Madison Bancorp 10Q 2014 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

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

For the quarterly period endedSeptember 30, 2013

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

For the transition period from ______________ to _____________

Commission file number:0-54081

MADISON BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland 27-258073

(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)

organization)

8615 Ridgely’s Choice Drive, Suite 111, Baltimore, Maryland 21236

(Address of principal executive offices) (Zip Code)

(410) 529-7400

(Registrant’s telephone number, including area code)

Not Applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesX 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 (§ 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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	____	Accelerated filer	____
Non-accelerated filer	____	Smaller reporting company	X
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No X

As of November 8, 2013, there were 608,116 shares of the registrant’s common stock outstanding.

MADISON BANCORP, INC.

Table of Contents

		Page
		No.
Part I. Financial Information

Item 1.	Financial Statements

	Consolidated Statements of Financial Condition as of September 30, 2013 (unaudited) and March 31, 2013 (audited)	3

	Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2013 and 2012 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended September 30, 2013 and 2012 (unaudited)	5

	Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended September 30, 2013 and 2012 (unaudited)	6

	Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2013 and 2012 (unaudited)	7

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	33

Part II. Other Information

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3.	Defaults Upon Senior Securities	34

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	34

Signatures		35

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MADISON BANCORP, INC AND SUBSIDIARIES

Consolidated Statements of Financial Condition

September 30, 2013 and March 31, 2013

	September 30, 2013			March 31, 2013
	(Unaudited)			(Audited)
Assets
Cash and due from banks	$	612,952		$	663,720
Federal funds sold and interest-bearing deposits		3,418,480			4,149,416
Cash and cash equivalents		4,031,432			4,813,136
Certificates of deposit		504,009			499,862
Investment securities available-for-sale		54,202,259			56,282,175
Federal Home Loan Bank stock, at cost		181,900			181,800
Loans receivable, net		83,550,919			83,540,352
Premises and equipment, net		3,503,348			3,538,379
Foreclosed real estate		0			55,000
Accrued interest receivable		396,670			421,538
Deferred income taxes		512,068			0
Prepaid expenses and other assets		341,137			569,604

Total Assets	$	147,223,742		$	149,901,846
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest bearing	$	7,060,238		$	5,971,726
Interest bearing		125,596,512			128,684,072
Total Deposits		132,656,750			134,655,798
Advances from borrowers for taxes and insurance		444,774			627,482
Deferred income taxes		0			8,350
Other liabilities		620,224			350,128
Total Liabilities		133,721,748			135,641,758
Shareholders’ Equity
Common Stock, $.01 par value, 10,000,000 sharesauthorized. Issued: 608,116 shares at September 30, 2013 and March 31, 2013		6,081			6,081
Additional paid-in capital		5,377,972			5,361,954
Retained earnings		9,073,467			9,049,637
Unearned ESOP shares		(337,821	)		(338,813	)
Accumulated other comprehensive income (loss)		(617,705	)		181,229
Total Shareholders’ Equity		13,501,994			14,260,088

Total Liabilities and Shareholders’ Equity	$	147,223,742		$	149,901,846

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

MADISON BANCORP, INC AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

Three and Six Months Ended September 30, 2013 and 2012

	Three Months Ended September 30,				Six Months Ended September 30,
	Three Months Ended September 30,				Six Months Ended September 30,
	2013		2012		2013		2012
Interest Revenue
Loans, including fees	$	990,702	$	1,096,271	$	1,997,708	$	2,238,475
Investment securities available-for-sale		188,637		194,952		368,260		424,697
Interest-bearing deposits		3,857		5,140		8,103		12,113
Other		1,147		847		2,407		3,839
Total Interest Revenue		1,184,343		1,297,210		2,376,478		2,679,124
Interest Expense
Interest on deposits:
Time		282,533		400,755		585,029		824,738
Savings		6,108		9,215		12,225		18,056
NOW and Money Market		4,313		5,453		8,770		11,591
Borrowings		0		15		0		15
Total Interest Expense		292,954		415,438		606,024		854,400
Net Interest Income		891,389		881,772		1,770,454		1,824,724
Provision for Loan Losses		13,000		65,000		33,000		169,000
Net Interest Income after Provision for Loan Losses		878,389		816,772		1,737,454		1,655,724
Noninterest Revenue
Gain on sale of investment securities		1,881		60,487		5,550		159,846
Gain on sale of land		0		71,144		0		71,144
Other		39,887		45,102		77,630		93,430
Total Noninterest Revenue		41,768		176,733		83,180		324,420
Noninterest Expenses
Salaries and employee benefits		496,618		501,006		978,601		1,000,836
Occupancy and equipment expense		208,619		208,555		409,582		415,436
Advertising		4,114		2,127		8,339		3,656
Professional services		55,091		57,507		92,031		92,913
FDIC premiums and regulatory assessments		42,675		45,000		87,550		90,000
Data processing		55,104		49,660		105,305		106,021
Stationery and postage		18,385		19,029		35,656		34,260
Other operating expenses		30,307		46,741		79,740		102,798
Total Noninterest Expense		910,913		929,625		1,796,804		1,845,920
Income Before Income Taxes		9,244		63,880		23,830		134,224
Income Tax Expense		0		0		0		0
Net Income	$	9,244	$	63,880	$	23,830	$	134,224
Income per common share - basic	$	0.02	$	0.11	$	0.04	$	0.23
Income per common share - diluted	$	0.02	$	0.11	$	0.04	$	0.23

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

MADISON BANCORP, INC AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

Three and Six Months Ended September, 2013 and 2012

	Three Months Ended September 30,						Six Months Ended September 30,

	2013			2012			2013			2012

Net income	$	9,244		$	63,880		$	23,830		$	134,224
Other comprehensive income:
Securities available for sale:
Net unrealized gain / loss during the period		(118,305	)		233,633			(1,313,801	)		510,864
Reclassification adjustment for gains / losses in net income		(1,881	)		(60,487	)		(5,550	)		(159,846	)
		(120,186	)		173,146			(1,319,351	)		351,018
Deferred tax expense (benefit):
Securities available for sale:
Net unrealized gain / loss during the period		(46,665	)		92,156			(518,228	)		201,511
Reclassification adjustment for gains / losses in net income		(742	)		(23,859	)		(2,189	)		(63,052	)
		(47,407	)		68,297			(520,417	)		138,459
Other comprehensive income, net of tax		(72,779	)		104,849			(798,934	)		212,559
Comprehensive income	$	(63,535	)	$	168,729		$	(775,104	)	$	346,783

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

MADISON BANCORP, INC AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

Six Months Ended September 30, 2013 and 2012

										Accumulated
			Additional				Unearned			Other			Total
	Common		Paid-in		Retained		ESOP			Comprehensive			Shareholders’
	Stock		Capital		Earnings		Shares			Income			Equity

Balance March 31, 2012	$	6,081	$	5,345,251	$	8,835,984	$	(362,300	)	$	329,702		$	14,154,718
Comprehensive Income:
Net income						134,224								134,224
Net unrealized gain onavailable-for-sale securities, net of tax effect of $138,459											212,559			212,559
Stock based compensation				7,130										7,130

Balance September 30, 2012	$	6,081	$	5,352,381	$	8,970,208	$	(362,300	)	$	542,261		$	14,508,631

Balance March 31, 2013	$	6,081	$	5,361,954	$	9,049,637	$	(338,813	)	$	181,229		$	14,260,088
Comprehensive Income:
Net income						23,830								23,830
Net unrealized loss on available-for-sale securities, net of tax effect of $(520,417)											(798,934	)		(798,934	)
Stock based compensation				16,018				992						17,010

Balance September 30, 2013	$	6,081	$	5,377,972	$	9,073,467	$	(337,821	)	$	(617,705	)	$	13,501,994

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

MADISON BANCORP, INC AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended September 30, 2013 and 2012

	Six Months Ended
	September 30,
Cash flows from Operating Activities	2013			2012
Net income	$	23,830		$	134,224
Adjustments to reconcile net income to net cashprovided by operating activities:
Net amortization of investment securities		88,140			162,421
Increase in net deferred loan costs		(12,813	)		(24,523	)
Provision for loan losses		33,000			169,000
Gain on sale of investment securities		(5,550	)		(159,846	)
Gain on sale of land		0			(71,144	)
Gain on sale and write-down of foreclosed real estate		(110	)		0
Depreciation and amortization		110,453			105,461
Stock based compensation		17,010			7,130
Changes in operating assets and liabilities:
Accrued interest receivable		24,868			14,587
Prepaid expenses and other assets		228,467			60,045
Other liabilities		270,096			53,000
Net cash provided by operating activities		777,391			450,355
Cash flows from Investing Activities
(Increase) decrease in loans receivable, net		(30,754	)		1,721,491
(Increase) decrease in investment certificates of deposit, net		(4,147	)		242,158
Activity in available-for-sale securities:
Sales		1,005,840			7,347,715
Maturities, repayments and calls		6,340,771			10,170,311
Purchases		(6,668,637	)		(22,915,239	)
Purchase of property and equipment		(75,422	)		(8,341	)
Proceeds from sale of property and equipment		0			99,852
Redemption of FHLB stock		(100	)		6,100
Proceeds from sale of foreclosed real estate		55,110			0
Proceeds from sale of ground rents		0			290,000
Net cash (used in) provided by investing activities		622,661			(3,045,953	)
Cash flow from Financing Activities
(Decrease) increase in deposits, net		(1,999,048	)		(659,904	)
(Decrease) increase in advances from borrowers, net		(182,708	)		(182,364	)
Net cash used by financing activities		(2,181,756	)		(842,268	)
Net Change in Cash and Cash Equivalents		(781,704	)		(3,437,866	)
Cash and Cash Equivalents, Beginning of Period		4,813,136			10,735,213
Cash and Cash Equivalents, End of Period	$	4,031,432		$	7,297,347

