S-1

As filed with the Securities and Exchange Commission on December 17, 2009

Registration No. 333-                

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

FAIRMOUNT BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	6712	Being applied for
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

8216 Philadelphia Road

Baltimore, Maryland 21237

(410) 866-4500

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Mr. Joseph M. Solomon

President and Chief Executive Officer

Fairmount Bancorp, Inc.

8216 Philadelphia Road

Baltimore, Maryland 21237

(410) 866-4500

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Copies to:

Edward B. Crosland, Jr., Esq.

Regina N. Hamilton, Esq.

Jones, Walker, Waechter, Poitevent, Carrère & Denègre L.L.P.

499 S. Capitol Street, SW, Suite 600

Washington, D.C. 20003

(202) 203-1000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ¨

If this Form is filed to register additional shares for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ¨

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

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

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Amount to be registered	Proposed maximum offering price per share	Proposed maximum aggregate offering price	Amount of registration fee
Common Stock, $0.01 par value per share	661,250 shares	$10.00	$6,612,500 (1)	$369

(1) Estimated solely for the purpose of calculating the registration fee.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

PROSPECTUS

FAIRMOUNT BANCORP, INC.

(Proposed Holding Company for Fairmount Bank)

Up to 575,000 Shares of Common Stock

Fairmount Bancorp, Inc., a Maryland corporation, is offering shares of its common stock for sale in connection with the conversion of Fairmount Bank, a federally chartered savings bank, from the mutual to the stock form of organization. All shares of common stock are being offered for sale at a price of $10.00 per share. We expect that our common stock will be quoted on the Over-the-Counter Electronic Bulletin Board upon conclusion of the offering.

We are offering up to 575,000 shares of common stock for sale on a best efforts basis, subject to certain conditions. We may sell up to 661,250 shares of common stock, without giving subscribers the opportunity to change or cancel their orders, because of demand for the shares, changes in market conditions or regulatory considerations. We must sell a minimum of 425,000 shares in order to complete the offering.

If you are or were a depositor of Fairmount Bank:

• You may have priority rights to purchase shares of common stock.

If you are or were not a depositor, but are interested in purchasing shares of our common stock:

• You may have an opportunity to purchase shares of common stock after priority orders are filled.

The minimum number of shares of common stock you may order is 25 shares. The offering is expected to expire at      p.m., Eastern time, on                 , 2010. We may extend this expiration date without notice to you until                 ,     . Once submitted, orders are irrevocable unless the offering is terminated or is extended beyond                 ,     , or the number of shares of common stock to be sold is increased to more than 661,250 shares or decreased to fewer than 425,000 shares. If the offering is extended beyond                 ,     , or if the number of shares of common stock to be sold is increased to more than 661,250 shares or decreased to fewer than 425,000 shares, we will give subscribers an opportunity to change or cancel their orders. Funds received during the offering will be held in a segregated account at Fairmount Bank, or, in our discretion, at another insured depository institution, and will earn interest at our passbook savings rate, which is currently 1.00% per annum.

Stifel, Nicolaus & Company, Incorporated will assist us in selling our shares of common stock on a best efforts basis. Shares of common stock not purchased in the subscription offering may be offered for sale to the general public in a “community offering” with a preference given first to natural persons residing in Baltimore City, Maryland, and the Maryland counties of Baltimore and Harford. The community offering, if held, may begin concurrently with, during or promptly after the subscription offering, as we may determine at any time. We also may offer for sale shares of common stock not purchased in the subscription offering or community offering through a “syndicated community offering” managed by Stifel, Nicolaus & Company, Incorporated. Stifel, Nicolaus & Company, Incorporated is not required to purchase any shares of the common stock that are being offered for sale. Purchasers will not pay a commission to purchase shares of common stock in the offering. Stifel, Nicolaus & Company, Incorporated has advised us that it intends to make a market in the common stock, but is under no obligation to do so.

This investment involves a degree of risk, including the possible loss of your principal.

Please read “Risk Factors” beginning on page 14.

OFFERING SUMMARY

Price: $10.00 Per Share

	Minimum		Midpoint		Maximum		Adjusted Maximum
Number of shares		425,000		500,000		575,000		661,250
Gross offering proceeds	$	4,250,000	$	5,000,000	$	5,750,000	$	6,612,500
Estimated offering expenses (excluding selling agent fees and expenses)	$	485,000	$	485,000	$	485,000	$	485,000
Estimated selling agent fees and expenses (1)	$	215,000	$	215,000	$	215,000	$	215,000
Estimated net proceeds	$	3,550,000	$	4,300,000	$	5,050,000	$	5,912,500
Estimated net proceeds per share	$	8.35	$	8.60	$	8.78	$	8.94

(1) See “The Conversion and Offering—Marketing and Distribution; Compensation” for a discussion of Stifel, Nicolaus & Company, Incorporated’ compensation for this offering.

These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Neither the Securities and Exchange Commission, the Office of Thrift Supervision, nor any state securities regulator has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

For assistance, please contact the Stock Information Center, toll-free, at (            )             -            .

STIFEL NICOLAUS

The date of this prospectus is                     , 2010.

[INSERT MAP]

TABLE OF CONTENTS

	Page
SUMMARY	1
RISK FACTORS	14
SELECTED FINANCIAL AND OTHER DATA	24
FORWARD-LOOKING STATEMENTS	26
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING	27
OUR POLICY REGARDING DIVIDENDS	28
MARKET FOR THE COMMON STOCK	29
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE	30
CAPITALIZATION	31
PRO FORMA DATA	32
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	35
BUSINESS OF FAIRMOUNT BANCORP, INC.	45
BUSINESS OF FAIRMOUNT BANK	46
SUPERVISION AND REGULATION	64
TAXATION	71
MANAGEMENT	72
SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS	79
THE CONVERSION AND OFFERING	79
RESTRICTIONS ON ACQUISITION OF FAIRMOUNT BANCORP, INC.	94
DESCRIPTION OF CAPITAL STOCK	97
TRANSFER AGENT	98
EXPERTS	98
LEGAL MATTERS	98
WHERE YOU CAN FIND ADDITIONAL INFORMATION	99
INDEX TO FINANCIAL STATEMENTS OF FAIRMOUNT BANK

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SUMMARY

The following summary highlights material information in this prospectus. It may not contain all the information that is important to you. For additional information before making an investment decision, you should read this entire prospectus carefully, including the financial statements, the notes to the financial statement and the section entitled “Risk Factors.”

In this prospectus, the terms “we”, “our,” and “us” refer to Fairmount Bancorp, Inc., unless the context indicates another meaning.

Fairmount Bancorp, Inc.

Fairmount Bancorp, Inc. is a newly formed Maryland corporation that will own all of the outstanding shares of common stock of Fairmount Bank upon completion of the mutual-to-stock conversion and the offering. Fairmount Bancorp, Inc. has not engaged in any business to date. The principal business activity of Fairmount Bancorp, Inc. will be the ownership of all of the outstanding shares of common stocks of Fairmount Bank.

Our executive offices are located at 8216 Philadelphia Road, Baltimore, Maryland 21237. Our telephone number is (410) 866-4500. Our website is located at www.fairmountbank.com.

Fairmount Bank

Fairmount Bank is a federally chartered savings bank located in the Rosedale area of Baltimore County, Maryland, originally founded in 1879. Fairmount Bank has operated as a community-oriented institution by offering a variety of loan and deposit products and serving other financial needs of its local community. Fairmount Bank takes its corporate citizenship seriously and is committed to meeting the credit needs of the community, consistent with safe and sound operations.

At September 30, 2009, Fairmount Bank had total assets of $64,041,000, net loans of $50,334,000, total deposits of $45,838,000 and total equity of $6,790,000.

Fairmount Bank’s business consists primarily of attracting and accepting retail deposits from the general public in the areas surrounding our office and investing those deposits, together with funds generated from operations, in primarily one-to four-family residential mortgage loans. At September 30, 2009, one-to four-family residential mortgage loans totaled $39,646,000, or 78.69% of Fairmount Bank’s loan portfolio. Fairmount Bank also invests in various investment securities. Our profitability depends primarily on Fairmount Bank’s net interest income, which is the difference between the income Fairmount Bank receives on its loans and other assets and its cost of funds, which consists of the interest Fairmount Bank pays on deposits and borrowings.

Fairmount Bank’s executive offices are located at 8216 Philadelphia Road, Baltimore, Maryland 21237. Its telephone number is (410) 866-4500. Fairmount Bank’s website is located at www.fairmountbank.com.

Our Organizational Structure

Pursuant to the terms of our plan of conversion, Fairmount Bank will convert from a federal mutual (meaning no stockholders) savings bank to a federal stock savings bank and operate as a wholly owned subsidiary of Fairmount Bancorp, Inc. As a part of the conversion, we are offering for sale in a subscription offering, and, possibly, a community offering and a syndicated community offering, shares of common stock of Fairmount Bancorp, Inc.

Upon completion of the offering, Fairmount Bancorp, Inc. will own 100% of the outstanding shares of common stock of Fairmount Bank, and all of the common stock of Fairmount Bancorp, Inc. will be owned by purchasers in the offering.

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The following diagram depicts our corporate structure after the conversion and offering:

Business Strategy

Our business goal is to remain a well capitalized, profitable and community-oriented institution and to grow and improve our profitability. We seek to accomplish this goal by:

• growing and diversifying Fairmount Bank’s loan portfolio;

• continuing to emphasize residential real estate lending;

• continuing to maintain strong asset quality through conservative underwriting standards;

• building lower cost deposits;

• maintaining a strong capital position through disciplined growth and earnings;

• offering new and better products and services; and

• expanding our branch network.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Strategy” for a further discussion of our business strategy.

Reasons for the Conversion and the Offering

Our primary reasons for converting Fairmount Bank to the stock form of organization and raising additional capital through the offering are to:

• provide a larger capital cushion for asset growth, which will primarily be realized through existing operations;

• support growth and diversification of operations, products and services to transition Fairmount Bank into a full-service community bank;

• improve our overall capital and competitive position;

• increase Fairmount Bank’s loans to one borrower limit and allow Fairmount Bank to make larger loans, including larger commercial real estate loans;

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• provide additional financial resources to pursue branch expansion and possible future acquisition opportunities, although we have no current arrangements or agreements with respect to any such branches or acquisitions;

• provide better capital management tools, including the ability to pay dividends and to repurchase shares of our common stock, subject to market conditions; and

• attract and retain qualified directors, officers and other employees by establishing stock-based compensation plans including a stock option plan, a stock recognition and retention plan and an employee stock ownership plan.

The offering is expected to provide local customers and other residents with an opportunity to become equity owners of Fairmount Bancorp, Inc., consistent with the objective of being a locally-owned financial institution serving local financial needs. The board and management believe that, through local stock ownership, purchasers of our stock will seek to enhance our financial success by consolidating their banking business in, and referring prospective customers to, Fairmount Bank.

In the stock holding company structure, we will have easier access to the capital markets and we will have greater flexibility in structuring mergers and acquisitions. Our current mutual structure prevents us from offering shares of our common stock as consideration for a merger or acquisition. Potential sellers often want stock for at least part of the acquisition consideration. Our new stock holding company structure will enable us to offer stock or cash consideration, or a combination thereof, and will therefore enhance our ability to compete with other bidders when acquisition opportunities arise.

Terms of the Conversion and the Offering

Pursuant to the plan of conversion, Fairmount Bank will convert from a federal mutual savings bank to a federal stock savings bank. In connection with the conversion, we are offering between 425,000 and 575,000 shares of common stock in a subscription offering to eligible depositors of Fairmount Bank, to our tax-qualified employee benefit plans and, to the extent shares remain available, to the general public in a community and/or syndicated community offering. The number of shares of common stock to be sold may be increased up to 661,250 as a result of demand for the shares, changes in the market for financial institution stocks or regulatory considerations. Unless the number of shares of common stock to be offered is increased to more than 661,250 or decreased to less than 425,000, or the offering is extended beyond                 , 2010, subscribers will not have the opportunity to change or cancel their stock orders.

The purchase price of each share of common stock to be issued in the offering is $10.00. All investors will pay the same purchase price per share. Investors will not be charged a commission to purchase shares of common stock in the offering. Stifel, Nicolaus & Company, Incorporated, our conversion advisory and marketing agent in the offering, will use its best efforts to assist us in selling shares of our common stock. Stifel, Nicolaus & Company, Incorporated is not obligated to purchase any shares of common stock in the offering.

Persons Who May Order Shares of Common Stock in the Offering

We are offering the shares of common stock in a “subscription offering” in the following order of priority:

• First, to depositors of Fairmount Bank with aggregate account balances of at least $50 as of the close of business on September 30, 2008.

• Second, to Fairmount Bank’s tax-qualified employee benefit plans.

• Third, to depositors of Fairmount Bank with aggregate account balances of at least $50 as of the close of business on                 ,     .

• Fourth, to depositors of Fairmount Bank as of                 ,     .

Shares of common stock not purchased in the subscription offering may be offered for sale to the general public in a “community offering,” with a preference given to natural persons residing in Baltimore City, Maryland, and the

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Maryland counties of Baltimore and Harford. The community offering, if held, may begin concurrently with, during or promptly after the subscription offering as we may determine at any time. If shares remain available for sale following the subscription offering or community offering, we also may offer for sale shares of common stock through a “syndicated community offering” managed by Stifel, Nicolaus & Company, Incorporated. We have the right to accept or reject, in our sole discretion, orders received in the community offering or syndicated community offering. Any determination to accept or reject purchase orders in the community or syndicated community offering will be based on the facts and circumstances available to management at the time of the determination.

To ensure a proper allocation of stock, each subscriber eligible to purchase in the subscription offering must list on the stock order form all deposit accounts in which the subscriber had an ownership interest at September 30, 2008,                 ,     or                 ,     , as applicable. Failure to list all accounts, or providing incorrect information, could result in the loss of all or part of a subscriber’s stock allocation. We will strive to identify your ownership in all accounts, but we cannot guarantee that we will identify all accounts in which you have an ownership interest. Our interpretation of the terms and conditions of the plan of conversion and of the acceptability of the order forms will be final.

If we receive orders for more shares than we are offering, we may not be able to fully or partially fill your order. Shares of common stock will be allocated first to categories in the subscription offering. A detailed description of share allocation procedures can be found in the section entitled “The Conversion and Offering—Subscription Offering and Subscription Rights” and “—Community Offering.”

How We Intend to Use the Proceeds from the Offering

We estimate net proceeds from the offering will be between $3,550,000 and $5,050,000, or $5,912,500 if the offering range is increased by 15%. Approximately $1,775,000 to $2,525,000 of the net proceeds, or $2,956,250 if the offering range is increased by 15%, will be invested in Fairmount Bank. Fairmount Bancorp, Inc. intends to retain between $1,435,000 and $2,065,000 of the net proceeds, or $2,427,250 if the offering range is increased by 15%. A portion of the net proceeds retained by Fairmount Bancorp, Inc. will be used for a loan to the employee stock ownership plan to fund its purchase of shares of common stock (between $340,000 and $460,000, or $529,000 if the offering is increased by 15%). Fairmount Bancorp, Inc. may use the remaining funds for investments, to pay cash dividends, to repurchase shares of common stock and for other general corporate purposes, subject to any required regulatory approval.

Funds invested in Fairmount Bank will be used to support increased lending and other products and services. The net proceeds retained by Fairmount Bancorp, Inc. and Fairmount Bank also may be used for future branch expansion and possible acquisitions of banking or financial services companies, although we have no current arrangements or agreements with respect to any such acquisitions. Initially, a substantial portion of the net proceeds will be invested in short-term investments, investment-grade debt obligations and mortgage-backed securities.

Please see the section of this prospectus entitled “How We Intend to Use the Proceeds from the Offering” for more information on the proposed use of the proceeds from the offering.

How We Determined the Offering Range and Price Per Share

The amount of common stock that we are offering is based on an independent appraisal of the estimated market value of Fairmount Bancorp, Inc., assuming the conversion and the offering are completed. Feldman Financial Advisors, Inc., our independent appraiser, has estimated that, as of November 30, 2009, this market value ranged from $4,250,000 to $5,750,000, with a midpoint of $5,000,000. Based on this valuation and a $10.00 per share purchase price, the number of shares of common stock being offered for sale by us will range from 425,000 shares to 575,000 shares. The $10.00 per share purchase price was selected primarily because it is the price most commonly used in mutual-to-stock conversions of financial institutions. The appraisal of Feldman Financial Advisors, Inc. is based in part on our financial condition and results of operations, the pro forma effect of the additional capital raised by the sale of shares of common stock in the offering, and an analysis of a peer group of 10 thrift holding companies with assets between $160,200,000 and $569,400,000 which were compared by Feldman Financial Advisors, Inc. to us.

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Feldman Financial Advisors, Inc. prepared the appraisal taking into account the pro forma impact of the offering. For its analysis, Feldman Financial Advisors, Inc. undertook substantial investigations to learn about Fairmount Bank’s business and operations. Fairmount Bank supplied financial information, including annual financial statements, information on the composition of assets and liabilities, and other financial schedules. In addition to this information, Feldman Financial Advisors, Inc. reviewed a draft of Fairmount Bank’s application for conversion to be filed with the Office of Thrift Supervision, or the OTS, and a draft of our registration statement to be filed with the Securities and Exchange Commission, or the SEC. Furthermore, Feldman Financial Advisors, Inc. visited our facilities and had discussions with management. Feldman Financial Advisors, Inc. did not perform a detailed analysis of the separate components of Fairmount Bank’s assets and liabilities. Fairmount Bank did not impose any limitations on Feldman Financial Advisors, Inc. in connection with its appraisal.

Feldman Financial Advisors, Inc. relied primarily on a comparative market value methodology in determining the pro forma market value of our common stock. In applying this methodology, Feldman Financial Advisors, Inc. analyzed financial and operational comparisons of Fairmount Bank with a selected peer group of publicly traded savings institutions. The pro forma market value of our common stock was determined by Feldman Financial Advisors, Inc. based on the market pricing ratios of the peer group, subject to certain valuation adjustments based on fundamental differences between Fairmount Bank and the institutions comprising the peer group. Specifically, Feldman Financial Advisors, Inc. took into account that, on a pro forma basis compared solely to the peer group, Fairmount Bank had more favorable credit quality, a higher capital level, higher earnings and comparable growth potential. Additionally, Feldman Financial Advisors, Inc. took into account the significant volatility in the broader stock market and the after market pricing characteristics of recently converted savings institutions. Feldman Financial Advisors, Inc. utilized the results of this overall analysis to establish pricing ratios that resulted in the determination of the pro forma market value. As a result of this analysis, Feldman Financial Advisors, Inc. determined that the pro forma price-to-book ratios were lower than the peer group companies. Feldman Financial Advisors, Inc. also took into account the price-to-earnings ratios of the peer group companies relative to our pro forma price-to-earnings ratios.

The peer group consists of 10 thrift holding companies with assets between $160,200,000 and $569,400,000. The selection criteria for the peer group included consideration of earnings, capital, asset size, loan concentration, and market area. The peer group companies are:

				Total Assets at September 30, 2009
Institution	Ticker	Exchange	Headquarters
				(In millions)
BCSB Bancorp, Inc.	BCSB	NASDAQ	Baltimore, MD	$	569.4
Community Financial Corp.	CFFC	NASDAQ	Staunton, VA		541.2
FFD Financial Corporation	FFDF	NASDAQ	Dover, OH		192.4
First Advantage Bancorp	FABK	NASDAQ	Clarksville, TN		352.7
GS Financial Corp.	GSLA	NASDAQ	Metairie, LA		270.9
LSB Financial Corp.	LSBI	NASDAQ	Lafayette, IN		363.6
Mayflower Bancorp, Inc. (1)	MFLR	NASDAQ	Middleboro, MA		249.0
Osage Bancshares, Inc.	OSBK	NASDAQ	Pawhuska, OK		160.2
Rome Bancorp, Inc.	ROME	NASDAQ	Rome, NY		338.0
Wayne Savings Bancshares, Inc.	WAYN	NASDAQ	Wooster, OH		400.3

(1) Assets are as of October 31, 2009.

Feldman Financial Advisors, Inc. advised the board of directors that the appraisal was prepared in conformance with the regulatory appraisal methodology. That methodology requires a valuation based on an analysis of the trading prices of at least 10 comparable public companies whose stocks have traded for at least one year prior to the valuation date. Feldman Financial Advisors, Inc. also advised the board of directors that the after-market trading experience of standard thrift conversion offerings completed between January 1, 2008 and November 30, 2009 was considered in the appraisal as a general indicator of current market conditions, but was not relied upon as a primary valuation methodology. There were seven standard mutual-to-stock conversion offerings completed between January 1, 2008 and November 30, 2009.

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Consistent with Office of Thrift Supervision appraisal guidelines, the analysis of Feldman Financial Advisors, Inc. utilized three selected valuation procedures, the price/book method, the price/earnings method, and the price/assets method, all of which are described in its report. Feldman Financial Advisors, Inc. placed the greatest emphasis on the price/earnings and price/book methods in estimating pro forma market value. Feldman Financial Advisors, Inc. compared the pro forma price/book and price earnings ratios for Fairmount Bancorp, Inc. to the same ratios for a peer group of comparable companies.

The following table presents a summary of selected pricing ratios for Fairmount Bancorp, Inc. (on a pro forma basis) and the peer group companies identified by Feldman Financial Advisors, Inc. Our ratios are based on earnings for the 12 months ended September 30, 2009 and book value as of September 30, 2009. The peer group ratios are based on book value as of and earnings for the most recent 12-month period. Compared to the average pricing of the peer group, our pro forma pricing ratios at the maximum of the offering range indicated a discount of 23.1% on a price-to-book value basis, and a discount of 23.9% on a price-to-tangible book value basis, and a discount of 24.9% on a price-to-earnings basis. Our board of directors, in reviewing and approving the valuation, considered our pro forma earnings and the range of price-to-earnings multiples, price-to-book value ratios and price-to-tangible book value ratios at the minimum, midpoint, maximum and maximum, as adjusted, of the offering range. The pricing ratios also reflect recent volatile conditions, particularly for stocks of financial institutions and the impact of such conditions on the trading market of recent bank conversions. The appraisal did not consider one valuation approach to be more important than the others. Instead, the appraisal concluded that these ranges represented the appropriate balance of the three approaches to valuing Fairmount Bancorp, Inc., and the number of shares to be sold, in comparison to the identified peer group institutions. The estimated appraised value and the resulting premium/discount took into consideration the potential financial impact of the conversion and offering.

	Pro forma price-to- earnings multiple		Pro forma price-to- book value ratio		Pro forma price-to- tangible book value ratio
Fairmount Bancorp, Inc. (1)
Minimum	9.9	x	43.2	%	43.2	%
Midpoint	11.9		47.7		47.7
Maximum	13.9		51.6		51.6
Maximum, as adjusted	16.4		55.5		55.5
Valuation of peer group companies using stock prices as of November 30, 2009 (2)
Averages	18.5	x	67.1	%	67.8	%
Medians	16.7		66.7		66.8

(1) Based on Fairmount Bank’s financial data as of and for the 12 months ended September 30, 2009.

(2) Reflects earnings for the most recent twelve month periods for which data was publicly available.

Our board of directors reviewed the appraisal report of Feldman Financial Advisors, Inc., including the methodology and the assumptions used, and determined that the valuation range was reasonable and adequate. Given that the shares are to be sold at $10.00 per share in the offering, the estimated number of shares would be between 425,000 at the minimum of the valuation range and 575,000 at the maximum of the valuation range, with a midpoint of 500,000. The purchase price of $10.00 per share was determined by us, taking into account, among other factors, the requirement under Office of Thrift Supervision regulations that the common stock be offered in a manner that will achieve the widest distribution of the stock.

The independent appraisal does not indicate market value. Do not assume or expect that our valuation as indicated in the appraisal means that, after the conversion and offering, the shares of common stock will trade at or above the $10.00 offering price. Furthermore, the pricing ratios presented above were utilized by Feldman Financial Advisors, Inc. to estimate our market value and not to compare the relative value of shares of our common stock with the value of the capital stock of the peer group. The value of the capital stock of a particular company may be affected by a number of factors such as financial performance, asset size and market location.

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The independent appraisal will be updated prior to the completion of the conversion. If the appraised value decreases below $4,250,000 or increases above $6,612,500, and the number of shares to be sold is correspondingly adjusted, subscribers will be given the opportunity to maintain, change or cancel their orders with the approval of the Office of Thrift Supervision for a specified period of time. If you do not respond, we will cancel your stock order and return your subscription funds, with interest, and cancel any authorization to withdraw funds from your deposit accounts for the purchase of shares of common stock. See “The Conversion and Offering—Determination of Share Price and Number of Shares to be Issued.”

After-Market Performance Information

The following table presents stock price appreciation information for all standard mutual-to-stock conversions completed between January 1, 2008 and November 30, 2009. The companies for which the stock price performance is presented completed their conversions in different markets than Fairmount Bancorp, Inc. In addition, the companies may have no similarities to Fairmount Bancorp, Inc. with regard to the market in which Fairmount Bank competes, earnings or growth potential, among other factors. These companies did not constitute the same group of 10 comparable public companies utilized in Feldman Financial Advisors, Inc.’s valuation analysis.

					Price Performance from Initial Trading Date
					% Change						Through November 30, 2009
Company	Conversion Date	Exchange	Gross Proceeds		1 day		1 week		1 month
	(In millions)
Territorial Bancorp, Inc. (TBNK)	07/13/09	NASDAQ	$	122.3	49.9	%	47.2	%	48.0	%	69.8	%
St. Joseph Bancorp, Inc. (SJBA)	02/02/09	OTC		3.8	0.0		0.0		0.0		0.0
Hibernia Homestead Bancorp, Inc. (HIBE)	01/28/09	OTC		11.1	0.0		5.0		5.0		37.5
First Savings Financial Group, Inc. (FSFG)	10/07/08	NASDAQ		24.3	(1.0	)	(4.0	)	(8.0	)	3.5
Home Bancorp, Inc. (HBCP)	10/03/08	NASDAQ		89.3	14.9		3.5		3.1		23.3
Cape Bancorp, Inc. (CBNJ)*	02/01/08	NASDAQ		78.2	0.5		0.1		(2.0	)	(29.2	)
Danvers Bancorp, Inc. (DNBK)	01/10/08	NASDAQ		171.9	(2.6	)	(2.2	)	2.6		35.1
Average				71.6	8.8		7.1		7.0		20.0
Median				78.2	0.0		0.1		2.6		23.3

* Simultaneous conversion and acquisition of Boardwalk Bancorp.

The table above presents only short-term historical information on stock price performance, which may not be indicative of the longer-term performance of such stock prices. The historical stock price information is not intended to predict how our shares of common stock may perform following the offering. The historical information in the tables may not be meaningful to you because the data were calculated using a small sample.

You should bear in mind that stock price appreciation or depreciation is affected by many factors. There can be no assurance that our stock price will not trade below $10.00 per share. Before you make an investment decision, we urge you to read this entire prospectus carefully, including, but not limited to, the section entitled “Risk Factors” beginning on page     .

Benefits to Management and Potential Dilution to Stockholders Following the Conversion and Offering

We expect our tax-qualified employee stock ownership plan, or ESOP, to purchase 8% of the total number of shares of common stock that we sell in the offering, or 46,000 shares of common stock, assuming we sell the maximum of the shares proposed to be sold. If we receive orders for more shares of common stock than the maximum of the offering range, the employee stock ownership plan will have first priority to purchase shares over this maximum, up to a total of 8% of the total number of shares of common stock sold in the offering. We also reserve the right to purchase shares of common stock in the open market following the offering in order to fund the employee stock ownership plan, subject to regulatory approval. This plan is a tax-qualified retirement plan for the benefit of all our employees. Assuming the employee stock ownership plan purchases 46,000 shares in the offering, we will recognize additional

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pre-tax compensation expense of approximately $460,000 over a 10-year period, also assuming the loan that will be made by Fairmount Bancorp, Inc. to fund the employee stock ownership plan will have a 10-year term and the shares of common stock have a fair market value of $10.00 per share for the full 10-year period. If, in the future, the shares of common stock have a fair market value greater or less than $10.00, the compensation expense will increase or decrease accordingly.

We also intend to implement a stock-based recognition and retention plan and a stock option plan no earlier than six months after completion of the conversion. Stockholder approval of these plans will be required. If adopted within 12 months following the completion of the conversion, the stock recognition and retention plan will reserve a number of shares equal to not more than 4% of the shares sold in the offering, or up to 23,000 shares of common stock at the maximum of the offering range, for awards to key employees and directors, at no cost to the recipients. If adopted within 12 months following the completion of the conversion, the stock option plan will reserve a number of shares equal to not more than 10% of the shares of common stock sold in the offering, or up to 57,500 shares of common stock at the maximum of the offering range, for issuance to key employees and directors upon their exercise of stock options granted under the plan. Both plans would impose a five-year vesting schedule. If the stock recognition and retention plan and the stock option plan are adopted after one year from the date of the completion of the conversion, awards and grants under these plans may exceed these levels and may vest over a period of less than five years. We have not yet determined whether we will present these plans for stockholder approval within or after 12 months following the completion of the conversion.

If 4% of the shares of common stock sold in the offering are awarded under the stock recognition and retention plan and come from authorized but unissued shares of common stock, stockholders would experience dilution of up to approximately 3.85% in their ownership interest in Fairmount Bancorp, Inc. If the 10% of the shares of common stock sold in the offering that are issued upon the exercise of options granted under the stock option plan come from authorized but unissued shares of common stock, stockholders would experience dilution of approximately 9.09% in their ownership interest in Fairmount Bancorp, Inc.

Fairmount Bancorp, Inc. and Fairmount Bank intend to enter into new employment agreements with our president and chief executive officer and change in control severance agreements with two senior officers. See “Management—Benefit Plans—New Employment Agreements” and “—Change in Control Severance Agreements” for a further discussion of these agreements, including their terms and potential costs, as well as a description of other benefits arrangements.

The following table summarizes the number of shares of common stock underlying, and aggregate dollar value of, grants that are available under the stock recognition and retention plan and the stock option plan if such plans are adopted within one year following the completion of the conversion and the offering. The table shows the dilution to stockholders if all these shares are issued from authorized but unissued shares, instead of shares purchased in the open market. The table also sets forth the number of shares of common stock to be acquired by the employee stock ownership plan for allocation to all employees. A portion of the stock grants shown in the table below may be made to non-management employees.

	Number of Shares to be Granted or Purchased				Dilution Resulting From Issuance of Shares for Stock Benefit Plans		Value of Grants (1)
	At Minimum of Offering Range	At Maximum of Offering Range	As a Percentage of Common Stock to be Issued in the Offering (2)				At Minimum of Offering Range		At Maximum of Offering Range
Employee stock ownership plan	34,000	46,000	8.00	%	—	%	$	340,000	$	460,000
Stock recognition and retention plan	17,000	23,000	4.00	%	3.85	%		170,000		230,000
Stock option plan	42,500	57,500	10.00	%	9.09	%		170,850		231,150
Total	93,500	126,500	22.00	%	12.28	%	$	680,850	$	921,150

(1) The actual value of restricted stock grants will be determined based on their fair value as of the date grants are made. For purposes of this table, the fair value of shares underlying the employee stock ownership plan and the recognition and retention plan is assumed to be the same as the offering price of $10.00 per share. The fair value

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of stock options has been estimated at $4.02 per option using the Black-Scholes option pricing model with the following assumptions: a grant-date share price and option exercise price of $10.00; dividend yield of 0.00%; an expected option life of 10 years; a risk-free interest rate of 3.31%; and a volatility rate of 22.35% based on an index of publicly traded thrift institutions. The actual expense of the stock option plan will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used in the option pricing model ultimately adopted, which may or may not be Black-Scholes.

(2) The stock option plan and stock recognition and retention plan may award a greater number of options and shares, respectively, if the plans are adopted more than 12 months after the completion of the conversion.

As noted above, the actual value of restricted stock grants will be determined based on their fair value (the market price of shares of common stock of Fairmount Bancorp, Inc.) as of the date grants are made. The stock recognition and retention plan, which is subject to stockholder approval, cannot be implemented until at least six months after the completion of the conversion. The following table presents the total value of all shares to be available for award and issuance under the stock recognition and retention plan, assuming the shares for the plan are purchased or issued in a range of market prices from $8.00 per share to $14.00 per share at the time of the grant.

Share Price	17,000 Shares Awarded at Minimum of Offering Range		20,000 Shares Awarded at Midpoint of Offering Range		23,000 Shares Awarded at Maximum of Offering Range		26,450 Shares Awarded at Maximum of Offering Range, As Adjusted
$  8.00	$	136,000	$	160,000	$	184,000	$	211,600
10.00		170,000		200,000		230,000		264,500
12.00		204,000		240,000		276,000		317,400
14.00		238,000		280,000		322,000		370,300

The grant-date fair value of the options granted under the stock option plan will be based, in part, on the price of shares of common stock of Fairmount Bancorp, Inc. at the time the options are granted, which, subject to stockholder approval, cannot be implemented until at least six months after the completion of the conversion. The value will also depend on the various assumptions utilized in the option-pricing model ultimately adopted. The following table presents the total estimated value of the options to be available for grant under the stock option plan, assuming the range of market prices for the shares are $8.00 per share to $14.00 per share at the time of the grant.

Exercise Price	Grant- Date Fair Value Per Option		42,500 Options at Minimum of Range		50,000 Options at Midpoint of Range		57,500 Options at Maximum of Range		66,125 Options at Maximum of Range, As Adjusted
$  8.00	$	3.22	$	136,850	$	161,000	$	185,150	$	212,923
10.00		4.02		170,850		201,000		231,150		265,823
12.00		4.83		205,275		241,500		277,725		319,384
14.00		5.63		239,275		281,500		323,725		372,284

The tables presented above are provided for informational purposes only. There can be no assurance that our stock price will not trade below $10.00 per share. Before you make an investment decision, we urge you to carefully read this prospectus, including, but not limited to, the section entitled “Risk Factors” beginning on page     .

Limits on How Much Common Stock You May Purchase

The minimum number of shares of common stock that may be purchased is 25. No individual may purchase more than 15,000 shares ($150,000) of common stock. If any of the following persons purchases shares of common stock, their purchases, in all categories of the offering, when combined with your purchases, cannot exceed 15,000 shares ($150,000):

• your spouse or relatives of you or your spouse living in your house;

• most companies, trusts or other entities in which you are a trustee, have a substantial beneficial interest or hold a senior management position; or

• other persons who may be your associates or persons acting in concert with you.

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Subject to Office of Thrift Supervision approval, we may increase or decrease the purchase limits.

See the detailed descriptions of “acting in concert” and “associate” in “The Conversion and Offering—Limitations on Common Stock Purchases.”

How You May Purchase Shares of Common Stock

You can subscribe for shares of common stock in the subscription offering and the community offering by delivering a signed and completed original stock order form, together with full payment or authorization to withdraw from one or more of your Fairmount Bank deposit accounts; provided, however, that it is received (not postmarked) before     :    p.m., Eastern time, on                 , 2010, which is the end of the offering period, unless extended.

In the subscription offering and community offering, you may pay for your shares only by:

• personal check, bank check or money order, made payable to Fairmount Bancorp, Inc.; or

• authorizing us to withdraw funds from the types of Fairmount Bank deposit accounts designated on the stock order form.

Fairmount Bank is not permitted to knowingly lend funds to anyone for the purpose of purchasing shares of common stock in the offering. Additionally, you may not submit cash or wire transfers, or use a check drawn on a Fairmount Bank line of credit, or use a third-party check to pay for shares of common stock. You may not designate on your stock order form a direct withdrawal from a Fairmount Bank individual retirement account or from a Fairmount Bank account with check writing privileges. See the following section for information regarding individual retirement accounts.

For orders paid for by check or money order, the funds will be immediately deposited and held in a segregated account at Fairmount Bank, or in our discretion at another insured depository institution. We will pay interest on those funds calculated at Fairmount Bank’s passbook savings rate from the date funds are processed until completion or termination of the conversion, at which time each subscriber will receive an interest check. All funds authorized for withdrawal from deposit accounts with Fairmount Bank must be in the accounts at the time the stock order is received. However, funds will not be withdrawn from an account until the completion of the conversion and offering and will earn interest within the account at the applicable deposit account rate until that time. A hold will be placed on those funds when your stock order is received, making the designated funds unavailable to you. You may not designate a withdrawal from accounts at Fairmount Bank with check-writing privileges. Please provide a check instead. If you request that we do so, we reserve the right to interpret that as your authorization to treat those funds as if we had received a check for the designated amount, and we will immediately withdraw the amount from your checking account(s).

Withdrawals from certificates of deposit to purchase shares of common stock in the offering may be made without incurring an early withdrawal penalty. If a withdrawal results in a certificate account with a balance less than the applicable minimum balance requirement, the certificate will be canceled at the time of withdrawal without penalty, and the remaining balance will earn interest at the current passbook savings rate subsequent to the withdrawal.

After we receive your order, your order cannot be changed or canceled unless the number of shares of common stock to be offered is increased to more than 661,250 or decreased to fewer than 425,000, or the offering is extended beyond                 , 2010.

We are not required to accept copies or facsimiles of stock order forms. By signing the stock order form, you are acknowledging receipt of this prospectus and that the shares of common stock are not deposits or savings accounts that are federally insured or otherwise guaranteed by Fairmount Bank, the Federal Deposit Insurance Corporation or any other government agency.

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Using Individual Retirement Account Funds

You may be able to subscribe for shares of common stock using funds in your individual retirement account, or IRA. However, shares of common stock must be purchased through and held in a self-directed retirement account, such as those offered by a brokerage firm. By regulation, Fairmount Bank’s individual retirement accounts are not self-directed, so they cannot be used to purchase or hold shares of our common stock. If you wish to use some or all of the funds in your Fairmount Bank individual retirement account to purchase our common stock, the applicable funds must be transferred to a self-directed account maintained by an independent trustee, or custodian, such as a brokerage firm, and the purchase must be made through that account. If you do not have such an account, you will need to establish one before placing your stock order. An annual administrative fee may be payable to the independent trustee. Because individual circumstances differ and the processing of retirement fund orders takes additional time, we recommend that you contact our Stock Information Center promptly for guidance, preferably at least two weeks before the offering deadline, for assistance with purchases using your Fairmount Bank individual retirement account or any other retirement account that you may have at Fairmount Bank or elsewhere. Whether you may use such funds for the purchase of shares in the stock offering may depend on time constraints and, possibly, limitations imposed by the brokerage firm or institution where the funds are held.

Delivery of Stock Certificates

Certificates representing shares of common stock sold in the subscription and community offerings will be mailed by regular mail to the persons entitled thereto at the certificate registration address noted by them on the stock order form, as soon as practicable following consummation of the offering. It is possible that, until certificates for the common stock are delivered, purchasers might not be able to sell the shares of common stock that they ordered, even though the common stock will have begun trading.

You May Not Sell or Transfer Your Subscription Rights

Office of Thrift Supervision regulations prohibit you from transferring your subscription rights. If you order shares of common stock in the subscription offering, you will be required to state that you are purchasing the shares of common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription rights. We intend to take legal action, including reporting persons to federal or state regulatory agencies, against anyone who we believe has sold or given away his or her subscription rights. We will not accept your order if we have reason to believe that you have sold or transferred your subscription rights. On the stock order form, you should not add the name(s) of persons who do not have subscription rights or who qualify in a lower subscription priority than you do. In addition, the stock order form requires that you list all deposit accounts, giving all names on each account and the account number at the applicable eligibility record date. Failure to provide this information, or providing incomplete or incorrect information, may result in a loss of part or all of your share allocation, if there is an oversubscription.

Deadline for Orders of Common Stock

If you wish to purchase shares of common stock in the subscription and community offerings, a properly completed original stock order form, together with full payment for the shares of common stock, must be received (not postmarked) by the Stock Information Center no later than     :    p.m., Eastern time, on                 , 2010. You may submit your stock order form by mail using the stock order return envelope provided, by overnight courier to the indicated address on the order form, or by hand delivery to our Stock Information Center, located at 8216 Philadelphia Road, Baltimore, Maryland. Once submitted, your order will be irrevocable unless the offering is terminated or extended beyond                 , 2010 or the number of shares of common stock to be sold is decreased to less than 425,000 shares or increased to more than 661,250 shares. If the subscription offering and/or community offering is extended beyond                 , 2010, or if the number of shares of common stock to be sold is decreased to less than 425,000 shares or is increased to more than 661,250 shares, we will, with the approval of the Office of Thrift Supervision, be required to resolicit subscribers before proceeding with the offering. Subscribers will be given the opportunity to maintain, change or cancel their stock orders during a specified resolicitation period. If a written indication of your intent is not received , your order will be cancelled, funds will be returned with interest and deposit account withdrawal authorizations will be cancelled.

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No extension of the offering period may last longer than 90 days. All extensions may not last beyond                 , 2010.

Although we will make reasonable attempts to provide a prospectus and offering materials to holders of subscription rights, the subscription offering and all subscription rights will expire at     :    p.m., Eastern time, on                 , 2010, whether or not we have been able to locate each person entitled to subscription rights.

Steps We May Take If We Do Not Receive Orders for the Minimum Number of Shares

If we do not receive orders for at least 425,000 shares of common stock, we may take several steps in order to issue the minimum number of shares of common stock in the offering range. Specifically, we may:

• increase the purchase limitations; and/or

• seek the approval of the Office of Thrift Supervision to extend the offering beyond                 , 2010, provided that an extension beyond             will require us to resolicit subscriptions in the offering.

Alternatively, we may terminate the offering, return funds with interest and cancel deposit account withdrawal authorizations.

Purchases by Officers and Directors

We currently expect our directors and executive officers, together with their associates, to subscribe for approximately 65,000 shares of common stock in the offering, which equals 15.29% of the shares to be sold at the minimum of the offering range and 11.31% of the shares to be sold at the maximum of the offering range. However, there can be no assurance that any individual director or executive officer, or the directors and executive officers as a group, will purchase any specific number of shares of our common stock. The purchase price to be paid by them for their subscribed shares will be the same $10.00 per share price to be paid by all other persons who purchase shares of common stock in the offering. Purchases by directors, executive officers and their associates will be included in determining whether the required minimum number of shares has been subscribed for in the offering.

Market for Common Stock

We expect the common stock of Fairmount Bancorp, Inc. to be quoted on the Over-the-Counter Electronic Bulletin Board. See “Market for the Common Stock.” Stifel, Nicolaus & Company, Incorporated currently intends to make a market in the shares of our common stock, but is under no obligation to do so. We cannot predict whether a liquid trading market in shares of our common stock will develop.

Our Policy Regarding Dividends

Following the completion of the stock offering, our board of directors will have the authority to declare dividends on our common stock, subject to statutory and regulatory requirements. However, no decision has been made with respect to the amount, if any, and timing of any dividend payments. The payment and amount of any dividend payments will depend upon a number of factors, including the following:

• regulatory capital requirements;

• our financial condition and results of operations;

• tax considerations;

• statutory and regulatory limitations; and

• general economic conditions.

We cannot assure you that we will pay dividends, or that, if paid, we will not reduce or eliminate dividends in the future.

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Tax Consequences

As a general matter, the conversion will not be a taxable transaction for federal or state income tax purposes to Fairmount Bank, Fairmount Bancorp, Inc., or persons eligible to subscribe in the subscription offering. See the section of this prospectus under the heading “The Conversion and Offering—Material Income Tax Consequences” on page      for additional information.

Conditions to Completion of the Conversion and Offering

Fairmount Bank and Fairmount Bancorp, Inc. cannot complete the conversion and the offering unless:

• the plan of conversion is approved by at least a majority of votes eligible to be cast by members (depositors) of Fairmount Bank. A special meeting of members to consider and vote upon the plan of conversion has been set for                 , 2010;

• we have received orders to purchase at least the minimum number of shares of common stock offered; and

• Fairmount Bank and Fairmount Bancorp, Inc. receive final approval of the Office of Thrift Supervision to complete the conversion and the offering.

Stock Information Center

Our office personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the conversion or the offering, please call our Stock Information Center (toll-free) at     -    -        , Monday through Friday between 10:00 a.m. and 4:00 p.m., Eastern time, or visit the Stock Information Center located at 8216 Philadelphia Road, Baltimore, Maryland 21237. The Stock Information Center will be closed on weekends and bank holidays.

TO ENSURE THAT EACH PERSON IN THE SUBSCRIPTION AND COMMUNITY OFFERING RECEIVES A PROSPECTUS AT LEAST 48 HOURS PRIOR TO THE EXPIRATION DATE OF                 , 2010, IN ACCORDANCE WITH FEDERAL LAW, NO PROSPECTUS WILL BE MAILED OR HAND-DELIVERED ANY LATER THAN FIVE DAYS OR TWO DAYS, RESPECTIVELY, PRIOR TO                 , 2010.

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RISK FACTORS

You should consider carefully the following risk factors in evaluating an investment in our common stock.

Risks Related to Our Business

Changes in interest rates could have a material adverse effect on our operations.

Our results of operations and financial condition are significantly affected by changes in interest rates. Our results of operations are affected substantially by Fairmount Bank’s net interest income, which is the difference between the interest income Fairmount Bank earns on its interest-earning assets and the interest expense Fairmount Bank pays on its interest-bearing liabilities. Changes in interest rates could have an adverse affect on Fairmount Bank’s net interest income because, as a general matter, interest-bearing liabilities reprice or mature more quickly than interest-earning assets. An increase in interest rates generally would result in a decrease in Fairmount Bank’s average interest rate spread and net interest income, which would have a negative effect on our profitability.

Fairmount Bank’s policy is to originate fixed-rate mortgage loans with maturities of up to 30 years. At September 30, 2009, $45,261,000, or 89.83% of Fairmount Bank’s total loan portfolio, consisted of fixed-rate mortgage loans. This investment in fixed-rate mortgage loans exposes Fairmount Bank to increased levels of interest rate risk, and could result in decreased net interest income during periods of rising interest rates.

In addition, changes in interest rates can affect the average life of loans and mortgage-backed securities. A reduction in interest rates results in increased prepayments of loans and mortgage-backed securities as borrowers refinance their loans in order to reduce their borrowing costs. This creates reinvestment risk, which is the risk that Fairmount Bank may not be able to reinvest prepayments at rates that are comparable to the rates it earned on the prepaid loans or securities. Alternatively, increases in interest rates may decrease loan demand.

Changes in interest rates also affect the current market value of Fairmount Bank’s investment securities portfolio. Generally, the value of interest-earning investment securities moves inversely with changes in interest rates. At September 30, 2009, the fair value of Fairmount Bank’s available-for-sale investment securities totaled $3,328,000. Unrealized gains, net of taxes, on these available-for-sale securities totaled $63,000 at September 30, 2009 and are reported as a separate component of equity. Decreases in the fair value of securities available for sale in future periods would have an adverse effect on our equity.

Fairmount Bank’s liabilities are comprised in large part of certificates of deposit, which totaled $32,850,000, or 71.67% of total deposits, at September 30, 2009. Certificates of deposit have specified terms to maturity, and generally reprice more slowly than deposit accounts without a stated maturity.

Fairmount Bank evaluates interest rate sensitivity by estimating the change in its net portfolio value over a range of interest rate scenarios. Net portfolio value is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts. At September 30, 2009, in the event of an immediate 200 basis point increase in interest rates, the Office of Thrift Supervision model projects that Fairmount Bank would experience a $1,798,000, or 17.55%, decrease in net portfolio value. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Market Risk.”

