, formatted in XBRL (Extensible Business Reporting Language) :(i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Other Comprehensive Income (Loss), (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements. (*)

* Furnished, not filed.

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