Supplemental disclosure:
Interest paid	$	613,273		$	863,352
Loans transferred to foreclosed real estate		0			57,000

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

MADISON BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2013

Note 1. Activities and Summary of Significant Accounting Policies

Madison Bancorp, Inc., the “Company”, was incorporated on May 20, 2010, to be the holding company for Madison Square Federal Savings Bank, the “Bank”, in conjunction with the Bank’s conversion from the mutual to stock form of ownership. On October 6, 2010, in accordance with a Plan of Conversion adopted by its Board of Directors and approved by its members, the Bank converted from a mutual savings bank to a stock savings bank and became the wholly owned subsidiary of the Company. The conversion was accomplished through the sale and issuance of 608,116 shares of common stock at a price of $10.00 per share, through which the Company received proceeds of $5,340,068, net of offering expenses of $741,092. In connection with the conversion, the Bank’s Board of Directors adopted an employee stock ownership plan, the “ESOP”, which subscribed for 7% of the number of shares sold in the offering, or 42,568 shares of common stock.

In accordance with applicable regulations governing the conversion, upon the completion of the conversion, the Bank restricted retained earnings by establishing a liquidation account. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after conversion. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account. In the event of a complete liquidation of the Bank, and only in such event, each account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

Madison Square Federal Savings Bank was incorporated in 1870 under the laws of the State of Maryland. The Bank is a federally chartered savings bank engaged in banking and related services primarily in the Baltimore Metropolitan area.

Summary of Significant Accounting Policies

The foregoing consolidated financial statements are unaudited; however, in the opinion of management, we have included all adjustments (comprising only normal recurring accruals) necessary for a fair presentation of the results of the interim period. We derived the balances as of March 31, 2013 from audited financial statements. These statements should be read in conjunction with Madison Bancorp’s financial statements and accompanying notes included in Madison Bancorp’s Form 10-K for the year ended March 31, 2013. We have made no significant changes to Madison Bancorp’s accounting policies as disclosed in the Form 10-K.

The accounting and reporting policies of Madison Bancorp, Inc. and Subsidiaries (collectively “Madison”) conform to accounting principles generally accepted in the United States of America, “U.S. GAAP”, and to general practices in the banking industry. The more significant policies follow:

Principles of Consolidation.The accompanying consolidated financial statements include the accounts of the parent company and its wholly owned subsidiary, Madison Square Federal Savings Bank and its wholly owned subsidiary, Madison Financial Services Corporation, “MFSC”. MFSC is engaged in the business of insurance and brokerage services primarily in the Baltimore area. All significant intercompany balances and transactions have been eliminated in consolidation.

Reclassifications.Certain prior year amounts have been reclassified to conform to current period classifications. The reclassifications had no effect on net income or the net change in cash and cash equivalents and are not material to previously issued financial statements.

Use of Estimates.The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, deferred income tax valuation allowances, the fair value of investment securities, and other than temporary impairment of investment securities.

Subsequent Events.We evaluated subsequent events after September 30, 2013 through November 8, 2013, the date this report was available to be issued. No significant subsequent events were identified which would affect the presentation of the financial statements.

Recently Adopted Accounting Guidance

ASU 2011-11, “Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 amends Topic 210, “Balance Sheet,” to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements, reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU 2011-11 is effective for annual and interim periods beginning on April 1, 2013, and did not have a significant impact on our financial statements.

ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 gives entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is impaired, then the entity must perform the quantitative impairment test. If, under the quantitative impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08. ASU 2012-02 became effective for the Company on April 1, 2013 and did not have a significant impact on our financial statements.

ASU 2012-06, “Business Combinations (Topic 805) – Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (a consensus of the FASB Emerging Issues Task Force).”ASU 2012-06 clarifies the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. Under ASU 2012-06, when a reporting entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution and, subsequently, a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification), the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). ASU 2012-06 became effective for the Company on April 1, 2013 and did not have a significant impact on our financial statements.

ASU 2013-02, “Comprehensive Income (Topic 220) – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.”ASU 2013-02 amends recent guidance related to the reporting of comprehensive income to enhance the reporting of reclassifications out of accumulated other comprehensive income. ASU 2013-02 became effective for the Company on April 1, 2013 and did not have a significant impact on our financial statements.

Note 2. Earnings per Share

Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Both the basic and diluted earnings per share for the three and six months ended September 30, 2013 and 2012 are summarized below:

	Three Months Ended September 30				Six Months Ended September 30
	2013		2012		2013		2012

Net income	$	9,244	$	63,880	$	23,830	$	134,224

Average common shares outstanding		574,724		571,886		574,724		571,886
Stock option adjustment		12,641		1,157		9,635		1,993
Average common shares outstanding - diluted		587,365		573,043		584,359		573,879

Earnings per common share - basic	$	0.02	$	0.11	$	0.04	$	0.23
Earnings per common share - diluted	$	0.02	$	0.11	$	0.04	$	0.23

Note 3. Cash and Cash Equivalents

The Company sells federal funds on an unsecured basis to correspondent banks. As of September 30, 2013 and March 31, 2013, the balance of federal funds sold on an unsecured basis was $173,712 and $173,535, respectively. As of September 30, 2013 and March 31, 2013, the Company had $540,235 and $168,629, respectively, invested in a money market account at a brokerage that is not covered by deposit insurance.

Financial institutions are required to carry noninterest-bearing cash reserves at specific percentages of deposit balances. The Bank’s normal amount of cash on hand and on deposit with other banks is sufficient to satisfy the reserve requirement.

Note 4. Investment Securities

The amortized cost and estimated fair value of investment securities at September 30, 2013 and March 31, 2013, are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2013
Investment securities available-for-sale:
U.S. government agencies	$	16,136,824	$	1,314	$	669,086	$	15,469,052
Brokered certificates of deposit		6,409,000		20,515		3,351		6,426,164
Mortgage-backed securities (Agency)		20,821,194		127,254		424,286		20,524,162
Collateralized mortgage obligations (Agency)		11,855,314		32,738		105,171		11,782,881
	$	55,222,332	$	181,821	$	1,201,894	$	54,202,259

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
March 31, 2013
Investment securities available-for-sale:
U.S. government agencies	$	15,137,211	$	18,332	$	33,765	$	15,121,778
Brokered certificates of deposit		8,444,000		36,394		1,119		8,479,275
Mortgage-backed securities (Agency)		18,802,845		256,680		37,871		19,021,654
Collateralized mortgage obligations (Agency)		13,598,841		76,606		15,979		13,659,468
	$	55,982,897	$	388,012	$	88,734	$	56,282,175

The Bank has arranged for two lines of credit with large financial institutions for liquidity to meet expected and unexpected cash needs. One line of credit is unsecured and the other is collateralized by brokered certificates of deposit if any advances are disbursed. As of September 30, 2013 and March 31, 2013, there were no borrowings or securities pledged under these lines of credit.

The following is a summary of contractual maturities of securities available-for-sale as of September 30, 2013:

	Available-for-Sale
	Amortized Cost		Estimated Fair Value

Amounts maturing in:
One year or less	$	2,875,000	$	2,878,841
After one year through five years		8,106,610		8,082,550
After five years through ten years		9,665,950		9,149,584
After ten years		1,898,264		1,784,241
		22,545,824		21,895,216

Mortgage-backed securities (Agency)		20,821,194		20,524,162
Collateralized mortgage obligations (Agency)		11,855,314		11,782,881
	$	55,222,332	$	54,202,259

Proceeds from the sale of investment securities were $1,005,840 and $7,347,715 during the six months ended September 30, 2013 and 2012, respectively, with gains of $10,345 and losses of $4,795 for the six months ended September 30, 2013 and gains of $159,846 and no losses for the six months ended September 30, 2012.

The following table presents Madison’s investments’ gross unrealized losses and the corresponding fair values by investment category and length of time that the securities have been in a continuous unrealized loss position at September 30, 2013.