We may not be able to generate significant profits in the future.

Fairmount Bank’s net income for the fiscal years ended September 20, 2009 and 2008 was approximately $445,000 and $246,000, respectively. A significant portion of our revenues has been derived from Fairmount Bank’s origination of one-to four-family non-owner occupied loans secured primarily by investor-owned properties. In the past year, Fairmount Bank has sought participants to invest in these loans, as these loans constituted 34.70% of Fairmount Bank’s total loans at September 30, 2009. With these participants, we continue to generate origination fees, servicing fees and fees from community bank participants. However, the number of community banks willing and able to participate in these loans has declined. If we are unable to continue to participate these loans, we will no longer generate the related fees, which will adversely affect our results of operations.

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In addition, Fairmount Bank’s efficiency ratio (non-interest expense divided by net interest income plus non-interest income) was 59.30% and 70.00%, respectively, for the years ended September 30, 2009 and 2008. Fairmount Bank’s efficiency ratio reflects the high fixed costs of operating a single branch and its relatively small asset size, together with higher compensation and benefits expense. We believe that our existing systems will be better utilized as we use the capital raised in the stock offering to support Fairmount Bank’s efforts to make more loans, attract new customers and increase business with existing customers. However, our costs will increase in the future due to the additional expenses of operating as a public company and due to the stock-based incentive plans that we will adopt, as well as the recent increased operating expenses of our new headquarters facility.

Our growth strategy will increase our expenses and may not be successful.

Following the completion of the stock offering, we plan to increase the size of our franchise by establishing one or more new branch offices, although we have no current specific commitments to do so. As contemplated by our business plan, Fairmount Bank intends to hire a senior lender and limited support staff as part of the planned expansion of its lending activities. Building branch offices and hiring new employees to staff these offices would significantly increase Fairmount Bank’s non-interest expense. Moreover, new branch offices are generally unprofitable for a number of years until they generate sufficient levels of deposits and loans to offset their cost of operations. For these reasons, our growth strategy may have an adverse effect on our earnings.

Our plan to diversify and expand Fairmount Bank’s loan portfolio to increase commercial real estate, construction lending and consumer lending activities will expose Fairmount Bank to increased lending risks.

Our business plan adopted in connection with the conversion transaction contemplates an expansion of Fairmount Bank’s lending activities to include commercial real estate, construction and, to a lesser extent, commercial and consumer lending. We anticipate that a majority of the growth in Fairmount Bank’s loan portfolio during the period covered by the business plan will be attributable to these new lending activities. Accordingly, we estimate that a majority of the net proceeds of the offering will ultimately be used for the expansion of Fairmount Bank’s commercial real estate, construction and consumer lending activities. Joseph M. Solomon, Fairmount Bank’s President and Chief Executive Officer, has extensive experience in the areas of commercial real estate and construction lending. Additionally, we intend to hire experienced lending personnel post conversion.

Commercial real estate loans are considered to have greater credit risk than one-to four-family residential loans because the repayment of such loans typically depends on the successful operations and income stream of the borrower’s business and the real estate securing the loan as collateral, which can be significantly affected by economic conditions. In addition, these loans generally carry larger balances to single borrowers or related groups of borrowers than one-to four-family owner occupied residential mortgage loans. Accordingly, an adverse development with respect to one loan or one credit relationship can expose Fairmount Bank to greater risk of loss compared to an adverse development with respect to a single one-to four-family residential mortgage loan. Construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost proves to be inaccurate, Fairmount Bank may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project proves to be inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment. Construction loans also expose Fairmount Bank to the risk that improvements will not be completed on time in accordance with specifications and projected costs. Home equity loans and consumer loans generally have greater risk than one- to four-family residential mortgage loans. In these cases, Fairmount Bank faces the risk that collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. Particularly with respect to home equity loans secured by second mortgages, decreases in real estate values could adversely affect the value of the property serving as collateral for our loans. Thus, the recovery of such property could be insufficient to compensate Fairmount Bank for the value of these loans.

One-to four-family non-owner occupied loans involve additional risks.

A portion of Fairmount Bank’s lending activity consists of the origination of first mortgage loans secured by one-to four-family non-owner occupied residential properties in its market area. At September 30, 2009, $17,484,000, or 34.70% of Fairmount Bank’s loan portfolio consisted of this type of mortgage loan. A majority of these loan originations are sold on a participation basis to other community banks. Such lending involves additional risks, since the properties are not owner

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occupied, and borrowers who are not currently delinquent may become delinquent at a later date. Renters of these properties are less likely to be concerned with property upkeep. In addition, Fairmount Bank would reduce or eliminate this lending activity if the community banks are unwilling or unable to continue to purchase participations in these loans.

The loss of our President and Chief Executive Officer would hurt our operations.

We rely heavily on Joseph M. Solomon, President and Chief Executive Officer of each of Fairmount Bancorp, Inc. and Fairmount Bank. The loss of Mr. Solomon would have an adverse effect on us, as he is central to virtually all aspects of our business operations and management. In addition, Fairmount Bank is a small community bank which currently does not have any management level employees who are in a position to succeed and assume the full responsibilities of Mr. Solomon. In connection with the conversion, Fairmount Bancorp, Inc. and Fairmount Bank intend to enter into new employment agreements with Mr. Solomon. For further information, see “Management—Benefit Plans—New Employment Agreements.”

Strong competition within our market area may limit our growth and profitability.

Competition in the banking and financial services industry is intense. In its market area, Fairmount Bank competes with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Some of Fairmount Bank’s competitors have greater name recognition and market presence that benefit them in attracting business, and offer certain services that Fairmount Bank does not or cannot provide. In addition, larger competitors may be able to price loans and deposits more aggressively than Fairmount Bank does, which could affect its ability to grow and remain profitable on a long-term basis. Our profitability depends upon Fairmount Bank’s continued ability to successfully compete in its market area. If Fairmount Bank must raise interest rates paid on deposits or lower interest rates charged on its loans, Fairmount Bank’s net interest margin and our profitability could be adversely affected. For additional information see “Business of Fairmount Bank—Competition.”

If Fairmount Bank’s allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.

Fairmount Bank makes various assumptions and judgments about the collectibility of its loan portfolio, including the creditworthiness of borrowers and the value of real estate and other assets serving as collateral for the repayment of many loans. In determining the amount of the allowance for loan losses, Fairmount Bank reviews its loans and its loss and delinquency experience, and evaluates economic conditions. If its assumptions are incorrect, Fairmount Bank’s allowance for loan losses may not be sufficient to cover probable incurred losses in its loan portfolio, resulting in additions to the allowance. Fairmount Bank’s allowance for loan losses was .44% of total loans at September 30, 2009, and material additions to the allowance could materially decrease our net income. As we expand and diversify Fairmount Bank’s lending activities into commercial real estate and other areas considered to have greater credit risk than one-to four-family lending, we expect that the allowance for loan losses will need to increase.

In addition, bank regulators periodically review Fairmount Bank’s allowance for loan losses and may require an increase in the provision for loan losses or further loan charge-offs. Any increase in the allowance for loan losses or loan charge-offs, as required by these regulatory authorities, might have a material adverse effect on our financial condition and results of operations.

The United States economy is in a deep recession. A prolonged economic downturn, especially one affecting our geographic market area, would likely adversely affect our business and financial results.

Negative developments in the global credit and securitization markets have resulted in uncertainty in the financial markets during the latter half of 2007 and during 2008 and 2009, with the expectation of the general economic downturn continuing through the remainder of 2009 and into 2010. Loan portfolio quality has deteriorated at many institutions, reflecting, in part, the deteriorating U.S. economy and rising unemployment. In addition, the values of real estate collateral supporting many commercial loans and home mortgages have declined and may continue to decline. The continuing real estate slump also has resulted in reduced demand for the construction of new housing and increased delinquencies in construction, residential and commercial mortgage loans. Financial institution stock prices have declined substantially, and it is significantly more difficult for financial institutions and their holding companies to raise capital or borrow in the debt markets.

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Specifically, the Federal Deposit Insurance Corporation Quarterly Banking Profile has reported that noncurrent assets plus other real estate owned as a percentage of assets for Federal Deposit Insurance Corporation insured financial institutions rose to 2.77% as of June 30, 2009, compared to 0.95% as of December 31, 2007. For the six months ended June 30, 2009, the Federal Deposit Insurance Corporation Quarterly Banking Profile has reported that annualized return on average assets was 0.04% for Federal Deposit Insurance Corporation insured financial institutions compared to 0.81% for the year ended December 31, 2007. The NASDAQ Bank Index declined 38.4% between December 31, 2007 and June 30, 2009. At September 30, 2009, Fairmount Bank’s noncurrent assets plus other real estate owned as a percentage of average assets was .84%, and its return on average assets was .74% for the fiscal year ended September 30, 2009.

Continued negative developments in the financial industry and the domestic and international credit markets, may significantly affect the markets in which we do business, the markets for and value of Fairmount Bank’s loans and investments, and our ongoing operations, costs and profitability. Further, continued declines in the stock market in general, or for the capital stock of financial institutions and their holding companies, could affect our stock performance.

The current economic recession could result in increases in Fairmount Bank’s level of non-performing loans and/or reduce demand for its products and services, which would lead to lower revenue, higher loan losses and lower earnings.

Our business activities and earnings are affected by general business conditions in the United States and in our primary market area. These conditions include short-term and long-term interest rates, inflation, unemployment levels, monetary supply, consumer confidence and spending, fluctuations in both debt and equity capital markets and the strength of the economy in the United States generally and in Fairmount Bank’s primary market area in particular. The current economic recession has also had a negative impact on our primary market area. Based on published statistics, the October 2009 unemployment rate was 10.8% in Baltimore City and 7.8% and 7.2%, respectively, in Baltimore and Harford counties, compared to 7.2% in the State of Maryland and 10.2% in the United States. In addition, Fairmount Bank’s primary market area has experienced a softening of the local real estate market, including reductions in local property values, and a decline in the local manufacturing industry, which employs many of Fairmount Bank’s borrowers. A prolonged or more severe economic downturn, continued elevated levels of unemployment, further declines in the values of real estate, or other events that affect household and/or corporate incomes could impair the ability of Fairmount Bank’s borrowers to repay their loans in accordance with their terms. Nearly all of Fairmount Bank’s loans are secured by the real estate or made to businesses in Fairmount Bank’s primary market area. As a result of this concentration, a prolonged or more severe downturn in the local economy could result in significant increases in non-performing loans, which would negatively impact our interest income and result in higher provisions for loan losses, which would decrease our earnings. The economic downturn could also result in reduced demand for credit or fee-based products and services, which also would decrease our revenues.

Increases in FDIC insurance premiums may have a material adverse affect on our earnings.

During 2008 and continuing in 2009, higher levels of bank failures have dramatically increased resolution costs of the Federal Deposit Insurance Corporation, or the FDIC, and depleted the Deposit Insurance Fund. In addition, the FDIC instituted two temporary programs in 2008 to further insure customer deposits at FDIC-member banks thorough December 31, 2009: Deposit accounts are now insured up to $250,000 per customer (up from $100,000) and non-interest bearing transactional accounts are fully insured (unlimited coverage). These programs have placed additional stress on the Deposit Insurance Fund. On May 20, 2009, the FDIC extended the $250,000 per customer insurance limit through December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all accounts, except for certain retirement accounts which will remain insured up to $250,000 per depositor.

In order to maintain a strong funding position and restore reserve ratios of the Deposit Insurance Fund, the FDIC increased assessment rates of insured institutions uniformly by 7 cents for every $100 of deposits beginning with the first quarter of 2009, with additional changes beginning April 1, 2009, which require riskier institutions to pay a larger share of premiums by factoring in rate adjustments based on secured liabilities and unsecured debt levels.

On May 22, 2009, the FDIC adopted a final rule that imposed a special assessment on all insured depository institutions, which was collected on September 30, 2009. The final rule also permits the FDIC to impose additional special assessments after June 20, 2009, if necessary to maintain public confidence in federal deposit insurance. The latest possible date for imposing additional special assessments under the final rule would be December 31, 2009, with collection on March 30, 2010.

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On September 29, 2009, the FDIC adopted a proposed rule that would require depository institutions to prepay their quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012 on December 29, 2009. This action was taken in connection with the adoption of an Amended Restoration Plan to meet immediate liquidity needs and return the Deposit Insurance Fund to its federally mandated level, without imposing additional special assessments. However, the prepayment of assessments does not prevent the FDIC from changing assessment rates or revising the risk-based assessment system in future periods.

Fairmount Bank is generally unable to control the amount of premiums that it is required to pay for FDIC insurance. If there are additional bank or financial institution failures, Fairmount Bank may be required to pay even higher FDIC premiums than the recently increased levels. Additionally, the FDIC may make material changes to the calculation of the prepaid assessment from the current proposal. Any future changes in the calculation or assessment of FDIC insurance premiums may have a material adverse effect on our results of operations, financial condition and ability to pay dividends on our common shares.

We operate in a highly regulated environment, and we may be adversely affected by changes in laws and regulations.

Fairmount Bank is subject to extensive regulation, supervision and examination by the Office of Thrift Supervision, its chartering authority, and by the Federal Deposit Insurance Corporation, as insurer of Fairmount Bank’s deposits. Fairmount Bancorp, Inc. also will be subject to regulation and supervision by the Office of Thrift Supervision. Such regulation and supervision governs the activities in which an institution and its holding company may engage, and are intended primarily for the protection of the insurance fund and the depositors and borrowers of Fairmount Bank rather than for holders of Fairmount Bancorp, Inc.’s common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, classification of Fairmount Bank’s assets and determination of the level of Fairmount Bank’s allowance for loan losses. If regulators require Fairmount Bank to charge-off loans or increase its allowance for loan losses, our earnings would suffer. Any change in such regulation and oversight, whether in the form of regulatory policy, regulation, legislation or supervisory action, may have a material impact on our operations. For a further discussion, see “Supervision and Regulation.”

The current administration has proposed comprehensive legislation intended to modernize regulation of the United States financial system. The proposed legislation contains several provisions that would have a direct impact on Fairmount Bancorp, Inc. and Fairmount Bank. Under the proposed legislation, the federal savings association charter would be eliminated and the Office of Thrift Supervision would be consolidated with the Comptroller of the Currency into a new regulator, the National Bank Supervisor. The proposed legislation would also require Fairmount Bank to become a national bank or convert to a state-chartered institution. In addition, it would eliminate the status of “savings and loan holding company” and mandate that all companies that control an insured depository institution register as a bank holding company. Registration as a bank holding company would represent a significant change, as material differences currently exist between savings and loan holding company and bank holding company supervision and regulation. For example, bank holding companies above a specified asset size are subject to consolidated leverage and risk-based capital requirements, whereas savings and loan holding companies are not subject to such requirements. The proposed legislation would also create a new federal agency, the Consumer Financial Protection Agency, that would be dedicated to administering and enforcing fair lending and consumer compliance laws with respect to financial products and services, which could result in new regulatory requirements and increased regulatory costs for us. If enacted, the legislation may have a substantial impact on our operations. However, because any final legislation may differ significantly from current proposals, the specific effects of the legislation cannot be evaluated at this time.

If Fairmount Bank’s investment in the common stock of the Federal Home Loan Bank of Atlanta is classified as other-than-temporarily impaired or as permanently impaired, our earnings and stockholders’ equity could decrease.

Fairmount Bank owns common stock of the Federal Home Loan Bank of Atlanta. Fairmount Bank holds this stock to qualify for membership in the Federal Home Loan Bank System and to be eligible to borrow funds under the Federal Home Loan Bank of Atlanta’s advance program. The aggregate cost and fair value of Fairmount Bank’s Federal Home Loan Bank of Atlanta common stock as of September 30, 2009 was $601,000. There is no market for Federal Home Loan Bank of Atlanta common stock.

Recent published reports indicate that certain member banks of the Federal Home Loan Bank System may be subject to accounting rules and asset quality risks that could result in materially lower regulatory capital levels. In an extreme situation, it is possible that the capital of a Federal Home Loan Bank, including the Federal Home Loan Bank of Atlanta, could be

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substantially diminished or reduced to zero. Consequently, we believe that there is a risk that Fairmount Bank’s investment in Federal Home Loan Bank of Atlanta common stock could be impaired at some time in the future, and if this occurs, it would cause our earnings and stockholders’ equity to decrease by the after-tax amount of the impairment charge.

Fairmount Bank’s real estate construction and land acquisition and development loans are based upon estimates of costs and the value of the completed project, and may expose us to increased lending risk.

Fairmount Bank makes real estate construction loans to individuals and builders, primarily for the construction of residential properties. Fairmount Bank originates these loans whether or not the collateral property underlying the loan is under contract for sale. At September 30, 2009, construction loans totaled $1,531,000, or 3.04% of Fairmount Bank’s total loan portfolio, of which $1,315,000 were for residential real estate projects. Approximately $699,000 of Fairmount Bank’s residential construction loans were made to finance the construction of owner-occupied homes and are structured to be converted to permanent loans at the end of the construction phase. Land loans, which are loans made with land as security, totaled $1,216,000, or 2.41%, of Fairmount Bank’s total loan portfolio at September 30, 2009. Land loans include raw land, residential lot financing primarily for individuals, land acquisition and development loans, and loans secured by land used for business purposes. In general, construction and land lending involve additional risks because of the inherent difficulty in estimating a property’s value both before and at completion of the project as well as the estimated cost of the project. Construction costs may exceed original estimates as a result of increased materials, labor or other costs. In addition, because of current uncertainties in the residential real estate market, property values have become more difficult to determine than they have historically been. Construction loans and land acquisition and development loans often involve the disbursement of funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property or refinance the indebtedness , rather than the ability of the borrower or guarantor to repay principal and interest. These loans are also generally more difficult to monitor. In addition, speculative construction loans to a builder are often associated with homes that are not pre-sold, and thus pose a greater potential risk than construction loans to individuals on their personal residences. Fairmount Bank had speculative residential construction loans of $396,000 at September 30, 2009. Fairmount Bank did not have any non-performing construction and land development loans at September 30, 2009.

Fairmount Bank’s mobile home loans may expose Fairmount Bank to increased lending risk.

As of September 30, 2009, mobile home loans totaled $3,073,000, or 6.10% of Fairmount Bank’s total portfolio. For Fairmount Bank to have financed a mobile home loan, the mobile home must be based on a permanent foundation. Fairmount Bank ceased originating mobile home loans in June 2007, and no future originations of these types of loans are planned. Fairmount Bank’s mobile home loans were purchased from a third-party originator and funded by Fairmount Bank at settlement. Fairmount Bank paid a premium/loan origination fee to the third party originator, of which one-half was wired upon settlement and the remainder was retained by Fairmount Bank in a depository account as a reserve for any losses or prepayments. At September 30, 2009, Fairmount Bank had prepaid loan origination fees related to this program of $531,000, and the balance in the reserve account available to Fairmount Bank was $233,000.

Mobile home lending involves additional risks as a result of higher loan-to-value ratios usually associated with these types of loans. Mobile home lending may also involve higher loan amounts than other types of loans. The most frequent purchasers of mobile homes are retirees and younger, first-time buyers. These borrowers may be deemed to be relatively high credit risks due to various factors, including, among other things, the manner in which they have handled previous credit, the absence or limited extent of their prior credit history or limited financial resources. Mobile home loan customers have historically been more adversely impacted by weak economic conditions, loss of employment and increases in other household costs. Consequently, mobile home loans bear a higher rate of interest, have a higher probability of default and may involve higher delinquency rates and greater servicing costs relative to loans to more creditworthy borrowers. In addition, the values of mobile homes decline over time, and higher levels of inventories of repossessed and used mobile homes may affect the values of collateral and result in higher charge-offs and provisions for loan losses.

As a result of completing and occupying our new headquarters office facility in mid-September 2009, our operating expenses and investment in fixed assets will increase and impact our operating costs.

In mid-September 2009, Fairmount Bank completed construction of, and occupied, our current headquarters office facility. We expect that annual operating expenses will increase approximately $140,000 due to costs associated with this new and larger facility. The relocation was necessary to support Fairmount Bank’s expanded operations. We believe that the new headquarters will enable us to better serve the community, since Fairmount Bank now has a full complement of retail services, including a drive through facility and an automated teller machine, or ATM, and the space necessary for additional personnel.

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Risks Related to this Offering

We will need to implement additional finance and accounting systems, procedures and controls in order to satisfy our new public company reporting requirements.

Upon completion of the stock offering, we will become a public reporting company. The federal securities laws and regulations of the Securities and Exchange Commission require that we file annual, quarterly and current reports, that we maintain effective disclosure controls and procedures and internal controls over financial reporting and that we certify as to the adequacy and effectiveness of these controls and procedures and the accuracy and completeness of the information contained in the public documents that we produce. We expect that the obligations of being a public company, including the substantial public reporting obligations, will require significant expenditures and place additional demands on our management team. Compliance with the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the Securities and Exchange Commission may also require us to improve our internal controls and procedures and upgrade our accounting systems, which will increase our operating costs.

Expected voting control by directors, officers and other employees could enable insiders to prevent a merger that may provide that shareholders receive a premium for their shares.

The shares of common stock that our directors and officers intend to purchase in the conversion, when combined with the shares that may be awarded to participants under our employee stock ownership plan and other stock benefit plans, could result in directors, officers and other employees controlling a significant percentage of our common stock. If these individuals were to act together, they could have significant influence over the outcome of any stockholder vote. This voting power may discourage takeover attempts that could result in significant premiums paid to stockholders. In addition, the total voting power of directors, officers and other employees could reach in excess of 20% of our outstanding stock. That level would enable directors, officers and other employees as a group to defeat any stockholder matter that requires an 80% vote, such as the removal of directors and certain amendments to our articles of incorporation.

There will be an extremely limited trading market in our common stock, which will hinder your ability to sell our common stock and may lower the market price of the stock.

Fairmount Bancorp, Inc. has never issued stock and, therefore, there is no current trading market for the shares of common stock. Moreover, our public “float,” which is the total number of our outstanding shares less the shares held by our employee stock ownership plan and our directors and senior officers and is used as a measurement of shares available for trading, is likely to be quite limited. The limited trading market could also result in a wider spread between the “bid” and “ask” prices for the stock, which could make it more difficult to sell a large number of shares at one time and could mean a sale of a large number of shares at one time could depress the market price.

Due to the relatively small size of our initial public stock offering, we anticipate that our stock will be quoted on the OTC Bulletin Board. The OTC Bulletin Board is a market with less liquidity and fewer buyers and sellers than the NASDAQ Stock Market. Even if a liquid market develops for our stock, the market liquidity may not be maintained and the trading price may be above or below the $10.00 offering price. An active, orderly trading market depends on the presence and participation of willing buyers and sellers which neither Fairmount Bancorp, Inc. nor the stock’s market makers can control. This may affect your ability to sell your shares on short notice and the price at which they can be sold, and the sale of a large number of shares at one time could temporarily depress the market price. For these reasons, our stock should not be viewed as a short-term investment. See “Market for the Common Stock.”

Publicly traded stocks, including stocks of financial institutions, have recently experienced substantial market price volatility. In a few recent transactions, shares of common stock issued by newly converted savings institutions or mutual holding companies have traded below the price at which the shares were sold in the offerings conducted by those companies.

The market for stock of financial institutions has been unusually volatile recently, and our stock price may decline when trading commences.

If you purchase shares in the stock offering, you may not be able to sell them at or above the $10.00 purchase price. After the shares of our common stock begin trading, the trading price of the common stock will be determined by the marketplace, and will be influenced not only by our operating results but by many factors outside of our control, including prevailing interest rates, investor perceptions, securities analyst research reports and general industry, geopolitical and

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economic conditions. Publicly traded stocks, including stocks of financial institutions, have recently experienced substantial market price volatility. We might experience fluctuations in our stock price that are not directly related to our operating performance or asset quality but are influenced by the current market conditions for financial institutions generally, the market’s perception of the health of the financial industry, and the market’s assessment of credit quality conditions, including default and foreclosure rates.

Our return on equity may be low compared to other financial institutions. This could negatively affect the trading price of our shares of common stock.

Net income divided by average equity, known as “return on equity,” is a ratio many investors use to compare the performance of a financial institution to its peers. For the fiscal year ended September 30, 2009, our return on average equity was 6.77% compared to the median return on average equity of 3.87% for the most recent 12 month period for which data was publicly available for all publicly traded savings institutions. Following the stock offering, we expect our equity to increase from $6,790,000 to between $9,830,000 at the minimum of the offering range and $11,909,000 at the adjusted maximum of the offering range. See “Capitalization.” Our return on equity will be reduced by the capital raised in the stock offering, higher expenses from the costs of operating as a public company, higher expenses associated with our planned expansion, and added expenses associated with our employee stock ownership plan and the stock-based incentive plans we intend to adopt. Until we can increase our net interest income and non-interest income, we expect our return on equity to be below the industry average, which may reduce the value of our shares of common stock.

Our stock-based benefit plans will increase our costs, which will reduce our income.

We anticipate that the employee stock ownership plan will purchase 8% of the total shares of common stock outstanding following the stock offering, with funds borrowed from Fairmount Bancorp, Inc. The cost of acquiring shares of common stock for the employee stock ownership plan will be between $340,000 at the minimum of the offering range and $529,000 at the adjusted maximum of the offering range. We will record annual employee stock ownership plan expense in an amount equal to the fair value of shares of common stock committed to be released to employees. If shares of common stock appreciate in value over time, compensation expense relating to the employee stock ownership plan will increase.

We also intend to adopt stock-based incentive plans after the stock offering under which plan participants would be awarded shares of our common stock (at no cost to them) and/or options to purchase shares of our common stock. The number of shares of restricted stock or stock options reserved for issuance under any initial stock-based incentive plan may not exceed 4.0% and 10.0%, respectively, of our total outstanding shares, if these plans are adopted within twelve months after the completion of the conversion. Following the conversion, we will recognize additional annual employee compensation expenses stemming from options and shares granted under the new benefit plans. These additional expenses will adversely affect our profitability. We cannot determine the actual amount of these new stock-related compensation expenses at this time because applicable accounting practices generally require that they be based on the fair market value of the options or shares of common stock at the date of the grant; however, we expect them to be material. We will recognize expenses for our employee stock ownership plan when shares are committed to be released to participants’ accounts and will recognize expenses for restricted stock awards and stock options over the vesting period of awards made to recipients. The pro forma after-tax benefit expenses for the year ended September 30, 2009 have been estimated to be approximately $102,000 at the maximum of the offering range, as set forth in the pro forma financial information under “Pro Forma Data,” assuming the $10.00 per share purchase price as fair market value. Actual expenses, however, may be higher or lower, depending on the price of our common stock, the number of shares awarded under the plans and the timing of the implementation of the plans. For further discussion of these plans, see “Management—Benefit Plans.”

The implementation of stock-based incentive plans will dilute your ownership interest. Historically, stockholders have approved these plans.

We intend to adopt stock-based incentive plans, which will allow participants to be awarded shares of common stock (at no cost to them) or options to purchase shares of our common stock, following the stock offering. These stock-based incentive plans will be funded through either open market purchases of shares of common stock, if permitted, or from the issuance of authorized but unissued shares of common stock. Stockholders would experience a reduction in ownership interest totaling 12.28% in the event newly issued shares are used to fund stock options or awards of shares of common stock under these plans in an amount equal to 10% and 4%, respectively, of the shares issued in the stock offering.

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Although the implementation of stock-based incentive plans will be subject to stockholder approval, historically, the overwhelming majority of these plans adopted by savings institutions and their holding companies following mutual-to-stock conversions have been approved by stockholders.

We have not determined whether we will adopt stock-based incentive plans more than one year following the stock offering. Stock-based incentive plans adopted more than one year following the stock offering may exceed regulatory restrictions on the size of stock-based benefit plans adopted within one year, which would further increase our costs and dilute your ownership interest.

If we adopt stock-based incentive plans within one year following the completion of the stock offering , then we may grant shares of common stock or stock options under our stock-based incentive plans for up to 4% and 10%, respectively, of our total outstanding shares. However, the amount of stock awards and stock options available for grant under the stock-based incentive plans may exceed these amounts if the stock-based incentive plans are adopted more than one year following the stock offering. Although the implementation of the stock-based incentive plans will be subject to stockholder approval, the determination as to the timing of the implementation of such plans will be at the discretion of our board of directors. Stock-based incentive plans that provide for awards in excess of these amounts would increase our costs beyond the amounts estimated in this prospectus. Stock-based incentive plans that provide for awards in excess of these amounts could also result in dilution to stockholders in excess of that described in this prospectus.

Various factors may make takeover attempts more difficult to achieve.

Our board of directors has no current intention to sell control of Fairmount Bancorp, Inc. Provisions of our articles of incorporation and bylaws, Maryland law and various other factors may make it more difficult for companies or persons to acquire control of Fairmount Bancorp, Inc. without the consent of our board of directors. You may want a takeover attempt to succeed because, for example, a potential acquiror could offer a premium over the then prevailing price of our common stock. The factors that may discourage takeover attempts or make them more difficult include:

• Office of Thrift Supervision Regulations. Office of Thrift Supervision regulations prohibit, for three years following the completion of a conversion, the direct or indirect acquisition of more than 10% of any class of equity security of a converted savings institution without the prior approval of the Office of Thrift Supervision.

• Articles of incorporation and statutory provisions. Provisions of the articles of incorporation and bylaws of Fairmount Bancorp, Inc. and Maryland law may make it more difficult and expensive to pursue a takeover attempt that management opposes, even if the takeover is favored by a majority of our stockholders. These provisions also would make it more difficult to remove our current board of directors or management, or to elect new directors. Specifically, our articles of incorporation include limitations on voting rights of beneficial owners of more than 10% of our common stock, the election of directors to staggered terms of three years and not permitting cumulative voting in the election of directors. Our bylaws also contain provisions regarding the timing and content of stockholder proposals and nominations and qualification for service on the board of directors.

• Required change-in-control payments. We intend to enter into an employment agreements with our president and chief executive officer and change-in-control agreements with two executive officers of Fairmount Bancorp, Inc. and Fairmount Bank, which would provide cash payments to these officers in the event of a termination of employment following a change in control of Fairmount Bancorp, Inc. or Fairmount Bank. In the event of a change in control, these cash severance payments would amount to approximately $600,000 in the aggregate, subject to reduction with respect to an officer in order to avoid an “excess parachute payment” under Section 280G of the Internal Revenue Code. These payments may have the effect of increasing the costs of acquiring Fairmount Bancorp, Inc., thereby discouraging future takeover attempts.

We have broad discretion in using the proceeds of the offering. Our failure to effectively use such proceeds could reduce our profits.

We will use a portion of the net proceeds to finance the purchase of shares of common stock in the stock offering by the employee stock ownership plan and may use the remaining net proceeds to pay dividends to stockholders, repurchase shares of common stock, purchase investment securities, deposit funds in Fairmount Bank, acquire additional branch offices or other financial services companies or for other general corporate purposes. Fairmount Bank may use the proceeds it receives to fund new loans, establish or acquire new branches, purchase investment securities or for general corporate purposes. We have not identified specific amounts of proceeds for any of these purposes, and we will have significant flexibility in

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determining the amount of net proceeds we apply to different uses and the timing of such applications. Our failure to utilize these funds effectively could reduce our profitability. We have not established a timetable for the effective deployment of the proceeds, and we cannot predict how long we will require to effectively deploy the proceeds.

Our stock value may be negatively affected by federal regulations that restrict takeovers.

For three years following the stock offering, Office of Thrift Supervision regulations prohibit any person from acquiring or offering to acquire more than 10% of our common stock without the prior written approval of the Office of Thrift Supervision. See “Restrictions on Acquisition of Fairmount Bancorp, Inc.” for a discussion of applicable Office of Thrift Supervision regulations regarding acquisitions. These restrictions may make it more difficult for stockholders to acquire a significant amount of our stock, which may adversely affect our stock price.

The corporate governance provisions in our articles of incorporation and bylaws, and the corporate governance provisions under Maryland law, may prevent or impede the holders of our common stock from obtaining representation on our board of directors and may impede takeovers of Fairmount Bancorp, Inc. that our board might conclude are not in the best interest of Fairmount Bancorp, Inc. or its stockholders.

Provisions in our articles of incorporation and bylaws may prevent or impede holders of our common stock from obtaining representation on our board of directors and may make takeovers of Fairmount Bancorp, Inc. more difficult. For example, our board of directors is divided into three staggered classes. A classified board makes it more difficult for stockholders to change a majority of the directors because it generally takes at least two annual elections of directors for this to occur. Our articles of incorporation include a provision that no person will be entitled to vote any shares of our common stock in excess of 10% of our outstanding shares of common stock. This limitation does not apply to the purchase of shares by a tax-qualified employee stock benefit plan established by us. In addition, our articles of incorporation and bylaws restrict who may call special meetings of stockholders and how directors may be removed from office. Additionally, in certain instances, the Maryland General Corporation Law requires a supermajority vote of our stockholders to approve a merger or other business combination with a large stockholder, if the proposed transaction is not approved by a majority of our directors. See “Restrictions on Acquisition of Fairmount Bancorp, Inc.” on page     . These provisions may make it more difficult to pursue a change in control or attempt a takeover of Fairmount Bancorp, Inc. As a result, you may not have an opportunity to participate in such a transaction, and the trading price of our common stock may be adversely affected.

Our stock value may be negatively affected by federal regulations that restrict stock repurchases.

Office of Thrift Supervision regulations restrict us from repurchasing our shares of common stock during the first year following the conversion unless extraordinary circumstances exist. Stock repurchases are a capital management tool that can enhance the value of a company’s stock, and our inability to repurchase our shares of common stock during the first year following the conversion may negatively affect our stock price.

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SELECTED FINANCIAL AND OTHER DATA

The following tables set forth selected historical financial and other data of Fairmount Bank for the periods and at the dates indicated. The information at September 30, 2009 and 2008 and for the years ended September 30, 2009 and 2008 is derived in part from, and should be read together with, the audited financial statements and notes thereto of Fairmount Bank beginning at page F-1 of this prospectus.

	At September 30,
	2009		2008
	(In thousands)
Selected Financial Conditional Data:
Total assets	$	64,041	$	55,512
Cash and cash equivalents		328		367
Federal funds sold and interest-bearing deposits in other banks		4,305		1,045
Investment securities		5,094		7,019
Federal Home Loan Bank stock		601		539
Loans receivable, net		50,334		45,155
Deposits		45,838		38,891
Borrowed funds		11,000		10,000
Equity		6,790		6,192

	For the Years Ended September 30,
	2009		2008
	(In thousands)
Selected Operating Data:
Interest and dividend income	$	3,437	$	2,950
Interest expense (1)		1,502		1,619
Net interest income (1)		1,935		1,331
Provision for loan losses		182		50
Net interest income after provision for loan losses (1)		1,753		1,281
Capitalized interest		45		—
Non-interest income		157		151
Non-interest expense		1,241		1,037
Income before income taxes		714		395
Provision for income taxes		269		149
Net income		445		246

(1) Excludes capitalized interest.

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	At or for the Years Ended September 30,
	2009		2008
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total assets)	0.74	%	0.48	%
Return on equity (ratio of net income to average equity)	6.77	%	4.03	%
Interest rate spread (1)	3.09	%	2.31	%
Net interest margin (2)	3.34	%	2.71	%
Efficiency ratio (3)	59.30	%	70.00	%
Non-interest expense to average total assets	2.06	%	2.03	%
Average interest-earning assets to average interest-bearing liabilities	109.83	%	112.12	%
Loans to deposits	109.81	%	116.11	%
Asset Quality Ratios:
Non-performing assets to total assets (4)	0.79	%	—	%
Non-performing loans to total loans	0.82	%	—	%
Allowance for loan losses to non-performing loans	53.11	%	*
Allowance for loan losses to total loans	0.44	%	0.23	%
Net charge- offs as a percentage of average loans outstanding	0.14	%	0.07	%
Capital Ratios:
Average equity to average assets	10.87	%	12.08	%
Equity to total assets at end of period	10.60	%	11.16	%
Total capital to risk-weighted assets	19.27	%	21.47	%
Tier 1 capital to risk-weighted assets	18.80	%	21.13	%
Tier 1 capital to average assets	10.52	%	11.29	%
Other Data:
Number of full service offices	1		1
Number of employees	12		10

* Not meaningful.

(1) Represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period.

(2) The net interest margin represents net interest income as a percent of average interest-earning assets for the period.

(3) The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income.

(4) Non-performing assets consist of non-performing loans and real estate owned.

25

FORWARD-LOOKING STATEMENTS

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

• statements of our goals, intentions and expectations;

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

• statements regarding the asset quality of Fairmount Bank’s loan and investment portfolios; and

• estimates of our risks and future costs and benefits.

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

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

• general economic conditions, either nationally or in our market area, that are worse than expected;

• competition among depository and other financial institutions;

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

• adverse changes in the securities markets;

• changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

• our ability to enter new markets successfully and capitalize on growth opportunities;

• our ability to successfully integrate acquired entities;

• changes in consumer spending, borrowing and savings habits;

• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

• changes in our organization, compensation and benefit plans;

• changes in our financial condition or results of operations that reduce capital available to pay dividends;

• regulatory changes or actions; and

• changes in the financial condition or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Please see “Risk Factors” beginning on page    .

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HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

Although we cannot determine what the actual net proceeds from the sale of the shares of common stock in the offering will be until the offering is completed, we anticipate that the net proceeds will be between $3,550,000 and $5,050,000, or $5,912,500 if the offering range is increased by 15%. We estimate that we will contribute half of these proceeds to Fairmount Bank. We intend to retain the other half of the net proceeds at Fairmount Bancorp, Inc., to be used for the purposes described below.

A summary of the anticipated net proceeds at the minimum, midpoint, maximum and adjusted maximum of the offering range and the use of the net proceeds is as follows:

	Based Upon the Sale at $10.00 Per Share of
	425,000 Shares				500,000 Shares				575,000 Shares				661,250 Shares (1)
	Amount		Percent of Net Proceeds		Amount		Percent of Net Proceeds		Amount		Percent of Net Proceeds		Amount		Percent of Net Proceeds
	(Dollars in thousands)
Offering proceeds	$	4,250			$	5,000			$	5,750			$	6,613
Less offering expenses		700				700				700				700
Net offering proceeds	$	3,550	100.0	%	$	4,300	100.0	%	$	5,050	100.0	%	$	5,913	100.0	%
Use of net proceeds:
To Fairmount Bank	$	1,775	50.0	%	$	2,150	50.0	%	$	2,525	50.0	%	$	2,956	50.0	%
To fund loan to employee stock ownership plan		340	9.6	%		400	9.3	%		460	9.1	%		529	8.9	%
Retained by Fairmount Bancorp, Inc.	$	1,435	40.4	%	$	1,750	40.7	%	$	2,065	40.9	%	$	2,427	41.1	%

(1) As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering range to reflect demand for the shares, changes in market or general financial conditions, or regulatory considerations following commencement of the offering.

Payments for shares of common stock made through withdrawals from existing deposit accounts will not result in the receipt of new funds for investment but will result in a reduction of Fairmount Bank’s deposits. The net proceeds may vary because the total expenses relating to the offering may be more or less than our estimates. For example, our expenses would increase if a syndicated community offering were used to sell shares of common stock not purchased in the subscription and community offerings.

Fairmount Bancorp, Inc. May Use the Proceeds it Retains from the Offering:

• to fund a loan to the employee stock ownership plan to purchase shares of common stock in the offering (between $340,000 and $460,000, or $529,000 if the offering is increased by 15%);

• to invest in securities,

• to finance branch expansion and the possible acquisition of banking or financial service companies, including additional bank branches;

• to pay cash dividends to stockholders;

• to repurchase shares of our common stock; and

• for other general corporate purposes.

Initially, we intend to invest a substantial portion of the net proceeds in short-term investments, investment-grade debt obligations and mortgage-backed securities.

Under current Office of Thrift Supervision regulations, we may not repurchase shares of our common stock during the first year following the conversion, except to fund equity benefit plans other than stock options, or except when extraordinary circumstances exist and with prior regulatory approval.

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Fairmount Bank May Use the Net Proceeds it Receives from the Offering:

• to fund new loans, including one-to four-family residential mortgage loans, commercial real estate loans, construction loans, home equity lines of credit and, to a lesser extent, commercial and consumer loans;

• to enhance existing products and services and to support new products and services;

• to invest in securities;

• to expand its banking franchise by acquiring or establishing new branches, or by acquiring other banking or financial services companies, including additional bank branches, although we currently have no understandings or agreements to acquire another branch office or another bank, thrift, credit union or financial services company; and

• for other general corporate purposes.

Initially, the net proceeds will be invested in short-term investments, investment-grade debt obligations and mortgage-backed securities.

We expect our return on equity to decrease as compared to our performance in recent years until we are able to utilize effectively the additional capital raised in the offering. Until we can increase our net interest income and noninterest income, we expect our return on equity to be below the industry average, which may negatively affect the value of our common stock. See “Risk Factors.”

OUR POLICY REGARDING DIVIDENDS

Following the completion of the stock offering, our board of directors will have the authority to declare dividends on our shares of common stock, subject to statutory and regulatory requirements. However, no decision has been made with respect to the payment of dividends. In determining whether to pay a cash dividend and the amount of such cash dividend, the board is expected to take into account a number of factors, including capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations and general economic conditions. We cannot assure you that we will pay dividends, or that if paid, we will not reduce or eliminate dividends in the future. Special cash dividends, stock dividends or returns of capital, to the extent permitted by Office of Thrift Supervision policy and regulations, may be paid in addition to, or in lieu of, regular cash dividends. We will file a consolidated tax return with Fairmount Bank. Accordingly, it is anticipated that any cash distributions made by us to our stockholders would be treated as cash dividends and not as a non-taxable return of capital for federal and state tax purposes.

We will be subject to Maryland law relating to its ability to pay dividends to its shareholders. We will not be subject to the Office of Thrift Supervision on the payment of dividends. However, our ability to pay dividends may depend, in part, upon dividends we receive from Fairmount Bank because we initially will have no source of income other than dividends from Fairmount Bank, earnings from the investment of the net proceeds from the offering that we retain, and interest payments received on our loan to the employee stock ownership plan. We expect that we will retain approximately $2,065,000 from the net proceeds raised in the offering at the maximum of the offering range based upon our estimate of offering-related expenses and other assumptions described in “Pro Forma Data.” Federal banking law limits dividends and other distributions from Fairmount Bank to us. In addition, we may not make a distribution that would constitute a return of capital during the 12 months following the completion of the conversion. No insured depository institution may make a capital distribution if, after making the distribution, the institution would be undercapitalized. See “Supervision and Regulation—Capital Distributions.”

Additionally, pursuant to Office of Thrift Supervision regulations, during the three-year period following the stock offering, we will not take any action to declare an extraordinary dividend to stockholders that would be treated by recipients as a tax-free return of capital for federal income tax purposes.

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MARKET FOR THE COMMON STOCK

We have never issued capital stock, and so there is no established market for our common stock. Upon completion of the offering, we expect that our common stock will be quoted on the Over-the-Counter Electronic Bulletin Board, subject to completion of the offering. Stifel, Nicolaus & Company, Incorporated has advised us that it intends to make a market in shares of our common stock following the offering, but it is under no obligation to do so, or to continue to do so once it begins.

The development and maintenance of a public market, having the desirable characteristics of depth, liquidity and orderliness, depends on the existence of willing buyers and sellers, the presence of which is not within our control or that of any market maker. The number of active buyers and sellers of shares of our common stock at any particular time may be limited, which may have an adverse effect on the price at which shares of our common stock can be sold. There can be no assurance that persons purchasing the shares of common stock will be able to sell their shares at or above the $10.00 offering purchase price per share. You should have a long-term investment intent if you purchase shares of our common stock and you should recognize that there may be a limited trading market in the shares of common stock.

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HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

At September 30, 2009, Fairmount Bank exceeded all of the applicable regulatory capital requirements. The table below sets forth the historical equity capital and regulatory capital of Fairmount Bank at September 30, 2009, and the pro forma regulatory capital of Fairmount Bank at September 30, 2009, after giving effect to the sale of shares of common stock at a $10.00 per share purchase price. The table assumes the receipt by Fairmount Bank of between $1,775,000 and $2,525,000, or $2,956,250 if the offering range is increased by 15%.

	Fairmount Bank Historical at September 30, 2009				Pro Forma at September 30, 2009, Based Upon the Sale in the Offering of
					425,000 Shares				500,000 Shares				575,000 Shares				661,250 Shares (1)
	Amount		Percent of Assets (2)		Amount		Percent of Assets (2)		Amount		Percent of Assets (2)		Amount		Percent of Assets (2)		Amount		Percent of Assets (2)
	(Dollars in thousands)
GAAP capital	$	6,790	10.60	%	$	8,225	12.50	%	$	8,540	12.90	%	$	8,855	13.30	%	$	9,217	13.76	%
Tangible capital (3)	$	6,727	10.52	%	$	8,162	12.42	%	$	8,477	12.83	%	$	8,792	13.23	%	$	9,154	13.68	%
Tangible requirement		959	1.50			986	1.50			991	1.50			997	1.50			1,003	1.50
Excess	$	5,768	9.02	%	$	7,176	10.92	%	$	7,486	11.33	%	$	7,795	11.73	%	$	8,151	12.18	%
Core capital (3)	$	6,727	10.52	%	$	8,162	12.42	%	$	8,477	12.83	%	$	8,792	13.23	%	$	9,154	13.68	%
Core requirement (4)		2,558	4.00			2,629	4.00			2,644	4.00			2,659	4.00			2,676	4.00
Excess	$	4,169	6.52	%	$	5,533	8.42	%	$	5,833	8.83	%	$	6,133	9.23	%	$	6,478	9.68	%
Total risk-based capital (5)(6)	$	6,896	19.27	%	$	8,331	23.06	%	$	8,646	23.88	%	$	8,961	24.70	%	$	9,323	25.63	%
Risk-based requirement		2,862	8.00			2,891	8.00			2,897	8.00			2,903	8.00			2,910	8.00
Excess	$	4,034	11.27	%	$	5,440	15.06	%	$	5,749	15.88	%	$	6,058	16.70	%	$	6,413	17.63	%
Reconciliation of capital infused into Fairmount Bank:
Net proceeds					$	1,775			$	2,150			$	2,525			$	2,956
Less: Common stock acquired by ESOP						340				400				460				529
Pro Forma Increase					$	1,435			$	1,750			$	2,065			$	2,427

(1) As adjusted to give effect to an increase in the number of shares which could occur due to a 15% increase in the offering range to reflect demand for the shares, changes in market or general financial conditions following the commencement of the offering or regulatory considerations.

(2) Tangible and core capital levels are shown as a percentage of total adjusted assets. Risk-based capital levels are shown as a percentage of risk-weighted assets.

(3) The difference between U.S. GAAP capital and regulatory tangible capital and core capital is attributable to the addition of $63,000 of unrealized gain on available for sale securities, net of taxes.

(4) The current Office of Thrift Supervision core capital requirement for financial institutions is 3% of total adjusted assets for financial institutions that receive the highest supervisory rating for safety and soundness and a 4% to 5% core capital ratio requirement for all other financial institutions.

(5) Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting.

(6) The difference between core capital and total risk-based capital is attributable to the addition of general loan loss reserves of $169,000.

