Construction loans constitute the largest portion of the Company’s loan portfolio. The Company’s construction lending has primarily involved single-family residential lending to builders where the residences being built have not been sold prior to commencement of construction, known as “spec” construction lending, and to custom homebuilders. In addition, the Company makes loans for the acquisition and development of land and loans to fund the construction of commercial and multi-family buildings.

The Company originates fixed-rate fully amortizing loans with maturities ranging between 10 and 30 years. Management establishes the loan interest rates based on market conditions. The Company offers mortgage loans that conform to Fannie Mae and Freddie Mac guidelines, as well as jumbo loans, which presently are loans in amounts over $417,000.

The Company also currently offers adjustable-rate mortgage loans, with interest rates that adjust annually after a three-, five- or seven-year initial fixed period and with terms of up to 30 years. Interest rate adjustments on such loans are generally limited to no more than 2% during any adjustment period and 6% over the life of the loan. Demand for adjustable-rate loans has been low during the past two years due to the relatively low interest rates available on fixed-rate loans.

The Company offers fixed-rate and adjustable-rate mortgage loans secured by income-producing multi-family and commercial real estate. The Company’s multi-family and commercial real estate loans generally are secured by improved property such as office buildings, retail centers, apartment buildings and churches which are located in the primary market area.

The Company has a consumer-lending program that primarily targets existing customers. The program emphasizes the Company’s commitment to community-based lending and is designed to meet the needs of consumers in the primary market area. The Company’s consumer loans consist primarily of home equity loans and lines of credit, and, to a much lesser extent, automobile loans, loans secured by deposit accounts and other miscellaneous consumer loans.

On a limited basis, the Company originates commercial business loans to small businesses in its market area. The Company extend commercial business loans on a secured basis that generally are secured by inventory, business equipment, marketable securities and/or bonds and cash surrender value life insurance. The Company originates both fixed- and adjustable-rate commercial loans with terms generally up to five years based on the purpose of the loan.

Net interest income increased by $151,000, or 8.3%, from $1.8 million for the three months ended December 31, 2004 to $2.0 million for the three months ended December 31, 2005

Provision for loan losses increased from $150,000 for the three months ended December 31, 2004 to $220,000 for the corresponding period in 2005.

Noninterest income increased by $18,000 from $285,000 for the three months ended December 31, 2004 to $303,000 for the three months ended December 31, 2005.

Gains on sale of loans were $56,000 and $44,000 for the three months ended December 31, 2005 and 2004, respectively.