	Less than 12 Months				12 Months or More				Total
September 30, 2013	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses

Investment securities available-for-sale:
U.S. Government agencies	$	15,217,739	$	669,086	$	0	$	0	$	15,217,739	$	669,086
Brokered certificates of deposit		1,146,649		3,351		0		0		1,146,649		3,351
Mortgage-backed securities (Agency)		10,656,877		424,286		0		0		10,656,877		424,286
Collateralized mortgage obligations (Agency)		2,649,161		96,728		2,337,852		8,443		4,987,013		105,171
	$	29,670,426	$	1,193,451	$	2,337,852	$	8,443	$	32,008,278	$	1,201,894

The gross unrealized losses are not considered by management to be other-than-temporary impairments. Management has the intent and ability to hold these securities until maturity. In most cases, temporary impairment is caused by market interest rate fluctuations.

Note 5. Loans Receivable and Allowance for Loan Losses

Loans receivable consist of the following at September 30, 2013 and March 31, 2013:

	September 30, 2013			March 31, 2013
Loans secured by mortgages:
Residential:
1-4 Single family	$	55,124,356		$	54,604,184
Multifamily		1,471,160			1,513,209
Lines of credit		2,907,981			2,658,271
Commercial		14,351,807			14,553,616
Land		3,173,139			4,191,616
Farm loans guaranteed by the USDA		1,273,304			888,544
Residential construction		1,257,427			1,367,134
		79,559,174			79,776,574
Consumer		478,898			403,330
Commercial		4,167,065			4,090,168
Total loans receivable		84,205,137			84,270,072
Net deferred costs		192,581			179,768
Allowance for loan losses		(846,799	)		(909,488	)
Loans receivable, net	$	83,550,919		$	83,540,352

Credit Quality Indicators

When assessing credit quality management considers all aspects of the loan, including: the overall risk involved; the nature of the collateral; the character, capacity, financial responsibility and record of the borrower; and the probability of repayment or orderly liquidation in accordance with the loan terms.

Asset quality ratings are divided into three groups: Pass (unclassified), Special Mention, and Classified (adverse classification).

Pass - A pass loan is considered of sufficient quality to preclude a special mention or an adverse rating. Pass assets generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral.

Special Mention- The purpose of the special mention category is to identify assets that do not warrant adverse classification, but do possess credit deficiencies or other potential weaknesses.

Loans that would primarily fall into this notational category could have been previously classified adversely, but the deficiencies have since been corrected. Management should closely monitor recent payment history of the loan and value of the collateral.

Loans that are designated as special mention will include loans that are 60-89 days delinquent. Single family residential loans, construction loans that are under contract of sale, and consumer loans that are designated special mention will not require separate fair value calculations and will not warrant increases in the allowance for loan losses. If adverse circumstances warrant additional allocations, an analysis will be performed on a case-by-case basis.

Other loans designated as special mention generally require higher reserves than are allocated to pass loans.

Substandard- Loans classified as substandard are inadequately protected by the current net worth or paying capacity of the borrower or the value of pledged collateral. Substandard loans are characterized by the possibility that the Bank estimates that it will be unable to collect all amounts due as required in the loan documents and therefore determines it may sustain losses if deficiencies are not corrected. This will be the measurement for determining if a loan is impaired.

Loans classified as substandard may exhibit one or more of the following characteristics:

● Collateral has deteriorated.

●

The primary source of repayment is gone and the Bank is relying upon a secondary source.

●

A loss does not seem likely but significant problems exist, leading the Bank to go to great lengths to protect its investment.

●

Borrowers are unable to generate enough cash flow for debt reduction.

●

Flaws in documentation exist, leaving the Bank as a lender in a subordinated or unsecured position.

●

The feasibility of an orderly and prompt sale of the collateral is not possible.

●

Slow payment history.

Loans classified as substandard will require calculations to determine the fair value on the particular loan. In determining the general valuation allowance, loans of similar characteristics will be analyzed on a pool basis. Examples of these types of loans include single-family residential loans and certain consumer loans such as car loans or home equity loans. When a loan is classified and is part of these loan types, the general valuation allowance on this particular type may be increased to reflect the potential for loss.

Construction loans, land acquisition and development, commercial real estate and 5 or more dwelling units that are deemed impaired will require calculations to determine the fair value on the particular asset when the loan is classified as substandard. If the calculation yields a value below the recorded investment of the asset and the loan is determined to have collectability issues that result in a deficiency, the deficiency amount will be charged off.

Doubtful- Loans classified as doubtful have all the weaknesses of loans classified as substandard, but in addition, on the basis of current facts, collection or liquidation in full is questionable and improbable. A loan classified as doubtful exhibits loss potential. However, there is still sufficient reason to permit the loan to remain on the books. A doubtful classification could reflect the deterioration of the primary source of repayment and serious doubt exists as to the quality of the secondary source of repayment.

Doubtful classifications should be used only when a distinct and known possibility of loss exists. When identified, adequate loss should be recorded for specific assets. The entire asset should not be classified as doubtful if a partial recovery is expected, such as a liquidation of the collateral or the probability of a private mortgage insurance payment is likely.

Loss - Loans classified as loss are considered uncollectable and of such little value that their continuance as loans is unjustified. A loss classification does not mean a loan has absolutely no value; partial recoveries may be received in the future.

When loans or portions of a loan are considered a “loss”, it will be the policy of the Company to write-off the amount designated as loss. Recoveries will be treated as additions to the allowance for loan losses.

The following presents by class and by credit quality indicator, the recorded investment in the Company’s loans as of September 30, 2013 and March 31, 2013.

Commercial Credit Exposure	Commercial, Not Real Estate Secured				Commercial Real Estate(1)
	September 30, 2013		March 31, 2013		September 30, 2013		March 31, 2013
Grade:
Pass	$	4,164,200	$	3,702,067	$	11,887,898	$	11,634,602
Special Mention		0		372,524		3,369,854		3,430,979
Substandard		2,865		15,577		367,359		376,579
Doubtful		0		0		0		0
Loss		0		0		0		0
	$	4,167,065	$	4,090,168	$	15,625,111	$	15,442,160

	Residential Real Estate				Residential Real Estate
Other Credit Exposure	Construction and Land				Other(2)				Consumer
	September 30,		March 31,		September 30,		March 31,		September 30,		March 31,
	2013		2013		2013		2013		2013		2013
Grade:
Pass	$	3,024,707	$	2,021,668	$	57,915,442	$	57,944,859	$	478,898	$	401,803
Special Mention		1,281,457		3,396,480		1,090,778		509,874		0		0
Substandard		124,402		140,602		497,277		320,931		0		1,527
Doubtful		0		0		0		0		0		0
Loss		0		0		0		0		0		0
	$	4,430,566	$	5,558,750	$	59,503,497	$	58,775,664	$	478,898	$	403,330

(1) Commercial real estate includes farm loans guaranteed by the USDA.

(2) Residential real estate includes 1-4 single family residential, multifamily residential and home equity lines of credit.

Age Analysis of Past Due Loans as of September 30, 2013 and March 31, 2013

													Total		Nonaccrual
	30-59 Days		60-89 Days		90 Days or More Past Due				Total				Nonaccrual		Interest Not
September 30, 2013	Past Due		Past Due		Accrual		Nonaccrual		Past Due		Current		Loans		Accrued
Loans secured by mortgages:
Residential:
1-4 Single family	$	0	$	610,586	$	0	$	185,870	$	796,456	$	54,327,900	$	373,713	$	15,724
Multifamily		0		0		0		0		0		1,471,160		0		0
Lines of credit		0		0		0		0		0		2,907,981		0		0
Commercial		668,244		367,359		0		0		1,035,603		13,316,204		0		0
Land		0		0		0		0		0		3,173,139		0		0
Farm		0		0		0		0		0		1,273,304		0		0
Residential Construction		0		0		0		0		0		1,257,427		0		0
		668,244		977,945		0		185,870		1,832,059		77,727,115		373,713		15,724
Consumer		985		0		0		0		985		477,913		0		0
Commercial		2,865		0		0		0		2,865		4,164,200		0		0
	$	672,094	$	977,945	$	0	$	185,870	$	1,835,909	$	82,369,228	$	373,713	$	15,724

													Total		Nonaccrual
	30-59 Days		60-89 Days		90 Days or More Past Due				Total				Nonaccrual		Interest Not
March 31, 2013	Past Due		Past Due		Accrual		Nonaccrual		Past Due		Current		Loans		Accrued
Loans secured by mortgages:
Residential:
1-4 Single family	$	576,788	$	74,160	$	0	$	313,580	$	964,528	$	53,639,656	$	313,580	$	26,954
Multifamily		0		0		0		0		0		1,513,209		0		0
Lines of credit		0		0		0		0		0		2,658,271		0		0
Commercial		0		0		376,579		0		376,579		14,177,037		0		0
Land		0		0		0		0		0		4,191,616		0		0
Farm		0		0		0		0		0		888,544		0		0
Residential Construction		424,938		0		0		0		424,938		942,196		0		0
		1,001,726		74,160		376,579		313,580		1,766,045		78,010,529		313,580		26,954
Consumer		3,494		0		0		1,527		5,021		398,309		1,527		0
Commercial		0		0		0		15,577		15,577		4,074,591		15,577		109
	$	1,005,220	$	74,160	$	376,579	$	330,684	$	1,786,643	$	82,483,429	$	330,684	$	27,063