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CAPITALIZATION

The following table presents the historical capitalization of Fairmount Bank at September 30, 2009 and the pro forma consolidated capitalization of Fairmount Bancorp, Inc., after giving effect to the conversion and the offering, based upon the assumptions set forth in the “Pro Forma Data” section.

	Fairmount Bank Historical at September 30, 2009			Pro Forma, Based Upon the Sale in the Offering of
				425,000 Shares			500,000 Shares			575,000 Shares			661,250 Shares (1)
	(Dollars in thousands)
Deposits (2)	$	45,838		$	45,838		$	45,838		$	45,838		$	45,838
Borrowings		11,000			11,000			11,000			11,000			11,000
Total deposits and borrowed funds		56,838			56,838			56,838			56,838			56,838
Stockholders’ equity:
Common stock $0.01 par value, 4,000,000 shares authorized; assuming shares outstanding as shown (3)				$	4		$	5		$	6		$	7
Additional paid-in capital					3,546			4,295			5,044			5,906
Retained earnings (4)		6,727			6,727			6,727			6,727			6,727
Accumulated other comprehensive income		63			63			63			63			63
Less:
Common stock to be acquired by employee stock ownership plan (5)					(340	)		(400	)		(460	)		(529	)
Common stock to be acquired by stock recognition and retention plan (6)					(170	)		(200	)		(230	)		(265	)
Total stockholders’ equity	$	6,790		$	9,830		$	10,490		$	11,150		$	11,909
Total stockholders’ equity as a percentage of total assets (2)		10.60	%		14.65	%		15.49	%		16.30	%		17.22	%

(1) As adjusted to give effect to an increase in the number of shares of common stock that could occur due to a 15% increase in the offering range to reflect demand for shares, changes in market or general financial conditions following the commencement of the subscription and community offerings or regulatory considerations.

(2) Does not reflect withdrawals from deposit accounts for the purchase of shares of common stock in the conversion and offering. These withdrawals would reduce pro forma deposits by the amount of the withdrawals.

(3) No effect has been given to the issuance of additional shares of Fairmount Bancorp, Inc. common stock pursuant to a stock option plan. If this plan is implemented, an amount up to 10% of the shares of Fairmount Bancorp, Inc. common stock sold in the offering will be reserved for issuance upon the exercise of options under the stock option plan. See “Management—Benefit Plans.”

(4) The retained earnings of Fairmount Bank will be substantially restricted after the conversion. See “Our Policy Regarding Dividends,” “The Conversion and Offering—Liquidation Rights” and “Supervision and Regulation.”

(5) Assumes that 8% of the shares sold in the offering will be acquired by the employee stock ownership plan financed by a loan from Fairmount Bancorp, Inc. The loan will be repaid principally from Fairmount Bank’s contributions to the employee stock ownership plan. Since Fairmount Bancorp, Inc. will finance the employee stock ownership plan debt, this debt will be eliminated through consolidation and no asset or liability will be reflected on the consolidated financial statements of Fairmount Bancorp, Inc. Accordingly, the amount of shares of common stock acquired by the employee stock ownership plan is shown in this table as a reduction of total stockholders’ equity.

(6) Assumes a number of shares of common stock equal to 4% of the shares of common stock to be sold in the offering will be purchased by the stock recognition and retention plan in open market purchases. The dollar amount of common stock to be purchased is based on the $10.00 per share purchase price in the offering and represents unearned compensation. This amount does not reflect possible increases or decreases in the value of common stock relative to the subscription price in the offering. As Fairmount Bancorp, Inc. accrues compensation expense to reflect the vesting of shares pursuant to the stock recognition and retention plan, the credit to equity will be offset by a charge to noninterest expense. Implementation of the stock recognition and retention plan will require stockholder approval. The funds to be used by the stock recognition and retention plan to purchase the shares will be provided by Fairmount Bancorp, Inc.

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PRO FORMA DATA

The following table summarizes historical data of Fairmount Bank and pro forma data of Fairmount Bancorp, Inc. at and for the year ended September 30, 2009. This information is based on assumptions set forth below and in the table, and should not be used as a basis for projections of market value of the shares of common stock following the conversion and offering. Moreover, pro forma stockholders’ equity per share does not give effect to the liquidation account to be established in the conversion or, in the unlikely event of a liquidation of Fairmount Bank, to the tax effect of the recapture of the bad debt reserve.

The net proceeds in the tables are based upon the following assumptions:

• all shares of common stock will be sold in the subscription and community offerings;

• our employee stock ownership plan will purchase 8% of the shares of common stock sold in the offering with a loan from Fairmount Bancorp, Inc. The loan will be repaid in substantially equal payments of principal and interest over a period of 10 years; and

• total expenses of the stock offering, including the marketing fees to be paid to Stifel, Nicolaus & Company, Incorporated, will be approximately $700,000.

We calculated pro forma consolidated net income for the year ended September 30, 2009 as if the estimated net proceeds we received had been invested at an assumed interest rate of 1.45% (0.96% on an after-tax basis). This represents the three-year U.S. Treasury Note yield as of September 30, 2009, which, in light of current market interest rates, we consider to more accurately reflect the pro forma reinvestment rate than the arithmetic average of the weighted average yield earned on Fairmount Bank’s interest-earning assets and the weighted average rate paid on its deposits, which is the reinvestment rate generally required by Office of Thrift Supervision regulations. The effect of withdrawals from deposit accounts for the purchase of shares of common stock has not been reflected. Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the indicated number of shares of common stock. No effect has been given in the pro forma stockholders’ equity calculations for the assumed earnings on the net proceeds. It is assumed that Fairmount Bancorp, Inc. will loan funds to the employee stock ownership plan, between $340,000 and $460,000 of the estimated net proceeds in the offering, or $529,000 if the offering range is increased by 15%. The actual net proceeds from the sale of shares of common stock will not be determined until the offering is completed. However, we currently estimate the net proceeds to be between $3,550,000 and $5,050,000, and $5,912,500 if the offering range is increased by 15%.

32

The following pro forma information may not be representative of the financial effects of the offering at the date on which the offering actually occurs, and should not be taken as indicative of future results of operations. Pro forma consolidated stockholders’ equity represents the difference between the stated amounts of our assets and liabilities. The pro forma stockholders’ equity is not intended to represent the fair market value of the shares of common stock.

	At or For the Year Ended September 30, 2009 Based Upon the Sale at $10.00 Per Share of
	425,000 Shares at Minimum of Offering Range			500,000 Shares at Midpoint of Offering Range			575,000 Shares at Maximum of Offering Range			661,250 Shares at Adjusted Maximum of Offering Range (1)
	(Dollars in thousands, except per share amounts)
Gross proceeds of offering	$	4,250		$	5,000		$	5,750		$	6,613
Less expenses		(700	)		(700	)		(700	)		(700	)
Estimated net proceeds	$	3,550		$	4,300		$	5,050		$	5,913
Less: Common stock purchased by ESOP (2)		(340	)		(400	)		(460	)		(529	)
Less: Common stock purchased by stock award plan (3)		(170	)		(200	)		(230	)		(265	)
Estimated net proceeds, as adjusted	$	3,040		$	3,700		$	4,360		$	5,119
For the Year Ended September 30, 2009
Consolidated net income:
Historical	$	445		$	445		$	445		$	445
Pro forma income on net proceeds		29			36			42			49
Pro forma ESOP adjustment (2)		(22	)		(26	)		(30	)		(35	)
Pro forma stock award adjustment (3)		(22	)		(26	)		(30	)		(35	)
Pro forma stock option adjustment (4)		(31	)		(37	)		(42	)		(49	)
Pro forma net income	$	399		$	392		$	385		$	375
Per share net income
Historical	$	1.14		$	0.96		$	0.84		$	0.73
Pro forma income on net proceeds, as adjusted		0.07			0.08			0.08			0.08
Pro forma ESOP adjustment (2)		(0.06	)		(0.06	)		(0.06	)		(0.06	)
Pro forma stock award adjustment (3)		(0.06	)		(0.06	)		(0.06	)		(0.06	)
Pro forma stock option adjustment (4)		(0.08	)		(0.08	)		(0.08	)		(0.08	)
Pro forma net income per share (5)	$	1.01		$	0.84		$	0.72		$	0.61
Offering price as a multiple of pro forma net income per share		9.9	x		11.9	x		13.9	x		16.4	x
Number of shares outstanding for pro forma net income per share calculations		394,400			464,000			533,600			613,640

At September 30, 2009
Stockholders’ equity:
Historical	$	6,790		$	6,790		$	6,790		$	6,790
Estimated net proceeds		3,550			4,300			5,050			5,913
Less: Common stock acquired by ESOP (2)		(340	)		(400	)		(460	)		(529	)
Less: Common stock acquired by stock award plan (3)(4)		(170	)		(200	)		(230	)		(265	)
Pro forma stockholders’ equity	$	9,830		$	10,490		$	11,150		$	11,909
Stockholders’ equity per share:
Historical	$	15.98		$	13.58		$	11.81		$	10.27
Estimated net proceeds		8.35			8.60			8.78			8.94
Less: Common stock acquired by ESOP (2)		(0.80	)		(0.80	)		(0.80	)		(0.80	)
Less: Common stock acquired by stock award plan (3)(4)		(0.40	)		(0.40	)		(0.40	)		(0.40	)
Pro forma stockholders’ equity per share (6)	$	23.13		$	20.98		$	19.39		$	18.01
Offering price as percentage of pro forma stockholders’ equity per share		43.23	%		47.66	%		51.57	%		55.52	%
Number of shares outstanding for pro forma book value per share calculations		425,000			500,000			575,000			661,250

33

(1) As adjusted to give effect to an increase in the number of shares which could occur due to a 15% increase in the offering range to reflect demand for the shares, changes in market and financial conditions following the commencement of the offering or regulatory considerations.

(2) Assumes that 8% of shares of common stock sold in the offering will be purchased by the employee stock ownership plan. For purposes of this table, the funds used to acquire these shares are assumed to have been borrowed by the employee stock ownership plan from Fairmount Bancorp, Inc. Fairmount Bank intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the required principal and interest payments on the debt. Fairmount Bank’ total annual payments on the employee stock ownership plan debt are based upon 10 equal annual installments of principal and interest. SOP 93-6 requires that an employer record compensation expense in an amount equal to the fair value of the shares committed to be released to employees. The pro forma adjustments assume that the employee stock ownership plan shares are allocated in equal annual installments based on the number of loan repayment installments assumed to be paid by Fairmount Bank, the fair value of the common stock remains equal to the subscription price and the employee stock ownership plan expense reflects an effective federal tax rate of 34%. The unallocated employee stock ownership plan shares are reflected as a reduction of stockholders’ equity. No reinvestment is assumed on proceeds contributed to fund the employee stock ownership plan. The pro forma net income further assumes that 34,000, 40,000, 46,000 and 52,900 shares were committed to be released during the period at the minimum, midpoint, maximum, and adjusted maximum of the offering range, respectively, and in accordance with SOP 93-6, only the employee stock ownership plan shares committed to be released during the period were considered outstanding for purposes of income per share calculations.

(3) The stock recognition and retention plan may purchase an aggregate number of shares of common stock equal to 4% of the shares to be sold in the offering (or possibly a greater number of shares if the plan is implemented more than one year after completion of the conversion). Stockholder approval of the stock recognition and retention plan, and purchases by the plan may not occur earlier than six months after the completion of the conversion. The shares may be acquired directly from Fairmount Bancorp, Inc. or through open market purchases. The funds to be used by the stock recognition and retention plan to purchase the shares will be provided by Fairmount Bancorp, Inc. The table assumes that (i) the stock recognition and retention plan acquires the shares through open market purchases at $10.00 per share, (ii) 20% of the amount contributed to the stock recognition and retention plan is amortized as an expense during the year ended September 30, 2009 and (iii) the stock recognition and retention plan expense reflects an effective federal tax rate of 34%. Assuming stockholder approval of the stock recognition and retention plan and that shares of common stock (equal to 4% of the shares sold in the offering) are awarded through the use of authorized but unissued shares of common stock, stockholders would have their ownership and voting interests diluted by approximately 3.85%.

(4) The stock option plan may grant options to acquire an aggregate number of shares of common stock equal to 10% of the shares to be sold in the offering (or possibly a greater number of shares if the plan is implemented more than one year after completion of the conversion). Stockholder approval of the stock option plan may not occur earlier than six months after the completion of the conversion. In calculating the pro forma effect of the stock option plan, it is assumed that the exercise price of the stock options and the trading price of the common stock at the date of grant were $10.00 per share, the estimated grant-date fair value determined using the Black-Scholes option pricing model was $4.02 for each option, the aggregate grant-date fair value of the stock options was amortized to expense on a straight-line basis over a five-year vesting period of the options, and that 25% of the amortization expense (or the assumed portion relating to options granted to directors) resulted in a tax benefit using an assumed tax rate of 34.0%. The actual expense of the stock option plan will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used in the option pricing model ultimately adopted. Under the above assumptions, the adoption of the stock option plan will result in no additional shares under the treasury stock method for purposes of calculating earnings per share. There can be no assurance that the actual exercise price of the stock options will be equal to the $10.00 price per share. If a portion of the shares to satisfy the exercise of options under the stock option plan is obtained from the issuance of authorized but unissued shares, our net income per share and stockholders’ equity per share would decrease. The issuance of authorized but previously unissued shares of common stock pursuant to the exercise of options under such plan would dilute existing stockholders’ ownership and voting interests by approximately 9.09%.

(5) Income per share computations are determined by taking the number of shares assumed to be sold in the offering and, in accordance with SOP 93-6, subtracting the employee stock ownership plan shares that have not been committed for release during the period and subtracting non-vested stock recognition and retention plan shares. See note 2, above.

(6) The retained earnings of Fairmount Bank will be substantially restricted after the conversion. See “Our Policy Regarding Dividends,” “The Conversion and Offering—Liquidation Rights” and “Supervision and Regulation.”

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the audited consolidated financial statements, which appear beginning on page F-1 of this prospectus.

Overview

Fairmount Bank’s results of operations depend mainly on its net interest income, which is the difference between the interest income it earns on its loan and investment portfolios and the interest expense it pays on its deposits and borrowings. Results of operations are also affected by provisions for loan losses and noninterest income. Fairmount Bank’s noninterest expense consists primarily of compensation and employee benefits, office occupancy and general administrative and data processing expenses.

Fairmount Bank’s results of operations are significantly affected by general economic and competitive conditions, particularly with respect to changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially affect its financial condition and results of operations. See “Risk Factors” beginning on page     .

Historically, Fairmount Bank’s business has consisted primarily of originating one-to four-family real estate loans secured by property in its market area and investing in mortgage-backed and investment securities. Typically, one-to four-family loans involve a lower degree of risk and carry a lower yield than commercial real estate, construction and consumer loans. Fairmount Bank’s loans are primarily funded by certificates of deposit and, to a lesser extent, savings accounts and Federal Home Loan Bank of Atlanta advances. Certificates of deposit typically have a higher interest rate than savings accounts. The combination of these factors, along with our capital level, has resulted in low interest rate spreads and returns on equity.

Critical Accounting Policies

In reviewing and understanding financial information for Fairmount Bank, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the Notes to the Financial Statements. The accounting and financial reporting policies of Fairmount Bank conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. Management believes that evaluation of the allowance for loan losses is the most critical accounting policy to aid in fully understanding and evaluating our reported financial results. This policy requires numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect Fairmount Bank’s reported results and financial condition for the period or in future periods.

The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely. Subsequent recoveries are added to the allowance. The allowance is an amount that represents the amount of probable and reasonably estimable known and inherent losses in the loan portfolio, based on evaluations of the collectability of loans. The evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, and current economic conditions. This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impacted loans, value of collateral, estimated losses on our loan portfolios as well as consideration of general loss experience. All of these estimates may be susceptible to significant change.

While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. Historically, Fairmount Bank’s estimates of the allowance for loan loss have not required significant adjustments from

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management’s initial estimates. In addition, the Office of Thrift Supervision, as an integral part of its examination processes, periodically reviews Fairmount Bank’s allowance for loan losses. The Office of Thrift Supervision may require the recognition of adjustments to the allowance for loan losses based on its judgment of information available to it at the time of its examinations. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods.

Business Strategy

Highlights of our business strategy are as follows:

• Growing and Diversifying our Loan Portfolio. We will pursue loan portfolio diversification with an emphasis on credit risk management to increase Fairmount Bank’s origination of loans that provide higher returns. We anticipate increased origination of commercial real estate loans. These loans provide higher returns than loans secured by one-to four-family residential real estate. These loans are generally originated with rates that are fixed for seven years or less or adjust periodically, which assists Fairmount Bank in managing its interest rate risk. Fairmount Bank intends to hire a senior lender with experience in commercial real estate lending. Fairmount Bank also intends to increase its originations of construction loans, and, to a lesser extent, commercial and consumer loans.

• Continuing to Emphasize Residential Real Estate Lending. Historically, Fairmount Bank has emphasized one-to four-family, fixed-rate residential lending within its market area. As of September 30, 2009, $39,646,000, or 78.69%, of Fairmount Bank’s total loan portfolio consisted of one-to four-family residential mortgage loans. During the year ended September 30, 2009, Fairmount Bank originated $15,926,000 of one-to four-family residential mortgage loans, a significant portion of which were secured by one-to four-family non-owner occupied investor loans. In addition, to a lesser extent, Fairmount Bank originates construction/permanent loans and second mortgage loans.

• Continuing to Maintain Strong Asset Quality Through Conservative Underwriting Standards. We believe that maintaining high asset quality is a key to long-term financial success. Fairmount Bank has sought to maintain favorable asset quality reflected primarily by a low level of nonperforming assets, low charge-offs and adequacy of loan loss reserves. Fairmount Bank uses underwriting standards that it believes are conservative, and it diligently monitors collection efforts. At September 30, 2009, $414,000, or 0.82% of Fairmount Bank’s total loan portfolio, was nonperforming, primarily comprised of one loan relationship totaling $362,000. Although Fairmount Bank intends to diversify its lending activities by emphasizing commercial real estate loans, construction loans and consumer loans after the stock offering, it intends to maintain its conservative approach to underwriting loans. Fairmount Bank does not offer, and does not intend to offer, “interest only,” “Option ARM,” “sub-prime” or Alt-A” loans, nor does it hold any securities backed by these mortgages. Total charge-offs for the year ended September 30, 2009, were $67,000, or 0.14% of average loans.

• Building Lower Cost Deposits. Fairmount Bank currently offers NOW accounts, savings accounts and certificates of deposit. At September 30, 2009, certificates of deposit represented 71.67% of its total deposits. Fairmount Bank intends to introduce new commercial checking accounts and focus on growing transaction deposit accounts after the conversion. Checking accounts, NOW accounts and savings accounts are generally lower-cost sources of funds than certificate of deposits and are less sensitive to withdrawal when interest rates fluctuate. As Fairmount Bank grows its commercial loan portfolio, it expects to attract core deposits from its new commercial loan customers. Fairmount Bank also expects additional core deposits from its new automated teller machine, or ATM, its new drive-through facility and internet banking, which is expected to be available to its customers in mid-2010.

• Maintaining a Strong Capital Position Through Disciplined Growth and Earnings. Fairmount Bank’s policy has always been to protect the safety and soundness of the institution through conservative risk management, sound operations and a strong capital position. Fairmount Bank has consistently maintained capital in excess of regulatory requirements. Its equity to total assets ratio was 10.60% at September 30, 2009.

• Offering New and Better Products and Services. We intend to utilize technology to increase productivity and provide new and better products and services. We expect to begin offering debit cards in early 2010. We anticipate implementing internet banking services by mid-2010. We expect that these new products and services will help to maintain and increase our deposit base, will attract business and retail customers and will increase productivity. We will analyze the profitability of products and services and allocate our resources to those areas we believe offer the greatest future potential.

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• Expanding Our Branch Network. We intend to evaluate and pursue opportunities to expand our franchise in our market area through the enhanced presence in the community provided by Fairmount Bank’s new office facility and by opening additional banking offices and, possibly, through acquisitions of other financial institutions and banking related businesses. We intend to open an additional branch in 2012. We have no current plans, understandings or agreements with respect to any new branch openings or acquisitions.

Comparison of Financial Condition at September 30, 2009 and September 30, 2008

Total assets increased by $8,529,000, or 15.36%, to $64,041,000 at September 30, 2009 from $55,512,000 at September 30, 2008. The increase was the result of a $5,179,000 increase in net loans and a $3,260,000 increase in federal funds sold and interest-bearing deposits in other banks, funded by an increase of $6,947,000 in deposits and a $1,000,000 increase in borrowed funds. Investment securities decreased $1,925,000, or 27.43%, to $5,094,000 at September 30, 2009, as proceeds from maturities, calls and principal repayments were reinvested in federal funds sold and interest-bearing deposits in other banks.

Cash and due from banks decreased by $39,000 or 10.63% to $328,000 at September 30, 2009, from $367,000 at September 30, 2008, due to normal cash flows.

Federal funds sold and interest-bearing deposits in other banks increased $3,260,000, from $1,045,000 at September 30, 2008 to $4,305,000 at September 30, 2009, due primarily to an increase of $6,947,000 in Fairmount Bank’s overall deposits, offset by a decrease of $1,925,000 in its investment portfolio.

Investment securities decreased $1,925,000, or 27.43%, to $5,094,000 at September 30, 2009, from $7,019,000 at September 30, 2008. The decrease reflected the reinvestment of proceeds from maturities, calls and principal repayments into federal funds sold and interest-bearing deposits in other banks. Fairmount Bank’s held to maturity portion of the portfolio, at amortized cost, was $1,766,000, and its available-for-sale portion of the portfolio, at fair value, was $3,328,000.

Federal Home Loan Bank stock increased $62,000, or 11.50%, from $539,000 at September 30, 2008 to $601,000 at September 30, 2009. As a condition for obtaining credit availability, Fairmount Bank is required to purchase additional shares of stock when it experiences an increase in its total assets and /or an increase in its outstanding borrowings with the Federal Home Loan Bank of Atlanta. Fairmount Bank experienced an increase in its total assets and its outstanding borrowings with the Federal Home Loan Bank from September 30, 2008 to September 30, 2009.

Total net loans increased from $45,154,000 at September 30, 2008 to $50,334,000 at September 30, 2009. This represented an increase of $5,179,000, or 11.47%. The increase in the loan portfolio was primarily attributable to an increase of $5,521,000, or 46.15%, in the one-to-four-family non-owner occupied real estate loans. At September 30, 2009, one-to-four-family non-owner occupied real estate loans were $17,484,000, compared to $11,963,000 at September 30, 2008.

Fairmount Bank’s investment in bank buildings, equipment and furniture and fixtures increased from $1,048,000 at September 30, 2008, to $2,889,000 at September 30, 2009. This increase was due to the completion of the new bank headquarters in September 2009.

Total liabilities at September 30, 2009 were $57,251,000, an increase of $7,932,000, or 16.08%, from $49,319,000 at September 30, 2008. The increase was due primarily to an increase in deposits of $6,947,000, or 17.86%, from September 30, 2008, to September 30, 2009.

Deposits increased from $38,891,000 at September 30, 2008, to $45,838,000 at September 30, 2009. The increase of $6,947,000, or 17.86%, in total deposits was the result of an increase in interest-bearing demand deposits and certificates of deposit. Interest-bearing demand deposits increased from $2,626,000 at September 30, 2008, to $3,376,000 at September 30, 2009. This represented an increase of $750,000, or 28.56%. Certificates of deposit increased $6,264,000, or 23.56%, from $26,586,000 at September 30, 2008, to $32,850,000 at September 30, 2009.

Borrowed funds, which were exclusively Federal Home Loan Bank advances, increased $1,000,000, or 10.00%, to $11,000,000 at September 30, 2009 from $10,000,000 at September 30, 2008. At September 30, 2009, the weighted average rate of the advances was 2.50%. The balance of borrowed funds fluctuates depending on, among other things, Fairmount Bank’s ability to attract deposits, the relative pricing of advances compared to deposits, and its liquidity needs.

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Total equity was $6,790,000, or 10.60% of total assets, at September 30, 2009, compared to $6,192,000, or 11.16% of total assets, at September 30, 2008. The primary reason for the $598,000 increase in equity was $445,000 in net income during the year ended September 30, 2009, and an increase in accumulated other comprehensive income of $153,000 due primarily to the effects of interest rate fluctuations on Fairmount Bank’s available-for-sale portfolio.

Comparison of Operating Results for the Years Ended September 30, 2009 and 2008

Net Income. Net income increased by $199,000, or 80.89%, to $445,000 for the year ended September 30, 2009, from $246,000 for the year ended September 30, 2008. Net interest income, excluding capitalized interest, increased $604,000, or 45.38%, to $1,935,000 for the year ended September 30, 2009, from $1,331,000 for the year ended September 30, 2008. Non-interest expense increased $204,000, to $1,241,000 for the year ended September 30, 2009, from $1,037,000 for the year ended September 30, 2008. The provision for loan losses increased by $132,000, or 264.00%, to $182,000 for the year ended September 30, 2009, from $50,000 for the year ended September 30, 2008.

Net Interest Income. Net interest income, excluding capitalized interest, increased by $604,000, or 45.38%, to $1,935,000 for the year ended September 30, 2009, from $1,331,000 for the year ended September 30, 2008. The increase primarily resulted from the combined effects of an increase of $487,000 in interest and dividend income to $3,437,000 in the year ended September 30, 2009, from $2,950,000 in the year ended September 30, 2008, and a decrease of $117,000 in interest expense to $1,502,000 for the year ended September 30, 2009, from $1,619,000 for the year ended September 30, 2008. The increase in interest and dividend income was mainly the result of a $10,517,000 increase in the average balance of loans due to growth in the loan portfolio, offset by a decrease in the average balance of investment securities of $2,480,000. Interest expense decreased primarily as a result of the decrease in average rates paid on deposits and borrowings. The average rate paid decreased to 2.85% at September 30, 2009, from 3.70% at September 30, 2008.

For the year ended September 30, 2009, the average yield on interest-earning assets was 5.94%, compared to 6.01% for the year ended September 30, 2008. The average cost of interest-bearing liabilities was 2.85% for the year ended September 30, 2009, compared to 3.70% for the year ended September 30, 2008. The average balance of interest-earnings assets increased by $8,777,000 to $57,880,000 for the year ended September 30, 2009, compared to $49,103,000 for the year ended September 30, 2009. The average balance of interest-bearing liabilities increased by $8,900,000 to $52,697,000 for the year ended September 30, 2009, from $43,797,000 for the year ended September 30, 2008.

Due to lower funding costs, the average interest rate spread was 3.09% for the year ended September 30, 2009, compared to 2.31% for the year ended September 30, 2008. The average net interest margin was 3.34% for the year ended September 30, 2009, compared to 2.71% for the year ended September 30, 2008.

Provision for Loan Losses. The provision for loan losses increased $132,000, or 264.00%, to $182,000 for the year ended September 30, 2009, from $50,000 for the year ended September 20, 2008, due to a specific reserve of $51,000 established against a land development loan, an increase in loan volume and uncertainty regarding the housing market.

Non-Interest Income. Non-interest income was $157,000 for the year ended September 30, 2009, which was an increase of $6,000 or 3.97% from $151,000 for the year ended September 30, 2008. Fairmount Bank’s service charges and fees increased by $25,000 or 20.49% from $122,000 at September 30, 2008 to $147,000 at September 30, 2009. This increase in service fees and charges was primarily due to an increase in loan settlements during the fiscal year. This increase was offset by a decrease of $21,000 or 95.45% in income from the gain on sale of securities from $22,000 at the year ended September 30, 2008 to $1,000 at the year ended September 30, 2009. The decrease was due to fewer security sales and fluctuations in the market during the fiscal year.

Non-Interest Expense. Non-interest expense increased by $204,000 or 19.67% to $1,241,000 for the year ended September 30, 2009, from $1,037,000 for the year ended September 30, 2008. The increase was primarily due to salaries, fees and employment expenses and an increase in Federal Deposit Insurance Corporation insurance premiums. Salaries, fees and employment expenses increased by $89,000 or 13.69% from $650,000 at year ended September 30, 2008 to $739,000 at year ended September 30, 2009. FDIC insurance premiums increased by $42,000, from $4,000 at year ended September 30, 2008 to $46,000 at year ended September 30, 2009. Several factors attributed to the increase in FDIC insurance premiums including, an increase in the FDIC quarterly multiplier, which is used to compute the payment amount, the depletion of the one-time assessment credit both occurring in the second quarter of 2009 and the payment of a $28,000 special assessment occurring in the third quarter of 2009. Fairmount Bank did incur additional advertising, stationery, printing and supplies expenses when Fairmount Bank’s name was changed in May 2009 and when it opened its new headquarter facility in

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September 2009. Advertising increased from $10,000 at year end September 30, 2008 to $23,000 at September 30, 2009 and stationery, printing and supplies increased from $17,000 at year end September 30, 2008 to $37,000 at September 30, 2009.

Income Taxes. The provision for income taxes increased $120,000 or 80.54%, to $269,000 for the year ended September 30, 2009, from $149,000 for the year ended September 30, 2008. This increase in provision for income taxes was due to an increase in net income before taxes of $319,000 or 80.76% from $395,000 at September 30, 2008 to $714,000 at September 30, 2009.

Average Balances and Yields

The following table sets forth average balance sheets, average yields and costs, and certain other information at the date and for the periods indicated. All average balances are based on daily averages, unless otherwise noted. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

	At September 30, 2009				Years Ended,
					September 30, 2009						September 30, 2008
	Outstanding Balance		Yield/ Rate		Average Outstanding Balance		Interest Income Expense		Yield/ Rate		Average Outstanding Balance		Interest Income Expense		Yield/ Rate
					(Dollars in thousands)
Interest earning assets
Loans	$	50,334	6.54	%	$	48,090	$	3,134	6.52	%	$	37,573	$	2,423	6.45	%
Federal funds sold and interest-bearing deposits in other banks		4,305	0.25			3,266		8	0.26			2,751		94	3.43
Investment securities		5,094	4.82			5,943		294	4.95			8,424		415	4.92
Federal Home Loan Bank stock		601	0.41			581		1	0.22			356		18	5.13
Total interest earning assets		60,334	5.88	%	$	57,880	$	3,437	5.94	%		49,104	$	2,950	6.01	%
Non interest earning assets		3,707				2,397						1,830
Total assets	$	64,041			$	60,277					$	50,934
Interest bearing liabilities
Interest bearing demand deposits	$	3,376	1.14		$	2,789	$	40	1.45	%	$	2,058	$	51	2.46	%
Savings deposits		9,165	1.12			9,211		108	1.17			9,412		118	1.25
Certificates of deposit		32,850	3.21			29,946		1,069	3.57			26,379		1,226	4.65
Borrowed funds		11,000	2.50			10,751		285	2.66			5,948		224	3.77
Total interest bearing liabilities		56,391	2.61	%	$	52,697	$	1,502	2.85	%	$	43,797	$	1,619	3.70	%
Non-interest bearing liabilities		860				1,004						1,018
Total liabilities	$	57,251			$	53,701					$	44,815
Retained earnings		6,790				6,576						6,119
Total liabilities and retained earnings	$	64,041			$	60,277					$	50,934
Net interest income (3)							$	1,935					$	1,331
Net interest rate spread			3.27	%					3.09	%					2.31	%
Net interest earning assets	$	3,943			$	5,183					$	5,307
Net interest margin (4)									3.34	%					2.71	%
Average of interest earning assets to interest bearing liabilities									109.83	%					112.12	%

(1) Average loan balances include nonaccrual loans. Calculated net of deferred fees and discounts, loans in process and allowance for loan losses.

(2) Yields are based on historical costs. Yields on tax exempt obligations have not been computed on a tax equivalent basis.

(3) Yields are based on the historical cost balances of the related assets and do not give effect to changes in fair value that are included as a component of equity. Yields on tax exempt obligations have not been computed on a tax equivalent basis.

(4) Equals net interest income divided by average earning assets.

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Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for the major categories of our interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (1) changes in volume, which is the change in volume multiplied by prior year rate, and (2) changes in rate, which is the change in rate multiplied by prior year volume. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to volume and the change due to rate.

	Years Ended September 30,     2009 (1) vs. 2008 (1)									Years Ended September 30,     2008 (1) vs. 2007 (2)
	Increase (Decrease)     Due to						Total Increase (Decrease)			Increase (Decrease)     Due to						Total Increase (Decrease)
	Volume			Rate						Volume			Rate
	(In thousands)
Interest-earning assets:
Loans	$	682		$	29		$	711		$	601		$	90		$	691
Federal funds sold and interest-bearing deposits in other banks		9			(95	)		(86	)		(13	)		(51	)		(64	)
Investment securities		(122	)		2			(120	)		(142	)		34			(108	)
Federal Home Loan Bank stock		6			23			(17	)		14			(1	)		13
Total interest-earning assets	$	575		$	(87	)	$	488		$	460		$	72		$	532
Interest-bearing liabilities:
Interest-bearing demand deposits	$	14		$	(25	)	$	(11	)	$	14		$	(9	)	$	5
Saving deposits		(2	)		(8	)		(10	)		(7	)		0			(7	)
Certificates of deposit		146			(303	)		(157	)		61			(7	)		54
Borrowed funds		154			(93	)		61			182			29			211
Total interest bearing liabilities	$	312		$	(429	)	$	(117	)	$	250		$	13		$	263
Change in net interest income	$	263		$	342		$	605		$	210		$	59		$	269

(1) Total average balances for the years ended September 30, 2009 and 2008, were computed using daily averages.

(2) Total average balances for the year ended September 30, 2007, were computed using month-end balances.

Management of Market Risk

General. Because the net present value of the majority of our assets and liabilities are sensitive to changes in interest rates, our most significant form of market risk is interest rate risk. Fairmount Bank is vulnerable to an increase in interest rates to the extent that its interest-bearing liabilities mature or reprice more quickly than its interest-earning assets. As a result, a principal part of Fairmount Bank’s business strategy is to manage interest rate risk and limit the exposure of its net interest income to changes in market interest rates. The board of directors is responsible for evaluating the interest rate risk inherent in Fairmount Bqank’s assets and liabilities, for determining the level of risk that is appropriate, given its business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.

Fairmount Bank has emphasized the origination of fixed-rate mortgage loans in its portfolio in order to maximize its net interest income and control credit risk. Fairmount Bank accepts increased exposure to interest rate fluctuations as a result of its investment in such loans. In a period of rising interest rates, its net interest rate spread and net interest income may be negatively affected. However, this negative impact is expected to be mitigated somewhat by the net proceeds from the offering which will support the future growth of interest-earning assets. In addition, Fairmount Bank has sought to manage and mitigate its exposure to interest rate risks in the following ways:

• Fairmount Bank maintains relatively high levels of short-term liquid assets. At September 30, 2009, its short-term liquid assets totaled $4,383,000;

• Fairmount Bank lengthens the weighted average maturity of its liabilities through retail deposit pricing strategies and the use of Federal Home Loan Bank advances;

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• Fairmount Bank invests in shorter-to medium-term securities and in securities with step-up rate features providing for increased interest rates prior to maturity according to a predetermined schedule; and

• Fairmount Bank maintains high levels of capital.

In the future, Fairmount Bank intends to take additional steps to reduce interest rate risk, including originating construction loans and lines of credit and selling a portion of the one-to four-family non-owner occupied investor loans we originate.

Net Portfolio Value. The Office of Thrift Supervision requires the computation of amounts by which the net present value of an institution’s cash flow from assets, liabilities and off-balance sheet items (the institution’s net portfolio value, or “NPV”) would change in the event of a range of assumed changes in market interest rates. The Office of Thrift Supervision provides all institutions that file a Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report with an interest rate sensitivity report of net portfolio value. The Office of Thrift Supervision simulation model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. Historically, the Office of Thrift Supervision model estimated the economic value of each type of asset, liability and off-balance sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 100 to 300 basis points in 100 basis point increments. A basis point equals one-hundredth of one percent, and 100 basis points equals 1%. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below. The Office of Thrift Supervision provides Fairmount Bank the results of the interest rate sensitivity model, which is based on information Fairmount Bank provides to the Office of Thrift Supervision to estimate the sensitivity of its net portfolio value.

Quantitative Analysis. The table below sets forth, as of September 30, 2009, the estimated changes in Fairmount Bank’s NPV that would result from the designated instantaneous changes in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

Change in Interest Rates (basis points) (1)	Estimated NPV (2)		Estimated Increase (Decrease) in NPV					NPV as a Percentage of Present Value of Assets (3)
			Amount			Percent		NPV Ratio (4)		Change in Basis Points
	(Dollars in thousands)
+300 bp	$	7,336	$	(2,910	)	(28.4	)%	11.39	%	(371	)
+200 bp		8,448		(1,798	)	(17.6	)	12.85		(225	)
+100 bp		9,471		(776	)	(7.6	)	14.15		(95	)
+50 bp		9,979		(268	)	(2.6	)	14.80		(30	)
0 bp		10,247		—		—		15.10		—
-50 bp		10,373		127		1.2		15.22		12
-100 bp		10,498		252		2.4		15.36		26

(1) Assumes an instantaneous uniform change in interest rates at all maturities.

(2) NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3) Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4) NPV Ratio represents NPV divided by the present value of assets.

The table above indicates that at September 30, 2009, in the event of a 200 basis point increase in interest rates, Fairmount Bank would experience an 17.6% decrease in net portfolio value. In the event of a 100 basis point decrease in interest rates, Fairmount Bank would experience a 2.4% increase in net portfolio value.

Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in net portfolio value. Modeling changes in net portfolio value require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net portfolio value tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assume that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net portfolio value tables provide an indication of Fairmount Bank’s interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on Fairmount Bank’s net interest income and will differ from actual results.

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Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Fairmount Bank’s primary sources of funds consist of deposit inflows, loan repayments and maturities of securities. In addition, Fairmount Bank has the ability to borrow funds from the Federal Home Loan Bank of Atlanta, and it has a credit availability with a correspondent bank. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

The board of directors is responsible for establishing and monitoring Fairmount Bank’s liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of its customers as well as unanticipated contingencies. Fairmount Bank believes that it has enough sources of liquidity to satisfy its short and long-term liquidity needs as of September 30, 2009.

Fairmount Bank regularly monitors and adjusts its investments in liquid assets based upon its assessment of: (1) expected loan demand; (2) expected deposit flows; (3) yields available on interest-earning deposits and securities; and (4) the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short-and intermediate-term securities.

Fairmount Bank’s most liquid assets are cash and cash equivalents, federal funds sold and interest-bearing deposits in other banks. The levels of these assets are dependent on its operating, financing, lending and investing activities during any given period. At September 30, 2009, cash and cash equivalents totaled $328,000 and federal funds sold and interest-bearing deposits in other banks totaled $4,305,000. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $3,328,000 at September 30, 2009.

At September 30, 2009, Fairmount Bank had $588,000 in loan commitments outstanding, of which it currently intends to sell on a participation basis $559,000 in one-to four-family non-owner occupied loans after origination. In addition, at that date, Fairmount Bank had $3,012,000 in unused lines of credit to borrowers. Certificates of deposit due within one year of September 30, 2009 totaled $20,658,000, or 45.07% of total deposits. If these deposits do not remain with Fairmount Bank, it will be required to seek other sources of funds, including other deposits and Federal Home Loan Bank advances. Depending on market conditions, Fairmount Bank may be required to pay higher rates on such deposits or borrowings than it currently pays on the certificates of deposit due on or before September 30, 2010. Fairmount Bank believes, however, based on past experience that a significant portion of such deposits will remain with it. Fairmount Bank has the ability to attract and retain deposits by adjusting the interest rates offered.

Fairmount Bank’s primary investing activities are originating loans and purchasing interest-earning deposits and securities. During the years ended September 30, 2009 and 2008, Fairmount Bank originated $19,454,000 and $19,652,000, respectively, of loans. During the years ended September 30, 2009 and 2008, Fairmount Bank had net (purchases) proceeds of interest-bearing deposits of ($3,260,000) and $430,000, respectively. During those periods, Fairmount Bank had net decreases in securities of $1,295,000 and $3,986,000, respectively.

Financing activities consist primarily of activity in deposit accounts. Fairmount Bank experienced a net increase in total deposits of $6,947,000 for the year ended September 30, 2009. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by Fairmount Bank and its local competitors, and by other factors.

Fairmount Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2009, Fairmount Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines. See “Supervision and Regulation—Federal Banking Regulation—Capital Requirements” and Note 12 of the Notes to the Financial Statements.

Fairmount Bank has the capacity to borrow up to $19,200,000 with the Federal Home Loan Bank of Atlanta. Its outstanding borrowings with the Federal Home Loan Bank of Atlanta at September 30, 2009 were $11,000,000. It also has a credit availability of $1,500,000 with a correspondent bank. There were no borrowings outstanding at September 30, 2009, under this facility.

The net proceeds from the stock offering will significantly increase our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used for general corporate purposes, including Fairmount Bank’s funding of loans. Our financial condition and results of operations will be enhanced by the net

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proceeds from the stock offering, resulting in increased net interest-earning assets and net interest income. However, due to the increase in equity resulting from the net proceeds raised in the stock offering, our return on equity will be adversely affected following the stock offering.

Off-Balance Sheet Arrangements

As a financial services provider, Fairmount Bank routinely is a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans Fairmount Bank makes. For additional information, see Note 5 of the Notes to the Financial Statements.

Recent Accounting Pronouncements

In December 2007, a new accounting pronouncement was issued related to business combinations (ASC 805 Business Combinations). The pronouncement significantly changed the financial accounting and reporting of business combination transactions. ASC 805 establishes principles for how an acquirer recognizes and measures the identifiable assets acquired, liabilities assume, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The pronouncement is effective for acquisition dates on or after the beginning of an entity’s first year that begins after December 15, 2008. Fairmount Bank does not expect the implementation of the pronouncement to have a material impact on its financial statements, at this time.

In April 2009, a new accounting pronouncement was issued regarding accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies (ASC 805 Business Combinations). The pronouncement amends and clarifies prior business combination guidance to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Fairmount Bank does not expect the adoption of this pronouncement to have a material impact on its financial statements.

In April 2009, a new accounting pronouncement was issued regarding determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly (ASC 820 Fair Value Measurements and Disclosures). The pronouncement provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. The pronouncement also includes guidance on identifying circumstances that indicate a transaction is not orderly. The pronouncement is effective for interim and annual periods ending after June 15, 2009, and shall be applied prospectively. Earlier adoption is permitted for periods ending after March 15, 2009. Fairmount Bank does not expect the adoption of the pronouncement to have a material impact on its financial statements.

In April 2009, a new accounting pronouncement regarding interim disclosures about fair value of financial instruments (ASC 825 Financial Instruments and ASC 270 Interim Reporting) was issued. The announcement amends prior guidance to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements for interim reporting periods of publicly traded companies as well as in annual financial statements. In addition, the pronouncement also amends guidance regarding interim financial reporting to require those disclosures in summarized financial information at interim reporting periods. The pronouncement is effective for interim periods ending after June 15, 2009, with earlier adoption permitted for periods ending after March 15, 2009. Fairmount Bank does not expect the adoption to have a material impact on its financial statements.

In April 2009, a new accounting pronouncement was issued regarding recognition and presentation of other-than-temporary impairments” (ASC 320 Investments—Debt and Equity Securities). The pronouncement amends other-than-temporary impairment guidance for debt securities to make guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities. The pronouncement does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The pronouncement is effective for interim and annual periods ending after June 15, 2009, with earlier adoption permitted for periods ending after March 15, 2009. Fairmount Bank does not expect the adoption to have a material impact on its financial statements.

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In April 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 111 (SAB 111). SAB 111 amends and replace SAB Topic 5.M. in the SAB Series entitled “Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities.” SAB 111 maintains the SEC Staff’s previous views related to equity securities and amends Topic 5.M. to exclude debt securities from its scope. Fairmount Bank does not expect the implementation of SAB 111 to have a material impact on its financial statements.

In May 2009, a new accounting pronouncement was issued dealing with subsequent events (ASC 855 Subsequent Events). The pronouncement establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The pronouncement is effective for interim and annual periods ending after June 15, 2009. Fairmount Bank does not expect the adoption to have a material impact on its financial statements.

In June 2009, a new accounting pronouncement was issued regarding accounting for transfers of financial assets (ASC 860 Transfers and Servicing). The pronouncement provides guidance to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. The pronouncement is effective for interim and annual periods beginning after November 15, 2009. Fairmount Bank does not expect the adoption to have a material impact on its financial statements.

In June 2009, new accounting pronouncement was issued that amended prior consolidation guidance (ASC 810 Consolidation). The pronouncement improves financial reporting by enterprises involved with variable interest entities. The pronouncement is effective for interim and annual periods beginning after November 15, 2009. Early adoption is prohibited. Fairmount Bank does not expect the adoption to have a material impact on its financial statements.

In June 2009, a new accounting pronouncement was issued regarding the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting (ASC 105 Generally Accepted Accounting Principles). The pronouncement establishes the FASB Accounting Standards Codification which will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. The pronouncement is effective immediately. Fairmount Bank does not expect the adoption to have a material impact on its financial statements.

In June 2009, a new accounting pronouncement was issued regarding Accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing (ASC 470 Debt). The pronouncement clarifies how an entity should account for an own-share lending arrangement that is entered into in contemplation of a convertible debt offering. The pronouncement is effective for arrangements entered into on or after June 15, 2009. Early adoption is prohibited. Fairmount Bank does not expect the adoption of EITF Issue No. 09-1 to have a material impact on its financial statements.

In June 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 112 (SAB 112). SAB 112 revises or rescinds portions of the interpretative guidance included in the codification of SABs in order to make the interpretive guidance consistent with current U.S. GAAP. Fairmount Bank does not expect the adoption of SAB 112 to have a material impact on its financial statements.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05), “Fair Value Measurements and Disclosures (Topic 820)—Measuring Liabilities at Fair Value.” ASU 2009-05 amends Subtopic 820-10, “Fair Value Measurements and Disclosures—Overall,” and provides clarification for the fair value measurement of liabilities. ASU 2009-05 is effective for the first reporting period including interim period beginning after issuance. Fairmount Bank does not expect the adoption of ASU 2009-05 to have a material impact on its financial statements.

In September 2009, the FASB issued Accounting Standards Update No. 2009-12 (ASU 2009-12), “Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” ASU 2009-12 provides guidance on estimating the fair value of alternative investments. ASU 2009-12 is effective for interim and annual periods ending after December 15, 2009. Fairmount Bank does not expect the adoption of ASU 2009-12 to have a material impact on its financial statements.

In October 2009, the FASB issued Accounting Standards Update No. 2009-15 (ASU 2009-15), “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing.” ASU 2009-15

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amends Subtopic 470-20 to expand accounting and reporting guidance for own-share lending arrangements issued in contemplation of convertible debt issuance. ASU 2009-15 is effective for fiscal years beginning on or after December 15, 2009 and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. Fairmount Bank does not expect the adoption of ASU 2009-15 to have a material impact on its financial statements.

In October 2009, the Securities and Exchange Commission issued Release No. 33-99072, “Internal Control over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers.” Release No. 33-99072 delays the requirement for non-accelerated filers to include an attestation report of their independent auditor on internal control over financial reporting with their annual report until the fiscal year ending on or after June 15, 2010.

Impact of Inflation and Changing Prices

Fairmount Bank’s financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). U.S. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration of changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

BUSINESS OF FAIRMOUNT BANCORP, INC.