Impaired Loans as of and for the Six Months Ended September 30, 2013

	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total				Average		Interest
	Principal		with No		with		Recorded		Related		Recorded		Income
	Balance		Allowance		Allowance		Investment		Allowance		Investment		Recognized
Loans secured by mortgages:
Residential:
1-4 Single family	$	1,073,565	$	489,979	$	375,283	$	865,262	$	58,600	$	862,038	$	16,961
Multifamily		0		0		0		0		0		0		0
Lines of credit		0		0		0		0		0		0		0
Commercial		367,359		367,359		0		367,359		0		370,431		13,776
Land		228,902		124,402		0		124,402		0		124,902		5,043
Farm		0		0		0		0		0		0		0
Residential construction		0		0		0		0		0		0		0
		1,669,826		981,740		375,283		1,357,023		58,600		1,357,371		35,780
Consumer		0		0		0		0		0		0		0
Commercial		2,865		2,865		0		2,865		0		8,442		399
Total impaired loans	$	1,672,691	$	984,605	$	375,283	$	1,359,888	$	58,600	$	1,365,813	$	36,179

Impaired Loans as of and for the Year Ended March 31, 2013

	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total				Average		Interest
	Principal		with No		with		Recorded		Related		Recorded		Income
	Balance		Allowance		Allowance		Investment		Allowance		Investment		Recognized
Loans secured by mortgages:
Residential:
1-4 Single family	$	812,251	$	313,580	$	379,930	$	693,510	$	60,200	$	777,370	$	10,346
Multifamily		0		0		0		0		0		0		0
Lines of credit		0		0		0		0		0		0		0
Commercial		376,579		376,579		0		376,579		0		381,180		33,686
Land		230,102		140,602		0		140,602		0		223,763		9,945
Farm		0		0		0		0		0		0		0
Residential construction		0		0		0		0		0		0		0
		1,418,932		830,761		379,930		1,210,691		60,200		1,382,313		53,977
Consumer		1,527		1,527		0		1,527		0		1,588		34
Commercial		15,837		15,577		0		15,577		0		16,832		343
Total impaired loans	$	1,436,296	$	847,865	$	379,930	$	1,227,795	$	60,200	$	1,400,733	$	54,354

We occasionally modify loans to extend the term to help borrowers stay current on their loan and to avoid foreclosure. At September 30, 2013, we had seven1-4 single family mortgage loans totaling approximately $1,152,000 that we had modified the terms either by extending the term or increasing the payments to allow the customer to become current. We did not forgive any principal or interest, or modify the interest rates on the loans. Six of these seven modified loans with balances totaling $913,000 were current and one of these seven with a balance of $239,000 was greater than 90 days delinquent at September 30, 2013. We also had two 1-4 single family mortgage loans totaling approximately $375,000 at September 30, 2013 which had received rate modifications to current market rates. One of these two loans in the amount of $7,000 is current at September 30, 2013 and is classified as substandard. The other loan of $368,000 has remained current through the six months ended September 30, 2013 and is not adversely classified.

The following tables set forth for the six months ended September 30, 2013 and 2012 and for the year ended March 31, 2013, the balance of the allowance for loan losses by portfolio segment, disaggregated by impairment methodology, which is then further segregated by amounts evaluated for impairment collectively and individually. The allowance for loan losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.

For the Six Months Ended September 30, 2013:

Allowance

3/31/2013

Charge-

offs

Recoveries

Provision

Allowance

9/30/2013

Loans secured by mortgages:

Residential:

1-4 Single family

343,110

81,500

811

74,190

336,612

Multifamily

19,218

(975

)

18,242

Lines of credit

15,950

5,166

21,116

Commercial

258,443

(12,822

)

245,621

Land

95,200

15,000

(25,729

)

54,471

Farm

Residential construction

36,459

(7,362

)

29,097

768,380

96,500

811

32,468

705,159

Consumer

2,802

383

3,185

Commercial

60,147

(3,270

)

56,877

Unallocated

78,159

3,419

81,578

Total

909,488

96,500

811

33,000

846,799

Allowance

Loan Balance

Individually

Evaluated

for

Impairment

Collectively

Evaluated

for

Impairment

Individually

Evaluated

for

Impairment

Collectively

Evaluated

for

Impairment

Ending Loan

Balance

Loans secured by mortgages:

Residential:

1-4 Single family

58,600

278,012

865,262

54,259,094

55,124,356

Multifamily

18,242

1,471,160

Lines of credit

21,116

2,907,981

Commercial

245,621

367,359

13,984,448

14,351,807

Land

54,471

124,402

3,048,737

3,173,139

Farm

1,273,304

Residential construction

29,097

1,257,427

58,600

646,559

1,357,023

78,202,151

79,559,174

Consumer

3,185

478,898

Commercial

56,877

2,865

4,164,200

4,167,0655

Unallocated

81,578

Total

58,600

788,199

1,359,888

82,845,249

84,205,137

For the Six Months Ended September 30, 2012:

	Allowance 3/31/2012		Charge- offs		Recoveries		Provision			Allowance 9/30/2012
Loans secured by mortgages:
Residential:
1-4 Single family	$	372,404	$	64,171	$	0	$	31,027		$	339,260
Multifamily		18,705		0		0		(368	)		18,337
Lines of credit		13,817		0		0		(1,400	)		12,417
Commercial		188,199		0		0		38,939			227,138
Land		152,621		89,500		0		38,878			101,999
Farm		0		0		0		0			0
Residential construction		16,417		0		0		9,020			25,437
		762,163		153,671		0		116,096			724,588
Consumer		3,103		0		0		725			3,828
Commercial		71,149		0		235		(10,937	)		60,447
Unallocated		648		0		0		63,116			63,764
Total	$	837,063	$	153,671	$	235	$	169,000		$	852,627

	Allowance				Loan Balance
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Ending Loan Balance
Loans secured by mortgages:
Residential:
1-4 Single family	$	0	$	339,260	$	317,502	$	52,349,245	$	52,666,747
Multifamily		0		18,337		0		1,553,941		1,553,941
Lines of credit		0		12,417		0		2,434,761		2,434,761
Commercial		0		227,138		379,554		14,227,042		14,606,596
Land		0		101,999		141,802		5,509,606		5,651,408
Farm		0		0		0		0		0
Residential construction		0		25,437		0		1,685,180		1,685,180
		0		724,588		838,858		77,759,775		78,598,633
Consumer		0		3,828		0		575,562		575,562
Commercial		0		60,447		0		4,631,397		4,631,3977
Unallocated		0		63,764		0		0		0
Total	$	0	$	852,627	$	838,858	$	82,966,734	$	83,805,592

For the Year Ended March 31, 2013:

	Allowance 3/31/2012		Charge- offs		Recoveries		Provision			Allowance 3/31/2013
Loans secured by mortgages:
Residential:
1-4 Single family	$	372,404	$	75,712	$	7,401	$	39,017		$	343,110
Multifamily		18,705		0		0		513			19,218
Lines of credit		13,817		0		0		2,133			15,950
Commercial		188,199		0		0		70,244			258,443
Land		152,621		89,500		0		32,079			95,200
Farm		0		0		0		0			0
Residential construction		16,417		0		0		20,042			36,459
		762,163		165,212		7,401		164,028			768,380
Consumer		3,103		0		0		(301	)		2,802
Commercial		71,149		0		236		(11,238	)		60,147
Unallocated		648		0		0		77,511			78,159
Total	$	837,063	$	165,212	$	7,637	$	230,000		$	909,488

	Allowance				Loan Balance
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Ending Loan Balance
Loans secured by mortgages:
Residential:
1-4 Single family	$	60,200	$	282,910	$	693,510	$	53,910,674	$	54,604,184
Multifamily		0		19,218		0		1,513,209		1,513,209
Lines of credit		0		15,950		0		2,658,271		2,658,271
Commercial		0		258,443		376,579		14,177,037		14,553,616
Land		0		95,200		140,602		4,051,014		4,191,616
Farm		0		0		0		888,544		888,544
Residential construction		0		36,459		0		1,367,134		1,367,134
		60,200		708,180		1,210,691		78,565,883		79,776,574
Consumer		0		2,802		1,527		401,803		403,330
Commercial		0		60,147		15,577		4,074,591		4,090,168
Unallocated		0		78,159		0		0		0
Total	$	60,200	$	849,288	$	1,227,795	$	83,042,277	$	84,270,072

Note 6. Borrowings

At September 30, 2013, the Bank had the ability to borrow a total of approximately $30.0 million from the Federal Home Loan Bank of Atlanta, and the Bank has lines of credit totaling approximately $6.1 million with two large financial institutions. The FHLB borrowing requires us to pledge mortgage loans as collateral, and one of the lines of credit requires us to pledge brokered certificates of deposit or US Government Agency securities. At September 30, 2013, we had no Federal Home Loan Bank advances outstanding or borrowings on the lines of credit. The rates on the borrowing lines will be determined at the time of an advance.