Fairmount Bancorp, Inc. was incorporated under the laws of the State of Maryland in November 2009. We have not engaged in any business to date. Upon completion of the conversion, we will own all of the issued and outstanding stock of Fairmount Bank. We will retain up to 50% of the net proceeds from the offering and invest 50% of the remaining net proceeds in Fairmount Bank as additional capital in exchange for 100% of the outstanding shares of common stock of Fairmount Bank. Fairmount Bancorp, Inc. will use a portion of the net proceeds to make a loan to the employee stock ownership plan. At a later date, we may use the net proceeds to pay dividends to stockholders and may repurchase shares of common stock, subject to regulatory limitations. We will invest our initial capital as discussed in “How We Intend to Use the Proceeds from the Offering.”

In the future, Fairmount Bancorp, Inc., as the holding company of Fairmount Bank, will be authorized to pursue other business activities permitted by applicable laws and regulations, which may include the acquisition of other banking and financial services companies. See “Supervision and Regulation—Holding Company Regulation” for a discussion of the activities that are permitted for savings and loan holding companies. We currently have no understandings or agreements to acquire other financial institutions.

Following the offering, our cash flows will depend on earnings from the investment of the net proceeds from the offering that we retain, and any dividends we receive from Fairmount Bank. Initially, Fairmount Bancorp, Inc. will neither own nor lease any property, but will instead use the premises, equipment and furniture of Fairmount Bank. At the present time, we intend to employ only persons who are officers of Fairmount Bank to serve as officers of Fairmount Bancorp, Inc. We will, however, use the support staff of Fairmount Bank from time to time. We will pay a fee to Fairmount Bank for the time devoted to Fairmount Bancorp, Inc. by employees of Fairmount Bank. However, these persons will not be separately compensated by Fairmount Bancorp, Inc. Fairmount Bancorp, Inc. may hire additional employees, as appropriate, to the extent it expands its business in the future.

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BUSINESS OF FAIRMOUNT BANK

General

Fairmount Bank was founded in 1879 as a state-chartered mutual savings and loan association with the name “The Fairmount and Chapel Streets Permanent Building, Savings and Loan Assn. No. 1 Inc.” In 1960, the name of the association was changed to “The Fairmount Savings and Loan Association, Inc.” and the association became insured by the Maryland Savings Share Insurance Corporation. In 1985, the association converted to a mutual savings bank, changed its name to “Fairmount Federal Savings Bank” and became federally insured. In May 2009, in conjunction with its 130^th anniversary, the savings bank changed the name to “Fairmount Bank” under its federal charter. The change in corporate title signified Fairmount Bank’s desire to broaden and expand its services and strengthen its community presence.

Fairmount Bank has one office located in Baltimore County, Maryland. Fairmount Bank is regulated by the Office of Thrift Supervision, and its deposits are insured up to applicable legal limits by the Federal Deposit Insurance Corporation under the Deposit Insurance Fund. Fairmount Bank is a member of the Federal Home Loan Bank System.

Fairmount Bank has been, and continues to be, a community-oriented savings institution offering a variety of financial products and services to meet the needs of the communities we serve. Fairmount Bank delivers personalized service and respond promptly to customer needs and inquiries. Fairmount Bank believes that its community orientation is attractive to its customers and distinguishes it from larger banks that operate in its market area.

Fairmount Bank’s principal business consists of attracting retail deposits from the general public in the areas surrounding its main office and investing those deposits, together with funds generated from operations, primarily in one-to four-family residential mortgage loans. Fairmount Bank holds its loans for long-term investment purposes. Fairmount Bank also invests in various investment securities. Its revenues are derived principally from interest on loans and investments. Its primary sources of funds are deposits, and principal and interest payments on loans and securities.

Fairmount Bank takes its corporate citizenship seriously and is committed to meeting the credit needs of the community, consistent with safe and sound operations. Following the conversion, Fairmount Bank intends to continue to serve the financial needs of the local community. Fairmount Bank believes that the new capital to be raised in the offering will assist its efforts in this regard, as the proceeds will better position Fairmount Bank to serve the community as an independent, locally-based institution.

Market Area and Competition

Fairmount Bank primarily serves communities located in Baltimore City and in Baltimore and Harford counties in Maryland from its office in the Rosedale area of Baltimore County, which is contiguous to Baltimore City, the largest city in Maryland, and located approximately 45 miles from Washington, D.C. Baltimore City and Baltimore and Harford counties have an estimated combined total population of approximately 1.7 million. The Baltimore City population has decreased 3.6% since 2000, while the population in Baltimore and Harford counties has increased 5.8% and 13.3%, respectively since 2000. The economy of the greater Baltimore metropolitan area constitutes a diverse cross section of employment sectors, with a mix of services, wholesale/retail trade, federal and local government, manufacturing health care facilities and finance related employment. The largest employers in the Baltimore metropolitan area include the John Hopkins University, John Hopkins Hospital and Health System, University System of Maryland, U.S. Social Security Administration, Fort Meade, and Aberdeen Proving Ground.

Estimated per capita annual income in 2009 was $20,456 for Baltimore City, $31,637 for Baltimore County, and $31,980 for Harford County, as compared to the Maryland state average of $32,538 and the United States average of $27,277. Median household income levels showed similar patterns, as the Baltimore City median was $36,540 and Baltimore and Harford counties reported median income of $63,608 and $74,142, respectively, compared to $67,267 for Maryland and $54,719 for the United States. The October 2009 unemployment rate was 10.8% in Baltimore City and 7.8% and 7.2%, respectively, in Baltimore and Harford counties, compared to 7.2% in the State of Maryland and 10.2% in the United States.

Fairmount Bank faces significant competition in both originating loans and attracting deposits. Its market area has a large number of financial institutions, most of which are significantly larger institutions with greater financial resources than Fairmount Bank, and all of which are competitors to varying degrees. Competition for loans comes principally from commercial banks, savings banks, mortgage banking companies, credit unions, insurance companies and other financial service companies. Fairmount Bank’s most direct competition for deposits has historically come from commercial banks,

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savings banks and credit unions. Fairmount Bank faces additional competition for deposits from non-depository competitors such as mutual funds, securities and brokerage firms and insurance companies.

Lending Activities

General. Fairmount Bank’s principal lending activity is the origination of fixed-rate, one-to four-family owner occupied residential mortgage loans with terms of up to 30 years and one-to four-family non-owner occupied investor mortgage loans with terms of up to 25 years, subject to a balloon payment at 7 or 10 years. At September 30, 2009, one-to four-family loans totaled $39,646,000, or 78.69% of the total loan portfolio. Of the one-to four-family loans at September 30, 2009, $22,162,000, or 55.90%, were owner occupied. The remaining one-to four-family loans of $17,484,000, or 44.10% as of September 30, 2009, were non-owner occupied. While Fairmount Bank plans to continue originating non-owner occupied loans, its planned growth is limited, since it expects to sell 90% to 95% participation in a majority of these loans.

To a lesser extent, Fairmount Bank also originates home equity and second mortgage loans, loans secured by other properties, construction and land development loans, secured commercial loans and savings loans. At September 30, 2009: home equity and second mortgage loans totaled $1,845,000, or 3.66% of the total loan portfolio; loans secured by other properties totaled $2,032,000, or 4.03% of the total loan portfolio; construction and land development loans totaled $2,747,000, or 5.45% of the total loan portfolio; secured commercial loans totaled $848,000, or 1.69% of the total loan portfolio; and savings loans totaled $60,000, or 0.12% of the total loan portfolio.

Fairmount Bank does not offer “interest only” loans, where the borrower pays interest for an initial period after which the loan converts to a fully amortizing loan, nor do we offer “Option ARM” or negative amortization loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. Fairmount Bank also does not make loans that are known as “sub-prime” or “Alt-A” loans.

Fairmount Bank’s lending activities have increased significantly in recent years since the hiring of a new president and chief executive officer and a new loan officer. As a result, Fairmount Bank has grown its loan portfolio from $32,240,000 at September 30, 2007, to $50,334,000 at September 30, 2009.

Loan Portfolio Composition. The following table sets forth the composition of the loan portfolio by type of loan at the dates indicated.

	At September 30,
	2009					2008
	Amount			Percent		Amount			Percent
	(Dollars in thousands)
Real estate loans:
One-to four-family owner occupied	$	22,162		43.99	%	$	21,922		48.89	%
One-to four-family non-owner occupied		17,484		34.70			11,963		26.68
Home equity (1)		1,845		3.66			1,933		4.31
Mobile home		3,073		6.10			3,360		7.49
Secured by other properties		2,032		4.03			1,362		3.04
Construction and land development		2,747		5.45			3,264		7.28
Total real estate loans		49,343		97.93			43,804		97.69
Commercial and consumer loans:
Secured commercial		848		1.69			667		1.49
Commercial leases		133		0.26			311		0.69
Savings account		60		0.12			57		0.13
Total commercial and consumer loans		1,041		2.07			1,035		2.31
Total loans		50,384		100.00	%		44,839		100.00	%
Unamortized premiums and loan fees		548					643
Unearned income on loans		(378	)				(224	)
Allowance for loan losses		(220	)				(103	)
Total loans, net	$	50,334				$	45,155

(1) Includes home equity loans secured by second mortgages and home equity lines of credit secured by second mortgages.

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Loan Portfolio Maturities

The following table sets forth maturity information at September 30, 2009, regarding the dollar amount of loan principal repayments becoming due during the periods indicated. The table does not reflect scheduled principal payments, unscheduled prepayments, or the ability of certain loans to reprice prior to maturity dates. Demand loans and loans having no stated repayment schedule are reported as being due in one year or less.

	One-to four Family Owner Occupied		One-to four Family Non-Owner Occupied		Home Equity (1)		Mobile Home		Secured by Other Properties		Construction and Land Development
	(In thousands)
Amounts due after September 30, 2009 in:
One year or less	$	312		—	$	216	$	—	$	770	$	1,170
After one year through two years		283		—		—		—		—		922
After two years through three years		55		397		—		—		—		—
After three years through five years		311		944		80		—		—		200
After five years through ten years		2,003		8,352		234		123		704		130
After ten years through fifteen years		5,208		7,363		354		253		383		—
After fifteen years		13,990		428		961		2,697		175		325
Total	$	22,162	$	17,484	$	1,845	$	3,073	$	2,032	$	2,747

	Secured Commercial		Commercial Leases		Savings		Total
	(In thousands)
Amounts due after September 30, 2009 in:
One year or less		—	$	26	$	2	$	2,496
After one year through two years		—		65		22		1,292
After two years through three years		—		42		—		494
After three years through five years		552		—		—		2,087
After five years through ten years		—		—		36		11,582
After ten years through fifteen years		296		—		—		13,857
After fifteen years		—		—		—		18,576
Total	$	848	$	133	$	60	$	50,384

(1) Includes home equity loans secured by second mortgages and home equity lines of credit secured by second mortgages.

The following table sets forth the dollar amount of all fixed-and adjustable-rate loans at September 30, 2009, that are contractually due after September 30, 2010.

	Due after September 30, 2010
	Fixed Rate		Adjustable Rate		Total
	(In thousands)
One-to four-family owner occupied	$	21,567	$	283	$	21,850
One-to four-family non-owner occupied		17,484		—		17,484
Home equity (1)		1,165		465		1,630
Mobile home		3,072		—		3,072
Secured by other properties		1,262		—		1,262
Construction and land development		566		1,011		1,577
Secured commercial		848		—		848
Commercial leases		107		—		107
Savings		58		—		58
	$	46,129	$	1,759	$	47,888

(1) Includes home equity loans secured by second mortgages and home equity lines of credit secured by second mortgages.

One-to Four-Family Owner Occupied Loans. A significant portion of Fairmount Bank’s primary lending activity consists of the origination of first mortgage loans secured by one-to four-family owner occupied residential properties located in its market area. Loans are generated through Fairmount Bank’s existing customers and referrals, real estate brokers and other marketing efforts. Fairmount Bank generally has limited its real estate loan originations to the financing of

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properties located within its market area and has not made out-of-state loans. At September 30, 2009, $22,162,000, or 43.99% of the loan portfolio, consisted of one-to four-family owner occupied residential mortgage loans.

Fairmount Bank’s residential mortgage loans generally have terms of 15, 20 or 30 years. Fairmount Bank offers only fixed-rate residential loans, and does not currently originate adjustable-rate mortgages. However, following the conversion, Fairmount Bank may consider implementing a program to originate adjustable-rate residential mortgage loans. All of the owner occupied loans Fairmount Bank originates are retained in its portfolio for long-term investment. Generally, Fairmount Bank has not sold these loans in the secondary mortgage market. However, its loans are underwritten to secondary mortgage market standards. Fixed-rate mortgage loans amortize monthly with principal and interest due each month. Residential real estate loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers may refinance or prepay loans at their option.

Under Fairmount Bank’s real estate lending policy, a title insurance policy must be obtained for each real estate loan. Fairmount Bank also requires fire and extended coverage casualty insurance, in order to protect the properties securing its real estate loans. Borrowers must also obtain flood insurance policies when the property is in a flood hazard area. Fairmount Bank requires borrowers either to advance funds to an escrow account for the payment of real estate taxes and hazard insurance premiums or alternatively to provide it with other proof of the payment of taxes and an effective hazard insurance policy. Fairmount Bank does not conduct environmental testing on residential mortgage loans unless specific concerns for hazards are identified by the appraiser used in connection with the origination of the loan.

Fairmount Bank’s residential mortgage loans customarily include due-on-sale clauses, which are provisions giving it the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells or otherwise disposes of the underlying real property serving as security for the loan.

Fairmount Bank generally limits the maximum loan to value ratio to 80% of the lesser of the appraised value or the purchase price of the property securing the loan, although it will occasionally originate loans with a loan to value ratio up to 90% of the appraised value or purchase price of the property. Any loan in excess of an 80% loan-to-value requires adequate private mortgage insurance.

When underwriting residential real estate loans, Fairmount Bank reviews and verifies each loan applicant’s employment, income and credit history and, if applicable, its experience with the borrower. Fairmount Bank’s policy is to obtain credit reports and financial statements on all borrowers and guarantors, and to verify references. Properties securing real estate loans are appraised by board-approved independent appraisers, although Fairmount Bank may rely on county tax records on smaller loans. Appraisals are subsequently reviewed by the loan underwriting committee.

In the recent economic climate, many areas of the United States have experienced an increase in foreclosures. Management believes that foreclosures in Fairmount Bank’s market area have also increased, but not to the same extent as in more severely impacted areas of the United States. Fairmount Bank has experienced no foreclosures on its owner occupied loan portfolio during recent periods. Management believes this is due mainly to Fairmount Bank’s conservative lending strategies, including its non-participation in “interest only,” “Option ARM,” “sub-prime” or “Alt-A” loans.

One-to Four-Family Non-Owner Occupied Loans. A portion of Fairmount Bank’s lending activity consists of the origination of first mortgage loans secured by one-to four-family non-owner occupied residential properties in its market area. These loans are generated through Fairmount Bank’s existing customer base and referrals, real estate brokers, real estate investors and other marketing efforts. As September 30, 2009, $17,484,000, or 34.70% of the total loan portfolio, consisted of this type of mortgage loan.

Most loans originated in this program have payment periods of 25 years, subject to a balloon payment at 7 or 10 years. Fairmount Bank requires that the properties be occupied at the time the loan is made and requires a minimum debt coverage ratio of 1.25 times. The maximum loan-to-value generally is 75%, and a majority of current loan originations are sold on a participation basis to other community banks. A majority of the properties are occupied by tenants receiving government vouchers that subsidize the rent payments. The subsidy represents a majority of the rent payment and is paid to the owner of the property who is responsible for the mortgage payment. While we plan to continue originating these loans, our planned growth is limited, since we expect to sell 90% to 95% participation in a majority of these loans. Fairmount Bank receives loan fees as well as a servicing fee on these loans.

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A title insurance policy must be obtained for each loan, and Fairmount Bank requires fire and extended coverage casualty insurance. Fairmount Bank does not require environment testing unless specific concerns for hazards are identified by the appraiser.

Home Equity Second Mortgage Loans. Fairmount Bank’s home equity loans and its home equity lines of credit are secured by second mortgages on owner occupied one-to four-family residences. The maximum loan-to-value of these loans generally is 85%. At September 30, 2009, home equity loans and home equity lines of credit secured by second mortgages totaled $1,845,000, or 3.66% of total loans. Home equity loans consist of fixed-rate loans with terms up to a maximum of 20 years. At September 30, 2009, home equity loans totaled $1,164,000. Home equity lines of credit are adjustable monthly and tied to the prime rate. At September 30, 2009, home equity lines of credit totaled $681,000.

A home equity loan and a home equity line of credit can be used for a variety of purposes. The underwriting standards for the second mortgage include a title review, the recordation of a junior lien, a determination of the applicant’s ability to satisfy existing debt obligations and payments on the proposed loan, and the value of the collateral securing the loan.

Loans secured by second mortgages have greater risk than owner-occupied residential loans secured by first mortgages. When customers default on their loans, Fairmount Bank attempts to foreclose on the property. However, the value of the collateral may not be sufficient to compensate for the amount of the unpaid loan, and Fairmount Bank may be unsuccessful in recovering the remaining balance from these customers. In addition, decreases in property values could adversely affect the value of properties used as collateral for the loans.

Mobile Home Loans As of September 30, 2009, mobile home loans totaled $3,073,000, or 6.10% of the total loan portfolio. Fairmount Bank ceased originating mobile home loans in June 2007, and no future originations of these types of loans are planned. Fairmount Bank’s mobile home loans were purchased from a third-party originator and funded by it at settlement. Fairmount Bank paid a premium/loan origination fee to the third party originator, of which one-half was wired upon settlement and the remainder was retained by it in a depository account as a reserve for any losses or prepayments. At September 30, 2009, Fairmount Bank had prepaid loan origination fees related to this program of $531,000, and the balance in the reserve account available to it was $233,000.

For Fairmount Bank to have financed a mobile home loan, the mobile home must have been based on a permanent foundation. Mobile home lending involves additional risks as a result of higher loan-to-value ratios usually associated with these types of loans. Mobile home lending may also involve higher loan amounts than other types of loans. The most frequent purchasers of mobile homes are retirees and younger, first-time buyers. These borrowers may be deemed to be relatively high credit risks due to various factors, including, among other things, the manner in which they have handled previous credit, the absence or limited extent of their prior credit history or limited financial resources. Mobile home loan customers have historically been more adversely impacted by weak economic conditions, loss of employment and increases in other household costs. Consequently, mobile home loans bear a higher rate of interest, have a higher probability of default and may involve higher delinquency rates and greater servicing costs relative to loans to more creditworthy borrowers. In addition, the values of mobile homes decline over time and higher levels of inventories of repossessed and used mobile homes may affect the values of collateral and result in higher charge-offs and provisions for loan losses.

Construction and Land Development Loans. On a limited basis, Fairmount Bank originates residential construction loans to individuals for the construction and permanent financing of their personal residences. Fairmount Bank’s business plan adopted in connection with the conversion contemplates an expansion of its construction loan activity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Strategy.”

Construction loans to individuals are made on the same general terms as Fairmount Bank’s one-to four-family mortgage loans, but provide for the payment of interest only during the construction phase, which is usually six months. At the end of the construction phase, the loan converts to a permanent mortgage loan. Prior to making a commitment to fund a construction loan, Fairmount Bank requires an appraisal of the property by an independent appraiser. Fairmount Bank also reviews and inspects each project prior to disbursement of funds during the term of the construction loan. Loan proceeds are disbursed after inspection of the project based on percentage of completion.

At September 30, 2009, the balance of these loans was $2,747,000, 5.45% of our total loans. When market conditions improve, Fairmount Bank anticipates an expansion of its construction and land development loan activity. Fairmount Bank limits speculative construction activity, as well as the speculative purchase of building lots. The maximum loan-to-value of

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these originations generally is 75%, and all these loans include personal guarantees. Fairmount Bank currently is not experiencing any delinquencies in this portfolio. However, Fairmount Bank has a specific reserve of $51,000 established against a land development loan on which it purchased a participation interest from another bank. Funds are advanced as construction progresses, subject to inspection of work performed.

Construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost proves to be inaccurate, Fairmount Bank may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project proves to be inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment. Construction loans also expose Fairmount Bank to the risks that improvements will not be completed on time in accordance with specifications and projected costs and that repayment will depend on the successful operation or sale of the properties In additional, many of these borrowers have more than one outstanding loan, so an adverse development with respect to one loan or credit relationship can expose Fairmount Bank to significantly greater risk of non-payment and loss.

Commercial Real Estate Lending Secured by Other Properties. Although Fairmount Bank’s loan policies permit the origination of loans secured by commercial real estate, including multi-family dwellings, during recent years its loan portfolio has not included a significant amount of these loans. The current portfolio of these loans at September 30, 2009, totaled $2,032,000, or 4.03% of total loans. The current loan-to-value of these loans generally does not exceed 80%, and Fairmount Bank had no delinquent loans in this portfolio at that date. Fairmount Bank intends to implement a program emphasizing the origination of commercial real estate loans following the conversion, and expects that such loans will represent a more significant portion of our loan portfolio in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Strategy.”

Loans secured by commercial real estate generally have larger loan balances and more credit risk than one- to four-family mortgage loans. The increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the impact of local and general economic conditions on the borrower’s ability to repay the loan, and the increased difficulty of evaluating and monitoring these types of loans. If the cash flows from the property are reduced, the borrower’s ability to repay the loan may be impaired. However, commercial real estate loans generally have higher interest rates than loans secured by one-to four-family real estate.

Commercial Business and Consumer Loans. Commercial business loans are made to borrowers that demonstrate the ability to repay the debt through corporate cash flows. The majority of Fairmount Bank’s commercial business loans is secured by assignments of corporate assets and include personal guarantees of the business owners. At September 30, 2009, commercial business loans totaled $981,000, or 1.95% of total loans.

Underwriting standards for commercial business loans include a review of the applicant’s tax returns, financial statements, credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan based on cash flows generated by the applicant’s business.

Commercial business loans generally have higher interest rates and shorter terms than one-to four-family residential loans, but they also may involve higher average balances, increased difficulty of loan monitoring and a higher risk of default since their repayment generally depends on the successful operation of the borrower’s business. Fairmount Bank typically requires a principal of the company obtaining a commercial business loan to personally sign the note as a co-borrower or guarantor.

Currently, the only consumer loans we offer consist of deposit account loans. At September 30, 2009, these loans totaled $60,000, or 0.12% of total loans. Generally, these loans are made at an interest rate that is 2.00% above the account rate for up to 80% of the account balance and for a term through the next maturity date.

Loan Originations, Purchases and Sales. Loan originations are obtained through a variety of sources, including referrals from existing customers and real estate brokers. Fairmount Bank holds the majority of its loan originations other than one-to four-family non-owner occupied loans for long term investment. Currently, the majority of one-to four-family non-owner occupied originations are sold on a 90%-95% participation basis to other community banks. However, there can

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be no assurance that these community banks will continue to participate in the originations of Fairmount Bank’s non-owner occupied loans. During the most recent fiscal year Fairmount Bank purchased six owner-occupied loans from a local community bank. Fairmount Bank may determine to purchase additional loans in the future.

The following table shows our loan origination, sale and principal repayment activity during the periods indicated.

	Years Ended September 30,
	2009		2008
	(In thousands)
Total loans at beginning of period	$	44,839	$	31,598
Loans originated:
Real estate:
One-to four-family owner occupied		1,932		4,375
One-to four-family non-owner occupied		13,994		11,410
Home equity (1)		318		313
Secured by other properties		550		560
Construction and land development		1,560		2,992
Commercial and consumer loans:
Secured commercial		995		—
Savings		105		2
Total loans originated		19,454		19,652
Loans purchased		1,110		—
Deduct:
Participation of originated loans		7,023		3,156
Principal repayments		7,996		3,255
Total deductions		15,019		6,411
Net loan activity		5,545		13,241
Total loans at end of period	$	50,384	$	44,839

(1) Includes home equity loans secured by second mortgages and home equity lines of credit secured by second mortgages.

Loan Approval Procedures and Authority. Fairmount Bank’s lending activities are subject to written, non-discriminatory underwriting standards and loan origination procedures established by its board of directors. The loan approval process is intended to assess the borrower’s ability to repay the loan and value of the property that will secure the loan. To assess the borrower’s ability to repay, Fairmount Bank reviews the borrower’s employment and credit history and information on the historical and projected income and expenses of the borrower.

Fairmount Bank’s policies and loan approval limits are established by the board of directors. Upon receipt of a loan application from a prospective borrower, a credit report, tax returns and verifications are ordered or requested to confirm specific information relating to the loan applicant’s employment, income and credit standing. Fairmount Bank requires appraisals by independent, licensed, third-party appraisers of all real property secured loans, except where it relies on county tax records on smaller loans. All appraisers are approved by the board of directors annually. All loans are processed at Fairmount Bank’s main office. The loan underwriting committee, comprised of Messrs. Solomon (Chairman), Yanke and Elliott, approves all loans originated in amounts between $200,000 and $750,000. All loans in excess of $750,000 require board approval. Mr. Solomon’s lending authority is up to $200,000.

Loans to One Borrower. The maximum amount that Fairmount Bank may lend to one borrower and the borrower’s related entities is limited by regulation generally, with certain exceptions, to 15% of Fairmount Bank’s unimpaired capital and reserves. At September 30, 2009, Fairmount Bank’s regulatory limit on loans to one borrower was $1,034,000. At that date, its largest lending relationship was $1,000,000 and consisted of a construction revolving line of credit secured by residential real estate properties located in our primary market area. As a result of the conversion, Fairmount Bank expects its regulatory loans to one borrower limit will increase. At the midpoint of the offering range, its pro forma lending limit on loans to one borrower will be increased to approximately $1,297,000.

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Non-performing and Problem Assets

When a loan is 15 days past due, Fairmount Bank sends the borrower a late notice. Fairmount Bank generally also contacts the borrower by phone if the delinquency is not corrected promptly after the notice has been sent. When the loan is 30 days past due, Fairmount Bank mails the borrower a letter reminding the borrower of the delinquency, and attempts to contact the borrower personally to determine the reason for the delinquency in order to ensure that the borrower understands the terms of the loan and the importance of making payments on or before the due date. If necessary, subsequent delinquency notices are issued and the account will be monitored on a regular basis thereafter. By the 90^th day of delinquency, Fairmount Bank will send the borrower a final demand for payment and may recommend foreclosure. A summary report of all loans 30 days or more past due is provided to the board of directors of Fairmount Bank each month.

Loans are automatically placed on non-accrual status when payment of principal or interest is more than 90 days delinquent. Loans are also placed on non-accrual status if collection of principal or interest in full is in doubt or if the loan has been restructured. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received. The loan may be returned to accrual status if unpaid principal and interest are repaid so that the loan is less than 90 days delinquent. Once a loan is placed on non-accrual status, Fairmount Bank will further evaluate the risk associated with the credit by obtaining an independent appraisal and/or performing a fair value calculation.

Fairmount Bank accounts for impaired loans under generally accepted accounting principles. An impaired loan generally is one for which it is probable, based on current information, that the lender will not collect all the amounts due under the contractual terms of the loan. Loans are individually evaluated for impairment. As of September 30, 2009 Fairmount Bank had an impaired loan of $116,000 with a related allowance for loan losses of $51,000.

Classification of Assets. Fairmount Bank’s policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those assets characterized by the distinct possibility that Fairmount Bank will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets (or portions of assets) classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted. Assets that do not expose Fairmount Bank to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve close attention, are required to be designated as special mention. As of September 30, 2009, Fairmount Bank had no assets designated as special mention.

When assets are classified as either substandard or doubtful, Fairmount Bank allocates a portion of the related general loss allowances to such assets as it deems prudent. The allowance for loan losses is the amount estimated by management as necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the balance sheet date. When Fairmount Bank classifies a problem asset as loss, it provides a specific reserve for that portion of the asset that is uncollectible. Determinations as to the classification of assets and the amount of loss allowances are subject to review by Fairmount Bank’s principal federal regulator, the Office of Thrift Supervision, which can require that it establish additional loss allowances. Fairmount Bank regularly reviews its asset portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of its review of its assets at September 30, 2009, Fairmount Bank had $601,000 of classified assets, of which one asset totalling $116,000 was considered impaired based on a fair market value appraisal for which an allowance/specific reserve in the amount of $51,000 was established.

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Non-Performing Assets. The table below sets forth the amounts and categories of Fairmount Bank’s non-performing assets at the dates indicated. At each date presented, Fairmount Bank had no troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates).

	At September 30,
	2009			2008
	(Dollars in thousands)
Non-accrual loans:
One-to four-family owner occupied	$	—		$	—
One-to four-family non-owner occupied		362			—
Home equity (1)		—			—
Mobile home		52			—
Secured by other properties		—			—
Construction and land development		—			—
Secured commercial		—			—
Commercial leases		—			—
Savings		—			—
Total non-accrual loans		414			—
Loans delinquent 90 days or more and still accruing interest		—			—
Foreclosed assets		95			—
Total non-performing assets	$	509		$	—
Ratios:
Non-performing loans to total loans		0.82	%		—	%
Non-performing assets to total assets		0.79	%		—	%

(1) Includes home equity loans secured by second mortgages and home equity lines of credit secured by second mortgages.

Of total non-accrual loans at September 30, 2009, $362,000 were one-to four-family non-owner occupied. Such lending involves additional risks since the properties are not owner occupied, and borrowers who are not currently delinquent may become delinquent at a later date. Renters of these properties are less likely to be concerned with property upkeep. At September 30, 2009, Fairmount Bank had four one-to four-family non-owner occupied loans made to the same borrower on non-accrual status totaling $362,000. In October 2009, Fairmount Bank invoked an assignment of rents pursuant to the loan terms and received loan payments through a third party management company. Fairmount Bank currently does not anticipate any losses on these loans. In addition, one loan totalling $95,000 to a different borrower was in foreclosed real estate. The foreclosed property is currently under contract, and settlement is expected before December 31, 2009.

For the year ended September 30, 2009, the amount of additional interest income that would have been recognized on non-accrual loans if such loans had continued to perform in accordance with their contractual terms was $11,000. Interest income of $23,000 was recognized on these loans for the year ended September 30, 2009.

On the basis of management’s review of its assets, Fairmount Bank had classified or held as special mention the following assets as of the date indicated:

	At September 30,
	2009		2008
	(In thousands)
Substandard	$	601	$	116
Doubtful		—		—
Loss		—		—
Special mention		—		—
Total classified and special mention assets	$	601	$	116

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Delinquent Loans. The following table sets forth certain information with respect to Fairmount Bank’s loan portfolio delinquencies by type and amount at the dates indicated.

	Loans Delinquent For
	60-89 Days			90 Days and Over			Total
	Number	Amount		Number	Amount		Number	Amount
	(Dollars in thousands)
At September 30, 2009
Real estate:
One-to four-family owner occupied	—	$	—	—	$	—	—	$	—
One-to four-family non-owner occupied	—		—	4		362	4		362
Home equity (1)	—		—	—		—	—		—
Mobile home	1		52	—		—	1		52
Secured by other properties	—		—	—		—	—		—
Construction and land development	—		—	—		—	—		—
Commercial and consumer loans:
Secured commercial	—		—	—		—	—		—
Commercial leases	—		—	—		—	—		—
Savings	—		—	—		—	—		—
Total	1	$	52	4	$	362	5	$	414
At September 30, 2008
Real estate:
One-to four-family owner occupied	2	$	161	—	$	—	2	$	161
One-to four-family non-owner occupied	—		—	—		—	—		—
Home equity (1)	4		92	—		—	4		92
Mobile home	—		—	—		—	—		—
Secured by other properties	—		—	—		—	—		—
Construction and land development	—		—	—		—	—		—
Commercial and consumer loans:
Secured commercial	—		—	—		—	—		—
Commercial leases	1		7	—		—	1		7
Savings	—		—	—		—	—		—
Total	7	$	260	—	$	—	7	$	260

(1) Includes home equity loans secured by second mortgages and home equity lines of credit secured by second mortgages.

Foreclosed and Repossessed Assets. Real estate acquired by Fairmount Bank as a result of foreclosure or by deed in lieu of foreclosure is classified as foreclosed real estate until sold. When property is acquired it is recorded at the lower of cost or estimated fair market value at the date of foreclosure, establishing a new cost basis. Estimated fair value generally represents the sale price a buyer would be willing to pay on the basis of current market conditions, including normal terms from other financial institutions, less the estimated costs to sell the property. Holding costs and declines in estimated fair market value result in charges to expense after acquisition. At September 30, 2009, Fairmount Bank had $95,000 in foreclosed real estate, and it is currently under contract.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses. Fairmount Bank maintains the allowance at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date. Management reviews the allowance for loan losses on no less than a quarterly basis in order to identify those inherent losses and to assess the overall collection probability for the loan portfolio. The evaluation process includes, among other things, an analysis of delinquency trends, non-performing loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of the loans, the value of collateral securing the loan, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, local

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economic conditions and industry experience. Such risk factors are periodically reviewed by management and revised as deemed appropriate. The establishment of the allowance for loan losses is significantly affected by management’s judgment and uncertainties, and there is a likelihood that different amounts would be reported under different conditions or assumptions. The Office of Thrift Supervision, as an integral part of its examination process, periodically reviews the allowance for loan losses. The Office of Thrift Supervision may require Fairmount Bank to make additional provisions for estimated loan losses based upon judgments different from those of management.

The allowance generally consists of specific and general components. The specific component relates to loans that are classified as either doubtful, substandard or special mention. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

Fairmount Bank will continue to monitor and modify its allowances for loan losses as conditions dictate. No assurances can be given that the level of allowance for loan losses will cover all of the inherent losses on the loans or that future adjustments to the allowance for loan losses will not be necessary if economic and other conditions differ substantially from the economic and other conditions used by management to determine the current level of the allowance for loan losses. At September 30, 2009, an allowance/specific reserve in the amount of $51,000 was established for a loan previously purchased on a participation basis from a local bank.

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The following table sets forth activity in Fairmount Bank’s allowance for loan losses for the periods indicated.

	At or For the Years Ended September 30,
	2009			2008
	(Dollars in thousands)
Balance at beginning of period	$	103		$	79
Charge-offs:
Real estate:
One-to four-family owner occupied		—			—
One-to four-family non-owner occupied		40			—
Home equity (1)		—			—
Mobile home		—			—
Secured by other properties		—			—
Construction and land development		—			—
Total real estate loans		40			—
Commercial and consumer loans:
Secured commercial		—			—
Commercial leases		27			6
Savings		—			—
Other		—			20
Total consumer and other loans		27			26
Total charge-offs		67			26
Recoveries:
Real estate:
One-to four-family owner occupied		—			—
One-to-four-family non-owner occupied		—			—
Home equity (1)		—			—
Mobile home		—			—
Secured by other properties		—			—
Construction and land development		—			—
Total real estate loans		—			—
Commercial and consumer loans:
Secured commercial		—			—
Commercial leases		2			—
Savings		—			—
Other		—			—
Total consumer and other loans		2			—
Total recoveries		2			—
Net (charge-offs) recoveries		(65	)		(26	)
Provision for loan losses		182			50
Balance at end of year	$	220		$	103
Ratios:
Net charge-offs to average loans outstanding		0.14	%		0.07	%
Allowance for loan losses to non-performing loans at end of period		53.11	%		*
Allowance for loan losses to total loans at end of period		0.44	%		0.23	%

 * Not meaningful.

(1) Includes home equity loans secured by second mortgages and home equity lines of credit secured by second mortgages.

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Allocation of Allowance for Loan Losses. The following table sets forth the allowance for loan losses allocated by loan category, the total loan balances by category (including loans held for sale), and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

	At September 30,
	2009						2008
	Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans		Allowance for Loan Losses			Loan Balances by Category		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Real estate loans:
One-to four-family owner occupied	$	33	$	22,162	43.99	%	$	33		$	21,922	48.89	%
One-to four-family non-owner occupied		86		17,484	34.70			30			11,963	26.68
Home equity (1)		4		1,845	3.66			4			1,933	4.31
Mobile home		—		3,073	6.10			—			3,360	7.49
Secured by other properties		10		2,032	4.03			6			1,362	3.04
Construction and land development		63		2,747	5.45			31			3,264	7.28
Total real estate loans		196		49,343	97.93			104			43,804	97.69
Commercial and consumer loans:
Secured commercial		2		848	1.69			2			667	1.49
Commercial leases		4		133	0.26			9			311	0.69
Savings		—		60	0.12			—			57	0.13
Total commercial and consumer loans		6		1,041	2.07			11			1,035	2.31
Unallocated		18						(12	)
Total loans	$	220	$	50,384	100.00	%	$	103		$	44,839	100.00	%

(1) Includes home equity loans secured by second mortgages and home equity lines of credit secured by second mortgages.

Investment Activities

General. Fairmount Bank is permitted under federal law to invest in various types of liquid assets, including United States Government obligations, securities of various federal agencies and of state and municipal governments, mortgage-backed securities, deposits at the Federal Home Loan Bank of Atlanta, certificates of deposit of federally insured institutions, certain bankers’ acceptances and federal funds. Within certain regulatory limits, Fairmount Bank may also invest a portion of its assets in commercial paper and corporate debt securities. Fairmount Bank is also required to maintain an investment in Federal Home Loan Bank stock.

Fairmount Bank’s investment objectives are to maintain high asset quality, to provide and maintain liquidity, to establish an acceptable level of interest rate and credit risk, to provide an alternate source of low-risk investments when demand for loans is weak and to generate a favorable return. The board of directors has the overall responsibility for the investment portfolio, including approval of our investment policy. The board of directors is also responsible for implementation of the investment policy and monitoring investment performance. The board of directors reviews the status of the investment portfolio on a quarterly basis, or more frequently if warranted.

The current investment policy authorizes Fairmount Bank to invest in debt securities issued by the United States Government, agencies of the United States Government or United States Government-sponsored enterprises. The policy also permits investments in mortgage-backed securities, including pass-through securities, issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. The investment policy also permits investments in federal funds and deposits in other insured institutions. In addition, management is authorized to invest in investment grade state and municipal obligations, commercial paper and corporate debt obligations within regulatory parameters. Fairmount Bank does not engage in any hedging activities or trading activities, nor do it purchase any high-risk mortgage derivative products, corporate junk bonds, zero coupon bonds and certain types of structured notes.

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Generally accepted accounting principles require that, at the time of purchase, Fairmount Bank designate a security as held-to-maturity, available-for-sale, or trading, depending on our ability and intent. Securities available for sale are reported at fair value, while securities held to maturity are reported at amortized cost. Fairmount Bank does not maintain a trading portfolio. Establishing a trading portfolio would require specific authorization by the board of directors.

At September 30, 2009, the held to maturity portfolio, which is carried at amortized cost, totaled $1,766,000 or 2.76% of total assets and the available-for-sale portfolio, which is carried at fair value, totaled $3,328,000 or 5.19% of total assets. Fairmount Bank also held $4,213,000 in federal funds sold in other institutions, $92,000 in interest-bearing deposits at other banks and $601,000 in Federal Home Loan Bank Stock of Atlanta at September 30, 2009.

United States Government and Federal Agency Obligations. While United States Government and federal agency securities generally provide lower yields than other investments in the securities investment portfolio, Fairmount Bank maintains these investments, to the extent appropriate, for liquidity purposes, as collateral for borrowings and as an interest rate risk hedge in the event of significant mortgage loan prepayments. At September 30, 2009, United States government and federal agency obligations consisted of fixed-rate callable Freddie Mac securities.

Mortgage-Backed Securities. Fairmount Bank invests in mortgage-backed securities insured or guaranteed by Ginnie Mae, Freddie Mac or Fannie Mae. Fairmount Bank has not purchased privately-issued mortgage-backed securities. Fairmount Bank invests in mortgage-backed securities to achieve positive interest rate spreads with minimal administrative expense, and to lower its credit risk as a result of the guarantees provided by Ginnie Mae, Freddie Mac or Fannie Mae.

Ginnie Mae is a government agency within the Department of Housing and Urban Development which is intended to help finance government-assisted housing programs. Ginnie Mae securities are backed by loans insured by the Federal Housing Administration, or guaranteed by the Veterans Administration. The timely payment of principal and interest on Ginnie Mae securities is guaranteed by Ginnie Mae and backed by the full faith and credit of the U.S. Government. Freddie Mac is a private corporation chartered by the U.S. Government. Freddie Mac issues participation certificates backed principally by conventional mortgage loans. Freddie Mac guarantees the timely payment of interest and the ultimate return of principal on participation certificates. Fannie Mae is a private corporation chartered by the U.S. Congress with a mandate to establish a secondary market for mortgage loans. Fannie Mae guarantees the timely payment of principal and interest on Fannie Mae securities. In September 2008, the Federal Housing Finance Agency placed Freddie Mac and Fannie Mae into conservatorship. The U.S. Treasury has implemented a set of financing agreements to ensure that Freddie Mac and Fannie Mae meet their obligations to holders of bonds that they have issued or guaranteed.

Investments in mortgage-backed securities involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or acceleration of any discount relating to such interests, thereby affecting the net yield on Fairmount Bank’s securities. Fairmount Bank periodically reviews current prepayment speeds to determine whether prepayment estimates require modification that could cause amortization or accretion adjustments. There is also reinvestment risk associated with the cash flows from such securities or in the event such securities are redeemed by the issuer. In addition, the market value of such securities may be adversely affected by changes in interest rates. At September 30, 2009, mortgage-backed securities consisted of $2,656,000 in fixed rate securities and $672,000 in variable rate securities.

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Investment Securities Portfolio. The following table sets forth the composition of Fairmount Bank’s investment securities portfolio at the dates indicated.

	At September 30,
	2009				2008
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Securities held to maturity:
U.S. Government and federal agency obligations	$	993	$	998	$	—	$	—
State and municipal		773		799		—		—
Total securities held to maturity		1,766		1,797		—		—
Securities available for sale:
U.S. Government and federal agency obligations						2,998		2,860
State and municipal						3,693		3,701
Mortgage-backed		3,215		3,328		474		458
Total securities available for sale		3,215		3,328		7,165		7,019
Total investment securities	$	4,981	$	5,125	$	7,165	$	7,019

Investment Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio at September 30, 2009, are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. No tax-equivalent adjustments have been made to the yields in the following table.

	One Year or Less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)
Securities held to maturity:
U.S. Government and federal agency obligations	$	—	—	%	$	—	—		$	—	—	%	$	993	5.14	%	$	993	$	998	5.14	%
State and municipal		—	—			—	—	%		305	5.25	%		468	3.95			773		799	5.52	%
Total securities held to maturity	$	—	—	%	$	—	—	%	$	305	5.25	%	$	1,461	4.76	%	$	1,766	$	1,797	5.30	%
Securities available for sale:
Mortgage-backed	$	—	—		$	—	—	%	$	329	4.42	%	$	2,886	4.84	%	$	3,215	$	3,328	4.80	%
Total investment securities	$	—	—		$	—	—	%	$	634	4.82	%	$	4,347	4.81	%	$	4,981	$	5,125	4.82	%

Sources of Funds

General. Deposits traditionally have been the primary source of funds for Fairmount Bank’s lending and investment activities. In addition to deposits, Fairmount Bank derives funds primarily from principal and interest payments on loans. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by general interest rates, money market conditions and competition. Borrowings may also be used on a short-term basis to compensate for reductions in the availability of funds from other sources and may be used on a longer-term basis for general business purposes.

Deposits. Fairmount Bank generates deposits primarily from within its market area. Fairmount Bank relies on its competitive pricing and customer service to attract and retain deposits. It offers a variety of deposit accounts with a range of interest rates and terms. Deposit accounts consist of savings accounts, certificates of deposit and NOW accounts.

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Total deposits increased to $45,838,000 at September 30, 2009, compared to $38,891,000 at September 30, 2008. Deposits are generated primarily from within Fairmount Bank’s market area.

Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market interest rates, liquidity requirements, interest rates paid by competitors and deposit growth goals.

At September 30, 2009, Fairmount Bank had a total of $32,850,000 in certificates of deposit, of which $20,658,000 or 62.88% had remaining maturities of one year or less. Based on historical experience and its current pricing strategy, management believes Fairmount Bank will retain a large portion of these accounts upon maturity.

The following table shows the distribution of, and certain other information relating to, Fairmount Bank’s deposits by type of deposit, as of the dates indicated.

	At September 30,
	2009				2008
	Amount		%		Amount		%
	(Dollars in thousands)
Certificates of deposit:	$	4,493	9.80	%		41	0.11	%
2.00%—2.99%		12,040	26.27			5,863	15.08
3.00%—3.99%		6,832	14.91			6,322	16.25
4.00%—4.99%		9,232	20.14			12,760	32.81
5.00%—5.99%		253	0.55			1,600	4.11
Total certificate accounts		32,850	71.67			26,586	68.36
Non-interest bearing deposits (1)		447	0.98			490	1.26
Interest bearing demand deposits		3,376	7.36			2,626	6.75
Savings		9,165	19.99			9,189	23.63
Total transaction accounts		12,988	28.33			12,305	31.64
Total deposits	$	45,838	100.00	%	$	38,891	100.00	%

(1) Includes nondemand escrows.

The following table shows the average balance by each type of deposit and the average rate paid on each type of deposit for the periods indicated.

	At September 30,
	2009						2008
	Average Balance		Interest Expense		Average Rate Paid		Average Balance		Interest Expense		Average Rate Paid
	(Dollars in thousands)
Interest bearing demand deposits	$	2,790	$	40	1.45	%	$	2,058	$	51	2.46	%
Savings		9,211		108	1.17			9,412		118	1.25
Certificates of deposit		29,946		1,069	3.57			26,379		1,225	4.65
Total deposits	$	41,947	$	1,217	2.90	%	$	37,849	$	1,394	3.68	%

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The following table sets forth the amount and maturities of certificates of deposits at September 30, 2009.

	Less Than One Year		Over One Year to Two Years		Over Two Years to Three Years		Over Three Years		Total		Percentage of Total Certificate Accounts
	(Dollars in thousands)
Interest Rate:
Less than 2%	$	4,065	$	428		—		—	$	4,493	13.68	%
2.00%—2.99%		5,655		5,328		1,024		33		12,040	36.65
3.00%—3.99%		5,253		891		664		24		6,832	20.80
4.00%—4.99%		5,685		2,302		822		423		9,232	28.10
5.00%—5.99%		—		2		100		151		253	0.77
Total	$	20,658	$	8,951	$	2,610	$	631	$	32,850	100.00	%

As of September 30, 2009, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $11,384,000. The following table sets forth the maturity of these certificates as of September 30, 2009.

	At September 30, 2009
	(In thousands)
	Amount		Weighted Average Rate
Three months or less	$	1,552	3.79	%
Over three months through six months		3,712	3.47
Over six months through one year		1,982	3.31
Over one year		4,138	3.30
Total	$	11,384	3.43	%

The following table sets forth deposit activities for the periods indicated.

	Years Ended September 30,
	2009		2008
	(In thousands)
Beginning balance	$	38,891	$	37,748
Net deposits (withdrawals) before interest credited		5,730		(251	)
Interest credited		1,217		1,394
Net increase in deposits		6,947		1,143
Ending balance	$	45,838	$	38,891

Borrowings

Fairmount Bank may obtain advances from the Federal Home Loan Bank of Atlanta upon the security of the common stock it owns in that bank and certain of its residential mortgage loans, provided certain standards related to creditworthiness have been met. These advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Federal Home Loan Bank advances are generally available to meet seasonal and other withdrawals of deposit accounts and to permit increased lending.