Note 7. Commitments and Financial Instruments with Off-Balance-Sheet Credit Risk

In the normal course of business, the Bank has various outstanding commitments and contingent liabilities that are not reflected in the accompanying financial statements. Loan commitments and lines of credit are agreements to lend to a customer as long as there is no violation of any condition to the contract. Mortgage loan commitments generally have fixed interest rates, fixed expiration dates, and may require payment of a fee. Other loan commitments generally have fixed interest rates. Lines of credit generally have variable interest rates. Such lines do not represent future cash requirements because it is unlikely that all customers will draw upon their lines in full at any time. Letters of credit are commitments issued to guarantee the performance of a customer to a third party.

The Bank’s maximum exposure to credit loss in the event of nonperformance by the customer is the contractual amount of the credit commitment. Loan commitments, lines of credit, and letters of credit are made on the same terms, including collateral, as outstanding loans. Management is not aware of any accounting loss to be incurred by funding these loan commitments.

The Bank had outstanding firm commitments to originate, fund, or purchase loans as follows:

	September 30, 2013		March 31, 2013

Mortgage loan commitments – fixed rate	$	1,978,050	$	1,573,750
Mortgage loan commitments – variable rate		12,230		238,629
Unused equity lines of credit (variable rate)		2,421,167		2,815,945
Commercial and consumer lines of credit		1,764,414		230,651
Standby letters of credit		202,655		377,530
Total	$	6,378,516	$	5,236,505

Note 8. Fair Value Measurements

Accounting guidance defines fair value to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. These standards have also established a three-level hierarchy for fair value measurements based upon the inputs to the valuation of an asset or liability.

●

Level 1 — Valuation is based on quoted prices in active markets for identical assets and liabilities.

●

Level 2 — Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.

●

Level 3 — Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the Bank’s own estimates about the assumptions that market participants would use to value the asset or liability.

Investment securities available-for-sale are the only financial assets measured at fair value on a recurring basis. As of September 30, 2013 and March 31, 2013, the fair values were measured using the following methodologies:

	September 30, 2013
	Level 1		Level 2		Level 3		Total
Investment securities available-for-sale:
U.S. Government agencies	$	0	$	15,469,052	$	0	$	15,469,052
Brokered certificates of deposit		6,426,164		0		0		6,426,164
Mortgage-backed securities (Agency)		1,341,841		19,180,463		1,858		20,524,162
Collateralized mortgage obligations (Agency)		0		11,782,881		0		11,782,881
	$	7,768,005	$	46,432,396	$	1,858	$	54,202,259

	March 31, 2013
	Level 1		Level 2		Level 3		Total
Investment securities available-for-sale:
U.S. Government agencies	$	1,024,845	$	14,096,933	$	0	$	15,121,778
Brokered certificates of deposit		8,479,275		0		0		8,479,275
Mortgage-backed securities (Agency)		1,022,582		17,503,140		495,932		19,021,654
Collateralized mortgage obligations (Agency)		285,887		12,797,159		576,422		13,659,468
	$	10,812,589	$	44,397,232	$	1,072,354	$	56,282,175

The following table summarizes activity in securities valued using Level 3 inputs during the six months ended September 30, 2013:

	September 30, 2013

Balance at beginning of the period	$	1,072,354
Purchases		0
Sales		0
Paydowns		(52,873	)
Transfers in and/or out of Level 3		(958,822	)
Changes in market value		(58,801	)
Balance at the end of the period	$	1,858

The Company measures its impaired loans on a nonrecurring basis, generally based on the fair value of the loans’ collateral. Fair value is generally determined based upon independent appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values. As of September 30, 2013 and March 31, 2013, our recorded investment in impaired loans was $1,359,888 and $1,227,795, respectively. Our allowance for loan losses included an allocation for these individually evaluated loans of $58,600 and $60,200 as of September 30, 2013 and March 31, 2013, respectively.

The Company measures its foreclosed real estate on a nonrecurring basis at fair value less estimated cost to sell. There was no foreclosed real estate as of September 30, 2013. As of March 31, 2013, the fair value of foreclosed real estate was estimated to be $55,000. Fair value was determined based on offers and/or appraisals. Cost to sell the assets was based on standard market factors. The Company categorizes its foreclosed real estate as Level 3. During the six months ended September 30, 2113, the foreclosed real estate owned as of March 31, 2013 was sold for $55,110.

The Bank does not measure the fair value of its other financial assets or liabilities on a recurring basis. The estimated fair values of these financial instruments that are reported at amortized cost in the Company’s consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, are as follows:

	September 30, 2013				March 31, 2013
(dollars in thousands)	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value

Financial assets
Level 2 inputs:
Cash and cash equivalents	$	4,031	$	4,031	$	4,813	$	4,813
Certificates of deposit		504		504		500		500
Accrued interest receivable		397		397		422		422
Level 3 inputs:
Federal Home Loan Bank stock		182		182		182		182
Loans, net		83,551		87,731		83,540		96,396
Foreclosed real estate		0		0		55		55
Financial liabilities
Level 2 inputs:
Noninterest-bearing deposits	$	7,060	$	7,060	$	5,972	$	5,972
Advances from borrowers for taxes and insurance		445		445		627		627
Level 3 inputs:
Interest-bearing deposits		125,597		126,550		128,684		129,625

Note 9. Regulatory Capital Ratios for Madison Square Federal Savings Bank

As of September 30, 2013, the most recent date of filing of the Consolidated Reports of Condition and Income with the Office of the Comptroller of the Currency, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action as disclosed in the table below. Management knows of no events or conditions that would change this classification:

						Minimum					To Be Well
	Actual					Requirements					Capitalized
(dollars in thousands)	Amount		%			Amount		%			Amount		%

As of September 30, 2013:
Total risk-based capital (to risk-weighted assets)	$	13,351		19.4	%	$	5,513		8.0	%	$	6,891		10.0	%
Tier I capital (to risk-weighted assets)		12,504		18.1			N/A		N/A			4,134		6.0
Tier I capital (to adjusted total assets)		12,504		8.5			5,879		4.0			7,349		5.0

As of March 31, 2013:
Total risk-based capital (to risk-weighted assets)	$	13,298		19.1	%	$	5,571		8.0	%	$	6,963		10.0	%
Tier I capital (to risk-weighted assets)		12,427		17.8			N/A		N/A			4,178		6.0
Tier I capital (to adjusted total assets)		12,427		8.3			5,986		4.0			7,483		5.0

Note 10. Stock Option Plans

The Company’s shareholders approved the 2011 Equity Incentive Plan, which reserves 79,054 shares for grant to officers and directors of the Company in the form of stock options (60,811 shares) and restricted stock (18,243 shares).

During the six months ended September 30, 2013 the Company granted stock options for 19,460 shares, with an exercise price of $14.60 per share. The options are exercisable up to 10 years from the grant date. The options vest over a three-year period with one third of the options vesting on each of the first, second and third anniversary dates.

During the year ended March 31, 2012, the Company granted stock options for 24,170 shares, with an exercise price of $8.00 per share. The options are exercisable up to 10 years from the grant date. The options vest over a two-year period with one third having vested immediately, one third of the options having vested on the first anniversary date and the final third of the options vesting on the second anniversary date.

Option expense recognized during the six months ended September 30, 2013 and September 30, 2012 was $16,018 and $7,130, respectively. At September 30, 2013, there was $49,791 of total unrecognized compensation expense related to non-vested stock options to be recognized through February 28, 2016. The weighted average grant date fair value of the options granted during the year ended March 31, 2012 was $1.77 and the weighted average grant date fair value of the options granted during the six months ended September 30, 2013 was $2.76.

A summary of information regarding stock options outstanding as of September 30, 2013, is as follows:

Weighted Average Exercise Price		Outstanding Shares		Average Remaining Life (Years)		Exercisable Shares

$	10.94		43,630		8.93		16,113

Intrinsic value		$	286,049			$	153,074

There are 17,181 options available for future grant.

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

Safe Harbor Statement for Forward-Looking Statements

This report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts, rather they are statements based on the Company��s current expectations regarding its business strategies and their intended results and its future performance. Forward-looking statements are preceded by terms such as “expects”, “believes”, “anticipates”, “intends”, and similar expressions.

Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to the Company’s actual results, performance, and achievements being materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government, legislative and regulatory changes, the quality and composition of the loan and investment securities portfolio, loan demand, deposit flows, competition, and changes in accounting principles and guidelines. Additional factors that may affect our results are discussed in item 1A. Risk Factors of the Company’s Annual Report on Form 10-K filed on June 25, 2013. These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.

Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. The following represent our critical accounting policies:

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default, the amount and timing of future cash flows on impacted loans, value of collateral, and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance monthly and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions, and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, periodically reviews our allowance for loan losses and may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.

Fair Value of Investments. Securities are characterized as available-for-sale or held-to-maturity based on management’s ability and intent regarding such investment at acquisition. On an ongoing basis, management must estimate the fair value of its investment securities based on information and assumptions it deems reliable and reasonable, which may be quoted market prices or if quoted market prices are not available, fair values extrapolated from the quoted prices of similar instruments. Based on this information, an assessment must be made as to whether any decline in the fair value of an investment security should be considered an other-than-temporary impairment and recorded in noninterest revenue as a loss on investments. The determination of such impairment is subject to a variety of factors, including management’s judgment and experience.

Comparison of Financial Condition at September 30, 2013 and March 31, 2013

Assets.Total assets decreased $2,678,000, or 1.8%, from $149,902,000 at March 31, 2013, to $147,224,000 at September 30, 2013 due to a $2,080,000, or 3.7%, decrease in investment securities available-for-sale and a $782,000, or 16.2%, decrease in cash and cash equivalents.

Cash andCash Equivalents.Cash and cash equivalents decreased by $782,000, or 16.2%, from $4,813,000 at March 31, 2013 to $4,031,000 at September 30, 2013.

	September 30,		March 31,
	2013		2013

Cash and due from banks	$	612,952	$	663,720
Federal funds sold		173,713		173,535
Interest-bearing deposits		543,805		175,862
FHLB overnight deposits		267,053		379,282
Federal Reserve Bank balances		2,433,909		3,420,737
Total	$	4,031,432	$	4,813,136

Loans. Net loans receivable increased by $11,000, from $83,540,000 at March 31, 2013 to $83,551,000 at September 30, 2013, primarily as a result of the net effect of a $520,000 increase in 1-4 single family mortgages, a $385,000 increase in farm loans, a $250,000 increase in home equity lines of credit, and a $77,000 increase in commercial loans, partially offset by a $1,018,000 decrease in mortgages secured by land and a $202,000 decrease in commercial mortgage loans. The increase in residential mortgage loans was primarily the result of our increased emphasis on lending in this specific area. The decrease in mortgages secured by land was primarily the result of significant principal reductions on two loans and normal principal reductions on the remaining portfolio.

Securities.Available-for-sale investment securities decreased by $2,080,000, or 3.7%, from $56,282,000 at March 31, 2013 to $54,202,000 at September 30, 2013. The net decrease in available-for-sale securities is the result of the sale of mortgage backed securities, collateralized mortgage obligations and agency securities with proceeds of $1,006,000 with $11,000 in gains $5,000 in losses on the sale, and $6,341,000 of securities being called, having matured, or repayments. These sales, calls, maturities and repayments were partially offset by the purchase of $6,559,000 of U.S. Government Agency bonds, mortgage backed securities, collateralized mortgage obligations, and $110,000 of Brokered Investment CDs. At September 30, 2013, we also held a $182,000 investment in the common stock of the Federal Home Loan Bank of Atlanta.

Deposits.Total deposits decreased by $1,999,000, or 1.5%, to $132,657,000 at September 30, 2013 from $134,656,000 at March 31, 2013. Balances of noninterest-bearing deposits increased by $1,089,000, or 18.2%, to $7,060,000 at September 30, 2013, from $5,972,000 at March 31, 2013. NOW and money market deposit accounts increased by $139,000, or 1.6%, to $8,885,000 at September 30, 2013 from $8,747,000 at March 31, 2013. Savings deposits decreased by $1,096,000 to $23,581,000 at September 30, 2013 from $24,677,000 at March 31, 2013 and certificates of deposit decreased by $2,131,000, or 2.2% at September 30, 2013 from $95,260,000 at March 31, 2013.

Borrowings.We had no borrowings at September 30, 2013 or March 31, 2013.

Shareholders’ Equity. Shareholders’ equity decreased by $758,000, or 5.3%, to $13,502,000 at September 30, 2013 from $14,260,000 at March 31, 2013 primarily due to a decrease in the after-tax valuation for available-for-sale securities of $799,000 from $181,000 at March 31, 2013 to $(618,000) at September 30, 2013. The decrease in the valuation reserve was a result of a decline in prices on many securities in the investment portfolio due to the increase in interest rates over the six month period ended September 30, 2013.

Results of Operations for the Three Months Ended September 30, 2013 and 2012

Overview.Net income was $9,000 for the three months ended September 30, 2013, compared to $64,000 for the three months ended September 30, 2012. The decrease in net income for the current quarter was primarily the result of a decrease in noninterest revenue resulting from reductions in gains on the sale of land and gains on the sale of investment securities. This decrease in net income was partially offset by an increase in net interest income and decreases in noninterest expenses.

Net Interest Income. Net interest income increased by $10,000, or 1.1%, to $891,000 for the three months ended September 30, 2013, as compared to $882,000 for the three months ended September 30, 2012, primarily due to a decrease in the cost of funds for deposits and a decrease in the average balance for total interest-bearing deposits, partially offset by a smaller decrease in the yield on interest-earning assets and a decrease in the average balance of interest-earning assets. Our interest rate spread was 2.36% for the three months ended September 30, 2013, compared to 2.23% for the three months ended September 30, 2012, and our net interest margin increased by 13 basis points to 2.47% for the three months ended September 30, 2013, from 2.34% for the three months ended September 30, 2012.

Interest on loans decreased by $106,000, or 9.6%, to $991,000 for the three months ended September 30, 2013, as compared to $1,096,000 for the three months ended September 30, 2012. The average balance of loans increased by $683,000 to $83,281,000 for the three months ended September 30, 2013, from $82,598,000 for the three months ended September 30, 2012. The average yield on loans decreased by 56 basis points from 5.28% for the three months ended September 30, 2012 to 4.72% for the three months ended September 30, 2013.

Interest on securities available-for-sale decreased by $6,000, or 3.2%, to $189,000 for the three months ended September 30, 2013, as compared to $195,000 for the three months ended September 30, 2012, due to a decrease in average balances of $3,122,000, partially offset by an increase of 2 basis points in the average yield on the portfolio.

Interest income on interest-bearing deposits decreased by $1,000, or 25.0%, to $4,000 for the three months ended September 30, 2013, as compared to $5,000 for the three months ended September 30, 2012, as a result of a $3,726,000 decrease in average balances partially offset by a 9 basis point increase in the average yield.

Interest expense on total deposits decreased by $122,000 to $293,000 for the three months ended September 30, 2013, from $415,000 for the three months ended September 30, 2012, due to a decrease of $8,328,000 in average balances and a 31 basis point decrease in the average cost of interest-bearing deposits. Interest on certificates of deposit decreased $118,000 to $283,000 for the three months ended September 30, 2013, from $401,000 for the three months ended September 30, 2012, as a result of a 35 basis point decrease in average cost of time deposits and a decrease in average balances of $9,204,000. Interest on savings deposits decreased by $3,000 to $6,000 for the three months ended September 30, 2013, as compared to $9,000 for the three months ended September 30, 2012, due to a decrease in the average cost of savings deposits of 5 basis points and a decrease in average balances of $111,000. Interest on NOW and money market deposit accounts decreased $1,000 to $4,000 for the three months ended September 30, 2013, from $5,000 for the three months ended September 30, 2012 due to a decrease of 8 basis points in the average cost of NOW and money market deposit accounts partially offset by an increase in average balances of $987,000.

Average Balances, Interest and Yields. The following table for the three months ended September 30, 2013 and 2012 presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing the annualized income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Amortization of net deferred loan fees is included in interest income on loans and is insignificant. Non-accruing loans have been included in the table as loans carrying a zero yield. No tax-equivalent adjustments were made.

	Three Months Ended September 30,
	2013							2012
	Average Balance		Interest		Yield/ Cost			Average Balance		Interest		Yield/ Cost
Assets:
Interest-bearing deposits	$	4,642,897	$	3,857		0.33	%	$	8,368,595	$	5,140		0.24	%
Investment securities available-for-sale		55,320,921		188,637		1.35			58,443,150		194,952		1.33
Loans receivable, net		83,281,356		990,702		4.72			82,597,644		1,096,271		5.28
Other interest-earning assets		181,883		1,147		2.50			229,085		847		1.47
Total interest-earning assets		143,427,057		1,184,343		3.28	%		149,638,474		1,297,210		3.45	%
Noninterest-earning assets		4,077,492							6,042,370
Total assets	$	147,504,549						$	155,680,844

Liabilities and Shareholders’ Equity:
Time deposits	$	92,961,328		282,533		1.21	%	$	102,165,003		400,755		1.56	%
Savings		24,326,356		6,108		0.10			24,437,787		9,215		0.15
NOW and money market accounts		9,085,931		4,313		0.19			8,099,275		5,453		0.27
Total interest-bearing deposits		126,373,615		292,954		0.92			134,702,065		415,423		1.23
Other interest-bearing liabilities		462,935		0		0.00			436,330		15		0.01
Total interest-bearing liabilities		126,836,550		292,954		0.92	%		135,138,395		415,438		1.22	%
Noninterest-bearing deposits		6,629,957							5,677,734
Other noninterest-bearing liabilities		612,410							509,714
Total liabilities		134,078,917							141,325,843
Total shareholders’ equity		13,425,632							14,355,001
Total liabilities and shareholders’ equity	$	147,504,549						$	155,680,844

Net interest income			$	891,389						$	881,772
Interest rate spread						2.36	%						2.23	%
Net interest margin						2.47	%						2.34	%
Average interest-earning assets to average interest-bearing liabilities						113.08	%						110.73	%

●	Average loan balances include nonaccrual loans.