At September 30, 2009, Fairmount Bank was permitted to borrow up to an aggregate total of $19,200,000 from the Federal Home Loan Bank of Atlanta. Fairmount Bank had $11,000,000 of Federal Home Loan Bank advances outstanding at September 30, 2009. Additionally, Fairmount Bank has credit availability of $1,500,000 with a correspondent bank for short term liquidity needs, if necessary. There were no borrowings outstanding at September 30, 2009 and 2008 under this facility.

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The following table shows certain information regarding Federal Home Loan Bank advances at or for the dates indicated:

	At of For the Year Ended September 30,
	2009			2008
	(Dollars in thousands)
Average balance outstanding	$	10,751		$	5,947
Maximum outstanding at any month-end during the period		11,000			10,000
Balance outstanding at the end of the period		11,000			10,000
Average interest rate during the period		2.66	%		3.77	%
Weighted average interest rate at end of period		2.50	%		3.27	%

Properties

Fairmount Bank conducts its operations from its recently completed sole office located at 8216 Philadelphia Road, Baltimore, Maryland 21237. The net book value of the premises, land and equipment at 8216 Philadelphia Road was $2,562,000 at September 30, 2009.

Fairmount Bank also owns a contiguous property that may be used for expansion and/or developed and sold. At September 30, 2009, the book value of this property was $242,000. In addition, the previous headquarters was held by Fairmount Bank at September 30, 2009, in the amount of $85,000. Management believes that the current market value of this property is approximately $400,000. Management intends to list this property for sale, since it is no longer used for Fairmount Bank’s operations.

Subsidiary Activities

Fairmount Bank has no subsidiaries.

As a federally chartered savings association, Fairmount Bank is permitted by Office of Thrift Supervision regulations to invest up to 2% of its assets in the stock of, or loans to, service corporation subsidiaries. Fairmount Bank may invest an additional 1% of its assets in service corporations if the additional funds are used for inner-city or community development purposes, and up to 50% of its total capital in conforming loans to service corporations in which it owns more than 10% of the capital stock. In addition to investments in service corporations, Fairmount Bank may invest an unlimited amount in operating subsidiaries engaged solely in activities in which Fairmount Bank may engage as a federal savings bank.

Legal Proceedings

At September 30, 2009, Fairmount Bank was not involved in any legal proceeding, the outcome of which is believed to be material to its financial condition or results of operations.

Expense and Tax Allocation

Fairmount Bank will enter into an agreement with Fairmount Bancorp, Inc. to provide it with certain administrative support services, whereby Fairmount Bank will be compensated at not less than the fair market value of the services provided. In addition, Fairmount Bank and Fairmount Bancorp, Inc. will enter into an agreement to establish a method for allocating and for reimbursing the payment of their consolidated tax liability.

Personnel

As of September 30, 2009, Fairmount Bank had 10 full-time employees and two part-time employees. The employees are not represented by any collective bargaining group. Management believes that Fairmount Bank has a good working relationship with its employees.

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SUPERVISION AND REGULATION

General

Fairmount Bank is examined and supervised by the Office of Thrift Supervision and is subject to examination by the Federal Deposit Insurance Corporation. This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the Federal Deposit Insurance Corporation’s deposit insurance funds and depositors. Under this system of federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. Following completion of its examination, the federal agency critiques the institution’s operations and assigns its rating (known as an institution’s CAMELS rating). Under federal law, an institution may not disclose its CAMELS rating to the public. Fairmount Bank also is a member of and owns stock in the Federal Home Loan Bank of Atlanta, which is one of the twelve regional banks in the Federal Home Loan Bank System. Fairmount Bank also is regulated to a lesser extent by the Board of Governors of the Federal Reserve System, governing reserves to be maintained against deposits and other matters. The Office of Thrift Supervision will examine Fairmount Bank and prepare reports for the consideration of its board of directors on any operating deficiencies. Fairmount Bank’s relationship with its depositors and borrowers also is regulated to a great extent by federal law and, to a much lesser extent, state law, especially in matters concerning the ownership of deposit accounts and the form and content of Fairmount Bank’s loan documents.

Any change in these laws or regulations, whether by the Federal Deposit Insurance Corporation, the Office of Thrift Supervision or Congress, could have a material adverse impact on Fairmount Bancorp, Inc., Fairmount Bank and their operations.

Fairmount Bancorp, Inc. as a savings and loan holding company following the conversion, will be required to file certain reports with, will be subject to examination by, and otherwise must comply with the rules and regulations of the Office of Thrift Supervision. Fairmount Bancorp, Inc. will also be subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

Certain of the regulatory requirements that are or will be applicable to Fairmount Bank and Fairmount Bancorp, Inc. are described below. This description of statutes and regulations is not intended to be a complete explanation of such statutes and regulations and their effects on Fairmount Bank and Fairmount Bancorp, Inc. and is qualified in its entirety by reference to the actual statutes and regulations.

Federal Banking Regulation

Business Activities. A federal savings association derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and the regulations of the Office of Thrift Supervision. Under these laws and regulations, Fairmount Bank may invest in mortgage loans secured by residential real estate without limitation as a percentage of assets, and may invest in non-residential real estate loans up to 400% of capital in the aggregate, commercial business loans up to 20% of assets in the aggregate and consumer loans up to 35% of assets in the aggregate, and in certain types of debt securities and certain other assets. Fairmount Bank also may establish subsidiaries that may engage in activities not otherwise permissible for Fairmount Bank, including real estate investment and securities and insurance brokerage.

Capital Requirements. Office of Thrift Supervision regulations require savings associations to meet three minimum capital standards: a 1.5% tangible capital ratio, a 4.0% leverage ratio (3.0% for savings associations receiving the highest rating on the CAMELS rating system) and an 8.0% risk-based capital ratio.

The risk-based capital standard for savings associations requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4.0% and 8.0%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%, assigned by the Office of Thrift Supervision, based on the risks believed inherent in the type of asset. Core capital is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities,

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subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital. Additionally, a savings association that retains credit risk in connection with an asset sale may be required to maintain additional regulatory capital because of the recourse back to the savings association. In assessing an institution’s capital adequacy, the Office of Thrift Supervision takes into consideration not only these numeric factors but also qualitative factors as well, and has the authority to establish higher capital requirements for individual associations where necessary.

At September 30, 2009, Fairmount Bank’s capital exceeded all applicable requirements. See “Historical and Pro Forma Regulatory Capital Compliance.”

Loans-to-One Borrower. Generally, a federal savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of September 30, 2009, Fairmount Bank’s largest lending relationship with a single or related group of borrowers totaled $1,000,000, which represented 14.50% of unimpaired capital and surplus. Therefore, Fairmount Bank was in compliance with the loans-to-one borrower limitations.

Qualified Thrift Lender Test. As a federal savings association, Fairmount Bank must satisfy the qualified thrift lender, or “QTL,” test. Under the QTL test, Fairmount Bank must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” (primarily residential mortgages and related investments, including mortgage-backed securities) in at least nine months of the most recent 12-month period. “Portfolio assets” generally means total assets of a savings institution, less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property used in the conduct of the savings association’s business.

Fairmount Bank also may satisfy the QTL test by qualifying as a “domestic building and loan association” as defined in the Internal Revenue Code.

A savings association that fails the qualified thrift lender test must either convert to a bank charter or operate under specified restrictions set forth in the Home Owners’ Loan Act. At September 30, 2009, Fairmount Bank maintained approximately 90.38% of its portfolio assets in qualified thrift investments and, therefore, satisfied the QTL test.

Capital Distributions. Office of Thrift Supervision regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to the capital account. A savings association must file an application for approval of a capital distribution if:

• the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus the savings association’s retained net income for the preceding two years;

• the savings association would not be at least adequately capitalized following the distribution;

• the distribution would violate any applicable statute, regulation, agreement or Office of Thrift Supervision-imposed condition; or

• the savings association is not eligible for expedited treatment of its filings.

Even if an application is not otherwise required, every savings association that is a subsidiary of a holding company must still file a notice with the Office of Thrift Supervision at least 30 days before the board of directors declares a dividend or approves a capital distribution.

The Office of Thrift Supervision may disapprove a notice or application if:

• the savings association would be undercapitalized following the distribution;

• the proposed capital distribution raises safety and soundness concerns; or

• the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

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In addition, the Federal Deposit Insurance Act provides that an insured depository institution shall not make any capital distribution, if after making such distribution the institution would be undercapitalized.

Liquidity. Fairmount Bank maintains sufficient liquidity to ensure safe and sound operation in accordance with Office of Thrift Supervision regulations. We anticipate that we will maintain higher liquidity levels following the completion of the stock offering.

Community Reinvestment Act and Fair Lending Laws. All federal savings associations have a responsibility under the Community Reinvestment Act and related regulations of the Office of Thrift Supervision to help meet the credit needs of their communities, including low-and moderate-income borrowers. In connection with its examination of a federal savings association, the Office of Thrift Supervision is required to assess the savings association’s record of compliance with the Community Reinvestment Act. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Office of Thrift Supervision, as well as other federal regulatory agencies and the Department of Justice. Fairmount Bank received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination. The Community Reinvestment Act requires all Federal Deposit Insurance—insured institutions to publicly disclose their ratings.

Transactions with Related Parties. A federal savings association’s authority to engage in transactions with its affiliates is limited by Office of Thrift Supervision regulations and by Sections 23A and 23B of the Federal Reserve Act and its implementing Regulation W promulgated by the Board of Governors of the Federal Reserve System. An affiliate is a company that controls, is controlled by, or is under common control with an insured depository institution such as Fairmount Bank. Fairmount Bancorp, Inc. is an affiliate of Fairmount Bank. In general, loan transactions between an insured depository institution and its affiliates are subject to certain quantitative and collateral requirements. In this regard, transactions between an insured depository institution and its affiliates are limited to 10% of the institution’s unimpaired capital and unimpaired surplus for transactions with any one affiliate and 20% of unimpaired capital and unimpaired surplus for transactions in the aggregate with all affiliates. Collateral of specific types and in specified amounts ranging from 10% to 130% of the amount of the transaction must usually be provided by affiliates in order to receive loans from the savings association. In addition, Office of Thrift Supervision regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. The Office of Thrift Supervision requires savings associations to maintain detailed records of all transactions with affiliates.

Fairmount Bank’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders:

(i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and

(ii) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Fairmount Bank’s capital.

In addition, extensions of credit in excess of certain limits must be approved by Fairmount Bank’s board of directors.

Enforcement. The Office of Thrift Supervision has primary enforcement responsibility over federal savings institutions and has the authority to bring enforcement action against all “institution-affiliated parties,” including stockholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action by the Office of Thrift Supervision may range from the issuance of a capital directive or cease and desist order, to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1.0 million per day. The Federal

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Deposit Insurance Corporation also has the authority to terminate deposit insurance or to recommend to the Director of the Office of Thrift Supervision that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the Federal Deposit Insurance Corporation has authority to take action under specified circumstances.

Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate. The federal banking agencies adopted Interagency Guidelines Prescribing Standards for Safety and Soundness to implement the safety and soundness standards required under federal law. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.

Prompt Corrective Action Regulations. Under the prompt corrective action regulations, the Office of Thrift Supervision is required and authorized to take supervisory actions against undercapitalized savings associations. For this purpose, a savings association is placed in one of the following five categories based on the savings association’s capital:

• well-capitalized (at least 5% leverage capital, 6% Tier 1 risk-based capital and 10% total risk-based capital);

• adequately capitalized (at least 4% leverage capital, 4% Tier 1 risk-based capital and 8% total risk-based capital);

• undercapitalized (less than 8% total risk-based capital, 4% Tier 1 risk-based capital or 3% leverage capital);

• significantly undercapitalized (less than 6% total risk-based capital, 3% Tier 1 risk-based capital or 3% leverage capital); and

• critically undercapitalized (less than 2% tangible capital).

Generally, the banking regulator is required to appoint a receiver or conservator for a savings association that is “critically undercapitalized” within specific time frames. The regulations also provide that a capital restoration plan must be filed with the Office of Thrift Supervision within 45 days of the date a savings association receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” The criteria for an acceptable capital restoration plan include, among other things, the establishment of the methodology and assumptions for attaining adequately capitalized status on an annual basis, procedures for ensuring compliance with restrictions imposed by applicable federal regulations, the identification of the types and levels of activities in which the savings association will engage while the capital restoration plan is in effect, and assurances that the capital restoration plan will not appreciably increase the current risk profile of the savings association. Any holding company for the savings association required to submit a capital restoration plan must guarantee the lesser of an amount equal to 5% of the savings association’s assets at the time it was notified or deemed to be undercapitalized by the Office of Thrift Supervision, or the amount necessary to restore the savings association to adequately capitalized status. This guarantee remains in place until the Office of Thrift Supervision notifies the savings association that it has maintained adequately capitalized status for each of four consecutive calendar quarters, and the Office of Thrift Supervision has the authority to require payment and collect payment under the guarantee. Failure by a holding company to provide the required guarantee will result in certain operating restrictions on the savings association, such as restrictions on the ability to declare and pay dividends, pay executive compensation and management fees, and increase assets or expand operations. The Office of Thrift Supervision may also take any one of a number of discretionary supervisory actions against undercapitalized associations, including the issuance of a capital directive and the replacement of senior executive officers and directors.

At September 30, 2009, Fairmount Bank met the criteria for being considered “well-capitalized.”

Insurance of Deposit Accounts. Fairmount Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation. Under the Federal Deposit Insurance Corporation’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors, with less risky institutions paying lower assessments. No institution may pay a dividend if it is in default of the federal deposit insurance assessment.

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For 2008, assessments ranged from five to forty-three basis points of assessable deposits. Due to losses incurred by the Deposit Insurance Fund in 2008 from failed institutions, and anticipated future losses, the Federal Deposit Insurance Corporation, pursuant to a Restoration Plan to replenish the fund, adopted an across the board seven basis point increase in the assessment range for the first quarter of 2009. The Federal Deposit Insurance Corporation adopted further refinements to its risk-based assessment that were effective April 1, 2009 and effectively make the range seven to 77 ¹/2 basis points. The Federal Deposit Insurance Corporation has also provided for the possibility of two additional special assessments for the final two quarters of 2009, if deemed necessary.

Due to the recent difficult economic conditions, deposit insurance per account owner has been raised to $250,000 for all types of accounts until January 1, 2014. In addition, the Federal Deposit Insurance Corporation adopted an optional Temporary Liquidity Guarantee Program by which, for a fee, noninterest-bearing transaction accounts would receive unlimited insurance coverage, and certain senior unsecured debt issued by institutions and their holding companies would temporarily be guaranteed by the Federal Deposit Insurance Corporation. Fairmount Bank made the business decision not to participate in the unlimited noninterest-bearing transaction account coverage and also opted not to participate in the unsecured debt guarantee program.

The Federal Deposit Insurance Corporation may pay dividends to insured institutions once the Deposit Insurance Fund reserve ratio equals or exceeds 1.35% of estimated insured deposits.

In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. This payment is established quarterly and during the four quarters ended June 30, 2009 averaged 1.10 basis points of assessable deposits.

The Federal Deposit Insurance Corporation has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of Fairmount Bank. Management cannot predict what insurance assessment rates will be in the future.

Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance Corporation. The management of Fairmount Bank does not know of any practice, condition or violation that might lead to termination of its deposit insurance.

U.S. Treasury’s Troubled Asset Relief Program Capital Purchase Program. The Emergency Economic Stabilization Act of 2008 provides the U.S. Secretary of the Treasury with broad authority to implement certain actions to help restore stability and liquidity to U.S. financial markets. One of the programs resulting from the legislation is the Troubled Asset Relief Program/Capital Purchase Program, or CPP, which provides direct equity investment by the U.S. Treasury Department in perpetual preferred stock of qualified financial institutions. The program is voluntary and requires an institution to comply with a number of restrictions and provisions, including limits on executive compensation, stock redemptions and declaration of dividends. The CPP provides for a minimum investment of 1.0% of total risk-weighted assets and a maximum investment equal to the lesser of three percent of total risk-weighted assets or $25 billion. Participation in the program is not automatic and is subject to approval by the U.S. Treasury Department. We opted not to participate in the CPP.

Prohibitions Against Tying Arrangements. Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

Federal Home Loan Bank System. Fairmount Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions. As a member of the Federal Home Loan Bank of Atlanta, Fairmount Bank is required to acquire and hold shares of capital stock in the Federal Home Loan Bank. As of September 30, 2009, Fairmount Bank was in compliance with this requirement.

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Other Regulations

Interest and other charges collected or contracted for by Fairmount Bank are subject to state usury laws and federal laws concerning interest rates. Fairmount Bank’ operations are also subject to federal laws applicable to credit transactions, such as the:

• Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

• Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

• Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

• Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;

• Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

• Truth in Savings Act; and

• rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The operations of Fairmount Bank also are subject to the:

• Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

• Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

• Check Clearing for the 21^st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

• The USA Patriot Act and the related regulations of the Office of Thrift Supervision, which require savings associations operating in the United States, among other things, to develop anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. These compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and

• The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties.

Holding Company Regulation

General. Upon completion of the conversion, Fairmount Bancorp, Inc. will be a non-diversified savings and loan holding company within the meaning of the Home Owners’ Loan Act. As such, Fairmount Bancorp, Inc. will be registered with the Office of Thrift Supervision and subject to Office of Thrift Supervision regulations, examinations, supervision and reporting requirements. In addition, the Office of Thrift Supervision will have enforcement authority over Fairmount Bancorp, Inc. and its subsidiaries. Among other things, this authority permits the Office of Thrift Supervision to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings institution. Unlike bank holding companies, federal savings and loan holding companies are not subject to any regulatory capital requirements or to supervision by the Federal Reserve board .

Permissible Activities. Under present law, the business activities of Fairmount Bancorp, Inc. will be generally limited to those activities permissible for financial holding companies under Section 4(k) of the Bank Holding Company Act of 1956, as amended, or for multiple savings and loan holding companies. A financial holding company may engage in activities that are financial in nature, including underwriting equity securities and insurance as well as activities that are incidental to

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financial activities or complementary to a financial activity. A multiple savings and loan holding company is generally limited to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the Office of Thrift Supervision, and certain additional activities authorized by Office of Thrift Supervision regulations.

Federal law prohibits a savings and loan holding company, including Fairmount Bancorp, Inc., directly or indirectly, or through one or more subsidiaries, from acquiring more than 5.0% of another savings institution or holding company thereof, without prior written approval of the Office of Thrift Supervision. It also prohibits the acquisition or retention of, with certain exceptions, more than 5.0% of a nonsubsidiary company engaged in activities that are not closely related to banking or financial in nature, or acquiring or retaining control of an institution that is not federally insured. In evaluating applications by holding companies to acquire savings institutions, the Office of Thrift Supervision must consider the financial and managerial resources, future prospects of the company and institution involved, the effect of the acquisition on the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors.

The Office of Thrift Supervision is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions:

(i) the approval of interstate supervisory acquisitions by savings and loan holding companies; and

(ii) the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisition.

The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

Federal Securities Laws

We have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 for the registration of the shares of common stock to be issued pursuant to the stock offering. Upon completion of the stock offering, our common stock will be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. We will be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

The registration under the Securities Act of 1933 of shares of common stock to be issued in the stock offering does not cover the resale of those shares. Shares of common stock purchased by persons who are not our affiliates may be resold without registration. Shares purchased by our affiliates will be subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If we meet the current public information requirements of Rule 144 under the Securities Act of 1933, each affiliate of ours that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of our outstanding shares, or the average weekly volume of trading in the shares during the preceding four calendar weeks. In the future, we may permit affiliates to have their shares registered for sale under the Securities Act of 1933.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our Chief Executive Officer and Chief Financial Officer will be required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee of the board of directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting. We will be subject to further reporting and audit requirements beginning with the fiscal year ending September 30, 2010 under the requirements of the Sarbanes-Oxley Act. We will prepare policies, procedures and systems designed to ensure compliance with these regulations.

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TAXATION

Federal Taxation

General. Fairmount Bancorp, Inc. and Fairmount Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to Fairmount Bancorp, Inc. and Fairmount Bank.

Method of Accounting. For federal income tax purposes, Fairmount Bank currently reports its income and expenses on the cash method of accounting and uses a tax year ending September 30 for filing its federal income tax return. The Small Business Protection Act of 1996 eliminated the use of a special reserve method of accounting for bad debts by savings institutions, effective for taxable years beginning after 1995.

Minimum Tax. The Internal Revenue Code of 1986, as amended, imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, referred to as “alternative minimum taxable income.” The alternative minimum tax is payable to the extent alternative minimum taxable income is in excess of an exemption amount. Net operating losses can, in general, offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. At September 30, 2009, Fairmount Bank had no minimum tax credit carry forward.

Net Operating Loss Carryovers. A financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. At September 30, 2009, Fairmount Bank had no net operating loss carry forward for federal income tax purposes.

Corporate Dividends. We may exclude from our income 100% of dividends received from Fairmount Bank as a member of the same affiliated group of corporations.

Audit of Tax Returns. Fairmount Bank’s federal income tax returns have not been audited in the most recent five-year period.

Maryland Taxation

Fairmount Bancorp, Inc. is subject to Maryland’s Corporation Business Tax at the rate of 8.25% on its table income, before net operating loss deductions and special deductions for federal income tax purposes. Fairmount Bank is required to file Maryland income tax returns. For this purpose, “taxable income” generally means federal taxable income subject to certain adjustments (including addition of interest income on state and municipal obligations).

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MANAGEMENT

Shared Management Structure

The directors of Fairmount Bancorp, Inc. are the same persons who are the directors of Fairmount Bank. In addition, each executive officer of Fairmount Bancorp, Inc. is also an executive officer of Fairmount Bank. We expect that Fairmount Bancorp, Inc. and Fairmount Bank will continue to have common executive officers until there is a business reason to establish separate management structures. To date, executive officers and directors have been compensated for their services by Fairmount Bank. In the future, directors and executive officers may receive additional compensation for their services to Fairmount Bancorp, Inc.

Executive Officers of Fairmount Bancorp, Inc. and Fairmount Bank

The following table sets forth information regarding the executive officers of Fairmount Bancorp, Inc. and Fairmount Bank.

Name	Age (1)	Position
Joseph M. Solomon	59	President, Chief Executive Officer and Director
Jodi L. Beal, CPA	39	Vice President, Chief Financial Officer and Treasurer

(1) As of September 30, 2009.

The executive officers of Fairmount Bancorp, Inc. and Fairmount Bank are elected annually.

Directors of Fairmount Bank and Fairmount Bancorp, Inc.

Fairmount Bancorp, Inc. has five directors. Directors serve three-year staggered terms so that approximately one-third of the directors are elected at each annual meeting. Directors of Fairmount Bank will be elected by Fairmount Bancorp, Inc. as its sole stockholder.

The following table states our directors’ names, their ages as of September 30, 2009, the years when they began serving as directors of Fairmount Bank and when their current terms expire:

Name	Position(s) Held With Fairmount Bank	Age (1)	Director Since	Current Term Expires
William G. Yanke	Chairman of the Board	64	1998	2011
Joseph M. Solomon	President, Chief Executive Officer and Director	59	2007	2011
James E. Elliott	Director	65	2004	2010
Edward J.Lally	Director and Secretary	62	1995	2012
Mary R. Craig	Director	57	2005	2012

(1) As of September 30, 2009.

Board Independence

Since our common stock will be quoted on the Over-the-Counter Electronic Bulletin Board upon completion of the offering, we will not be subject to certain rules respecting the independence of directors applicable to companies traded on the Nasdaq Stock Market or on a national securities exchange. However, the board of directors has determined that each of our directors, with the exception of Mr. Solomon and Mr. Lally, is “independent” as defined in the listing standards of the Nasdaq Stock Market. Mr. Solomon and Mr. Lally are not independent because Mr. Solomon serves as a compensated executive officer of Fairmount Bank and Mr. Lally serves as the non-compensated Secretary of Fairmount Bank and provides printing services to Fairmount Bank.

The Business Background of Our Directors and Executive Officers

The business experience for the past five years of each of our directors and executive officers is set forth below. Unless otherwise indicated, directors and executive officers of Fairmount Bank have held their positions for the past five years.

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William G. Yanke, Chairman of the Board of each of Fairmount Bank and Fairmount Bancorp, Inc., is a Certified Public Accountant. He has conducted an accounting and tax practice since 1974.

Joseph M. Solomon is President, Chief Executive Officer, and a director of Fairmount Bank, positions he has held since April 2007. As President and Chief Executive Officer, he is responsible for overseeing the day to day operations of Fairmount Bank. Mr. Solomon previously served as President, Chief Executive Officer and a director of Valley Bancorp, Inc. and its subsidiary, Valley Bank of Maryland, from December 1997 to January 2007, when the companies were sold in a negotiated acquisition.

James E. Elliott is President of Maryland Agency, Inc., an insurance/investment firm, a position he has held since 1981. From 1992 until 2006, he was a general agent for The Penn Mutual Life Insurance Company.

Edward J. Lally has been owner/President of Master Graphics, Inc., a printing and graphic design company, since 1979. He has also served as Secretary of Fairmount Bank since 2002.

Mary R. Craig has served as Administrative Law Judge for the Maryland Office of Administrative Hearings since September 2005. Prior to that, she was an attorney in private practice.

Jodi L. Beal, CPA served as Acting Chief Financial Officer of Fairmount Bank from September 2005 until September 2009, when she became Vice President, Chief Financial Officer and Treasurer. From 1998 until June 2005, she served as Senior Vice President and Chief Financial Officer of The Bank of Delmarva, Salisbury, Maryland and as Vice President and Secretary of Delmar Bancorp, the holding company for The Bank of Delmarva.

Meetings and Committees of the Board of Directors

We conduct business through meetings of our board of directors and its committees. During the year ended September 30, 2009, the board of directors of Fairmount Bank met 13 times.

The board of directors of Fairmount Bancorp, Inc. will establish an audit committee, a compensation committee, and a nominating and corporate governance committee prior to the closing of the conversion.

The audit committee will consist of Messrs. Yanke and Elliott and Ms. Craig. The audit committee will be responsible for providing oversight relating to our financial statements and financial reporting process, systems of internal accounting and financial controls, internal audit function, annual independent audit and the compliance and ethics programs established by management and the board. Each member of the audit committee will be independent in accordance with the listing standards of the Nasdaq Stock Market. The board of directors of Fairmount Bancorp, Inc. has determined that William G. Yanke is an “audit committee financial expert” under the rules of the Securities and Exchange Commission.

The compensation committee will consist of Messrs. Yanke and Elliott and Ms. Craig. The compensation committee will be responsible for human resources policies, salaries and benefits, incentive compensation, executive development and management succession planning. Each member of the compensation committee will be independent in accordance with the listing standards of the Nasdaq Stock Market.

The nominating and corporate governance committee will consist of Messrs. Yanke and Elliott and Ms. Craig. The nominating and corporate governance committee will be responsible for identifying individuals qualified to become board members and recommending a group of nominees for election as directors at each annual meeting of stockholders, ensuring that the board and its committees have the benefit of qualified and experienced independent directors, and developing corporate governance policies and procedures. Each member of the nominating and corporate governance committee will be independent in accordance with the listing standards of the Nasdaq Stock Market.

Each of these committees will operate under a written charter, which governs its composition, responsibilities and operations.

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Corporate Governance Policies and Procedures

In addition to establishing committees of the board of directors, Fairmount Bancorp, Inc. will adopt policies governing the activities of both Fairmount Bancorp, Inc. and Fairmount Bank, including a corporate governance policy and a code of business conduct and ethics. The corporate governance policy will set forth:

• the duties and responsibilities of each director;

• the composition, responsibilities and operation of the board of directors;

• the establishment and operation of board committees, including audit, nominating and compensation committees;

• succession planning;

• convening executive sessions of independent directors;

• the board of directors’ interaction with management and third parties; and

• the evaluation of the performance of the board of directors and the chief executive officer.

Fairmount Bancorp, Inc. will adopt a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The code of ethics is designed to deter wrongdoing and to promote honest and ethical conduct, the avoidance of conflicts of interest, full and accurate disclosure and compliance with all applicable laws, rules and regulations.

Directors Compensation

Director Summary Compensation Table. The following table sets forth the compensation paid to our directors for the fiscal year ended September 30, 2009, except for Mr. Solomon who is in the summary compensation table below.

Name	Fees earned or paid in cash		All other Compensation			Total
William G. Yanke	$	13,600	$	—		$	13,600
James E. Elliott		9,450		—			9,450
Edward J. Lally		8,350		18,928	(1)		27,278
Mary R. Craig		7,150		—			7,150

(1) Payment for printing services to Fairmount Bank.

Director Fees. Each of the individuals who serves as a director of Fairmount Bancorp, Inc. also serves as a director of Fairmount Bank and earns director and committee fees in that capacity. Each director other than the chairman is paid $600 for each board meeting attended. The chairman is paid $900 for each meeting attended. Each member of the audit committee, consisting of Messrs. Yanke and Elliott and Ms. Craig, receives $300 per meeting attended.

Executive Officer Compensation

Summary Compensation Table. The following table sets forth for the fiscal year ended September 30, 2009, certain information as to the total compensation paid by Fairmount Bank to Joseph M. Solomon, its principal executive officer and principal financial officer. No other executive officer of Fairmount Bank received total compensation exceeding $100,000 for the 2009 fiscal year.

Name and Principal Position	Fiscal Year	Salary			Bonus		All Other Compensation			Total
Joseph M. Solomon President and Chief Executive Officer	2009	$	125,129	(1)	$	29,428	$	1,352	(2)	$	155,909

(1) Includes director fees of $7,150.

(2) Consists of matching contributions under 401(k) plan.

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Annual Cash Incentives

We use annual cash incentives as a short-term incentive to drive achievement of our annual performance goals.

The annual cash incentive focuses on the achievement of annual financial goals and awards in cash. It is designed to:

• support our strategic business objectives;

• promote the attainment of specific financial goals;

• reward achievement of specific performance objectives; and

• encourage teamwork.

Cash bonuses, if any, are entirely discretionary, based on an annual assessment of Fairmount Bank’s performance at year-end. Annual cash bonus incentives are designed to provide competitive levels of compensation based upon the experience, duties and scope of responsibilities of executives and other employees. The size of an annual cash bonus incentives is influenced by these factors, as well as individual performance. Annual cash incentives are accrued for expected levels of performance, with upside opportunities for superior performance, subject to the discretion of the Compensation Committee. Annual cash bonus incentive awards are contingent upon employment with Fairmount Banks through the end of the fiscal year.

Benefit Plans

Current Employment Agreement. Fairmount Bank has entered enter into an employment agreement with Mr. Solomon. The agreement with Mr. Solomon has a term of three years. On the anniversary of the agreement, the agreement may be extended for an additional year by the board . Under the agreement, the base salary for Mr. Solomon currently is $125,580. Mr. Solomon’s base salary is reviewed at least annually and may be increased. In addition to the base salary, the agreement provides for, among other things, inclusion in discretionary bonuses that the board may award from time to time to senior management employees, retirement and medical plans, customary fringe benefits, vacation and sick leave.

The employment agreement provides for termination for just cause at any time. If the agreement is terminated for just cause, Mr. Solomon would not be entitled to any further compensation or other benefits after such a termination. In the event termination is without just cause and not in connection with a change in control, Mr. Solomon would be entitled to receive the greater of a continuation of his salary through the remaining term of the employment agreement or the severance benefit payable in connection with a change in control (described below), and at Mr. Solomon’s election, either cash in an amount equal to the cost to him of obtaining health, life, disability, and other benefits that he would have been eligible to participate in through the employment agreement’s expiration date or continued participation in such benefit plans through such date.

In the event of Mr. Solomon’s termination of employment for “good reason” in connection with or within 12 months after any change in control of Fairmount Bank or Fairmount Bancorp, Inc., he would be entitled to receive an amount equal to the difference between 2.99 times his “base amount,” as defined in Section 280G(b)(3) of the Internal Revenue Code, and the sum of any other parachute payments, as defined in Section 280G(b)(2) of the Internal Revenue Code, that he receives on account of the change in control. “Good reason” includes: (i) without Mr. Solomon’s consent, a material reduction of his then base compensation; (ii) without Mr. Solomon’s consent, a material diminution in his authority, duties or responsibilities; (iii) material diminution in the authority, duties or responsibilities of the supervisor to whom Mr. Solomon reports; (iv) a relocation of the principal executive office more than 30 miles; or (v) the failure of Fairmount Bank to obtain the assumption of and agreement to perform the employment agreement by any successor.

The employment agreement also provides that, in the event of a constructive discharge of Mr. Solomon without a change in control, he may terminate his employment and receive the compensation and benefits that are payable upon termination without just cause.

New Employment Agreements. Fairmount Bank intends to enter into new employment agreements with Mr. Solomon, to be effective upon completion of the conversion to stock form. Also upon completion of the conversion, Fairmount Bancorp, Inc. will enter into a separate employment agreement with Mr. Solomon, which will have essentially identical provisions as the new Fairmount Bank agreement, except that the employment agreement will provide that Fairmount Bancorp, Inc. will make any payments not made by Fairmount Bank under its agreement with Mr. Solomon and that

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Mr. Solomon will not receive any duplicate payments. Our continued success depends to a significant degree on the skills and competence of our president and chief executive officer, and the employment agreements are intended to ensure that we maintain a stable management base following the offering. The discussion below addresses the new employment agreements for Mr. Solomon with Fairmount Bank and Fairmount Bancorp, Inc.

The employment agreements each provide for three-year terms, subject to annual renewal by the board of directors for an additional year beyond the then-current expiration date. The initial base salary under the employment agreements is $125,580. The agreements also provide for participation in employee benefit plans and programs maintained for the benefit of senior management personnel, including discretionary bonuses, participation in stock-based benefit plans, and certain fringe benefits as described in the agreements.

Upon termination of Mr. Solomon’s employment for cause, as defined in each of the agreements, he would receive no further compensation or benefits under the agreements. If we terminate Mr. Solomon for reasons other than for cause or if he terminates voluntarily under specified circumstances that constitute constructive termination, he will receive an amount equal to the base salary and cash bonus and employer contributions to benefit plans that would have been payable for the remaining term of the agreement. We will also continue to pay for his life, health and dental coverage for up to three years, with the executive responsible for his share of the employee premium.

If Mr. Solomon terminates employment for any reason other than for cause within 12 months following a change in control, he will receive the greater of (a) the amount he would have received if we terminated him for a reason other than for cause or if he voluntarily terminated under specified circumstances that constitute constructive termination (as described in the immediately preceding paragraph), or (b) three times his prior five-year average of taxable compensation less one dollar. We will also continue to pay for his life, health an dental coverage for up to three years.

Change in Control Severance Agreement

Upon completion of the conversion, we intend to enter into change in control severance agreements with two of our employees, Jodi L. Beal, our Vice President, Chief Financial Officer and Treasurer, and Lisa A. Cuddy, our Vice President-Bank Operations. The discussion under this heading describes the material provisions under these change in control severance agreements.

We expect to enter into these agreements because the banking industry has been consolidating for a number of years, and we do not want our key employees distracted by a rumored or actual change in control. Further, if a change in control should occur, we want our key employees to be focused on the business of the organization and the interests of stockholders. In addition, we think it is important that our key employees can react neutrally to a potential change in control and not be influenced by personal financial concerns. We believe these agreements are consistent with market practice and will assist us in retaining our talented employees.

Under these agreements, Ms. Beal and Ms. Cuddy will be entitled to collect severance benefits in the event that (i) the employee voluntarily terminates employment within 90 days of an event that both occurs during a protected period and constitutes good reason, (ii) the employee’s employment is terminated for any reason other than just cause during a protected period, or (iii) the employee voluntarily terminates employment for any reason other than just cause within 30 days after a change in control, provided that any such termination constitutes a separation from service. The “protected period” is the period beginning three months before a change in control and ending on the later of the third anniversary of the change in control or the expiration date of the agreement. The severance payment is one year’s base salary.

401(k) Plan. Fairmount Bank has established a tax-advantaged safe harbor 401(k) program for its employees in order to encourage them to save for their retirement. Fairmount Bank pays all administrative expenses and provides a 100% employee match up to 4% of a participating employee’s annual salary. The 401(k) Plan will not invest in Fairmount Bancorp, Inc. common stock.

Stock Benefit Plans

Employee Stock Ownership Plan and Trust. We intend to implement an employee stock ownership plan in connection with the stock offering. Employees who are at least 21 years old with at least one year of employment with Fairmount Bank will be eligible to participate. As part of the stock offering, the employee stock ownership plan trust intends to borrow funds from Fairmount Bancorp, Inc. and use those funds to purchase a number of shares equal to 8% of the common stock to be issued. Collateral for the loan will be the common stock purchased by the employee stock ownership plan. The loan will be

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repaid principally from discretionary contributions by Fairmount Bank to the employee stock ownership plan over a period of up to 10 years. The loan documents will provide that the loan may be repaid over a shorter period, without penalty for prepayments. We anticipate that the interest rate on the loan will equal the prime interest rate at the closing of the stock offering, and will adjust annually at the beginning of each calendar year. Shares purchased by the employee stock ownership plan will be held in a suspense account for allocation among participants as the loan is repaid.

Shares released from the suspense account will be allocated among employee stock ownership plan participants on the basis of compensation in the year of allocation. Benefits under the plan will vest at the rate of 20% per year, and become fully vested upon completion of six years of service. Credit will be given for vesting purposes to participants for years of service with Fairmount Bank prior to the adoption of the plan, up to five years. A participant’s interest in his account under the plan will also fully vest in the event of termination of service due to a participant’s early retirement, normal retirement, death, disability, or upon a change in control (as defined in the plan). Vested benefits will be payable in a lump sum or by payment in a series of equal annual installments over a period of five years, in the form of common stock and, to the extent the participant’s account contains cash, benefits will be paid in cash, unless the participant elects to receive his entire vested interest in the form of stock. Fairmount Bank’s contributions to the employee stock ownership plan are discretionary, subject to the loan terms and tax law limits. Therefore, benefits payable under the employee stock ownership plan cannot be estimated. Pursuant to SOP 93-6, we will be required to record compensation expense each year in an amount equal to the fair market value of the shares released from the suspense account. In the event of a change in control, the employee stock ownership plan will terminate.

Transactions with Certain Related Persons

Loans and Extensions of Credit. The Sarbanes-Oxley Act of 2002 generally prohibits us from making loans to our executive officers and directors, but it contains a specific exemption from such prohibition for loans made by Fairmount Bank to our executive officers and directors in compliance with federal banking regulations. Federal regulations require that all loans or extensions of credit to executive officers and directors of insured institutions must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and must not involve more than the normal risk or repayment or present other unfavorable features. Fairmount Bank is therefore prohibited from making any loans or extensions of credit to executive officers and directors at different rates or terms than those offered to the general public, except for loans made under a benefit program generally available to all other employees and that does not give preference to any executive officer or director over any other employee. Fairmount Bank is in compliance with these federal regulations with respect to its loans and extensions of credit to executive officers and directors, and all loans and extensions of credit made to these individuals are made on substantially the same terms, including interest-rates and collateral, as those made to individuals unrelated to Fairmount Bank.

In addition, loans made to a director or executive officer must be approved in advance by a majority of the disinterested members of the board of directors. The aggregate amount of our loans to our officers and directors and their related entities was $694,000 at September 30, 2009. As of September 30, 2009, these loans were performing according to their original terms.

Other Transactions. Since October 1, 2006, there have been no transactions, and there are no currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds of $120,000, and in which any of our executive officers and directors had or will have a direct or indirect material interest.

Benefits to be Considered Following Completion of the Conversion

We intend to adopt and request stockholder approval of one or more stock-based incentive plans, including a stock option plan and a stock recognition and retention plan, no earlier than six months after the completion of the conversion. The stock option plan and stock recognition and retention plan may be established as separate plans or part of a single stock-based incentive plan.

Stock Option Plan. If adopted within one year of the conversion and approved by stockholders, the stock option plan would reserve an amount equal to 10% of the shares of common stock issued in the offering for issuance upon exercise of stock options, which would amount to 42,500 shares, 50,000 shares, 57,500 shares and 66,125 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively. If we adopt the stock option plan after one year following the completion of the conversion, we may grant options in an amount greater than 10% of the shares of common stock issued in the offering. We have not yet determined whether we will present this plan for stockholder approval

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within 12 months or more than 12 months following the completion of the conversion. No options would be granted under the new stock option plan until stockholder approval of the plan is received. In the event that shares underlying options come from authorized but unissued shares of common stock, stockholders would experience dilution of approximately 9.09% of their ownership interest in Fairmount Bancorp, Inc. We will have to recognize compensation expense for accounting purposes ratably over the vesting period, equal to the fair value of the options on the original grant date.

The exercise price of the options granted under the stock option plan will be equal to the fair market value of Fairmount Bancorp, Inc. common stock on the date of grant of the stock options. If the stock option plan is adopted within one year following the conversion, options may vest no faster than 20% per year beginning 12 months after the date of grant. Options granted under the stock option plan would be adjusted for capital changes such as stock splits and stock dividends. Awards will be 100% vested upon termination of employment due to death, disability or following a change in control, and if the stock option plan is adopted more than one year after the conversion, awards would be 100% vested upon normal retirement. Under Office of Thrift Supervision regulations, if the stock option plan is adopted within one year of the conversion, no individual officer may receive more than 25% of the awards under the plan, no non-employee director may receive more than 5% of the awards under the plan and all non-employee directors as a group may receive in the aggregate no more than 30% of the awards under the plan.

The stock option plan would be administered by a committee of non-employee members of the board of directors of Fairmount Bancorp, Inc. Options granted under the stock option plan to employees may be “incentive” stock options, which are designed to result in a beneficial tax treatment to the employee but no tax deduction to Fairmount Bancorp, Inc. Non-qualified stock options may also be granted to employees under the stock option plan, and will be granted to the non-employee directors who receive stock options. In the event an option recipient terminates his or her employment or service as an employee or director, the options would terminate after certain specified periods following termination.

Stock Recognition and Retention Plan. If adopted within one year of the conversion and approved by stockholders, the stock recognition and retention plan would reserve an amount equal to 4% of the shares of common stock sold in the offering, or 17,000 shares, 20,000 shares, 23,000 shares and 26,450 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively. If we adopt the recognition and retention plan after one year following the completion of the conversion, we may grant shares in an amount greater than 4% of the shares of common stock issued in the offering. We have not yet determined whether we will present this plan for stockholder approval within 12 months or more than 12 months following the completion of the conversion. We must recognize an expense for shares of common stock awarded over their vesting period at the fair market value of the shares on the date they are awarded. The recipients will be awarded shares of common stock under the stock recognition and retention plan at no cost to them. No awards would be made under the stock recognition and retention plan until the plan is approved by stockholders. If the shares awarded under the stock recognition and retention plan come from authorized but unissued shares of the common stock totaling 4% of the shares sold in the offering, stockholders would experience dilution of approximately 3.85% in their ownership interest in Fairmount Bancorp, Inc.

Awards granted under the stock recognition and retention plan would be nontransferable and nonassignable. Under Office of Thrift Supervision regulations, if the stock recognition and retention plan is adopted within one year following the conversion, the shares of common stock which are subject to an award may vest no faster than 20% per year beginning 12 months after the date of grant of the award. Awards would be adjusted for capital changes such as stock dividends and stock splits. Awards would be     % vested upon termination of employment or service due to death, disability or following a change-in-control, and if the stock recognition and retention plan is adopted more than one year after the conversion, awards also would be 100% vested upon normal retirement. Under Office of Thrift Supervision rules, if the stock recognition and retention plan is adopted within one year of the conversion, no individual officer may receive more than 25% of the awards under the plan, no non-employee director may receive more than 5% of the awards under the plan, and all non-employee directors as a group may receive no more than 30% of the awards under the plan in the aggregate.

The recipient of an award will recognize income equal to the fair market value of the stock earned, determined as of the date of vesting, unless the recipient makes an election under Section 83(b) of the Internal Revenue Code of 1986, as amended, to be taxed earlier. The amount of income recognized by the recipient would be a deductible expense of Fairmount Bancorp, Inc. for tax purposes.

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SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information regarding intended common stock subscriptions by each of the directors and executive officers of Fairmount Bank and their associates, and by all directors and executive officers as a group. In the event the individual maximum purchase limitation is increased, persons subscribing for the maximum amount may increase their purchase order. Directors and executive officers will purchase shares of common stock at the same $10.00 purchase price per share and on the same terms as other purchasers in the offering. This table excludes shares of common stock to be purchased by the employee stock ownership plan, as well as any recognition and retention plan awards or stock option grants that may be made no earlier than six months after the completion of the offering. The directors and officers have indicated their intention to subscribe in the offering for an aggregate of $650,000 of shares of common stock, equal to 15.29% of the number of shares of common stock to be sold in the offering at the minimum of the offering range, and 11.31% of the shares of common stock to be sold at the maximum of the offering range, assuming shares are available. Purchases by directors, executive officers and their associates will be included in determining whether the required minimum number of shares has been subscribed for in the offering. The shares being acquired by the directors, executive officers and their associates are being acquired for investment purposes, and not with a view towards resale.

Name	Number of Shares	Aggregate Purchase Price		Percent at Minimum		Percent at Maximum
Joseph M. Solomon	15,000	$	150,000	3.53	%	2.61	%
William G. Yanke	10,000		100,000	2.35		1.74
James E. Elliott	15,000		150,000	3.53		2.61
Mary R. Craig	10,000		100,000	2.35		1.74
Edward J. Lally	5,000		50,000	1.18		0.87
Jodi L. Beal	10,000		100,000	2.35		1.74
All directors and executive officers as a group (six persons)	65,000	$	650,000	15.29	%	11.31	%

Includes purchases by the individual’s spouse and other relatives of the named individual living in the same household. The above named individuals are not aware of any other purchases by a person who, or entity which, would be considered an associate of the named individuals under the plan of conversion.

THE CONVERSION AND OFFERING

General

Fairmount Bank’s board of directors has approved the plan of conversion. The plan of conversion must also be approved by its members. A special meeting of members (depositors) has been called for this purpose. The Office of Thrift Supervision has conditionally approved the plan of conversion; however, such approval does not constitute a recommendation or endorsement of the plan of conversion by that agency.

Fairmount Bank’s board of directors adopted the plan of conversion on October 21, 2009. Pursuant to the plan of conversion, Fairmount Bank will convert from the mutual form (no stockholders) of organization to the fully stock form, and we will sell shares of common stock to the public in our offering. In effecting the conversion, we will organize a new Maryland stock holding company named Fairmount Bancorp, Inc. When the conversion is completed, all of the capital stock of Fairmount Bank will be owned by Fairmount Bancorp, Inc., and all of the common stock of Fairmount Bancorp, Inc. will be owned by public stockholders.

We intend to retain between $1,775,000 and $2,525,000 of the net proceeds of the offering, or $2,956,250 if the offering range is increased by 15%, and to contribute the balance of the net proceeds to Fairmount Bank. The conversion will be consummated only upon the issuance of at least 425,000 shares of our common stock offered pursuant to the plan of conversion.

The plan of conversion provides that we will offer shares of common stock for sale in the subscription offering to eligible account holders, our tax-qualified employee benefit plans, including our employee stock ownership plan, supplemental eligible account holders and other members. If all shares are not subscribed for in the subscription offering, we may, in our discretion, offer common stock for sale in a community offering to members of the general public, with a preference given to natural persons residing in the Maryland counties of Baltimore and Harford and the City of Baltimore.