●	For presentation in this table, balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.

Provision and Allowance for Loan Losses. We maintain an allowance at a level necessary to absorb management’s best estimate of probable loan losses in the portfolio. Management considers, among other factors, historical loss experience, type and amount of loans, borrower concentrations, and current conditions of the economy. In addition, the allowance considers the level of loans which management monitors as a result of inconsistent repayment patterns.

Our provision for loan losses decreased $52,000 to $13,000 for the three months ended September 30, 2013 from $65,000 for the three months ended September 30, 2012. At September 30, 2013, the allowance for loan losses was $847,000, or 1.01%, of total loans compared to $909,000, or 1.08%, of total loans at March 31, 2013, and $853,000, or 1.02% of total loans at September 30, 2012. We had balances of $374,000 in 1-4 single family residential mortgage nonaccrual loans at September 30, 2013, compared to $314,000 in 1-4 single family nonaccrual loans, $16,000 in commercial nonaccrual loans and $2,000 in consumer nonaccrual loans at March 31, 2013, and $199,000 of 1-4 single family nonaccrual loans at September 30, 2012.

Management also reviews individual loans for which full collectability may not be reasonably assured and considers, among other matters, the estimated fair value of the underlying collateral. This evaluation is ongoing and results in variations in our provision for loan losses.

We had recoveries of $811 and $81,000 in 1-4 single family mortgage charge-offs and $15,000 in land mortgage charge-offs during the three months ended September 30, 2013, compared to no recoveries and $89,500 in land loan charge-offs and $48,000 in 1-4 single family mortgage charge-offs during the three months ended September 30, 2012.

Although management utilizes its best judgment in providing for losses, there can be no assurance that they will not have to increase the allowance for loan losses in subsequent periods. Management will continue to monitor the allowance for loan losses and make additional provisions to the allowance as appropriate.

Analysis of Loan Loss Experience.The following table sets forth an analysis of the allowance for loan losses for the periods indicated.

	At or for the Three
	Months Ended September 30,
	2013			2012

Allowance for loan losses at beginning of period	$	928,488		$	925,098
Provision for loan losses		13,000			65,000
Recoveries:
Loans secured by mortgages:
1-4 single family residential		811			0
Land		0			0
Commercial		0			0
Total recoveries		811			0
Charge-offs:
Loans secured by mortgages:
1-4 single family residential		80,500			47,971
Land		15,000			89,500
Commercial		0			0
Total charge-offs		95,500			137,471
Net charge-offs		94,689			137,471
Allowance for loan losses at end of period	$	846,799		$	852,627

Allowance for loan losses to nonaccrual loans		226.59	%		268.17	%
Allowance for loan losses to total loans outstanding at the end of the period		1.01	%		1.02	%
Net charge-offs to average loans outstanding during the period (not annualized)		0.11	%		0.16	%

At September 30, 2013, Madison had two 1-4 single family loans totaling approximately $375,000 classified as troubled debt restructurings “TDRs”, which received rate modifications to current market rates. One of these two loans in the amount of $7,000 is current at September 30, 2013 and is classified as substandard. The individual impairment recorded against this loan was $900 as of September 30, 2013. The other loan in the amount of $368,000 has remained current through the three months ended September 30, 2013 and is not adversely classified. As of September 30, 2013, the individual impairment recorded against this loan was $58,000 compared to $61,000 at September 30, 2012. These loans are in accrual status and in compliance with their modified terms, and therefore, not included in the ratio above.

Noninterest Revenue. Noninterest revenue decreased by $135,000, or 76.4%, for the three months ended September 30, 2013, to $42,000 as compared to $177,000 for the three months ended September 30, 2012. The decrease during the period was primarily due to decreases of $59,000 in gain on the sale of investment securities and $71,000 in gain on sale of land.

Noninterest Expenses.Noninterest expense decreased by $19,000, or 2.0%, to $911,000 for the three months ended September 30, 2013 as compared to $930,000 for the three months ended September 30, 2012, primarily due to decreases in other operating expenses, salaries and employee benefits, professional services and regulatory assessments.

Income Tax Expense. For the three months ended September 30, 2013 and 2012, we incurred no income tax expense. At March 31, 2013, the Bank had a net operating loss carry-forward totaling approximately $643,000, which will begin to expire during the year ending March 31, 2029. The Bank also had a capital loss carry-forward of approximately $495,000, which expires during the year ending March 31, 2014. We have established a valuation allowance to reflect uncertainty as to our ability to realize our deferred tax asset. See Note 12 of the notes to the consolidated financial statements for March 31, 2013, filed in our Annual Report on Form 10-K for the year ended March 31, 2013.

Results of Operations for the Six Months Ended September 30, 2013 and 2012

Overview.Net income was $24,000 for the six months ended September 30, 2013, compared to $134,000 for the six months ended September 30, 2012. The decrease in net income for the current period was primarily the result of a decrease in noninterest revenue resulting from reductions in gains on the sale of investment securities and gains on the sale of land and a decrease in net interest income. These decreases to income were only partially offset by decreases to noninterest expenses and a decrease in the provision for loan losses.

Net Interest Income. Net interest income decreased by $54,000, or 3.0%, to $1,770,000 for the six months ended September 30, 2013, as compared to $1,825,000 for the six months ended September 30, 2012, due to a decrease in average balances and yield of interest-earning assets, partially offset by a decrease in cost of interest-bearing liabilities and a less significant decrease in the average balances on interest-bearing liabilities. Our interest rate spread was 2.35% for the six months ended September 30, 2013, compared to 2.30% for the six months ended September 30, 2012, and our net interest margin increased by 2 basis points to 2.45% for the six months ended September 30, 2013, from 2.43% for the six months ended September 30, 2012.

Interest on loans decreased by $241,000, or 10.8%, to $1,998,000 for the six months ended September 30, 2013, as compared to $2,238,000 for the six months ended September 30, 2012. The average balance of loans decreased by $447,000 to $83,258,000 for the six months ended September 30, 2013, from $83,704,000 for the six months ended September 30, 2012. The average yield on loans decreased by 56 basis points to 4.79% for the six months ended September 30, 2013 from 5.35% for the six months ended September 30, 2012.

Interest on securities available-for-sale decreased by $56,000, or 13.3%, to $368,000 for the six months ended September 30, 2013, as compared to $425,000 for the six months ended September 30, 2012, due to a 16 basis point decrease in the average yield and a decrease of $1,817,00 in average balances of the portfolio.

Interest income on interest-bearing deposits decreased by $4,000, or 33.1%, to $8,000 for the six months ended September 30, 2013, as compared to $12,000 for the six months ended September 30, 2012, as a result of a $3,950,000 decrease in average balances partially offset by a five basis point increase in the average yield.

Interest expense on total deposits decreased by $248,000, or 29.1%, to $606,000 for the six months ended September 30, 2013, from $854,000 for the six months ended September 30, 2012, due to a 31 basis point decrease in the average cost of interest-bearing deposits and a $7,801,000 decrease in the average balance of interest-bearing deposits. Interest on certificates of deposit decreased by $240,000 to $585,000 for the six months ended September 30, 2013 from $825,000 for the six months ended September 30, 2012, as a result of the 36 basis point decrease in the average cost of time deposits and by a decrease in average balances of $9,159,000. Interest on savings deposits decreased by $6,000 to $12,000 for the six months ended September 30, 2013, from $18,000 for the six months ended September 30, 2012, due to a decrease in the average cost of savings accounts of 5 basis points partially offset by an increase in average balances of $402,000. Interest on NOW and money market deposit accounts decreased by $3,000 to $9,000 for the six months ended September 30, 2013, from $12,000 for the six months ended September 30, 2012, due to a decrease in the cost of NOW and money market deposit accounts of 10 basis points, partially offset by an increase of $956,000 in average balances.

Average Balance and Yields. The following table for the six months ended September 30, 2013 and 2012 presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing the annualized income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Amortization of net deferred loan fees is included in interest income on loans and is insignificant. Non-accruing loans have been included in the table as loans carrying a zero yield. No tax-equivalent adjustments were made.