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We have the right to accept or reject, in whole or in part, any orders to purchase shares of the common stock received in the community offering. The community offering, if any, may begin at the same time as, during, or after the subscription offering, and must be completed within 45 days after the completion of the subscription offering unless otherwise extended by us with the approval of the Office of Thrift Supervision. See “—Community Offering.”

We also may offer for sale shares of common stock not purchased in the subscription or community offering through a syndicated community offering to be managed by Stifel, Nicolaus & Company, Incorporated. For a complete description of the syndicated community offering, see “—Syndicated Community Offering” herein.

We determined the number of shares of common stock to be offered in the offering based upon an independent valuation of the estimated pro forma market value of Fairmount Bancorp, Inc. All shares of common stock to be sold in the offering will be sold at $10.00 per share. Investors will not be charged a commission to purchase shares of common stock. The independent valuation will be updated and the final number of the shares of common stock to be issued in the offering will be determined at the completion of the offering. See “—Determination of Share Price and Number of Shares to be Issued” for more information as to the determination of the estimated pro forma market value of the common stock.

The following is a brief summary of the conversion. We recommend reading the plan in its entirety for more information. A copy of the plan of conversion is available for inspection at the home office of Fairmount Bank, and at the Southeast Regional and the Washington, D.C. offices of the Office of Thrift Supervision. The plan of conversion is also filed as an exhibit to Fairmount Bank’s application to convert from mutual to stock form of which this prospectus is a part, copies of which may be obtained from the Office of Thrift Supervision. See “Where You Can Find Additional Information.”

Reasons for the Conversion and Offering

Our primary reasons for converting Fairmount Bank to the stock form of organization and raising additional capital through the offering are to:

• provide a larger capital cushion for asset growth, which will primarily be realized through existing operations;

• support growth and diversification of operations, products and services to transition Fairmount Bank into a full-service community bank;

• improve our overall capital and competitive position;

• increase Fairmount Bank’s loans to one borrower limit and allow Fairmount Bank to make larger loans, including larger commercial real estate loans;

• provide additional financial resources to pursue branch expansion and possible future acquisition opportunities, although we have no current arrangements or agreements with respect to any such branches or acquisitions;

• provide better capital management tools, including the ability to pay dividends and to repurchase shares of our common stock, subject to market conditions; and

• attract and retain qualified directors, officers and other employees by establishing stock-based compensation plans including a stock option plan, a stock recognition and retention plan and an employee stock ownership plan.

The offering is expected to provide local customers and other residents with an opportunity to become equity owners of Fairmount Bancorp, Inc., consistent with the objective of being a locally-owned financial institution serving local financial needs. The board and management believe that, through local stock ownership, purchasers of our stock will seek to enhance our financial success by consolidating their banking business in, and referring prospective customers to, Fairmount Bank.

In the stock holding company structure, we will have easier access to the capital markets and we will have greater flexibility in structuring mergers and acquisitions. Our current mutual structure prevents us from offering shares of our common stock as consideration for a merger or acquisition. Potential sellers often want stock for at least part of the acquisition consideration. Our new stock holding company structure will enable us to offer stock or cash consideration, or a combination thereof, and will therefore enhance our ability to compete with other bidders when acquisition opportunities arise.

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Approvals Required

The affirmative vote of a majority of the total eligible votes of our members at the special meeting of members is required to approve the plan of conversion. The plan of conversion also must be approved by the Office of Thrift Supervision, which has given its conditional approval.

A special meeting of members (depositors) to consider and vote upon the plan of conversion has been set for                 , 2010.

Effects of Conversion on Depositors, Borrowers and Members

Continuity. While the conversion is being accomplished, our normal business of accepting deposits and making loans will continue without interruption. We will continue to be a federally chartered savings association and will continue to be regulated by the Office of Thrift Supervision. After the conversion, we will continue to offer existing services to depositors, borrowers and other customers. The directors serving Fairmount Bank at the time of the conversion will be the directors of Fairmount Bank and of Fairmount Bancorp, Inc., a Maryland corporation, after the conversion.

Effect on Deposit Accounts. Pursuant to the plan of conversion, each depositor of Fairmount Bank at the time of the conversion will automatically continue as a depositor after the conversion, and the deposit balance, interest rate and other terms of such deposit accounts will not change as a result of the conversion. Each such account will be insured by the Federal Deposit Insurance Corporation to the same extent as before the conversion. Depositors will continue to hold their existing certificates, passbooks and other evidences of their accounts.

Effect on Loans. No loan outstanding from Fairmount Bank will be affected by the conversion, and the amount, interest rate, maturity and security for each loan will remain as it was contractually fixed prior to the conversion.

Effect on Voting Rights of Members. At present, all of our depositors are members of, and have voting rights in, Fairmount Bank as to all matters requiring membership action. Upon completion of the conversion, depositors will cease to be members of Fairmount Bank and will no longer have voting rights. Upon completion of the conversion, all voting rights in Fairmount Bank will be vested in Fairmount Bancorp, Inc. as the sole stockholder of Fairmount Bank. The stockholders of Fairmount Bancorp, Inc. will possess exclusive voting rights with respect to Fairmount Bancorp, Inc. common stock.

Tax Effects. We will receive an opinion of counsel or tax advisor with regard to federal and state income tax consequences of the conversion to the effect that the conversion will not be taxable for federal or state income tax purposes to Fairmount Bank or its members. See “—Material Income Tax Consequences.”

Effect on Liquidation Rights. Each depositor in Fairmount Bank has both a deposit account in Fairmount Bank and a pro rata ownership interest in the net worth of Fairmount Bank based upon the deposit balance in his or her account. This ownership interest is tied to the depositor’s account and has no tangible market value separate from the deposit account. This interest may only be realized in the event of a complete liquidation of Fairmount Bank. Any depositor who opens a deposit account obtains a pro rata ownership interest in Fairmount Bank without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his or her account receives a portion or all, respectively, of the balance in the deposit account but nothing for his or her ownership interest in the net worth of Fairmount Bank, which is lost to the extent that the balance in the account is reduced or closed.

Consequently, depositors in a mutual savings association normally have no way of realizing the value of their ownership interest, which has realizable value only in the unlikely event that the association is completely liquidated. If this occurs, the depositors of record at that time, as owners, would share pro rata in any residual surplus and reserves of Fairmount Bank after other claims, including claims of depositors to the amounts of their deposits, are paid.

In the unlikely event that Fairmount Bank were to liquidate after the conversion, all claims of creditors, including those of depositors, also would be paid first, followed by distribution of the “liquidation account” to depositors as of September 30, 2008 and                 ,                  who continue to maintain their deposit accounts as of the date of liquidation, with any assets remaining thereafter distributed to Fairmount Bancorp, Inc. as the holder of Fairmount Bank’s capital stock. Pursuant to the rules and regulations of the Office of Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets or similar combination or transaction with another insured savings institution would not be considered a liquidation and, in such a transaction, the liquidation account would be assumed by the surviving institution. See “—Liquidation Rights.”

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Determination of Share Price and Number of Shares to be Issued

The plan of conversion and federal regulations require that the aggregate purchase price of the common stock sold in the offering be based on the appraised pro forma market value of the common stock, as determined by an independent valuation. We have retained Feldman Financial Advisors, Inc. to prepare an independent valuation appraisal. For its services in preparing the initial valuation, Feldman Financial Advisors, Inc. will receive a fee of $20,000, and will be reimbursed for its expenses. Feldman Financial Advisors, Inc. will receive an additional fee of $3,000 for each update to the valuation appraisal. Except for the foregoing, Feldman Financial Advisors, Inc. has not received any compensation from us during the past two years. We have agreed to indemnify Feldman Financial Advisors, Inc. and its employees and affiliates against specified losses, including any losses in connection with claims under the federal securities laws, arising out of its services as independent appraiser, except where such liability results from its negligence or bad faith.

The independent valuation appraisal considered the pro forma impact of the offering. Consistent with the Office of Thrift Supervision appraisal guidelines, the appraisal applied three primary methodologies: the pro forma price-to-book value approach applied to both reported book value and tangible book value; the pro forma price-to-earnings approach applied to reported and core earnings; and the pro forma price-to-assets approach. The market value ratios applied in the three methodologies were based upon the current market valuations of the peer group companies identified by Feldman Financial Advisors, Inc., subject to valuation adjustments applied by Feldman Financial Advisors, Inc. to account for differences between us and our peer group.

The independent valuation was prepared by Feldman Financial Advisors, Inc. in reliance upon the information contained in this prospectus, including our financial statements. Feldman Financial Advisors, Inc. also considered the following material factors.

• our present and projected results and financial condition;

• the economic and demographic conditions in our existing market area;

• certain historical, financial and other information relating to us;

• a comparative evaluation of our operating and financial characteristics with those of other similarly situated publicly traded savings institutions;

• the impact of the conversion and the offering on our equity and earnings potential;

• our proposed dividend policy;

• the aggregate size of the offering of common stock; and

• the trading market for securities of comparable institutions and general conditions in the market for such securities.

Included in the independent valuation were certain assumptions as to our pro forma earnings after the conversion that were utilized in determining the appraised value. These assumptions included estimated expenses, an assumed after-tax rate of return on the net offering proceeds of 0.96% and purchases in the open market of 4.0% of the common stock issued in the offering by the stock-based benefit plan at the $10.00 purchase price. See “Pro Forma Data” for additional information concerning these assumptions. The use of different assumptions may yield different results.

The independent valuation states that as of November 30, 2009, the estimated pro forma market value of Fairmount Bancorp, Inc. ranged from $4,250,000 to $5,750,000, with a midpoint of $5,000,000. Our board of directors decided to offer the shares of common stock for a price of $10.00 per share primarily because it is the price most commonly used in mutual-to-stock conversions of financial institutions. The number of shares offered will be equal to the aggregate offering price of the shares divided by the price per share. Based on the valuation range and the $10.00 price per share, the minimum of the offering range will be 425,000 shares, the midpoint of the offering range will be 500,000 shares and the maximum of the offering range will be 575,000 shares, or 661,250 shares if the maximum amount is adjusted because of demand for shares or changes in market conditions.

The following table presents a summary of selected pricing ratios for Fairmount Bancorp, Inc. and our peer group companies identified by Feldman Financial Advisors, Inc. Our pro forma price-to-earnings multiple is based on earnings for the twelve months ended September 30, 2009, while information for the peer group companies is based on earnings for the twelve months ended September 30, 2009 or October 31, 2009. Our pro forma price-to-book value and price-to-tangible book value ratios are based on our equity as of September 30, 2009, while information for the peer group is based on equity as of September 30, 2009 or October 31, 2009. Compared to the average pricing of the peer group, our pro forma pricing ratios at

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the maximum of the offering range indicated a discount of 23.1% on a price-to-book basis, a discount of 23.9% on a price-to-tangible book basis and a discount of 24.9% on a price-to-earnings basis. Our board of directors, in reviewing and approving the valuation, considered our pro forma earnings and the range of price-to-earnings multiples, price-to-book value ratios and price-to-tangible book value ratios at the different amounts of shares to be sold in the offering. The appraisal did not consider one valuation approach to be more important than the other. Instead, the appraisal concluded that these ranges represented the appropriate balance of the three approaches to valuing us, and the number of shares to be sold, in comparison to the peer group institutions. Specifically, in approving the valuation, the board believed that Fairmount Bancorp, Inc. would not be able to sell its shares at a price-to-book value that was in line with the peer group without unreasonably exceeding the identified peer group on a price-to-earnings basis. The estimated appraised value and the resulting premium/discount took into consideration the potential financial impact of the conversion and offering.

	Pro forma price-to-earnings multiple		Pro forma price-to-book value ratio		Pro forma price-to-tangible book value ratio
Fairmount Bancorp, Inc. (1)
Minimum	9.9	x	43.2	%	43.2	%
Midpoint	11.9		47.7		47.7
Maximum	13.9		51.6		51.6
Maximum, as adjusted	16.4		55.5		55.5
Valuation of peer group companies using stock prices as of November 30, 2009 (2)
Averages	18.5	x	67.1	%	67.8	%
Medians	16.7		66.7		66.8

(1) Based on Fairmount Bank’s financial data as of and for the twelve months ended September 30, 2009.

(2) Reflects earnings for the most recent twelve month periods for which data was publicly available.

Our board of directors reviewed the appraisal report of Feldman Financial Advisors, Inc., including the methodology and the assumptions used by Feldman Financial Advisors, Inc., and determined that the valuation range was reasonable and adequate. Assuming that the shares are sold at $10.00 per share in the offering, the estimated number of shares would be between 425,000 at the minimum of the valuation range and 575,000 at the maximum of the valuation range, with a midpoint of 500,000. The purchase price of $10.00 per share was determined by us, taking into account, among other factors, the requirement under Office of Thrift Supervision regulations that the common stock be offered in a manner that will achieve the widest distribution of the stock and desired liquidity in the common stock after the offering.

All of these factors are set forth in the independent valuation. The board of directors also reviewed the methodology and the assumptions used Feldman Financial Advisors, Inc. in preparing the independent valuation and believes that such assumptions were reasonable. The offering range may be amended with the approval of the Office of Thrift Supervision, if required, as a result of subsequent developments in the financial condition of Fairmount Bank or market conditions generally. In the event the independent valuation is updated to amend the pro forma market value of Fairmount Bancorp, Inc. to less than $4,250,000 or more than $5,750,000, the appraisal will be filed with the Securities and Exchange Commission by a post-effective amendment to Fairmount Bancorp, Inc.’s registration statement.

The independent valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares of our common stock. Feldman Financial Advisors, Inc. did not independently verify our Financial Statements and other information that we provided to them, nor did Feldman Financial Advisors, Inc. independently value our assets or liabilities. The independent valuation considers Fairmount Bank as a going concern and should not be considered as an indication of the liquidation value of Fairmount Bank. Moreover, because the valuation is necessarily based upon estimates and projections of a number of matters, all of which may change from time to time, no assurance can be given that persons purchasing our common stock in the offering will thereafter be able to sell their shares at prices at or above the $10.00 offering price per share.

Following commencement of the subscription offering, the maximum of the valuation range may be increased by up to 15%, or up to $6,612,500, without resoliciting subscribers, which will result in a corresponding increase of up to 15% in the maximum of the offering range to up to 661,250 shares, to reflect changes in the market and financial conditions, demand for the shares or regulatory considerations. We will not decrease the minimum of the valuation range and the minimum of the

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offering range without a resolicitation of subscribers. The subscription price of $10.00 per share will remain fixed. See “—Limitations on Common Stock Purchases” as to the method of distribution and allocation of additional shares that may be issued in the event of an increase in the offering range to fill unfilled orders in the offering.

If the update to the independent valuation at the conclusion of the offering period results in an increase in the maximum of the valuation range to more than $6,612,500 and a corresponding increase in the offering range to more than 661,250 shares, or a decrease in the minimum of the valuation range to less than $4,250,000 and a corresponding decrease in the offering range to fewer than 425,000 shares, after consulting with the Office of Thrift Supervision, we may terminate the plan of conversion and offering, promptly return with interest at Fairmount Bank’s passbook savings rate of interest all funds previously delivered to us to purchase shares of common stock, and cancel deposit account withdrawal authorizations. Alternatively, we may establish a new offering range, extend the offering period and commence a resolicitation of subscribers or take other actions as permitted by the Office of Thrift Supervision in order to complete the conversion and the offering. In the event that a resolicitation is commenced, we will notify subscribers of the opportunity to maintain, change or cancel their orders for a specified period of time. Any resolicitation following the conclusion of the subscription and community offerings would not exceed 45 days unless further extended by the Office of Thrift Supervision for periods of up to 90 days.

An increase in the number of shares to be issued in the offering would decrease both a subscriber’s ownership interest and our pro forma stockholders’ equity on a per share basis while increasing pro forma earnings on a per share basis and pro forma earnings and stockholders’ equity on an aggregate basis. A decrease in the number of shares to be issued in the offering would increase both a subscriber’s ownership interest and our pro forma stockholders’ equity on a per share basis, while decreasing pro forma earnings on a per share basis and pro forma earnings and stockholders’ equity on an aggregate basis. For a presentation of the effects of these changes, see “Pro Forma Data.”

Copies of the independent valuation appraisal report of Feldman Financial Advisors, Inc., including the method and assumptions used in the appraisal report are available for inspection at our main office and as specified under “Where You Can Find Additional Information.”

Subscription Offering and Subscription Rights

In accordance with the plan of conversion, rights to subscribe for shares of common stock in the subscription offering have been granted in the following descending order of priority. The filling of all subscriptions that we receive will depend on the availability of common stock after satisfaction of all subscriptions of all persons having prior rights in the subscription offering and to the maximum and minimum and overall purchase limitations set forth in the plan of conversion and as described below under “—Limitations on Common Stock Purchases.”

Priority 1: Eligible Account Holders. Each depositor with aggregate deposit account balances of $50 or more (a “Qualifying Deposit”) on September 30, 2008 (an “Eligible Account Holder”) will receive, without payment therefore, nontransferable subscription rights to purchase, subject to the overall purchase limitations, up to the greater of: (1) 15,000 shares of our common stock; (2) 0.10% of the total number of shares of common stock issued in the offering; or (3) 15 times the number of subscription shares offered multiplied by a fraction of which the numerator is the Qualifying Deposit of the Eligible Account Holder and the denominator is the aggregate Qualifying Deposits of all Eligible Account Holders, subject to the overall purchase limitations. See “—Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all subscriptions, shares will first be allocated so as to permit each Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares or the number of shares for which he or she subscribed. Thereafter, unallocated shares will be allocated to each Eligible Account Holder whose subscription remains unfilled in the proportion that the amount of his or her Qualifying Deposit bears to the total amount of Qualifying Deposits of all subscribing Eligible Account Holders whose subscriptions remain unfilled. If an amount so allocated exceeds the amount subscribed for by any one or more Eligible Account Holders, the excess shall be reallocated among those Eligible Account Holders whose subscriptions are not fully satisfied until all available shares have been allocated.

To ensure proper allocation of shares of our common stock, each Eligible Account Holder must list on his or her stock order form all deposit accounts in which he or she has an ownership interest on September 30, 2008. In the event of oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed. In the event of an oversubscription, the subscription rights of Eligible Account Holders who are also our directors or executive officers or their associates will be subordinated to the subscription rights of other Eligible Account Holders to the extent attributable to increased deposits in the twelve months preceding September 30, 2008.

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Priority 2: Tax-Qualified Plans. Our tax-qualified employee benefit plans, such as our employee stock ownership plan, will receive, without payment therefore, nontransferable subscription rights to purchase in the aggregate up to 8% of the shares of common stock sold in the offering.

Priority 3: Supplemental Eligible Account Holders. To the extent that there are sufficient shares of common stock remaining after satisfaction of subscriptions by Eligible Account Holders and our tax-qualified employee benefit plans, each depositor with a Qualifying Deposit on                 ,     who is not an Eligible Account Holder (“Supplemental Eligible Account Holder”) will receive, without payment therefore, nontransferable subscription rights to purchase up to the greater of: (1) 15,000 shares of common stock (subject to adjustment); (2) 0.10% of the total number of shares of common stock issued in the offering; or (3) 15 times the number of subscription shares offered multiplied by a fraction of which the numerator is the aggregate Qualifying Deposit of the Supplemental Eligible Account Holder and the denominator is the aggregate Qualifying Deposits of all Supplemental Eligible Account Holders, subject to the overall purchase limitations. See “—Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all subscriptions, shares will be allocated so as to permit each Supplemental Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares of common stock or the number of shares for which he or she subscribed. Thereafter, unallocated shares will be allocated to each Supplemental Eligible Account Holder whose subscription remains unfilled in the proportion that the amount of his or her Qualifying Deposit bears to the total amount of Qualifying Deposits of all Supplemental Eligible Account Holders whose subscriptions remain unfilled. If an amount so allocated exceeds the amount subscribed for by any one or more Supplemental Eligible Account Holders, the excess shall be reallocated among those Supplemental Eligible Account Holders whose subscriptions are not fully satisfied until all available shares have been allocated.

To ensure proper allocation of common stock, each Supplemental Eligible Account Holder must list on the stock order form all deposit accounts in which he or she has an ownership interest at                 ,     . In the event of oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed.

Priority 4: Other Members. To the extent that there are shares of common stock remaining after satisfaction of subscriptions by Eligible Account Holders, our tax-qualified employee benefit plans and Supplemental Eligible Account Holders, each depositor on the voting record date of                 , 2010 who is not an Eligible Account Holder or Supplemental Eligible Account Holder (“Other Members”) will receive, without payment therefore, nontransferable subscription rights to purchase up to the greater of: (1) 15,000 shares of common stock; or (2) 0.10% of the total number of shares of common stock issued in the offering, subject to the overall purchase limitations. See “—Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all subscriptions, available shares will be allocated on a pro rata basis based on the size of the order of each Other Member whose order remains unfilled.

Expiration Date. The Subscription Offering will expire at     :    .m., Eastern time, on                 , 2010, unless extended by us for up to 45 days or additional periods with the approval of the Office of Thrift Supervision, if necessary. Subscription rights will expire whether or not each eligible depositor can be located. We may decide to cancel or extend the expiration date of the subscription offering for any reason, whether or not subscriptions have been received for shares at the minimum, midpoint or maximum of the offering range. Subscription rights that have not been exercised prior to the expiration date will become void.

We will not execute orders until we have received orders to purchase at least the minimum number of shares of common stock. If we have not received orders to purchase at least 425,000 shares within 45 days after the expiration date of the subscription offering and the Office of Thrift Supervision has not consented to an extension, all funds delivered to us to purchase shares of common stock in the offering will be returned promptly to the subscribers with interest at our passbook savings rate and all deposit account withdrawal authorizations will be canceled. If an extension beyond     is granted by the Office of Thrift Supervision , we will resolicit subscribers as described above. Aggregate offering extensions may not go beyond                 , 2012, which is two years after the date of the special meeting of our members to vote on the conversion.

Community Offering

To the extent that shares of common stock remain available for purchase after satisfaction of all subscriptions of the Eligible Account Holders, our tax-qualified employee benefit plans, Supplemental Eligible Account Holders and Other Members, we may offer shares pursuant to the plan of conversion to members of the general public in a community offering. Shares may be offered with a preference to natural persons residing in the Maryland counties of Baltimore and Harford and the City of Baltimore.

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Subscribers in the community offering may purchase up to 15,000 shares of common stock (subject to adjustment), subject to the maximum and overall purchase limitations. See “—Limitations on Common Stock Purchases.” The opportunity to purchase shares of common stock in the community offering category is subject to our right, in our sole discretion, to accept or reject any such orders in whole or in part either at the time of receipt of an order or as soon as practicable following the expiration date of the offering.

If we do not have sufficient shares of common stock available to fill the orders of natural persons residing in the Maryland counties of Baltimore and Harford or within Baltimore City, we will allocate the available shares among those persons in a manner that permits each of them, to the extent possible, to purchase the lesser of 100 shares, or the number of shares subscribed for by such person. Thereafter, unallocated shares will be allocated among natural persons residing in the Maryland counties of Baltimore and Harford and Baltimore City, whose orders remain unsatisfied on an equal number of shares basis per order.

The term “residing” or “resident” as used in this prospectus means any person who occupies a dwelling within the Maryland counties of Baltimore and Harford or within Baltimore City, has a present intent to remain within the community for a period of time and manifests the genuineness of that intent by establishing an ongoing physical presence within the community, together with an indication that this presence within the community is something other than merely transitory in nature. We may utilize deposit or loan records or other evidence provided to us to decide whether a person is a resident. In all cases, however, the determination shall be in our sole discretion.

Expiration Date. The community offering may begin during or after the subscription offering, and is currently expected to terminate at the same time as the subscription offering, and must terminate no more than 45 days following the subscription offering. We may decide to extend the community offering for any reason and are not required to give purchasers notice of any such extension unless such period extends beyond                 , 2010. These extensions may not go beyond                 , 2012, which is two years after the special meeting of our members to vote on the conversion.

Syndicated Community Offering

The plan of conversion also provides that, if necessary, all shares of common stock not purchased in the subscription offering and community offering may be offered for sale to the general public in a syndicated community offering through a syndicate of registered broker-dealers managed by Stifel, Nicolaus & Company, Incorporated as our agent. We call this a syndicated community offering. We expect that the syndicated community offering will begin as soon as practicable after termination of the subscription offering and the community offering, if any. We, in our sole discretion, have the right to reject orders in whole or in part received in the syndicated community offering. Neither Stifel, Nicolaus & Company, Incorporated nor any registered broker-dealer shall have any obligation to take or purchase any shares of common stock in the syndicated community offering; however, Stifel, Nicolaus & Company, Incorporated has agreed to use its best efforts in the sale of shares in any syndicated community offering.

The price at which common stock is sold in the syndicated community offering will be the same price at which shares are offered and sold in the subscription and community offerings. No person may purchase more than $150,000 (15,000 shares) of common stock in the syndicated community offering, subject to the maximum and overall purchase limitations. See “—Limitations on Common Stock Purchases.” The syndicated community offering will be completed within 45 days after the expiration of the subscription offering, unless extended by Fairmount Bank with the approval of the Office of Thrift Supervision.

The syndicated community offering, if held, will be managed by Stifel, Nicolaus & Company, Incorporated acting as our agent. See “—Plan of Distribution; Selling Agent Compensation” below for a discussion of fees associated with a syndicated community offering. In such capacity, Stifel, Nicolaus & Company, Incorporated may form a syndicate of other broker-dealers who are Financial Industry Regulatory Authority member firms. Neither Stifel, Nicolaus & Company, Incorporated nor any registered broker-dealer will have any obligation to take or purchase any shares of the common stock in the syndicated community offering. The syndicated community offering will be conducted in accordance with certain Securities and Exchange Commission rules applicable to best efforts offerings. Generally under those rules,

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Stifel, Nicolaus & Company, Incorporated, a broker-dealer, will deposit funds it receives prior to closing from interested investors into a separate non-interest-bearing bank account. If and when all the conditions for the closing are met, funds for common stock sold in the syndicated community offering will be promptly delivered to us. If the offering is consummated, but some or all of an interested investor’s funds are not accepted by us, those funds will be returned to the interested investor promptly, without interest. If the offering is not consummated, funds in the account will be promptly returned, without interest, to the potential investor. Normal customer ticketing will be used for order placement. In the syndicated community offering, order forms will not be used.

If for any reason we cannot effect a syndicated community offering of shares of common stock not purchased in the subscription and community offerings, or in the event that there is an insignificant number of shares remaining unsold after the subscription, community and syndicated community offerings, we will try to make other arrangements for the sale of unsubscribed shares, if possible. The Office of Thrift Supervision must approve any such arrangements. If other purchase arrangements cannot be made, we may terminate the offering and promptly return all funds; set a new offering range, notify all subscribers and give them the opportunity to confirm, cancel or change their orders; or take such other action as may be permitted with any required regulatory approval or non-objection.

Limitations on Common Stock Purchases

The plan of conversion includes the following limitations on the number of shares of common stock that may be purchased in the offering:

• No person may purchase fewer than 25 shares of common stock or more than 15,000 shares, subject to adjustment as described below;

• Our tax-qualified stock benefit plans, such as our employee stock ownership plan, may purchase in the aggregate up to 10% of the shares of common stock issued in the offering;

• Except for the tax-qualified employee benefit plans, as described above, no person or entity, together with associates or persons acting in concert with such person or entity, may purchase more than 15,000 shares in all categories of the offering combined, subject to adjustment as described below; and

• The maximum number of shares of common stock that may be purchased in all categories of the offering by our executive officers and directors and their associates, in the aggregate, may not exceed     % of the shares issued in the offering.

Depending upon market or financial conditions, our board of directors, with the approval of the Office of Thrift Supervision and without further approval of our members, may decrease or increase the purchase limitations. If a purchase limitation is increased, subscribers in the subscription offering who ordered the maximum amount will be, and, in our sole discretion, some other large subscribers may be, given the opportunity to increase their subscriptions up to the then applicable limit. The effect of this type of resolicitation will be an increase in the number of shares of common stock owned by subscribers who choose to increase their subscriptions. In the event that the maximum purchase limitation is increased to 5% of the shares sold in the offering, such limitation may be further increased to 9.99%, provided that orders for our common stock exceeding 5% of the shares sold in the offering shall not exceed in the aggregate 10% of the total shares sold in the offering.

In the event of an increase in the offering range of up to $            , shares will be allocated in the following order of priority in accordance with the plan of conversion:

(1) to fill our tax-qualified employee benefit plans’ subscriptions for up to 10% of the total number of shares of common stock issued in the offering;

(2) in the event that there is an oversubscription at the Eligible Account Holder, Supplemental Eligible Account Holder or Other Member levels, to fill unfulfilled subscriptions of these subscribers according to their respective priorities; and

(3) to fill unfulfilled subscriptions in the community offering, with preference given first to natural persons residing in the Maryland counties of Baltimore and Harford and the City of Baltimore.

The term “associate” of a person means:

(1) any corporation or organization, other than Fairmount Bank or a majority-owned subsidiary of Fairmount Bank, of which the person is a senior officer, partner or 10% beneficial stockholder;

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(2) any trust or other estate in which the person has a substantial beneficial interest or serves as a trustee or in a fiduciary capacity, excluding any employee stock benefit plan in which the person has a substantial beneficial interest or serves as trustee or in a fiduciary capacity; and

(3) any blood or marriage relative of the person, who either lives in the same home as the person or who is a director or officer of Fairmount Bank or Fairmount Bancorp, Inc.

The term “acting in concert” means:

(1) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or

(2) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise.

We have the right to determine whether prospective purchasers are associates or acting in concert. A person or company that acts in concert with another person or company (“other party”) shall also be deemed to be acting in concert with any person or company who is also acting in concert with that other party, except that any tax-qualified employee stock benefit plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether common stock held by the trustee and common stock held by the employee stock benefit plan will be aggregated.

Our directors are not treated as associates of each other solely because of their membership on the board of directors. Shares of common stock purchased in the offering will be freely transferable except for shares purchased by our executive officers and directors and except as described below. Any purchases made by any associate of Fairmount Bank or Fairmount Bancorp, Inc. for the explicit purpose of meeting the minimum number of shares of common stock required to be sold in order to complete the offering shall be made for investment purposes only and not with a view toward redistribution. In addition, under the guidelines of the Financial Industry Regulatory Authority, Inc., members of the Financial Industry Regulatory Authority and their associates are subject to certain restrictions on transfer of securities purchased in accordance with subscription rights and to certain reporting requirements upon purchase of these securities. For a further discussion of limitations on purchases of shares of our common stock at the time of conversion and thereafter, see “—Certain Restrictions on Purchase or Transfer of Our Shares After Conversion” and “Restrictions on Acquisition of Fairmount Bancorp, Inc.”

Plan of Distribution; Selling Agent Compensation

We have engaged Stifel, Nicolaus & Company, Incorporated, a registered broker-dealer, as a financial advisor and marketing agent in connection with the offering of our common stock. In its role as conversion advisor and marketing agent, Stifel, Nicolaus & Company, Incorporated will assist us in the conversion and offering as follows:

• acting as our financial advisor for the conversion and offering;

• educating our employees about the conversion and offering;

• managing the Stock Information Center and providing administrative services;

• targeting our sales efforts, including assisting in the preparation of marketing materials;

• soliciting orders for common stock; and

• assisting in soliciting votes of Fairmount Bank voting members.

For these services, Stifel, Nicolaus & Company, Incorporated will receive a success fee of $150,000. We have made an advance payment of $25,000 to Stifel, Nicolaus & Company, Incorporated.

The plan of conversion provides that, if necessary, all shares of common stock not purchased in the subscription offering and community offering may be offered for sale to the general public in a syndicated community offering to be managed by Stifel, Nicolaus & Company, Incorporated. In such capacity, Stifel, Nicolaus & Company, Incorporated may form a syndicate of other broker-dealers. Neither Stifel, Nicolaus & Company, Incorporated nor any registered broker-dealer will have any obligation to take or purchase any shares of common stock in the syndicated community offering; however, Stifel, Nicolaus & Company, Incorporated has agreed to use its best efforts in the sale of shares in any syndicated community offering. If there is a syndicated community offering, Stifel, Nicolaus & Company, Incorporated will receive a management

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fee of 1.00% of the aggregate dollar amount of the common stock sold in the syndicated community offering. The total fees payable to Stifel, Nicolaus & Company, Incorporated and other Financial Industry Regulatory Authority member firms in the syndicated community offering will not exceed 6.00% of the aggregate dollar amount of the common stock sold in the syndicated community offering.

In the event we are required to resolicit subscriptions in the subscription offering and community offering, and Stifel, Nicolaus & Company, Incorporated is required to provide significant additional services in connection with such resolicitation, additional compensation due to Stifel, Nicolaus & Company, Incorporated shall not exceed $20,000.

We will also reimburse Stifel, Nicolaus & Company, Incorporated for its expenses associated with this marketing effort, up to a maximum of $15,000. In addition, we will reimburse Stifel, Nicolaus & Company, Incorporated for its legal fees (including the out-of-pocket expenses of counsel) up to $50,000. In the event of a syndicated community offering, we will reimburse Stifel, Nicolaus & Company, Incorporated for all reasonable out-of-pocket expenses incurred in connection with that offering phase. If the plan of conversion and reorganization is terminated or if Stifel, Nicolaus & Company, Incorporated terminates its agreement with us in accordance with the provisions of the agreement, Stifel, Nicolaus & Company, Incorporated will receive reimbursement of its reasonable out-of-pocket expenses plus $25,000 for its advisory and administrative services.

We will indemnify Stifel, Nicolaus & Company, Incorporated against liabilities and expenses, including legal fees, incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering materials for the common stock, including liabilities under the Securities Act of 1933, as amended.

Some of our directors and executive officers may participate in the solicitation of offers to purchase common stock. These persons will be reimbursed for their reasonable out-of-pocket expenses incurred in connection with the solicitation. Other regular, full-time employees of Fairmount Bank may assist in the offering, but only in ministerial capacities, and may provide clerical work in effecting a sales transaction. No offers or sales may be made by tellers or at the teller counters. All sales activity will be conducted in a segregated or separately identifiable area of Fairmount Bank’s main office apart from the area accessible to the general public. Investment-related questions of prospective purchasers will be directed to executive officers or registered representatives of Stifel, Nicolaus & Company, Incorporated. Our other employees have been instructed not to solicit offers to purchase shares of common stock or provide advice regarding the purchase of common stock. We will rely on Rule 3a4-1 under the Securities Exchange Act of 1934, as amended, and sales of common stock will be conducted within the requirements of Rule 3a4-1, so as to permit officers, directors and employees to participate in the sale of common stock. None of our officers, directors or employees will be compensated in connection with their participation in the offering.

In addition, we have engaged Stifel, Nicolaus & Company, Incorporated to act as our records management agent in connection with the conversion and offering. In its role as records management agent, Stifel, Nicolaus & Company, Incorporated will coordinate with our data processing contacts and interface with the Stock Information Center to provide the records processing and the proxy and stock order services, including but not limited to: (1) consolidation of deposit accounts and vote calculation; (2) preparation of information for order forms and proxy cards; (3) interface with our financial printer; (4) record stock order information; and (5) tabulate proxy votes. For these services, Stifel, Nicolaus & Company, Incorporated will receive a fee of $15,000 (which may be negotiated in the event unexpected circumstances arise). We have made an advance payment of $5,000 with respect to this fee. We will also reimburse Stifel, Nicolaus & Company, Incorporated for its reasonable out-of-pocket expenses associated with its acting as records management agent in an amount not to exceed $5,000.

Offering Deadline

Expiration Date. The subscription and community offerings will expire at     :    p.m., Eastern time, on                 , 2010, unless we extend it for up to 45 days, with the approval of the Office of Thrift Supervision, if required. This extension may be approved by us, in our sole discretion, without further approval or additional notice to purchasers in the offering. Any extension of the subscription and/or community offering beyond                 ,      would require the Office of Thrift Supervision’s approval. In such event, we would conduct a resolicitation of subscribers. In a resolicitation, subscribers will be given the opportunity to maintain, change or cancel their stock orders during a specified resolicitation period. If a written indication of a subscriber’s interest is not received, the stock order will be cancelled and funds will be returned with interest, and deposit account withdrawal authorizations will be cancelled. If we have not received orders to purchase the minimum number of shares offered in the offering by the expiration date or any extension thereof, we may terminate the offering and cancel all orders as described above.

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To ensure that each purchaser in the subscription and community offerings receives a prospectus at least 48 hours before the expiration date of the offering in accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, as amended, no prospectus will be mailed any later than five days prior to the expiration date or hand delivered any later than two days prior to the expiration date. Execution of an order form will confirm receipt of delivery in accordance with Rule 15c2-8. Order forms will be distributed only with, or preceded by, a prospectus. Subscription funds will be maintained in a segregated account at Fairmount Bank or at another insured depository institution and will earn interest at our passbook savings rate, currently 1.00% per annum, from the date of processing.

We reserve the right in our sole discretion to terminate the offering at any time and for any reason, in which case we will cancel any deposit account withdrawal orders and promptly return all funds delivered to us, with interest at our passbook savings rate.

We have the right to reject any order submitted in the offering by a person who we believe is making false representations or who we otherwise believe, either alone or acting in concert with others, is violating, evading, circumventing, or intends to violate, evade or circumvent the terms and conditions of the plan of conversion.

Procedure for Purchasing Shares in the Subscription and Community Offerings

Use of Stock Order Forms. In order to purchase shares of common stock in the subscription offering and community offering, you must complete an order form and remit full payment or appropriate deposit withdrawal authorization. We will not be required to accept photocopied or facsimilated order forms, or unsigned order forms. We must receive all order forms prior to     :    p.m., Eastern time, on                 , 2010. We are not required to accept order forms that are not received by that time, are executed defectively or are received without full payment or without appropriate withdrawal instructions. We have the right to permit the correction of incomplete or improperly executed order forms or waive immaterial irregularities. We do not represent, however, that we will do so and we have no affirmative duty to notify any prospective subscriber of any such defects. You may submit your order form and payment by mail using the stock order return envelope provided, by bringing your order form to our Stock Information Center or by overnight delivery to the indicated address on the order form. Once tendered, an order form cannot be modified or revoked without our consent. We reserve the absolute right, in our sole discretion, to reject orders received in the community offering, in whole or in part, at the time of receipt or at any time prior to completion of the offering. If you are ordering shares in the subscription offering, you must represent that you are purchasing shares for your own account and that you have no agreement or understanding with any person for the sale or transfer of the shares. Our interpretation of the terms and conditions of the plan of conversion and of the acceptability of the order forms will be final, subject to the authority of the Office of Thrift Supervision.

By signing the order form, you will be acknowledging that the common stock is not a deposit or savings account and is not federally insured or otherwise guaranteed by Fairmount Bank or the federal government, and that you received a copy of this prospectus. However, signing the order form will not result in you waiving your rights under the Securities Act of 1933 or the Securities Exchange Act of 1934.

Payment for Shares

Payment for all shares of common stock will be required to accompany all completed order forms for the purchase to be valid. Payment for shares may be made by:

(1) personal check, bank check or money order, payable to Fairmount Bancorp, Inc.; or

(2) authorization of withdrawal from the types of Fairmount Bank deposit accounts designated on the stock order form.

You may not submit cash or wire transfers. Appropriate means for designating withdrawals from deposit accounts at Fairmount Bank are provided in the order forms. The funds designated must be available in the account(s) at the time the order form is received. A hold will be placed on these funds, making them unavailable to the depositor. Funds authorized for withdrawal will continue to earn interest within the account at the contract rate until the offering is completed, at which time the designated withdrawal will be made. Interest penalties for early withdrawal applicable to certificate accounts will not apply to withdrawals authorized for the purchase of shares of common stock; however, if a withdrawal results in a certificate account with a balance less than the applicable minimum balance requirement, the certificate will be canceled at the time of withdrawal without penalty and the remaining balance will earn interest at our passbook savings rate subsequent to the

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withdrawal. You may not designate on your stock order form a direct withdrawal from a Fairmount Bank individual retirement account. See the following section for additional information regarding the use of individual retirement accounts.

In the case of payments made by personal check or money order, these funds must be available in the account(s) and will be immediately cashed and deposited in a segregated account at Fairmount Bank and/or another insured depository institution and will earn interest at our passbook savings rate from the date payment is processed until the offering is completed or terminated, at which time a subscriber will be issued a check for interest earned.

You may not use a check drawn on a Fairmount Bank line of credit, and we will not accept third-party checks (a check written by someone other than you) payable to you and endorsed over to Fairmount Bancorp, Inc. If you request that we place a hold on your Fairmount Bank checking account for the aggregate subscription price, we reserve the right to interpret that as your authorization to treat those funds as if we had received a check for the designated amount, and we will immediately withdraw the amount from your checking account.

Once we receive your executed order form, it may not be modified, amended or rescinded without our consent, unless the offering is terminated or extended beyond                 , 2010.

We will have the right, in our sole discretion, to permit institutional investors to submit irrevocable orders together with the legally binding commitment for payment and to thereafter pay for the shares of common stock for which they subscribe in the community offering at any time prior to 48 hours before the completion of the offering. This payment may be made by wire transfer.

Our employee stock ownership plan will not be required to pay for any shares purchased in the offering until consummation of the offering, provided there is a loan commitment from an unrelated financial institution or Fairmount Bancorp, Inc. to lend to the employee stock ownership plan the necessary amount to fund the purchase.

Regulations prohibit Fairmount Bank from knowingly lending funds or extending credit to any persons to purchase shares of common stock in the offering.

Using Individual Retirement Account Funds

If you are interested in using your individual retirement account funds to purchase shares of common stock, you must do so through a self-directed individual retirement account, such as a brokerage firm individual retirement account. By regulation, Fairmount Bank’ individual retirement accounts are not self-directed, so they cannot be invested in shares of our common stock. Therefore, if you wish to use your funds that are currently in a Fairmount Bank individual retirement account, you may not designate on the order form that you wish funds to be withdrawn from the account for the purchase of common stock. The funds you wish to use for the purchase of common stock will have to be transferred to an independent trustee or custodian account, such as a brokerage account. There will be no early withdrawal or Internal Revenue Service interest penalties for these transfers. Purchasers interested in using funds in an individual retirement account held at Fairmount Bank or elsewhere to purchase shares of common stock should contact our Stock Information Center for guidance as soon as possible, preferably at least two weeks prior to the offering deadline, because processing such transactions takes additional time, and whether such funds can be used may depend on limitations imposed by the institutions where such funds are currently held. We cannot guarantee that you will be able to use such funds.

Delivery of Stock Certificates

Certificates representing shares of common stock issued in the offering will be mailed by regular mail to the persons entitled thereto at the certificate registration address noted by them on the stock order form, as soon as practicable following consummation of the offering. Any certificates returned as undeliverable will be held by our transfer agent until claimed by persons legally entitled thereto or otherwise disposed of in accordance with applicable law. Until certificates for the shares of common stock are available and delivered to purchasers, purchasers may not be able to sell the shares of common stock that they ordered, even though the common stock will have begun trading.

Other Restrictions. Notwithstanding any other provision of the plan of conversion, no person is entitled to purchase any shares of common stock to the extent the purchase would be illegal under any federal or state law or regulation, including state “blue sky” regulations, or would violate regulations or policies of the Financial Industry Regulatory Authority, particularly those regarding free riding and withholding. We may ask for an acceptable legal opinion from any purchaser as

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to the legality of his or her purchase and we may refuse to honor any purchase order if an opinion is not timely furnished. In addition, we are not required to offer shares of common stock to any person who resides in a foreign country or in a state of the United States with respect to which any of the following apply: (a) a small number of persons otherwise eligible to subscribe for shares under the plan of conversion reside in such state; (b) the issuance of subscription rights or the offer or sale of shares of common stock to such persons would require us, under the securities laws of such state, to register as a broker, dealer, salesman or agent or to register or otherwise qualify our securities for sale in such state; or (c) such registration or qualification would be impracticable for reasons of cost or otherwise.

Restrictions on Transfer of Subscription Rights and Shares

Office of Thrift Supervision regulations prohibit any person with subscription rights, including the Eligible Account Holders, Supplemental Eligible Account Holders and Other Members, from transferring or entering into any agreement or understanding to transfer the legal or beneficial ownership of the subscription rights issued under the plan of conversion or the shares of common stock to be issued upon their exercise. These rights may be exercised only by the person to whom they are granted and only for his or her account. When registering your stock purchase on the stock order form, you should not add the name(s) of persons who do not have subscription rights or who qualify only in a lower subscription offering purchase priority than you do. Doing so may jeopardize your subscription rights. Each person exercising subscription rights will be required to certify that he or she is purchasing shares solely for his or her own account and that he or she has no agreement or understanding regarding the sale or transfer of such shares. The regulations also prohibit any person from offering or making an announcement of an offer or intent to make an offer to purchase subscription rights or shares of common stock to be issued upon their exercise prior to completion of the offering.

We intend to pursue any and all legal and equitable remedies in the event we become aware of the transfer of subscription rights, and we will not honor orders that we believe involve the transfer of subscription rights.

Stock Information Center

If you have any questions regarding the offering, please call our Stock Information Center, toll-free, at     -    -                , Monday through Friday between 10:00 a.m. and 4:00 p.m., Eastern time, or visit the Stock Information Center, located at 8216 Philadelphia Road, Baltimore, Maryland 21237. The Stock Information Center will be closed weekends and bank holidays.

Liquidation Rights

In the unlikely event of a complete liquidation of Fairmount Bank prior to the conversion, all claims of creditors of Fairmount Bank, including those of depositors of Fairmount Bank (to the extent of their deposit balances), would be paid first. Then, if there were any assets of Fairmount Bank remaining, members of Fairmount Bank would receive those remaining assets, pro rata, based upon the deposit balances in their deposit account in Fairmount Bank immediately prior to liquidation. In the unlikely event that Fairmount Bank were to liquidate after the conversion, all claims of creditors, including those of depositors, would be paid first, followed by distribution of the “liquidation account” to certain depositors, with any assets remaining thereafter distributed to Fairmount Bancorp, Inc. as the holder of Fairmount Bank capital stock. Pursuant to the rules and regulations of the Office of Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets or similar combination or transaction with another insured savings institution would not be considered a liquidation and, in these types of transactions, the liquidation account would be assumed by the surviving institution.

The plan of conversion provides for the establishment, upon the completion of the conversion, of a special “liquidation account” for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders in an amount equal to the total equity of Fairmount Bank as of the date of its latest balance sheet contained in this prospectus.

The purpose of the liquidation account is to provide Eligible Account Holders and Supplemental Eligible Account Holders who maintain their deposit accounts with Fairmount Bank after the conversion with a liquidation interest in the unlikely event of the complete liquidation of Fairmount Bank after the conversion. Each Eligible Account Holder and Supplemental Eligible Account Holder that continues to maintain his or her deposit account at Fairmount Bank, would be entitled, on a complete liquidation of Fairmount Bank after the conversion, to an interest in the liquidation account prior to any payment to the stockholders of Fairmount Bank. Each Eligible Account Holder and Supplemental Eligible Account Holder would have an initial interest in the liquidation account for each deposit account, including savings accounts, transaction accounts such as negotiable order of withdrawal accounts, money market deposit accounts, and certificates of deposit, with a balance of $50 or more held in Fairmount Bank on                 ,     and                 ,     , respectively. Each Eligible Account Holder and Supplemental Eligible Account Holder would have a pro rata interest in the total liquidation account for each such deposit account, based on the proportion that the balance of each such deposit account on                 ,     and                 ,     , respectively, bears to the balance of all deposit accounts in Fairmount Bank on such dates.

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If, however, on any September 30 annual closing date commencing on or after the effective date of the conversion, the amount in any such deposit account is less than the amount in the deposit account on                 ,     and                 ,     , as applicable, or any other annual closing date, then the interest in the liquidation account relating to such deposit account would be reduced from time to time by the proportion of any such reduction, and such interest will cease to exist if such deposit account is closed. In addition, no interest in the liquidation account would ever be increased despite any subsequent increase in the related deposit account. Payment pursuant to liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders would be separate and apart from the payment of any insured deposit accounts to such depositor. Any assets remaining after the above liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders are satisfied would be distributed to Fairmount Bancorp, Inc., as the sole stockholder of Fairmount Bank.

Material Income Tax Consequences

Consummation of the conversion is subject to the prior receipt of an opinion of counsel or tax advisor with respect to federal and state income taxation that the conversion will not be a taxable transaction to Fairmount Bank, Fairmount Bancorp, Inc., Eligible Account Holders, Supplemental Eligible Account Holders, and other members of Fairmount Bank. Unlike private letter rulings, opinions of counsel or tax advisors are not binding on the Internal Revenue Service or any state taxing authority, and such authorities may disagree with such opinions. In the event of such disagreement, there can be no assurance that Fairmount Bank or Fairmount Bancorp, Inc. would prevail in a judicial proceeding.

Fairmount Bank and Fairmount Bancorp, Inc. have received an opinion of counsel, Jones, Walker, Waechter, Poitevent, Carrère & Denègre, L.L.P., regarding all of the material federal income tax consequences of the conversion, which includes the following:

1. The conversion of Fairmount Bank to a federally chartered stock savings association will qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code.

2. Neither Fairmount Bancorp, Inc., nor Fairmount Bank will recognize any gain or loss upon the transfer of a portion of the offering proceeds from Fairmount Bancorp, Inc. to Fairmount Bank in exchange for shares of common stock of Fairmount Bank. (Sections 361 and 1032(a) of the Internal Revenue Code).

3. No gain or loss will be recognized by the account holders of the Fairmount Bank upon the issuance to them of withdrawable deposit accounts in Fairmount Bank, in its stock form, in the same dollar amount and under the same terms as their deposit accounts in Fairmount Bank, in its mutual form, and no gain or loss will be recognized by Eligible Account Holders or Supplemental Eligible Account Holders upon receipt by them of an interest in the Liquidation Account of Fairmount Bank, in its stock form, in exchange for their deemed ownership interests in Fairmount Bank, in its mutual form. (Section 354(a) of the Internal Revenue Code).

4. The basis of the account holders’ deposit accounts in Fairmount Bank, in its stock form, will be the same as the basis of their deposit accounts in Fairmount Bank, in its mutual form, surrendered in exchange therefore. The basis of each Eligible Account Holder’s and Supplemental Eligible Account Holder’s interests in the Liquidation Account of Fairmount Bank, in its stock form, will be zero, that being the cost of such property.

5. It is more likely than not that the nontransferable subscription rights have no value, based on the fact that these rights are acquired by the recipients without cost, are nontransferable and of short duration, and afford the recipients the right only to purchase the common stock at a price equal to its estimated fair market value, which will be the same price as the subscription price for the shares of common stock in the offering. Accordingly, no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders or Other Members upon distribution to them of nontransferable subscription rights to purchase shares of Fairmount Bancorp, Inc. common stock, provided that the amount to be paid for Fairmount Bancorp, Inc. common stock is equal to the fair market value of Fairmount Bancorp, Inc. common stock.

6. It is more likely than not that the basis of the shares of Fairmount Bancorp, Inc. common stock purchased in the offering will be the purchase price. The holding period of the Fairmount Bancorp, Inc. common stock purchased pursuant to the exercise of nontransferable subscription rights will commence on the date on which the right to acquire such stock was exercised.

7. No gain or loss will be recognized by Fairmount Bancorp, Inc. on the receipt of money in exchange for shares of Fairmount Bancorp, Inc. common stock sold in the offering.

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In the view of Feldman Financial Advisors, Inc. (which is acting as independent appraiser of the value of the shares of Fairmount Bancorp, Inc. common stock in connection with the conversion), which view is not binding on the Internal Revenue Service, the subscription rights do not have any value for the reasons set forth above. If the subscription rights granted to Eligible Account Holders and Supplemental Eligible Account Holders are deemed to have an ascertainable value, receipt of these rights could result in taxable gain to those Eligible Account Holders and Supplemental Eligible Account Holders who exercise the subscription rights in an amount equal to their value, and Fairmount Bancorp, Inc. could recognize gain on a distribution. Eligible Account Holders and Supplemental Eligible Account Holders are encouraged to consult with their own tax advisors as to the tax consequences in the event that subscription rights are deemed to have an ascertainable value.

The Internal Revenue Service has announced that it will not issue private letter rulings with respect to the issue of whether nontransferable rights have value. Unlike private letter rulings, an opinion of counsel or the view of an independent appraiser is not binding on the Internal Revenue Service and the Internal Revenue Service could disagree with the conclusions reached therein. Depending on the conclusion or conclusions with which the Internal Revenue Service disagrees, the Internal Revenue Service may take the position that the transaction is taxable to any one or more of Fairmount Bank, the members of Fairmount Bank, Fairmount Bancorp, Inc. or the Eligible Account Holders and Supplemental Eligible Account Holders who exercise their subscription rights. In the event of a disagreement, there can be no assurance that Fairmount Bancorp, Inc. or Fairmount Bank would prevail in a judicial or administrative proceeding.

The federal tax opinion has been filed with the Securities and Exchange Commission as an exhibit to the registration statement of Fairmount Bancorp, Inc. Advice regarding the Maryland state income tax consequences consistent with the federal tax opinion has been issued by                 , tax advisors to Fairmount Bank and Fairmount Bancorp, Inc.

Certain Restrictions on Purchase or Transfer of Our Shares after Conversion

The shares being acquired by the directors, executive officers are being acquired for investment purposes, and not with a view towards resale. All shares of common stock purchased in the offering by a director or an executive officer of Fairmount Bank generally may not be sold for a period of one year following the closing of the conversion, except in the event of the death of the director or executive officer. Each certificate for restricted shares will bear a legend giving notice of this restriction on transfer, and instructions will be issued to the effect that any transfer within this time period of any certificate or record ownership of the shares other than as provided above is a violation of the restriction. Any shares of common stock issued at a later date as a stock dividend, stock split or otherwise with respect to the restricted stock will be similarly restricted. The directors and executive officers of Fairmount Bancorp, Inc. also will be restricted by the insider trading rules promulgated pursuant to the Securities Exchange Act of 1934.

Purchases of shares of our common stock by any of our directors, executive officers and their associates, during the three-year period following the closing of the conversion may be made only through a broker or dealer registered with the Securities and Exchange Commission, except with the prior written approval of the Office of Thrift Supervision. This restriction does not apply, however, to negotiated transactions involving more than 1% of our outstanding common stock or to purchases of our common stock by our stock option plan or any of our tax-qualified employee stock benefit plans or nontax-qualified employee stock benefit plans, including any recognition and retention plans.

Office of Thrift Supervision regulations prohibit Fairmount Bancorp, Inc. from repurchasing its shares of common stock during the first year following conversion unless compelling business reasons exist for such repurchases. After one year, the Office of Thrift Supervision does not impose any repurchase restrictions.

RESTRICTIONS ON ACQUISITION OF FAIRMOUNT BANCORP, INC.

Although the board of directors of Fairmount Bancorp, Inc. is not aware of any effort that might be made to obtain control of Fairmount Bancorp, Inc. after the conversion, the board of directors believes that it is appropriate to include certain provisions as part of the articles of incorporation of Fairmount Bancorp, Inc. to protect the interests of Fairmount Bancorp, Inc. and its stockholders from takeovers which our board of directors might conclude are not in the best interests of Fairmount Bank, Fairmount Bancorp, Inc. or the stockholders of Fairmount Bancorp, Inc.

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The following discussion is a general summary of the material provisions of Fairmount Bancorp’s articles of incorporation and bylaws, Fairmount Bank’s charter and bylaws and certain other regulatory provisions that may be deemed to have an “anti-takeover” effect. The following description of certain of these provisions is general and, with respect to provisions contained in the articles of incorporation and bylaws of Fairmount Bancorp, Inc. and Fairmount Bank’s stock charter and bylaws, reference should be made in each case to the document in question, each of which is part of Fairmount Bank’s application for conversion with the Office of Thrift Supervision and the registration statement of Fairmount Bancorp, Inc. filed with the Securities and Exchange Commission. See “Where You Can Find Additional Information.”

Articles of Incorporation and Bylaws

The articles of incorporation and bylaws of Fairmount Bancorp, Inc. contain a number of provisions relating to corporate governance and rights of stockholders that might discourage future takeover attempts. As a result, stockholders who might desire to participate in such transactions may not have an opportunity to do so. In addition, these provisions will also render the removal of the board of directors or management of Fairmount Bancorp, Inc. more difficult.

Directors. The board of directors will be divided into three classes. The members of each class will be elected for a term of three years and only one class of directors will be elected annually. Thus, it would take at least two annual elections to replace a majority of our board of directors. Further, the articles of incorporation and bylaws authorize the board of directors to fill any vacancies so created, including any vacancy created by an increase in the number of directors, by a two-thirds vote of directors then in office. The bylaws impose notice and information requirements in connection with the nomination by stockholders of candidates for election to the board of directors or the proposal by stockholders of business to be acted upon at an annual meeting of stockholders.

Restrictions on Call of Special Meetings. The bylaws provide that special meetings of stockholders can be called by the President, or the board of directors pursuant to a resolution adopted by a majority of the total number of directors. Special meetings of stockholders shall also be called upon the upon the written request of stockholders entitled to cast at least a majority of all votes entitled to vote at the meeting.

Prohibition of Cumulative Voting. The articles of incorporation prohibit cumulative voting for the election of directors.

Limitation of Voting Rights. The articles of incorporation provide that in no event will any person who beneficially owns more than 10% of the then-outstanding shares of common stock, be entitled or permitted to vote any of the shares of common stock held in excess of the 10% limit.

Restrictions on Removing Directors from Office. The articles of incorporation provide that directors may be removed from office only for cause, and only by the affirmative vote of the holders of at least 80% of the voting power of all of our then-outstanding common stock entitled to vote (after giving effect to the limitation on voting rights discussed above in “—Limitation of Voting Rights.”)

Authorized but Unissued Shares. After the conversion, Fairmount Bancorp, Inc. will have authorized but unissued shares of common and preferred stock. See “Description of Capital Stock.” The articles of incorporation authorize 4,000,000 shares of common stock and 1,000,000 shares of serial preferred stock. The board of directors of Fairmount Bancorp, Inc. may amend the articles of incorporation, without action by the stockholders, to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that Fairmount Bancorp, Inc. has authority to issue. In addition, the board of directors of Fairmount Bancorp, Inc. is authorized, without further approval of the stockholders, to issue shares of preferred stock from time to time in series, and the board of directors is authorized to fix the designations, and relative preferences, limitations, voting rights, if any, including, without limitation, offering rights of such shares (which could be multiple or as a separate class). In the event of a proposed merger, tender offer or other attempt to gain control of Fairmount Bancorp, Inc. that the board of directors does not approve, it might be possible for the board of directors to authorize the issuance of a series of preferred stock with rights and preferences that would impede the completion of the transaction. An effect of the possible issuance of preferred stock therefore may be to deter a future attempt to gain control of Fairmount Bancorp, Inc. The board of directors has no present plan or understanding to issue any preferred stock.

Amendments to Articles of Incorporation and Bylaws. Maryland law provides that, subject to limited exceptions, the amendment or repeal of any provision of our articles of incorporation requires the approval of at least two-thirds shares of common stock entitled to vote on the matter (after giving effect to the limitation on voting rights discussed above in

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“—Limitation of Voting Rights”). Our articles of incorporation, however, provide that if a proposed amendment or repeal is approved by at least two-thirds of the total number of authorized directors, assuming no vacancies, of Fairmount Bancorp, Inc., the proposed amendment or repeal need only be approved by a majority of the shares entitled to vote on the matter (after giving effect to the limitation on voting rights discussed above in “—Limitation of Voting Rights”). Maryland law and our articles of incorporation also provide that, in any event, the proposed amendment or repeal of any provision of our articles of incorporation must be approved and deemed advisable by our board of directors before it can be submitted for consideration at an annual or special meeting. Notwithstanding the foregoing, our articles of incorporation provide that approval by at least 80% of the outstanding voting stock is generally required to amend the following provisions:

• The limitation on voting rights of persons who directly or indirectly beneficially own more than 10% of the outstanding shares of common stock;

• The inability of stockholders to act by written consent;

• The division of the board of directors into three staggered classes;

• The ability of the board of directors to issue shares of preferred stock;

• The ability of the board of directors to fill vacancies on the board;

• The inability to deviate from the manner prescribed in the bylaws by which stockholders nominate directors and bring other business before meetings of stockholders;

• The requirement that at least 80% of stockholders must vote to remove directors, and can only remove directors for cause;

• The rights of our directors and officers to indemnification;

• The ability of the board of directors to amend and repeal the bylaws; and

• The ability of the board of directors to evaluate a variety of factors in evaluating offers to purchase or otherwise acquire Fairmount Bancorp, Inc.

The bylaws may be amended by the affirmative vote of a majority of our directors or the affirmative vote of at least 80% of the total votes eligible to be voted at a duly constituted meeting of stockholders.

Conversion Regulations

Office of Thrift Supervision regulations prohibit any person from making an offer, announcing an intent to make an offer or participating in any other arrangement to purchase stock or acquiring stock or subscription rights in a converting institution or its holding company from another person prior to completion of its conversion. Further, without the prior written approval of the Office of Thrift Supervision, no person may make an offer or announcement of an offer to purchase shares or actually acquire shares of a converted institution or its holding company for a period of three years from the date of the completion of the conversion if, upon the completion of such offer, announcement or acquisition, the person would become the beneficial owner of more than 10% of the outstanding stock of the institution or its holding company. The Office of Thrift Supervision has defined “person” to include any individual, group acting in concert, corporation, partnership, association, joint stock company, trust, unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities of an insured institution. However, offers made exclusively to a bank or its holding company, or an underwriter or member of a selling group acting on the converting institution’s or its holding company’s behalf for resale to the general public are excepted. The regulation also provides civil penalties for willful violation or assistance in any such violation of the regulation by any person connected with the management of the converting institution or its holding company or who controls more than 10% of the outstanding shares or voting rights of a converted institution or its holding company.

Change in Control Regulations

Under the Change in Bank Control Act, no person may acquire control of an insured federal savings association or its parent holding company unless the Office of Thrift Supervision has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition. In addition, Office of Thrift Supervision regulations provide that no company may acquire control of a savings association without the prior approval of the Office of Thrift Supervision. Any company that acquires such control becomes a “savings and loan holding company” subject to registration, examination and regulation by the Office of Thrift Supervision.

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Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the Office of Thrift Supervision that the acquiror has the power to direct, or directly or indirectly to exercise a controlling influence over, the management or policies of the institution. Acquisition of more than 10% of any class of a savings association’s voting stock, if the acquiror is also subject to any one of eight “control factors,” constitutes a rebuttable determination of control under the regulations. Such control factors include the acquiror being one of the two largest stockholders. The determination of control may be rebutted by submission to the Office of Thrift Supervision, prior to the acquisition of stock or the occurrence of any other circumstances giving rise to such determination, of a statement setting forth facts and circumstances which would support a finding that no control relationship will exist and containing certain undertakings. The regulations provide that persons or companies that acquire beneficial ownership exceeding 10% or more of any class of a savings association’s stock who do not intend to participate in or seek to exercise control over a savings association’s management or policies may qualify for a safe harbor by filing with the Office of Thrift Supervision a certification form that states, among other things, that the holder is not in control of such institution, is not subject to a rebuttable determination of control and will take no action which would result in a determination or rebuttable determination of control without prior notice to or approval of the Office of Thrift Supervision, as applicable. There are also rebuttable presumptions in the regulations concerning whether a group “acting in concert” exists, including presumed action in concert among members of an “immediate family.”

The Office of Thrift Supervision may prohibit an acquisition of control if it finds, among other things, that:

• the acquisition would result in a monopoly or substantially lessen competition;

• the financial condition of the acquiring person might jeopardize the financial stability of the institution; or

• the competence, experience or integrity of the acquiring person indicates that it would not be in the interest of the depositors or the public to permit the acquisition of control by such person.

DESCRIPTION OF CAPITAL STOCK

General

At the effective date, Fairmount Bancorp, Inc. will be authorized to issue 4,000,000 shares of common stock, par value of $0.01 per share, and 1,000,000 shares of preferred stock, par value $0.01 per share. Fairmount Bancorp, Inc. currently expects to issue in the offering up to 575,000 shares of common stock, subject to adjustment. Fairmount Bancorp, Inc. will not issue shares of preferred stock in the conversion. Each share of Fairmount Bancorp, Inc. common stock will have the same relative rights as, and will be identical in all respects to, each other share of common stock. Upon payment of the subscription price for the common stock, in accordance with the plan of conversion, all of the shares of common stock will be duly authorized, fully paid and nonassessable.

The shares of common stock of Fairmount Bancorp, Inc. will represent nonwithdrawable capital, will not be an account of an insurable type, and will not be insured by the Federal Deposit Insurance Corporation or any other government agency.

Common Stock

Dividends. Fairmount Bancorp, Inc. may pay dividends out of statutory surplus or from net earnings if, as and when declared by our board of directors. The payment of dividends by Fairmount Bancorp, Inc. is subject to limitations that are imposed by law and applicable regulation. The holders of common stock of Fairmount Bancorp, Inc. will be entitled to receive and share equally in dividends as may be declared by our board of directors out of funds legally available therefore. If Fairmount Bancorp, Inc. issues shares of preferred stock, the holders thereof may have a priority over the holders of the common stock with respect to dividends.

Voting Rights. Upon consummation of the conversion, the holders of common stock of Fairmount Bancorp, Inc. will have exclusive voting rights in Fairmount Bancorp, Inc. They will elect the board of directors and act on other matters as are required to be presented to them under Maryland law or as are otherwise presented to them by the board of directors. Generally, each holder of common stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors. Any person who beneficially owns more than 10% of the then-outstanding shares of common stock, however, will not be entitled or permitted to vote any shares of common stock held in excess of the 10% limit. If Fairmount Bancorp, Inc. issues shares of preferred stock, holders of the preferred stock may also possess voting rights. Certain matters require an 80% stockholder vote.

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As a federal stock savings association, corporate powers and control of Fairmount Bank are vested in its board of directors, who elect the officers of Fairmount Bank and who fill any vacancies on the board of directors. Voting rights of Fairmount Bank are vested exclusively in the owners of the shares of capital stock of Fairmount Bank, which will be Fairmount Bancorp, Inc., and voted at the direction of Fairmount Bancorp, Inc.’s board of directors. Consequently, the holders of the common stock of Fairmount Bancorp, Inc. will not have direct control of Fairmount Bank.

Liquidation. In the event of any liquidation, dissolution or winding up of Fairmount Bank, Fairmount Bancorp, Inc., as the holder of 100% of Fairmount Bank’s capital stock, would be entitled to receive all assets of Fairmount Bank available for distribution, after payment or provision for payment of all debts and liabilities of Fairmount Bank, including all deposit accounts and accrued interest thereon, and after distribution of the balance in the liquidation account to Eligible Account Holders and Supplemental Eligible Account Holders. In the event of liquidation, dissolution or winding up of Fairmount Bancorp, Inc., the holders of its common stock would be entitled to receive, after payment or provision for payment of all its debts and liabilities, all of the assets of Fairmount Bancorp, Inc. available for distribution. If preferred stock is issued, the holders thereof may have a priority over the holders of the common stock in the event of liquidation or dissolution.

Preemptive Rights. Holders of the common stock of Fairmount Bancorp, Inc. will not be entitled to preemptive rights with respect to any shares that may be issued, unless such preemptive rights are approved by the board of directors. The common stock is not subject to redemption.

Preferred Stock

None of the shares of authorized preferred stock will be issued as part of the offering or the conversion. Preferred stock may be issued with preferences and designations as our board of directors may from time to time determine. Our board of directors may, without stockholder approval, issue shares of preferred stock with voting, dividend, liquidation and conversion rights that could dilute the voting strength of the holders of the common stock and may assist management in impeding an unfriendly takeover or attempted change in control.

TRANSFER AGENT

The transfer agent and registrar for the common stock of Fairmount Bancorp, Inc. is Registrar and Transfer Company, Cranford, New Jersey.

EXPERTS

The Financial Statements of Fairmount Bank as of September 30, 2009 and 2008, and for each of the years in the two-year period ended September 30, 2009, appearing elsewhere in this prospectus have been included herein and in the registration statement in reliance upon the report of Smith Elliott Kearns & Company, LLC, independent registered public accounting firm, which is included herein and upon the authority of that firm as experts in accounting and auditing.

Feldman Financial Advisors, Inc. has consented to the publication herein of the summary of its report to Fairmount Bancorp, Inc. setting forth its opinion as to the estimated pro forma market value of the shares of common stock upon completion of the conversion and offering and its letter with respect to subscription rights.

LEGAL MATTERS

Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., Washington, D.C., counsel to Fairmount Bancorp, Inc. and Fairmount Bank, will issue to Fairmount Bancorp, Inc. its opinion regarding the legality of the common stock and the federal income tax consequences of the conversion. Certain legal matters will be passed upon for Stifel, Nicolaus & Company, Incorporated by Kilpatrick Stockton LLP, Washington, D.C.

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WHERE YOU CAN FIND ADDITIONAL INFORMATION

Fairmount Bancorp, Inc. has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 with respect to the shares of common stock offered hereby. As permitted by the rules and regulations of the Securities and Exchange Commission, this prospectus does not contain all the information set forth in the registration statement. Such information, including the appraisal report which is an exhibit to the registration statement, can be examined without charge at the public reference facilities of the Securities and Exchange Commission located at 100 F Street, N.E., Washington, D.C. 20549, and copies of such material can be obtained from the Securities and Exchange Commission at prescribed rates. The Securities and Exchange Commission telephone number is 1-800-SEC-0330. In addition, the Securities and Exchange Commission maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission, including Fairmount Bancorp, Inc. The statements contained in this prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement are, of necessity, brief descriptions of the material terms of, and should be read in conjunction with, such contract or document.

Fairmount Bank has filed with the Office of Thrift Supervision an Application on Form AC with respect to the conversion. This prospectus omits certain information contained in the application. The application may be examined at the principal office of the Office of Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552, and at the Southeast Regional Office of the Office of Thrift Supervision, located at 1475 Peachtree Street, N.E., Atlanta, Georgia 30309. Our plan of conversion is available, upon request, at our home office.

In connection with the offering, Fairmount Bancorp, Inc. will register its common stock under Section 12(g) of the Securities Exchange Act of 1934 and, upon such registration, Fairmount Bancorp, Inc. and the holders of its common stock will become subject to the proxy solicitation rules, reporting requirements and restrictions on common stock purchases and sales by directors, officers and greater than 10% stockholders, the annual and periodic reporting and certain other requirements of the Securities Exchange Act of 1934. Under the plan of conversion, Fairmount Bancorp, Inc. has undertaken that it will not terminate such registration for a period of at least three years following the offering.

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TABLE OF CONTENTS

	Page
Report of Independent Registered Public Accounting Firm	F-1
Financial Statements
Balance Sheets	F-2
Statements of Income	F-3
Statements of Changes in Equity	F-4
Statements of Cash Flows	F-5
Notes to Financial Statements	F-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Fairmount Bank

Baltimore, Maryland

We have audited the accompanying balance sheets of Fairmount Bank (the Bank) as of September 30, 2009 and 2008, and the related statements of income, changes in equity and cash flows for the years then ended. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Bank is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fairmount Bank as of September 30, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Smith Elliott Kearns & Company, LLC

Chambersburg, Pennsylvania

December 2, 2009

F-1

FAIRMOUNT BANK

BALANCE SHEETS

September 30, 2009 and 2008

	2009		2008
ASSETS
Cash and due from banks	$	327,769	$	366,867
Interest bearing deposits in other banks		92,562		154,160
Federal funds sold		4,212,574		890,654
Cash and cash equivalents		4,632,905		1,411,681
Securities available for sale		3,327,518		7,018,727
Securities held to maturity		1,766,370		—
Federal Home Loan Bank stock, at cost		600,900		539,200
Loans, net of allowance for loan and lease losses of $219,717 in 2009 and $102,838 in 2008		50,333,670		45,154,888
Accrued interest receivable		234,184		230,365
Bank buildings, equipment, furniture and fixtures, net		2,889,105		1,047,752
Foreclosed real estate, net		95,000		—
Cash surrender value of life insurance		64,929		62,935
Other assets		96,335		45,987
Total assets	$	64,040,916	$	55,511,535
LIABILITIES
Deposits
Noninterest bearing deposits	$	447,413	$	489,925
Interest bearing demand deposits		3,375,914		2,625,600
Savings deposits		9,164,916		9,189,354
Certificates of deposit		32,850,201		26,585,627
Total deposits		45,838,444		38,890,506
Liability for borrowed funds		11,000,000		10,000,000
Accounts payable		194,666		—
Income taxes payable		51,635		290,360
Accrued interest payable		43,255		43,594
Deferred compensation liability		30,417		35,170
Deferred income tax liabilities		50,542		41,936
Other liabilities		42,117		17,608
Total liabilities		57,251,076		49,319,174
EQUITY
Retained earnings		6,727,340		6,282,080
Accumulated other comprehensive income (loss)		62,500		(89,719	)
Total equity		6,789,840		6,192,361
Total liabilities and equity	$	64,040,916	$	55,511,535

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

F-2

FAIRMOUNT BANK

STATEMENTS OF INCOME

Years Ended September 30, 2009 and 2008

	2009			2008
Interest and Dividend Income
Interest on loans	$	3,133,354		$	2,422,268
Interest and dividends on investments		303,911			527,200
		3,437,265			2,949,468
Interest Expense
Interest on deposits		1,217,027			1,394,271
Interest on borrowings		285,569			224,399
Capitalized interest		(44,651	)		—
		1,457,945			1,618,670
Net interest income		1,979,320			1,330,798
Provision for Loan and Lease Losses		182,000			50,000
Net interest income after provision for loan and lease losses		1,797,320			1,280,798
Other Income
Service charges on deposit accounts		2,366			3,068
Other service charges, collection and exchange charges, commissions and fees		144,247			118,996
Gain on the sale of securities available for sale		592			22,320
Other income		10,261			6,757
		157,466			151,141
Other Expenses
Salaries, fees and employment expenses		738,527			650,159
Building and occupancy expense		47,723			37,714
Furniture and equipment expenses		24,028			31,988
Professional fees		105,144			89,838
Data processing expenses		66,618			64,389
FDIC insurance premium		46,340			4,456
Insurance and bond premiums		8,292			12,705
Stationery, printing and supplies		37,464			17,313
Other operating expenses		166,427			128,778
		1,240,563			1,037,340
Income before income taxes		714,223			394,599
Applicable Income Taxes		268,963			148,237
Net income	$	445,260		$	246,362

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

F-3

FAIRMOUNT BANK

STATEMENTS OF CHANGES IN EQUITY

Years Ended September 30, 2009 and 2008

	Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Equity
Balance September 30, 2007	$	6,035,718	$	(81,369	)	$	5,954,349
Comprehensive income:
Net income		246,362					246,362
Unrealized gain (loss) on investment securities available for sale (net of tax effect of $5,254 )				(8,350	)		(8,350	)
Total comprehensive income							238,012
Balance September 30, 2008		6,282,080		(89,719	)		6,192,361
Comprehensive income:
Net income		445,260					445,260
Unrealized gain (loss) on investment securities available for sale (net of tax effect of $95,775)				152,219			152,219
Total comprehensive income							597,479
Balance September 30, 2009	$	6,727,340	$	62,500		$	6,789,840

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

F-4

FAIRMOUNT BANK

STATEMENTS OF CASH FLOWS

Years Ended September 30, 2009 and 2008

	2009			2008
Cash flows from operating activities:
Net income	$	445,260		$	246,362
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		31,351			35,762
Provision for loan and lease losses		182,000			50,000
Deferred income taxes		(87,169	)		(142,123	)
(Increase) in cash surrender value of life insurance		(1,994	)		(2,048	)
(Gain) on the sale of securities available for sale		(592	)		(22,320	)
(Increase) decrease in accrued interest receivable		(3,820	)		14,553
(Increase) decrease in income tax refund claims		—			76,200
(Increase) decrease in other assets		(50,348	)		144,522
Increase (decrease) in accounts payable		11,649			8,890
Increase (decrease) in accrued interest payable		(338	)		30,494
Increase (decrease) in income taxes payable		(238,725	)		290,360
Increase (decrease) in other liabilities		24,577			(14,198	)
Net cash provided by operating activities		311,851			716,454
Cash flows from investing activities:
Maturities of available for sale securities		2,813,441			5,795,000
Proceeds from the sale of available for sale securities		500,717			1,500,000
Purchases of available for sale securities		(837,512	)		(3,300,434	)
Purchases of held to maturity securities		(305,469	)		—
Purchases of Federal Home Loan Bank stock		(61,700	)		(340,600	)
Net (increase) in loans		(5,360,779	)		(12,965,094	)
Purchases of bank premises and equipment		(1,778,124	)		(195,204	)
Loss on disposal of equipment		(4,317	)		—
Net cash provided (used) by investing activities		(5,033,743	)		(9,506,332	)
Cash flows from financing activities:
Net increase in deposits		6,931,594			1,026,972
Increase (decrease) in advances by borrowers, net		16,275			(35,425	)
Proceeds from borrowings		1,000,000			7,250,000
Payments on accrued deferred compensation obligation		(4,753	)		(6,178	)
Net cash provided by financing activities		7,943,116			8,235,369
Net increase (decrease) in cash and cash equivalents		3,221,224			(554,509	)
Cash and cash equivalents, beginning balance		1,411,681			1,966,190
Cash and cash equivalents, ending balance	$	4,632,905		$	1,411,681
Supplemental disclosure of cash flows information:
Cash paid during the year for:
Interest (net of capitalized interest of $44,651—2009 and $0—2008)	$	1,458,284		$	1,588,176
Income taxes		603,311			—
Supplemental schedule of noncash investing and financing activities:
Change in unrealized gain (loss) on securities available for sale—net of tax effect of $95,775 and $5,254, respectively	$	152,219		$	(8,350	)
Foreclosed assets acquired in settlement of loans	$	95,000			—

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

F-5

NOTES TO FINANCIAL STATEMENTS

Note 1.    Significant Accounting Policies

Nature of Operations

Fairmount Bank (the “Bank”) is a community-oriented federal savings bank, which provides a variety of financial services to individuals and corporate customers through its home office in the Rosedale area of Baltimore County, Maryland, and is subject to competition from other financial institutions. The Bank’s primary deposit products are interest-bearing savings, certificates of deposit, and individual retirement accounts. The Bank’s primary lending products are single-family residential mortgage loans. The Bank is subject to the regulations of certain Federal agencies and undergoes periodic examinations by those regulatory authorities. The accounting policies of the Bank conform to accounting principles generally accepted in the United States of America and general practices within the banking industry.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans and leases and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for losses on loans and leases and foreclosed real estate, management obtains independent appraisals for significant properties.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and interest-bearing deposits in other financial institutions and Federal funds sold as stated on the balance sheet.

Securities

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date.

Securities that the Bank has the positive intent and ability to hold to maturity are classified as held to maturity and are reported at amortized cost (including amortization of premium or accretion of discount).

Securities classified as available for sale are those securities that the Bank intends to hold for an indefinite period of time but not necessarily to maturity. Securities available for sale are carried at fair value. Unrealized gains and losses are reported as increases or decreases in other comprehensive income. Realized gains or losses, determined on the basis of the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in interest income using a method which approximates the interest method over the terms of the securities. Declines in the fair value of available for sale securities below their cost that are deemed to be other than temporary, if any, are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

FHLB Stock

Federal Home Loan Bank of Atlanta (“FHLB”) stock is an equity interest in the FHLB, which does not have a readily determinable fair value for purposes of Generally Accepted Accounting Standards related to Accounting for Certain Investments in Debt and Equity Securities, because its ownership is restricted and it lacks a market. FHLB stock can be sold back only at par value of $ 100 per share and only to the FHLB or another member institution. As of September 30, 2009, the Bank owned shares totaling $ 600,900.

F-6

The Bank evaluates the FHLB stock for impairment in accordance with generally accepted accounting principles. The Bank’s determination of whether this investment is impaired is based on an assessment of the ultimate recoverability of its cost rather than by recognizing temporary declines in value. The determination of whether a decline in value affects the ultimate recoverability of its cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly on the customer base of the FHLB.

Loans

Loans are generally carried at the amount of unpaid principal, less the allowance for loan losses and adjusted for deferred loan fees, which are amortized over the term of the loan using the interest method. Interest on loans is accrued based on the principal amounts outstanding. It is the bank’s policy to discontinue the accrual of interest when a loan is specifically determined to be impaired or when the principal or interest is delinquent for 90 days or more. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Cash collections on such loans are applied as reductions of the loan principal and no interest income is recognized on those loans until the principal balance has been collected. The carrying value of impaired loans is based on the present value of the loan’s expected future cash flows or, alternatively, the observable market price of the loan or the fair value of the collateral.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan and lease losses are charged against the allowance when management believes the collectability of a principal balance is unlikely. Subsequent recoveries, if any, are credited to the allowance.

The allowance is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of the loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

The Bank maintains the allowance for loan and lease losses at a level considered adequate to provide for losses inherent in the loan portfolio. While the Bank utilizes available information to recognize losses on loans, future additions to the allowance for loan and lease losses may be necessary based on changes in economic conditions, particularly in its’ market area in the state of Maryland. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan and lease losses. Such agencies may require the Bank to recognize additions to the allowance for loan and lease losses based on their judgments about information available to them at the time of their examination.

F-7

Actual loan losses may be significantly more than the allowance for loan and lease losses the Bank has established, which could have a material negative effect on its financial statements.

Premises and Equipment

Land is carried at cost. Property and equipment is carried at cost less accumulated depreciation. Depreciation is computed on the straight-line method over estimated useful lives of assets. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are provided for the temporary differences between the tax basis and the financial basis of the Bank’s assets and liabilities. Deferred tax assets and liabilities are determined based on the enacted rates that are expected to be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax expense or benefit is the result of the changes in the deferred tax assets and liabilities.

Comprehensive Income (Loss)

Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of equity, such items, along with net income, are components of comprehensive income.

The Bank has elected to report its comprehensive income (loss) in the statement of changes in equity. The only element of “other comprehensive income” that the Bank has is the unrealized gains or losses on available for sale securities.

The components of other comprehensive income (loss) and related tax effects at September 30, 2009 and 2008 were as follows:

	2009			2008
Unrealized holding gains (losses) on available-for-sale securities	$	248,278		$	8,716
Amortization of unrealized loss on securities transferred to held-to-maturity		308			—
Reclassification adjustment for losses (gains) realized in income		(592	)		(22,320	)
Net unrealized gains (losses)		247,994			(13,604	)
Tax effect		(95,775	)		5,254
Net-of-tax amount	$	152,219		$	(8,350	)

Effective June 1, 2009, the Bank transferred three securities from available-for-sale to held-to-maturity as the Bank intends to hold those securities until they mature. The unrealized loss on the date of transfer was ($11,172), which will be amortized over the remaining life of the securities.

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit. These loans involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized on the balance sheet. Such financial instruments are recorded in the statement of income when they are funded.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments is represented by the contractual amount of these instruments. The Bank uses the same credit policies for these instruments as it does for the on-balance sheet instruments.

F-8

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs totaled $22,986 and $10,416 for the years ending September 30, 2009 and 2008, respectively.

Concentrations of Credit Risk

The Bank has deposits in other financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank’s management considers this a normal business risk. The Bank also maintains accounts with stock brokerage firms containing securities. These balances are insured up to $500,000 by the Securities Investor Protection Corporation. The Bank was required to maintain a $100,000 minimum balance in a deposit account with Maryland Financial as of September 30, 2009 and 2008 in relation to a sweep account.

Most of the Bank’s activities are with customers in the Maryland counties of Baltimore and Harford and portions of the City of Baltimore. Note 1 discusses the type of activities that the Bank engages in. Note 3 discusses the types of lending that the Bank engages in. The Bank does not have any significant concentrations in any one industry or customer.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year’s method of presentation. Such reclassifications had no effect on net income.

Note 2.    Securities

Securities Available For Sale

Securities available for sale at September 30, 2009 and 2008 consisted of the following:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2009
U.S. Government and Federal Agency Obligations		—		—		—			—
Mortgage -Backed Securities	$	3,214,830	$	117,065	$	(4,377	)	$	3,327,518
State and Municipal Securities		—		—		—			—
	$	3,214,830	$	117,065	$	(4,377	)	$	3,327,518
September 30, 2008
U. S. Government and Federal Agency Obligations	$	2,998,083	$	1,518	$	(139,756	)	$	2,859,845
Mortgage -Backed Securities		3,693,115		28,805		(21,108	)		3,700,812
State and Municipal Securities		473,699		—		(15,629	)		458,070
	$	7,164,897	$	30,323	$	(176,493	)	$	7,018,727

The fair value and gross unrealized losses for securities available for sale, totaled by the length of time that individual securities have been in a continuous gross unrealized loss position, at September 30, 2009 and September 30, 2008 were as follows:

	Less than 12 months		12 months or more		Total
	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses
September 30, 2009
U. S. Government and Federal Agency Obligations	—	—	—	—	—	—
Mortgage -Backed Securities	$317,090	$4,377	—	—	$317,090	$4,377
State and Municipal Securities	—	—	—	—	—	—
	$317,090	$4,377	$—	$—	$317,090	$4,377

F-9

	Less than 12 months				12 months or more				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
September 30, 2008
U. S. Government and Federal Agency Obligations	$	964,797	$	48,516	$	1,430,840	$	91,240	$	2,395,637	$	139,756
Mortgage -Backed Securities		1,836,822		21,108		—		—		1,836,822		21,108
State and Municipal Securities		466,182		15,629		—		—		466,182		15,629
	$	3,267,801	$	85,253	$	1,430,840	$	91,240	$	4,698,641	$	176,493

At September 30, 2009, gross unrealized losses totaled ($4,377). At September 30, 2008, gross unrealized losses totaled ($176,493). At September 30, 2009, the Bank held one investment security having an unrealized loss position. Since the Bank has the ability to hold this security until maturity, no unrealized losses are deemed to be other than temporary.

The amortized cost and fair values of investment securities available for sale at September 30, 2009 by contractual maturity are shown below. Contractual maturities will differ from expected maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Maturities	Amortized Cost		Fair Value
One year or less	$	—	$	—
After one year to five years		—		—
After five years to ten years		328,730		341,869
After ten years		2,886,100		2,985,649
	$	3,214,830	$	3,327,518

Proceeds from sales of available for sale securities during 2009 totaled $500,125, realizing gross gains of $592 for the year. Proceeds from sales of available for sale securities during 2008 totaled $1,500,000, with gross gains of $22,320.

Securities Held to Maturity

Securities held to maturity at September 30, 2009 and 2008 consisted of the following:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2009
U. S. Government and Federal Agency Obligations	$	993,348	$	5,280	$	—	$	997,628
Mortgage -Backed Securities		—		—		—		—
State and Municipal Securities		773,022		25,547		—		798,569
	$	1,766,370	$	30,827	$	—	$	1,796,197
September 30, 2008
U. S. Government and Federal Agency Obligations	$	—	$	—	$	—	$	—
Mortgage -Backed Securities		—		—		—		—
State and Municipal Securities		—		—		—		—
	$	—	$	—	$	—	$	—

There were no securities held to maturity in a loss position at September 30, 2009 and 2008.

F-10

The amortized cost and fair values of investment securities held to maturity at September 30, 2009 by contractual maturity are shown below. Contractual maturities will differ from expected maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Maturities	Amortized Cost		Fair Value
One year or less	$	—	$	—
After one year to five years		—		—
After five years to ten years		305,367		312,928
After ten years		1,461,003		1,484,269
	$	1,766,370	$	1,797,197

Market Risks

Investments of the Bank are exposed to various risks, such as interest rate, market, currency and credit risks. Due to the level of risk associated with certain investments and the level of uncertainty related to changes in the value of investments, it is at least reasonably possible that changes in risks in the near term would materially affect investment assets reported in the financial statements.

In addition, recent economic uncertainty and market events have led to unprecedented volatility in currency, commodity, credit and equity markets, culminating in failures of some banking and financial service firms and government intervention to solidify others. These recent events underscore the level of investment risk associated with the current economic environment, and accordingly, the level of risk in the Bank’s investments.

Note 3.    Loans and Allowance for Loan and Lease Losses

The Bank makes loans to customers primarily in the counties of Baltimore and Harford and in the City of Baltimore Maryland. The principal categories of the loan portfolio at September 30, 2009 and 2008 were as follows:

	2009			2008
Real estate loans
One-to four-family owner occupied	$	22,161,602		$	21,921,670
One-to four-family non-owner occupied		17,483,806			11,963,023
Home equity		1,845,430			1,933,334
Mobile home		3,072,435			3,359,624
Secured by other properties		2,031,949			1,361,851
Construction and land development		2,747,384			3,264,901
Total real estate loans		49,342,606			43,804,403
Commercial and consumer loans
Secured commercial		847,612			667,282
Commercial leases		133,339			310,795
Savings		60,239			57,010
Total commercial and consumer loans		1,041,190			1,035,087
Total loans		50,383,796			44,839,490
Unamortized premiums and loan fees		548,461			643,027
Unearned income on loans		(378,871	)		(224,791	)
Allowance for loan and lease losses		(219,717	)		(102,838	)
Total loans, net	$	50,333,669		$	45,154,888

The Bank had a mobile home loan program that began in 2005 in which it is no longer participating. At September 30, 2009 and 2008, these loan balances totaled $3,072,435 and $3,359,624, respectively. Mobile home loans were purchased from by a third-party originator and funded by the Bank at settlement. The Bank paid a premium/loan origination fee to the third-party originator, of which one-half was wired upon settlement of the loan and the remainder was kept by the Bank in a

F-11

depository account in the name of the third-party. At September 30, 2009 and 2008, the balance in the account was $232,694 and $266,958, respectively, and can be accessed by the Bank in the event of prepayment, foreclosure or deterioration of the value of the mobile home. As of September 30, 2009 and 2008, the Bank had prepaid loan origination fees related to this program of $530,727 and $624,383, which are being amortized over the estimated lives of the loans.

In October 2004, the Bank purchased a block of mortgage loans from another financial institution for $2,126,620, with an average yield of 6%. At September 30, 2009 and 2008, the loan balances were $788,286 and $802,483, respectively, and included in mortgage loans secured by one-to-four family residences. In addition, the Bank has unamortized loan premiums of $17,735 and $18,643 as of September 30, 2009 and 2008, respectively, that are being amortized over the terms of the purchased loans.

In May 2009, the Bank purchased a block of one-to four-family mortgage loans totaling $1,109,768, with an average yield of 6.08%. There was no premium paid on the purchase. The balances of purchased loans at September 30, 2009 and 2008 are included in the breakdown of loans shown above.

Loans and their remaining contractual maturities at September 30, 2009 were as follows:

	Maturities
One year or less	$	2,496,198
After one year to five years		3,873,044
After five years to ten years		11,581,715
After ten years to fifteen years		13,856,840
After fifteen years		18,575,999
	$	50,383,796

In the normal course of banking business, loans are made to officers and directors and related affiliates. In the opinion of management, these loans are consistent with sound banking practices, are within regulatory limitations, and do not involve more than the normal risk of collectability.

Loans to officers, directors and related affiliates at September 30, 2009 and 2008 were as follows:

	2009			2008
Balance, beginning of year	$	300,836		$	164,385
Additions		423,000			150,000
Repayments		(30,144	)		(13,549	)
Balance, end of year	$	693,692		$	300,836

The allowance for loan and lease losses is summarized at September 30, 2009 and 2008 as follows:

	2009			2008
Balance, beginning of year	$	102,838		$	79,000
Provision		182,000			50,000
Net charge-offs		(65,121	)		(26,162	)
Balance, end of year	$	219,717		$	102,838

At September 30, 2009, there were no loans 90 days past due and still accruing interest. The Bank had five loans on non-accrual status at September 30, 2009 totaling $413,664 with forgone interest in the amount of $11,273. There were no loans on non-accrual status at September 30, 2008. Also, the recorded investment of impaired loans at September 30, 2009 was $116,219, with a related allowance for loan losses of $51,483. The interest recognized as of September 30, 2009 was $8,135. There were no loans considered impaired at September 30, 2008. There were no troubled debt restructurings in fiscal years 2009 or 2008.

F-12

Note 4.    Foreclosed Real Estate

At September 30, 2009 and 2008, the Bank had $ 95,000 and $0 in foreclosed real estate, respectively. A charge to the Allowance for Loan Losses of $39,763 was taken at the time the foreclosed property was placed in Other Real Estate.

Note 5.    Financial Instruments with Off-Balance Sheet Risk

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to originate loans. These loans involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized on the balance sheet.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments is represented by the contractual amount of these instruments. The Bank uses the same credit policies for these instruments as it does for on-balance sheet instruments.

The commitment to originate loans is an agreement to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates and may require the payment of a fee. The Bank expects that a large majority of its commitments will be fulfilled subsequent to the balance sheet date and therefore, represent future cash requirements.

The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the borrower.

Loan commitments representing off-balance sheet risk at September 30, 2009 and 2008 were as follows:

	Contract or Notional Amount
	2009		2008
Mortgage loan commitments	$	587,750	$	695,000
Unused lines of credit		2,359,774		1,510,093
Available home equity lines of credit		652,617		556,007
	$	3,600,141	$	2,761,100

Note 6.    Premises and Equipment

Premises and equipment at September 30, 2009 and 2008 were as follows:

	2009			2008
Cost
Land	$	772,751		$	756,403
Construction in progress		—			163,402
Buildings and land improvements		2,015,534			198,494
Furniture, fixtures, and equipment		315,854			156,922
Total		3,104,139			1,275,221
Less: accumulated depreciation		(215,034	)		(227,469	)
	$	2,889,105		$	1,047,752

Depreciation expense totaled $31,351 and $35,762 for the years ended September 30, 2009 and 2008, respectively.

The Bank had capitalized interest on the construction of the new headquarters building of $ 44,651 and $0 for the years ended September 30, 2009 and 2008, respectively.