	Six Months Ended September 30,
	2013							2012
	Average Balance		Interest		Yield/ Cost			Average Balance		Interest		Yield/ Cost
Assets:
Interest-bearing deposits	$	5,063,049	$	8,103		0.32	%	$	9,013,512	$	12,113		0.27	%
Investment securities available-for-sale		55,550,325		368,260		1.32			57,367,679		424,697		1.48
Loans receivable, net		83,257,522		1,997,708		4,79			83,704,185		2,238,475		5.35
Other interest-earning assets		181,842		2,407		2.64			278,704		3,839		2.75
Total interest-earning assets		144,052,738		2,376,478		3.29	%		150,364,080		2,679,124		3.56	%
Noninterest-earning assets		4,660,393							5,991,125
Total assets	$	148,713,131						$	156,355,205

Liabilities and Shareholders’ Equity:
Time deposits	$	93,814,547		585,029		1.24	%	$	102,973,184		824,738		1.60	%
Savings		24,476,927		12,225		0.10			24,075,008		18,056		0.15
NOW and money market accounts		9,047,576		8,770		0.19			8,091,629		11,591		0.29
Total interest-bearing deposits		127,339,050		606,024		0.95			135,139,821		854,385		1.26
Other interest-bearing liabilities		629,336		0		0.00			585,137		15		0.01
Total interest-bearing liabilities		127,968,386		606,024		0.94	%		135,724,958		854,400		1.26	%
Noninterest-bearing deposits		6,272,009							5,894,374
Other noninterest-bearing liabilities		654,873							476,527
Total liabilities		134,895,268							142,095,859
Total shareholders’ equity		13,817,863							14,259,346
Total liabilities and shareholders’ equity	$	148,713,131						$	156,355,205

Net interest income			$	1,770,454						$	1,824,724
Interest rate spread						2.35	%						2.30	%
Net interest margin						2.45	%						2.43	%
Average interest-earning assets to average interest-bearing liabilities						112.57	%						110.79	%

●	Average loan balances include nonaccrual loans.

●	For presentation in this table, balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.

Provision and Allowance for Loan Losses. Our provision for loan losses decreased $136,000 to $33,000 for the six months ended September 30, 2013 from $169,000 for the six months ended September 30, 2012. At September 30, 2013, the allowance for loan losses was $847,000, or 1.01% of total loans, compared to $909,000 or 1.08% of total loans at March 31, 2013, and $853,000, or 1.02% of total loans at September 30, 2012. We had balances of $374,000 in 1-4 single family residential mortgage nonaccrual loans at September 30, 2013, compared to $314,000 in 1-4 single family nonaccrual loans, $16,000 in commercial nonaccrual loans and $2,000 in consumer nonaccrual loans at March 31, 2013; and $199,000 of 1-4 single family nonaccrual loans at September 30, 2012. Early in the first quarter of fiscal year 2014, a loan which had been previously transferred to foreclosed real estate was sold with a gain of less than $1,000. We held no other foreclosed real estate during the six months ended September 30, 2013. During the six months ended September 30, 2012, one 1-4 single family loan in the amount of $57,000 was transferred to foreclosed real estate.

We had recoveries of $811 and charge-offs of $81,500 in 1-4 single family mortgage loans and charge-offs of $15,000 in land mortgage loans during the six months ended September 30, 2013, compared to $235 in commercial loan recoveries and charge-offs of $64,200 in 1-4 single family mortgage and $89,500 in land mortgage loans during the six months ended September 30, 2012.

Analysis of Loan Loss Experience.The following table sets forth an analysis of the allowance for loan losses for the periods indicated.

	At or for the Six
	Months Ended September 30,
	2013			2012

Allowance for loan losses at beginning of period	$	909,488		$	837,063
Provision for loan losses		33,000			169,000
Recoveries:
Loans secured by mortgages:
1-4 single family residential		811			0
Land		0			0
Commercial		0			235
Total recoveries		811			235
Charge-offs:
Loans secured by mortgages:
1-4 single family residential		81,500			64,171
Land		15,000			89,500
Commercial		0			0
Total charge-offs		96,500			153,671
Net charge-offs (recoveries)		95,689			153,436
Allowance for loan losses at end of period	$	846,799		$	852,627

Allowance for loan losses to nonaccrual loans		226.59	%		268.17	%
Allowance for loan losses to total loans outstanding at the end of the period		1.01	%		1.02	%
Net charge-offs to average loans outstanding during the period (not annualized)		0.11	%		0.18	%

Noninterest Revenue. Noninterest revenue decreased by $241,000, or 74.4%, for the six months ended September 30, 2013, to $83,000 as compared to $324,000 for the six months ended September 30, 2012. The decrease during the period was primarily due to a decrease of $154,000 in gains on the sale of investment securities and $71,000 in gains on the sale of land.

Noninterest Expenses.Noninterest expense decreased by $49,000 or 2.7%, to $1,797,000 for the six months ended September 30, 2013 as compared to noninterest expense of $1,846,000 for the six months ended September 30, 2012, primarily due to decreases in salaries and employee benefits, occupancy and equipment expenses, and FDIC and regulatory assessments, partially offset by an increase in advertising expense.

Income Tax Expense. For the six months ended September 30, 2013 and 2012, we incurred no income tax expense. At March 31, 2013, the Bank had a net operating loss carry-forward totaling approximately $643,000, which will begin to expire during the year ending March 31, 2029. The Bank also had a capital loss carry-forward of approximately $495,000, which expires during the year ending March 31, 2014. We have established a valuation allowance to reflect uncertainty as to our ability to realize our deferred tax asset. See Note 12 of the notes to the consolidated financial statements for March 31, 2013, filed in our Annual Report on Form 10-K for the year ended March 31, 2013.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds available to meet short-term liquidity needs consist of deposit inflows, loan repayments, and maturities and sales of investment securities. 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. We regularly adjust our investments in liquid assets available to meet short-term liquidity needs based upon our assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and securities, and (iv) the objectives of our asset/liability management policy. We do not have long-term debt or other financial obligations that would create long-term liquidity concerns.

Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The level of these assets depends on our operating, financing, lending, and investing activities during any given period. At September 30, 2013, cash and cash equivalents totaled $4,031,000. Securities classified as available-for-sale amounted to $54,202,000. Our liquidity has decreased slightly as we have continued to decrease interest rates on deposits. In addition, at September 30, 2013, the Bank had the ability to borrow a total of approximately $30.0 million from the Federal Home Loan Bank of Atlanta, and the Bank has lines of credit totaling approximately $6.1 million with two large financial institutions. At September 30, 2013, we had no Federal Home Loan Bank advances outstanding or borrowings on the lines of credit.

At September 30, 2013, we had $6,379,000 in commitments to extend credit outstanding. Certificates of deposit due within one year of September 30, 2013, totaled $52,549,000, or 56.4% of certificates of deposit. We believe the large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for longer periods due to the current low interest rate environment and local competitive pressures. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September, 2014. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Not applicable as the Company is a smaller reporting company.

Item 4. Controls and Procedures

(a)		Disclosure Controls and Procedures
		The Company’s management, including the Company’s principal executive officer and principal financial officer, has 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 Securities and Exchange Commission (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.

(b)		Changes to Internal Control Over Financial Reporting
		There were no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2013, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – Other Information

Item 1. Legal Proceedings

The Company is not involved in any pending legal proceedings other than routine legal proceedings in the ordinary course of business. We are not a party to any pending legal proceeding that we believe would have a material adverse effect on our financial condition, results of operations, or cash flows.

Item 1A. Risk Factors

There have been no material changes in the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013.

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

N/A

Item 5. Other Information

None

Item 6. Exhibits

3.1	Articles of Incorporation of Madison Bancorp, Inc. (1)
3.2	Bylaws of Madison Bancorp, Inc. (2)
4.0	Form of Common Stock Certificate of Madison Bancorp, Inc. (3)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer and Chief Financial Officer
32.0	Section 1350 Certifications
101.0	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Financial Condition; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Changes in Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) the Notes to the Consolidated Financial Statements

________________________

(1)	Incorporated herein by reference to exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-167455), as amended, initially filed with the Securities and Exchange Commission on June 11, 2010.

(2)	Incorporated herein by reference to exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No. 333-167455), as amended, initially filed with the Securities and Exchange Commission on June 11, 2010.

(3)	Incorporated herein by reference to exhibit 4.0 to the Company’s Registration Statement on Form S-1 (File No. 333-167455), as amended, initially filed with the Securities and Exchange Commission on June 11, 2010.

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.

	MADISON BANCORP, INC.


Dated: November 8, 2013	By: /s/ Michael P. Gavin
	Michael P. Gavin
	President, Chief Executive Officer and Chief
	Financial Officer
	(principal executive officer & principal financial
	officer)

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Madison Bancorp (MDSN) Inactive 10-Q2014 Q2 Quarterly report

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