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Note 7.    Income Taxes

The income tax provision reflected in the statements of income consisted of the following components for the years ended September 30, 2009 and 2008:

	2009			2008
Income tax expense
Current tax expense
Federal	$	286,942		$	242,260
State		69,333			48,100
Total current		356,275			290,360
Deferred tax expense (benefit)
Federal		(71,517	)		(116,370	)
State		(15,795	)		(25,753	)
Total deferred		(87,312	)		(142,123	)
Total income tax expense	$	268,963		$	148,237

A reconciliation of tax computed at the Federal statutory tax rate of 34% to the actual tax expense for the years ended September 30, 2009 and 2008 is as follows:

	2009			2008
Tax at Federal statutory rate	$	242,836		$	134,164
Tax effect of:
Tax exempt interest		(9,159	)		(6,486	)
Graduated rates		(20,899	)		(28,184	)
State income taxes, net of federal benefit		56,185			48,743
Income tax expense	$	268,963		$	148,237

The components of the net deferred tax liability at September 30, 2009 and 2008 were as follows:

	2009			2008
Deferred income tax assets:
Accrued interest	$	16,705		$	16,836
Deferred loan origination fees		146,320			86,814
Deferred compensation		11,747			13,583
Allowance for loan losses		84,855			39,716
Accrued expenses		20,765			6,731
Net unrealized loss on securities		0			56,451
		280,392			220,131
Deferred income tax liabilities:
Net unrealized again on securities		39,325			0
Accrued interest & fees on loans & investments		90,442			88,967
Accumulated depreciation		50,872			18,949
Prepaid expenses		35,197			16,113
Prepaid loan fees on manufactured housing loans		115,098			138,038
		330,934			262,067
Net deferred income tax (liability) asset	$	(50,542	)	$	(41,936	)

The Bank files cash basis Federal income tax returns on a fiscal year basis. Management has determined that no valuation allowance is required as it is more likely not that the net deferred tax benefits will be fully realizable in future years.

The Bank maintains $731,536 of its retained earnings as a reserve for loan losses for tax purposes. This amount has not been charged against earnings and is a restriction on retained earnings. If this balance in the reserve account is used for anything but losses on mortgage loans or payment of special assessment taxes, it will be subject to federal income taxes.

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Since the Bank has not implemented recently issued provisions for accounting for uncertain tax positions, the Bank continues to utilize its prior policy of accounting for these positions. A liability for taxes is recorded when it is probable that the liability has been incurred and the amount of the liability can be reasonably estimated. If a tax liability is probable, but cannot be reasonably estimated, or it is reasonably possible that a tax liability has been incurred, disclosure is required. Using that guidance, as of September 30, 2009, the Bank has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Bank is no longer subject to federal, state, or local income tax examinations for years prior to 2005.

Note 8.    Deposits

The aggregate amount of deposits with a balance of $100,000 or more totaled $15,180,475 and $12,007,695 at September 30, 2009 and 2008, respectively.

Certificates of deposit and their remaining maturities at September 30, 2009 are as follows:

2010	$	20,657,826
2011		8,950,930
2012		2,609,937
2013		587,139
2014		44,369
	$	32,850,201

Deposit balances of officers, directors and their affiliated interests totaled approximately $663,194 and $534,978 at September 30, 2009 and 2008, respectively.

The Bank had no brokered deposits at September 30, 2009 and 2008.

Note 9.    Borrowings

The Bank has advances outstanding from the Federal Home Loan Bank (“FHLB”). A schedule of the borrowings follows:

Advance Amount	Rate	Maturity     Date	Balance at September 30
			2009		2008
$1,000,000	4.2350%	7/31/2017	$	1,000,000	$	1,000,000
1,000,000	4.0100%	8/21/2017		1,000,000		1,000,000
1,500,000	3.2270%	11/24/2017		1,500,000		1,500,000
1,500,000	3.4000%	11/27/2017		1,500,000		1,500,000
1,000,000	2.5990%	10/2/2018		1,000,000		1,000,000
1,000,000	2.6000%	7/2/2018		1,000,000		1,000,000
1,000,000	3.0500%	7/3/2018		1,000,000		1,000,000
2,000,000	3.2500%	9/24/2009		—		2,000,000
3,000,000	0.3600%	9/24/2010		3,000,000		—
			$	11,000,000	$	10,000,000

Interest payments are due quarterly. After a loan specific holding period, the borrowings are callable by the FHLB, at which time the Bank is able to convert from a fixed rate to a variable rate based on LIBOR. The Bank has credit availability of 30% of the Bank’s total assets. The Bank has pledged their residential mortgage portfolio as collateral for this credit.

Additionally, the Bank has credit availability of $1,500,000 with a correspondent bank for short term liquidity needs, if necessary. There were no borrowings outstanding at September 30, 2009 and 2008 under these facilities.

Note 10.    Defined Contribution Benefit Plan

In July 2009, the Bank established a 401(k) plan covering all full-time employees who have attained an age of 21 and have completed 12 months of service. The plan provides for the Bank to make contributions which will match employee

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deferrals on a one-to-one basis up to 4% of an employee’s eligible compensation. Participants are 100% vested in their deferrals and employer matching contributions. Additional contributions can be made at the discretion of the Board of Directors based on the Bank’s performance. Contributions for the years ended September 30, 2009 and 2008 were $5,252 and $0, respectively.

Note 11.    Deferred Compensation Obligation

In February 1985, the Bank entered into a deferred compensation arrangement with its former president, with payments to him or his heirs to commence on the first day of the month coinciding with the date the president attained seventy-one years of age and continue for a minimum of 10 years. The former president, at his own discretion, decided to delay the start of this agreement until fiscal year 2004.

In June 2004, the Bank accrued a deferred compensation obligation of $66,237, relating to this agreement, utilizing a 5% interest factor for present value calculations. This liability is intended to be ultimately funded by a $100,000 whole life insurance policy owned by the Bank, insuring the former president. As of September 30, 2009, this policy had a $64,929 cash surrender value. Annual installments for the deferred compensation obligation are $8,578, which include interest of $3,825. As of September 30, 2009, the Bank had $30,417 remaining on this obligation to be paid over the remaining five years.

Note 12.    Regulatory Capital Requirements

The Bank is subject to various regulatory capital requirements administered by Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. The Bank must meet specific capital adequacy guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (as defined in the regulations) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to adjusted total assets. Management believes, as of September 30, 2009 and 2008, that the Bank meets all capital adequacy requirements to which it is subject.

As of September 30, 2009, the most recent notification from the Office of Thrift Supervision (“OTS”) categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based capital, Tier 1 capital to risk-weighted assets, and Tier 1 capital to adjusted total assets, ratios. There have been no conditions or events since that notification that management believes have changed the Bank’s category.

The actual and required capital amounts and ratios as of September 30, 2009 and 2008, were as follows (dollars in thousands):

	Actual			For Capital Adequacy Purposes				To Be Well Capitalized under the Prompt Corrective Action Provisions
	Amount	Ratio		Amount	Ratio			Amount	Ratio
As of September 30, 2009:
Total Risk-based Capital (to Risk-Weighted Assets)	6,896	19.27	%	2,862	³	8.0	%	3,578	³	10.0	%
Tier I Capital (to Risk-weighted Assets)	6,727	18.80	%	1,431	³	4.0	%	2,147		³6.0	%
Tier I Capital (to Adjusted Total Assets)	6,727	10.52	%	2,558	³	4.0	%	3,197		³5.0	%
Tangible Capital (to Tangible Assets)	6,727	10.52	%	959	³	1.5	%	N/A		N/A
As of September 30, 2008:
Total Risk-based Capital (to Risk-Weighted Assets)	6,385	21.47	%	2,379	³	8.0	%	2,974	³	10.0	%
Tier I Capital (to Risk-weighted Assets)	6,282	21.13	%	1,189	³	4.0	%	1,784		³6.0	%
Tier I Capital (to Adjusted Total Assets)	6,282	11.29	%	2,226	³	4.0	%	2,783		³5.0	%
Tangible Capital (to Tangible Assets)	6,282	11.29	%	835	³	1.5	%	N/A		N/A

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Note 13.    Fair Value Measurements

Generally accepted accounting principles (GAAP) define fair value, establish a framework for measuring fair value, establish a three-level valuation hierarchy for disclosure of fair value measurement and enhance disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. GAAP clarifies the definition of fair value as 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.

The three levels are defined as follows:

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

Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted 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 for the asset or liability, for substantially the full term of the financial instrument.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement and based on the Bank’s own assumptions about market participants’ assumptions.

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Securities

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, securities are classified within level 2 and fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within level 3 of the valuation hierarchy.

Impaired Loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Impaired loans are measured at an observable market price (if available), or at fair value of the loan’s collateral ( if the loan is collateral dependent). When the loan is dependent on collateral, fair value of collateral is determined by appraisal or independent valuation which is then adjusted for the related cost to sell. Impaired loans allocated to the Allowance for Loan Losses are measured at the lower of cost or fair value on a nonrecurring basis.

Foreclosed Real Estate

Foreclosed real estate is measured at fair value less cost to sell. The valuation of the fair value measurement follows GAAP. Foreclosed real estate is measured on a nonrecurring basis.

The following table presents a summary of financial assets and liabilities measured at fair value on a recurring basis at September 30, 2009 and September 30, 2008:

	Level 1		Level 2		Level 3		Total
September 30, 2009
Securities available for sale	$	—	$	3,327,518	$	—	$	3,327,518
September 30, 2008
Securities available for sale	$	—	$	7,018,727	$	—	$	7,018,727

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The following table presents a summary of financial assets and liabilities measured at fair value on a non-recurring basis at September 30, 2009 and 2008

	Level 1		Level 2		Level 3		Total		Total Gains (Losses)
September 30, 2009
Impaired loans	$	—	$	—	$	116,219	$	116,219	$	—
Foreclosed real estate	$	—	$	—	$	95,000	$	95,000	$	(39,763	)
September 30, 2008
Impaired loans	$	—	$	—	$	—	$	—	$	—
Foreclosed real estate	$	—	$	—	$	—	$	—	$	—

In accordance with generally accepted accounting principles concerning accounting for Loan and Lease Losses, a loss of $39,763 was recognized as a charge to the Allowance for Loan and Lease Losses at the time the foreclosed property was acquired based on an independent appraisal of the property’s fair value.

Note 14.    Subsequent Events

The Bank has evaluated events and transactions subsequent to September 30, 2009 through December 2, 2009, the date these financial statements were issued. Based on the definitions and requirements of Generally Accepted Accounting Principles for “Subsequent Events”, we have identified two events that have occurred subsequent to September 30, 2009 and through December 2, 2009, that require disclosure in the financial statements. The first event is:

• The Bank plans to convert from a mutual institution to a stock based institution during the first quarter of 2010 as further explained in Note 16.

• The Bank plans to file a “Change in Accounting Method” election with the Internal Revenue Service in December 2009 to begin filing its tax returns on the accrual basis of accounting starting with its 2009-2010 fiscal year.

Note 15.    Other Operating Expenses

Other operating expenses consist of the following:

	2009		2008
Advertising	$	22,986	$	10,416
Bank service charges		23,758		19,851
Software maintenance		21,906		24,486
Organization dues and subscriptions		7,231		5,738
Supervisory examination		25,512		21,982
Telephone		5,526		5,595
Postage		8,800		6,556
Meals and entertainment		9,825		5,336
Training and seminars		7,630		4,985
Other operating expenses		33,253		23,833
Total other operating expenses	$	166,427	$	128,778

Note 16.    Plan of Conversion

On October 21, 2009, the Bank’s Board of Directors approved a plan (the “Plan”) to convert from a federally-chartered mutual savings bank to a federally-chartered stock form of organization, subject to approval by its members. The Plan, which includes formation of a holding company to own all of the outstanding capital stock of the Bank, is subject to approval by the Office of Thrift Supervision (OTS) and includes the filing of a registration statement with the Securities and Exchange Commission.

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The cost of conversion and issuing and selling the capital stock will be deferred and deducted from the proceeds of the offering. In the event the conversion and offering are not completed, any deferred costs will be charged to operations. Through September 30, 2009, the Bank had incurred no conversion costs.

The Plan calls for the common stock of the holding company to be offered to various parties in a subscription offering at a price based on an independent appraisal of the Bank. It is anticipated that any shares not purchased in the subscription offering will be offered in a community offering. The Bank may not declare or pay a cash dividend if the effect thereof would cause its net worth to be reduced below either the amount required for the liquidation account discussed below or the regulatory capital requirements imposed by the OTS.

At the time of conversion, the Bank will establish a liquidation account in an amount equal to its retained earnings as reflected in the latest balance sheet used in the final conversion prospectus. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their deposit accounts in the Bank after conversion. The liquidation account will be reduced annually to the extent that eligible depositors have reduced their qualifying deposits. In the event of a complete liquidation of the Bank, eligible depositors who continue to maintain accounts in accordance with OTS regulations shall be entitled to receive a distribution from the liquidation account before any liquidation may be made with respect to common stock.

F-19

You should rely only on the information contained in this document or that to which we have referred you. No person has been authorized to give any information or to make any representation other than as contained in this prospectus and, if given or made, such other information or representation must not be relied upon as having been authorized by Fairmount Bancorp, Inc. or Fairmount Bank. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby to any person in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this prospectus nor any sale hereunder shall under any circumstances create any implication that there has been no change in the affairs of Fairmount Bancorp, Inc. or Fairmount Bank since any of the dates as of which information is furnished herein or since the date hereof.

FAIRMOUNT BANCORP, INC.

(Holding Company for Fairmount Bank)

Up to 575,000 Shares of

Common Stock

Par value $0.01 per share

(Subject to Increase to up to 661,250 Shares)

PROSPECTUS

STIFEL NICOLAUS

                ,     

Until                 , 2010 or 90 days after commencement of the syndicated community offering, if any, whichever is later, all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver the prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II: INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

		Amount (1)
*	Registrant’s Legal Fees and Expenses	$	200,000
*	Registrant’s Accounting Fees and Expenses		60,000
*	Conversion Agent and Data Processing Fees		20,000
*	Marketing Agent Fees (1)		150,000
*	Marketing Agent Expenses (Including Legal Fees and Expenses)		65,000
*	Appraisal Fees and Expenses		30,000
*	Printing, Postage, Mailing and EDGAR Fees		65,000
*	Filing Fees (OTS, FINRA and SEC)		20,000
*	Transfer Fees and Expenses		15,000
*	Stock Certificate Printer Fees and Expenses		10,000
*	Business Plan Fees and Expenses		30,000
*	Blue Sky Fees and Expenses		25,000
*	Other		10,000
*	Total	$	700,000

* Estimated

(1) Fairmount Bancorp, Inc. has retained Stifel, Nicolaus & Company, Incorporated to assist in the sale of common stock on a best efforts basis in the offerings.

Item 14. Indemnification of Directors and Officers

Articles 10 and 11 of the Articles of Incorporation of Fairmount Bancorp, Inc. (the “Corporation”) set forth circumstances under which directors, officers, employees and agents of the Corporation may be insured or indemnified against liability which they incur in their capacities as such:

ARTICLE 10. Indemnification, etc. of Directors and Officers.

A. Indemnification. The Corporation shall indemnify (1) its current and former directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the MGCL now or hereafter in force, including the advancement of expenses under the procedures and to the fullest extent permitted by law, and (2) other employees and agents to such extent as shall be authorized by the Board of Directors and permitted by law; provided, however, that, except as provided in Section B of this Article 10 with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.

B. Procedure. If a claim under Section A of this Article 10 is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall also be entitled to be reimbursed the expense of prosecuting or defending such suit. It shall be a defense to any action for advancement of expenses that the Corporation has not received both (i) an undertaking as required by law to repay such advances in the event it shall ultimately be determined that the standard of conduct has not been met and (ii) a written affirmation by the indemnitee of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable standard for indemnification set forth in the MGCL. Neither the failure of the Corporation (including its Board of Directors, independent

II-1

legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the MGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article 10 or otherwise shall be on the Corporation.

C. Non-Exclusivity. The rights to indemnification and to the advancement of expenses conferred in this Article 10 shall not be exclusive of any other right that any Person may have or hereafter acquire under any statute, these Articles, the Corporation’s Bylaws, any agreement, any vote of stockholders or the Board of Directors, or otherwise.

D. Insurance. The Corporation may maintain insurance, at its expense, to insure itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such Person against such expense, liability or loss under the MGCL.

E. Miscellaneous. The Corporation shall not be liable for any payment under this Article 10 in connection with a claim made by any indemnitee to the extent such indemnitee has otherwise actually received payment under any insurance policy, agreement, or otherwise, of the amounts otherwise indemnifiable hereunder. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article 10 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.

Any repeal or modification of this Article 10 shall not in any way diminish any rights to indemnification or advancement of expenses of such director or officer or the obligations of the Corporation arising hereunder with respect to events occurring, or claims made, while this Article 10 is in force.

ARTICLE 11. Limitation of Liability. An officer or director of the Corporation, as such, shall not be liable to the Corporation or its stockholders for money damages, except (A) to the extent that it is proved that the Person actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received; or (B) to the extent that a judgment or other final adjudication adverse to the Person is entered in a proceeding based on a finding in the proceeding that the Person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding; or (C) to the extent otherwise provided by the MGCL. If the MGCL is amended to further eliminate or limit the personal liability of officers and directors, then the liability of officers and directors of the Corporation shall be eliminated or limited to the fullest extent permitted by the MGCL, as so amended.

Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification.

Item 15. Recent Sales of Unregistered Securities

Not Applicable.

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Item 16. Exhibits and Financial Statement Schedules:

The exhibits and financial statement schedules filed as part of this registration statement are as follows:

(a) List of Exhibits

1.1	Engagement Letter between Fairmount Bank and Stifel Nicolaus.
1.2	Form of Agency Agreement between Fairmount Bancorp, Inc. and Stifel Nicolaus.*
2	Plan of Conversion
3.1	Articles of Incorporation of Fairmount Bancorp, Inc.
3.2	Bylaws of Fairmount Bancorp, Inc.
4	Form of Common Stock Certificate of Fairmount Bancorp, Inc.
5.1	Opinion of Jones, Walker, Waechter, Poitevent, Carrère & Denègre L.L.P. regarding legality of securities being registered
8.1	Form of Federal Tax Opinion of Jones, Walker, Waechter, Poitevent, Carrère & Denègre L.L.P.
8.2	Form of State Tax Opinion of Smith Elliott Kearns & Company, LLC
10.1	Employment Agreement between Fairmount Bank and Joseph M. Solomon
10.2	Form of Employment Agreement between Fairmount Bank and Joseph M. Solomon
10.3	Form of Employment Agreement between Fairmount Bancorp, Inc. and Joseph M. Solomon
10.4	Form of Change in Control Agreement with Jodi L. Beal and Lisa A. Cuddy
10.5	Fairmount Bank Employee Stock Ownership Plan
23.1	Consent of Jones, Walker, Waechter, Poitevent, Carrère & Denègre L.L.P. (contained in Opinions included as Exhibits 5 and 8)
23.2	Consent of Smith Elliott Kearns & Company, LLC
23.3	Consent of Feldman Financial Advisors, Inc.
24	Power of Attorney (set forth on signature page)
99.1	Appraisal Agreement between Fairmount Bank and Feldman Financial Advisors, Inc.
99.2	Letter of Feldman Financial Advisors, Inc. with respect to Subscription Rights
99.3	Appraisal Report of Feldman Financial Advisors, Inc.
99.4	Marketing Materials*
99.5	Stock Order and Certification Form*
99.6	Business Plan Agreement with RP Financial, LC.
99.7	Records Processing Services Agreement between Stifel Nicolaus and Fairmount Bank.

* To be filed by Amendment.

(b) Financial Statement Schedules

No financial statement schedules are filed because the required information is not applicable or is included in the consolidated financial statements or related notes.

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Item 17. Undertakings

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which it offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

(6) That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(7) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(8) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

II-4

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the County of Baltimore, State of Maryland on December 17, 2009.

FAIRMOUNT BANCORP, INC.
By:	/S/    JOSEPH M. SOLOMON
	Joseph M. Solomon
	President and Chief Executive Officer
	(Duly Authorized Representative)

POWER OF ATTORNEY

We, the undersigned directors and officers of Fairmount Bancorp, Inc. (the “Company”) hereby severally constitute and appoint Joseph M. Solomon as our true and lawful attorney and agent, to do any and all things in our names in the capacities indicated below which said Joseph M. Solomon may deem necessary or advisable to enable the Company to comply with the Securities Act of 1933, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form S-1 relating to the offering of the Company’s common stock, including specifically, but not limited to, power and authority to sign for us in our names in the capacities indicated below the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby approve, ratify and confirm all that said Joseph M. Solomon shall do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signatures	Title	Date
/S/    JOSEPH M. SOLOMON         Joseph M. Solomon	President, Chief Executive Officer and Director (Principal Executive Officer)	December 17, 2009
/S/    JODI L. BEAL         Jodi L. Beal	Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)	December 17, 2009
/S/    WILLIAM G. YANKE         William G. Yanke	Chairman of the Board	December 17, 2009
/S/    JAMES E. ELLIOTT         James E. Elliott	Director	December 17, 2009
/S/    EDWARD J. LALLY         Edward J. Lally	Director and Secretary	December 17, 2009
/S/    MARY R. CRAIG         Mary R. Craig	Director	December 17, 2009

II-6

EX-1.1

EXHIBIT 1.1

CONFIDENTIAL

August 19, 2009

Mr. Joseph M. Solomon

President and Chief Executive Officer

Fairmount Bank

8201 Philadelphia Road

Baltimore, Maryland 21237

Re: Proposed Full Conversion—Advisory, Administrative and Marketing Services

Dear Mr. Solomon:

Stifel, Nicolaus & Company, Incorporated (“Stifel Nicolaus”) is pleased to submit this engagement letter setting forth the terms of the proposed engagement between Stifel Nicolaus and Fairmount Bank (the “Bank”) in connection with the proposed mutual-to-stock conversion of the Bank (“the Conversion”) and the concurrent sale of common stock of a stock holding company (the “Company”) to be formed in connection with the Conversion.

1. BACKGROUND ON STIFEL NICOLAUS

Stifel Nicolaus is a full service brokerage and investment banking firm established in 1890. Stifel Nicolaus is a registered broker-dealer with the Securities and Exchange Commission, and is a member of the New York Stock Exchange, Inc., Financial Industry Regulatory Authority (“FINRA”), the Securities Industry and Financial Markets Association and the Securities Investor Protection Corporation. Stifel Nicolaus has built a national reputation as a leading full service investment bank to both public and private financial institutions.

2. CONVERSION AND OFFERING

The Bank will effect the Conversion by forming the Company (the Bank and the Company are referred to collectively herein as the “Company.”) The common stock of the Company (the “Common Stock”) would be offered for sale on a first priority basis in a subscription offering with any remaining shares expected to be sold in a community offering and, if necessary, a syndicated community offering (collectively the “Offering”). In connection therewith, the Bank’s Board of Directors plan to adopt a plan of conversion (the “Plan”). Stifel Nicolaus will act as conversion advisor to the Company with

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respect to the Conversion, and as marketing agent on a best-efforts basis with respect to the Offering. Specific terms of services shall be set forth in an agency agreement, in the case of the subscription and community offering and a syndicated community offering or, if appropriate, a public underwriting agreement (together, the “Definitive Agreement”) between Stifel Nicolaus and the Company. The Definitive Agreement will include customary representations and warranties, covenants, conditions, termination provisions and indemnification, contribution and limitation of liability provisions, all to be mutually agreed upon by Stifel Nicolaus and the Company.

3. SERVICES TO BE PROVIDED BY STIFEL NICOLAUS

Stifel Nicolaus will provide and coordinate certain advisory, administrative and marketing services in connection with the Company’s Conversion and Offering as outlined below. .

a. Advisory Services—Stifel Nicolaus will work with the Company and its counsel to evaluate financial, marketing and regulatory issues.

Our advisory responsibilities include:

• Advise with respect to business planning issues in preparation for a public offering;

• Advise with respect to the choice of charter and form of organization;

• Review and advise with respect to the Plan (e.g. sizes of benefit plan purchases; maximum purchase limits for investors);

• Advise with respect to listing on appropriate stock exchange or other trading venue;

• Review and provide input with respect to the business plan to be prepared in connection with the Conversion;

• Discuss the appraisal process and analyze the appraisal with the Board of Directors and management;

• Participate in drafting the offering disclosure documents and any Bank customer proxy materials, and assist in obtaining all requisite regulatory approvals;

• Develop a marketing plan for the subscription and community offerings, considering various sales method options, including direct mail, advertising, community meetings and telephone solicitation;

• Develop a Bank customer proxy solicitation plan;

• Stifel Nicolaus will work with the Company to provide specifications and assistance (including recommendations) in selecting certain other professionals that will perform functions in connection with the Conversion and Offering process. Fees and expenses of financial printers, transfer agent and other service providers will be borne by the Company, subject to agreements between the Company and the service providers;

• Advise/Assist client through the planning process and organization of the Stock Information Center (the “Center”);

• Develop a layout for the Center, where stock order processing and customer vote solicitation occur;

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• Provide a list of equipment, staff and supplies needed for the Center;

• Draft marketing materials including press releases, letters, stock order form, advertisements, and informational brochures. If a community meeting or “road show” is anticipated, we will help draft the presentation – saving you the time and legal expense; and

• After consulting with management, determining whether and when to conduct a syndicated community offering through assembling a group of selected broker/dealers (including Stifel Nicolaus) to sell stock remaining after the community offering, on a best-effort basis and then conducting/managing such syndicated community offering. Alternatively, after consulting with management, conducting a “stand-by” firm commitment public underwriting, including Stifel Nicolaus and other broker/dealers.

b. Administrative Services and Stock Information Center Management—Stifel Nicolaus will manage substantially all aspects of the stock offering and customer voting processes.

The Stock Information Center (as defined above) serves as the “command center” during a stock offering. Stifel Nicolaus staff will train and supervise the staff that the Company assigns to the Center to help record stock orders, answer customer inquiries, place vote solicitation calls and participate in other activities of the Center.

Our administrative services include:

• Provide experienced on-site Stifel Nicolaus FINRA registered representatives to manage and supervise the Center. All technical stock offering and customer proxy vote matters and inquiries will be handled by Stifel Nicolaus;

• Prepare procedures for processing customer proxy votes, stock orders, deposit account withdrawals and cash, and for handling requests for materials;

• Provide scripts and training for the telephone team who solicit customer proxies and, if needed, help conduct a stock sales telemarketing effort;

• Educate the Company’s directors, officers and employees about the Conversion and Offering, their roles and relevant securities laws;

• Train branch managers and customer-contact employees on the proper response to stock purchase and proxy vote inquiries;

• Coordinate functions with and between the printer, transfer agent, stock certificate printer and other professionals;

• Design and implement procedures for facilitating stock orders within IRA and Keogh accounts;

• Supervise Center staff in order processing and in proxy solicitation efforts;

• Prepare daily sales reports for management, ensuring funds processed balance to the reports;

• Monitor the proxy vote response and make any needed revisions to the calling/reminder mailing plan;

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• Manage the pro-ration process in the event of subscription and community offering oversubscription;

• Coordinate with stock exchange and the Depository Trust Company to ensure a smooth closing and orderly stock trading; and

• Provide post-offering subscriber assistance.

c. Securities Marketing Services—Stifel Nicolaus uses various sales techniques including direct mail, advertising, community investor meetings, telephone solicitation, and if necessary, assembling a selling group of broker-dealers for a syndicated community offering.

Our securities marketing services include:

• If applicable, assisting management in developing a list of potential investors who are viewed as priority prospects;

• The Stifel Nicolaus registered representatives at the Center will seek to manage the sales function and, if applicable, will solicit orders from the prospects described above;

• Responding to investment-related and other questions regarding information in the Offering disclosure documents provided to potential investors;

• If the sales plan calls for community meetings, participate in them. ;

• Continually advise management on sales progress, market conditions and customer/community responsiveness to the Offering;

• In case of a best-efforts syndicated community offering, manage the selling group. Alternatively, manage the underwriters participating in a “stand-by” firm commitment underwritten public offering. In either case, we will prepare broker “fact sheets” and arrange “road shows” for the purpose of stimulating interest in the stock offering and informing the brokerage community of the particulars of the Offering; and

• Contacting other market makers to maximize after-market support for the Company’s Common Stock.

4. COMPENSATION

For its services hereunder, the Company will pay to Stifel Nicolaus the following compensation:

a. A conversion and proxy vote advisory and administrative services fee of $25,000 in connection with the services set forth in section 3.a. and 3.b. hereof. In view of the long preparation phase prior to commencement of the Offering, this fee shall be payable as follows: $12,500 upon executing this letter and $12,500 upon the initial filing of the Offering disclosure documents.

b. A success fee of $150,000.

c. For stock sold by a group of selected dealers (including Stifel Nicolaus ) pursuant to a syndicated community offering solely managed by Stifel Nicolaus (the “Selling Group”), a fee equal to one percent (1.00%) of the aggregate dollar amount of Common Stock sold in the syndicated community offering, which fee paid to Stifel Nicolaus, along with the fee payable directly by the

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Company to Stifel Nicolaus and the other selected dealers for their sales shall not exceed six percent (6.00%) of the aggregate dollar amount of Common Stock so sold, provided Stifel Nicolaus will endeavor to limit the aggregate fees to be paid by the Company under any such selected dealers’ agreement to an amount competitive with gross underwriting discounts charged at such time. In consultation with Stifel Nicolaus, the Company will determine which FINRA member firms will participate in the Selling Group and the extent of their participation. Stifel Nicolaus will not commence sales of the Common Stock through the Selling Group without the specific prior approval of the Company.

d. If, pursuant to a resolicitation of subscribers undertaken by the Company, Stifel Nicolaus is required to provide significant additional services, the additional compensation due will not exceed $20,000.

The above compensation, less the amount of advance payments described in subparagraph a., is to be paid to Stifel Nicolaus at the closing of the Offering.

If (i) the Plan is abandoned or terminated by the Bank; (ii) the Offering is not consummated by September 30, 2010; (iii) Stifel Nicolaus terminates this relationship because there has been a material adverse change in the financial condition or operations of the Bank since September 30, 2009; or (iv) immediately prior to commencement of the Offering, Stifel Nicolaus terminates this relationship because in its opinion, which shall have been formed in good faith after reasonable determination and consideration of all relevant factors, there has been a failure to satisfactorily disclose all relevant information in the offering document or other disclosure documents or market conditions exist which might render the sale of the Common Stock inadvisable to the Company, Stifel Nicolaus shall not be entitled to the compensation set forth in subparagraph 4.b through 4.d above, but in addition to reimbursement of its reasonable out-of-pocket expenses as set forth in paragraph 7 below, Stifel Nicolaus shall be entitled to retain its fee in subparagraph 4.a above for its conversion and proxy solicitation advisory and administrative services.

5. MARKET MAKING

Stifel Nicolaus agrees to use its best efforts to maintain a market after the Offering and to solicit other broker-dealers to make a market in the Common Stock at the conclusion of the Offering.

6. DOCUMENTS

The Company and its counsel will complete, file with the appropriate regulatory authorities and, as appropriate, amend from time to time, the information to be contained in the Company’s applications to banking and securities regulators and any related exhibits thereto. In this regard, the Company and its counsel will prepare offering documents relating to the offering of the Common Stock in conformance with applicable rules and regulations. As the Company’s financial advisor, Stifel Nicolaus will, in conjunction with its counsel, conduct an examination of the relevant documents and records of the Company and will make such other reasonable investigations as deemed necessary and

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appropriate under the circumstances. The Company agrees to make all documents, records and other information deemed necessary by Stifel Nicolaus, or its counsel, available to them upon reasonable notice. Stifel Nicolaus’ counsel will prepare, subject to the approval of Company’s counsel, the Definitive Agreement. Stifel Nicolaus’ counsel will be selected by Stifel Nicolaus.

7. EXPENSES AND REIMBURSEMENT

The Company will bear all of its expenses in connection with the Conversion and the Offering of Common Stock including, but not limited to: appraisal and business plan preparation; the Company’s attorney fees; FINRA filing fees; “blue sky” legal fees and state filing fees; fees and expenses of service providers such as transfer agent, information/data processing agent, financial and stock certificate printers, auditors and accountants; advertising; postage; “road show” and other syndicated community or publicly underwritten offering costs; and all costs of operating the Stock Information Center, including hiring temporary personnel, if necessary. In the event Stifel Nicolaus incurs such expenses on behalf of the Company, the Company shall reimburse Stifel Nicolaus for such reasonable fees and expenses regardless of whether the Conversion and Offering are successfully completed. Stifel Nicolaus will not incur actual accountable reimbursable out-of-pocket expenses in excess of $15,000. Stifel Nicolaus will not incur any single expense of more than $1,000, pursuant to this paragraph without the prior approval of the Company.

The Company also agrees to reimburse Stifel Nicolaus for its reasonable out-of-pocket expenses, including legal fees and expenses, incurred by Stifel Nicolaus in connection with the services contemplated hereunder. In the subscription and community offering, Stifel Nicolaus will not incur legal fees (including the out-of-pocket expenses of counsel) in excess of $50,000. The parties acknowledge, however, that such cap may be increased by the mutual consent of the Company and Stifel Nicolaus in the event of a material delay in the Offering which would require an update of the financial information in tabular form to reflect a period later than that set forth in the original filing of the offering document. In addition, in the event of a syndicated community offering or publicly underwritten offering, the Company will reimburse all reasonable out-of-pocket expenses incurred in connection with that offering phase. Not later than two days before closing, Stifel Nicolaus will provide the Company with a detailed accounting of all reimbursable expenses of Stifel Nicolaus and its counsel to be paid at closing.

8. BLUE SKY

To the extent required by applicable state law, Stifel Nicolaus and the Company must obtain or confirm exemptions, qualifications or registration of the Common Stock under applicable state securities laws and FINRA policies. The cost of such legal work and related state filing fees will be paid by the Company to the law firm furnishing such legal work. The Company will instruct the counsel performing such services to prepare a Blue Sky memorandum related to the Offering including Stifel Nicolaus’ participation therein and shall furnish Stifel Nicolaus a copy thereof, regarding which such counsel shall state Stifel Nicolaus may rely.

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9.     INFORMATION AGENT SERVICES Pursuant to a separate agreement by and between the Company and Stifel Nicolaus and in connection with the Conversion and Offering, Stifel Nicolaus shall serve as information agent for the Company. ,

10. INDEMNIFICATION

The Definitive Agreement will provide for indemnification of the type usually found in underwriting agreements as to certain liabilities, including liabilities under the Securities Act of 1933. The Company also agrees to defend, indemnify and hold harmless Stifel Nicolaus and its officers, directors, employees and agents against all claims, losses, actions, judgments, damages or expenses, including but not limited to reasonable attorney fees, arising solely out of the engagement described herein, except that such indemnification shall not apply to Stifel Nicolaus’ own bad faith, willful misconduct or gross negligence.

11. CONFIDENTIALITY

To the extent consistent with legal requirements and except as otherwise set forth in the offering document, all information given to Stifel Nicolaus by the Company, unless publicly available or otherwise available to Stifel Nicolaus without restriction to breach of any confidentiality agreement (“Confidential Information”), will be held by Stifel Nicolaus in confidence and will not be disclosed to anyone other than Stifel Nicolaus’ agents without the Company’s prior approval or used for any purpose other than those referred to in this engagement letter. Upon the termination of its engagement, Stifel Nicolaus, at the request of the Company, will promptly deliver to the Company all materials specifically produced for it and will return to the Company all Confidential Information provided to Stifel Nicolaus during the course of its engagement hereunder.

12. FINRA MATTERS

Stifel Nicolaus has an obligation to file certain documents and to make certain representations to the Financial Industry Regulatory Authority in connection with the Offering. The Company agrees to cooperate with Stifel Nicolaus and provide such information as may be necessary for Stifel Nicolaus to comply with all FINRA requirements applicable to its participation in the Offering. Stifel Nicolaus is and will remain through completion of the Offering a member in a good standing of the FINRA and will comply with all applicable FINRA requirements.

13. OBLIGATIONS

Except as set forth below, this engagement letter is merely a statement of intent. While Stifel Nicolaus and the Company agree in principle to the contents hereof and propose to proceed promptly and in good faith to work out the arrangements with respect to the Offering, any legal obligations between Stifel Nicolaus and the Company shall be only: (i) those set forth herein in paragraphs 2, 3 and 4 regarding services and payments; (ii) those set forth in paragraph 7 regarding reimbursement for certain expenses; (iii) those set forth in paragraph 10 regarding indemnification; (iv) those set forth in

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paragraph 11 regarding confidentiality; and (v) as set forth in a duly negotiated and executed Definitive Agreement.

The obligation of Stifel Nicolaus to enter into the Definitive Agreement shall be subject to there being, in Stifel Nicolaus’ opinion, which shall have been formed in good faith after reasonable determination and consideration of all relevant factors: (i) no material adverse change in the condition or operation of the Company; (ii) satisfactory disclosure of all relevant information in the offering disclosure documents and a determination that the sale of stock is reasonable given such disclosures; (iii) no market conditions which might render the sale of the shares by the Company hereby contemplated inadvisable to the Company; (iv) agreement that the price established by the independent appraiser is reasonable in the then-prevailing market conditions, and (v) approval of Stifel Nicolaus’ internal Commitment Committee.

14. INDEPENDENT CONTRACTOR; NO FIDUCIARY DUTY

The Company acknowledges and agrees that it is a sophisticated business enterprise and that Stifel Nicolaus has been retained pursuant to this engagement letter to act as financial advisor to the Company solely with respect to the matters set forth herein. In such capacity, Stifel Nicolaus will act as an independent contractor, and any duties of Stifel Nicolaus arising out of this engagement pursuant to this letter shall be contractual in nature and shall be owed solely to the Company. Each party disclaims any intention to impose any fiduciary duty on the other.

15. GOVERNING LAW

This engagement letter shall be governed by and construed in accordance with the laws of the State of Maryland applicable to contracts executed and to be wholly performed therein without giving effects to its conflicts of laws principles or rules. Any dispute here under shall be brought in a court in the State of Maryland.

16. WAIVER OF TRIAL BY JURY

BOTH STIFEL NICOLAUS AND THE COMPANY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF THIS AGREEMENT.

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Please acknowledge your agreement to the foregoing by signing in the place provided below and returning one copy of this letter to our office together with the retainer payment in the amount of $12,500. We look forward to working with you.

STIFEL, NICOLAUS & COMPANY, INCORPORATED
BY:
	David P. Lazar
	Managing Director

Accepted and Agreed to This          Day of                     , 2009

FAIRMOUNT BANK
BY:
	Joseph M. Solomon
	President and Chief Executive Officer

cc: Edward B. Crosland, Jr.

Jones, Walker, Waechter, Poitevent, Carrere & Denegre L.L.P.

EX-2

Exhibit 2

PLAN OF CONVERSION

OF

FAIRMOUNT BANK

FROM MUTUAL TO STOCK ORGANIZATION

TABLE OF CONTENTS

1.	INTRODUCTION	1
2.	DEFINITIONS	1
3.	PROCEDURES FOR CONVERSION	4
4.	HOLDING COMPANY APPLICATIONS AND APPROVALS	5
5.	SALE OF SUBSCRIPTION SHARES	6
6.	PURCHASE PRICE AND NUMBER OF SUBSCRIPTION SHARES	6
7.	RETENTION OF OFFERING PROCEEDS BY THE HOLDING COMPANY	7
8.	SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)	7
9.	SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)	7
10.	SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY)	8
11.	SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)	8
12.	COMMUNITY OFFERING	8
13.	SYNDICATED COMMUNITY OFFERING	9
14.	LIMITATION ON PURCHASES	9
15.	PAYMENT FOR SUBSCRIPTION SHARES	10
16.	MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS	11
17.	UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT	11
18.	RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES	12
19.	ESTABLISHMENT OF LIQUIDATION ACCOUNT	12
20.	VOTING RIGHTS OF STOCKHOLDERS	13
21.	RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION	13
22.	REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE CONVERSION	13
23.	TRANSFER OF DEPOSIT ACCOUNTS	14
24.	REGISTRATION AND MARKETING	14
25.	TAX RULINGS OR OPINIONS	14
26.	STOCK BENEFIT PLANS AND EMPLOYMENT AGREEMENTS	14
27.	RESTRICTIONS ON ACQUISITION OF BANK AND HOLDING COMPANY	14
28.	PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK	15
29.	CONSUMMATION OF CONVERSION AND EFFECTIVE DATE	15
30.	EXPENSES OF CONVERSION	15
31.	AMENDMENT OR TERMINATION OF PLAN	15
32.	CONDITIONS TO CONVERSION	16
33.	INTERPRETATION	16

(i)

PLAN OF CONVERSION OF

FAIRMOUNT BANK

INTRODUCTION

This Plan of Conversion (this “Plan”) provides for the conversion of Fairmount Bank, a federal mutual savings association that is headquartered in Baltimore, Maryland (the “Bank”), into the capital stock form of organization. A new stock holding company (the “Holding Company”) will be established as part of the Conversion and will issue Common Stock in the Conversion. The purpose of the Conversion is to convert the Bank to the capital stock form of organization and to raise capital in the Offering. The Holding Company will offer its Common Stock in the Offering upon the terms and conditions set forth herein. The subscription rights granted to Participants in the Subscription Offering are set forth in Sections 8 through 11 hereof. All sales of Common Stock in the Community Offering or the Syndicated Community Offering will be at the sole discretion of the Board of Directors of the Bank and the Holding Company. The Conversion will have no impact on depositors, borrowers or customers of the Bank. After the Conversion, the Bank’s insured deposits will continue to be insured by the FDIC to the extent provided by applicable law.

This Plan has been approved by the Board of Directors of the Bank. This Plan also must be approved by a majority of the total number of outstanding votes entitled to be cast by Voting Members of the Bank at a Special Meeting of Members to be called for that purpose. The OTS must approve this Plan before it is presented to Voting Members for their approval.

2. DEFINITIONS

For the purposes of this Plan, the following terms have the following respective meanings:

Account Holder – Any Person holding a Deposit Account in the Bank.

Acting in Concert – The term Acting in Concert means (i) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or (ii) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. A person or company that acts in concert with another person or company (“other party”) shall also be deemed to be acting in concert with any person or company that is also acting in concert with that other party, except that any tax-qualified employee stock benefit plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated.

Affiliate – Any Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with another Person.

Appraised Value Range – The range of the estimated consolidated pro forma market value of the Holding Company, which shall also be equal to the estimated pro forma market value of the total number of Subscription Shares to be issued in the Conversion, as determined by the Independent Appraiser prior to the Subscription Offering and as it may be amended from time to time thereafter. The maximum and minimum of the Appraised Value Range may vary as much as 15% above and 15% below, respectively, the midpoint of the Appraised Value Range.

Associate – The term Associate when used to indicate a relationship with any person, means (i) any corporation or organization (other than the Holding Company, the Bank or a majority-owned subsidiary of the Bank) if the person is a senior officer or partner or beneficially owns, directly or indirectly, 10% or more of any class of equity securities of the corporation or organization, (ii) any trust or other estate, if the person has a substantial beneficial interest in the trust or estate or is a trustee or fiduciary of the trust or estate except that for the purposes of this Plan relating to subscriptions in the Offering and the sale of Subscription Shares following the Conversion, a

person who has a substantial beneficial interest in any Non-Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified Employee Stock Benefit Plan, or who is a trustee or fiduciary of such plan, is not an associate of such plan, and except that, for purposes of aggregating total shares that may be held by Officers and Directors, the term “Associate” does not include any Tax-Qualified Employee Stock Benefit Plan, and (iii) any person who is related by blood or marriage to such person and who lives in the same home as such person or who is a Director or Officer of the Bank or the Holding Company, or any of their parents or subsidiaries.

Bank – Fairmount Bank, located in Baltimore, Maryland.

Common Stock – The common stock, par value $0.01 per share, of the Holding Company.

Community – The Maryland counties of Baltimore and Harford and the City of Baltimore.

Community Offering – The offering for sale to certain members of the general public directly by the Holding Company of shares not subscribed for in the Subscription Offering.

Control – (including the terms “controlling,” “controlled by,” and “under common control with”) means the direct or indirect power to direct or exercise a controlling influence over the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

Conversion – The conversion of the Bank to stock form pursuant to this Plan, and all steps incident or necessary thereto, including the Offering.

Deposit Account – Any withdrawable account, including, without limitation, savings, time, demand, NOW accounts, money market, certificate and passbook accounts.

Director – A member of the Board of Directors of the Bank or the Holding Company, as appropriate in the context.

Eligible Account Holder – Any Person holding a Qualifying Deposit on the Eligibility Record Date for purposes of determining subscription rights and establishing subaccount balances in the Liquidation Account.

Eligibility Record Date – The date for determining Eligible Account Holders of the Bank, which is September 30, 2008.

Employees – All Persons who are employed by the Bank or the Holding Company.

Employee Plans – Any one or more Tax-Qualified Employee Stock Benefit Plans of the Bank or the Holding Company, including any ESOP and 401(k) Plan.

ESOP – The Bank’s Employee Stock Ownership Plan and related trust.

FDIC – The Federal Deposit Insurance Corporation.

Holding Company – Fairmount Bancorp, Inc. the corporation formed for the purpose of acquiring all of the shares of capital stock of the Bank in connection with the Conversion, which shall be incorporated in Maryland, or such other state as shall be designated by the Board of Directors. Shares of Common Stock of the Holding Company will be issued in the Conversion to Participants and others in the Offering.

Independent Appraiser – The appraiser retained by the Holding Company and the Bank to prepare an appraisal of the pro forma market value of the Subscription Shares.

Liquidation Account – The interest in the Bank received by Eligible Account Holders and Supplemental Eligible Account Holders in exchange for their interest in the Bank in connection with the Conversion.

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Member – Any Person or entity that qualifies as a member of the Bank pursuant to its charter and bylaws.

Offering – The offering and issuance, pursuant to this Plan, of Common Stock in a Subscription Offering, Community Offering or Syndicated Community Offering, as the case may be.

Offering Range – The range of the number of shares of Common Stock offered for sale in the Offering. The Offering Range shall be equal to the Appraised Value Range divided by the Subscription Price.

Officer – An executive officer of the Bank or the Holding Company, as appropriate in the context, which includes the Chief Executive Officer, President, Vice Presidents in charge of principal business functions, Secretary and Treasurer and any Person performing functions similar to those performed by the foregoing persons.

Order Form – Any form (together with any cover letter and acknowledgment) sent to any Participant or Person containing, among other things, a description of the alternatives available to such Person under this Plan and by which any such Person may make elections regarding subscriptions for Subscription Shares.

Other Member – Any Person holding a Deposit Account on the Voting Record Date who is not an Eligible Account Holder or Supplemental Eligible Account Holder.

OTS – The Office of Thrift Supervision, a division of the United States Department of Treasury.

Participant – Any Eligible Account Holder, Employee Plan, Supplemental Eligible Account Holder, or Other Member.

Person – An individual, a corporation, a partnership, an association, a joint-stock company, a limited liability company, a trust, an unincorporated organization, or a government or political subdivision of a government.

Plan – This Plan of Conversion of the Bank as it exists on the date hereof and as it may hereafter be amended in accordance with its terms.

Prospectus – The one or more documents used in offering the Subscription Shares.

Qualifying Deposit – The aggregate balance of all Deposit Accounts in the Bank of (i) an Eligible Account Holder at the close of business on the Eligibility Record Date, provided such aggregate balance is not less than $50, and (ii) a Supplemental Eligible Account Holder at the close of business on the Supplemental Eligibility Record Date, provided such aggregate balance is not less than $50.

Resident – Any Person who occupies a dwelling within the Community, has a present intent to remain within the Community for a period of time, and manifests the genuineness of that intent by establishing an ongoing physical presence within the Community together with an indication that such presence within the Community is something other than merely transitory in nature. To the extent the person is a corporation or other business entity, the principal place of business or headquarters shall be in the Community. To the extent a Person is a personal benefit plan, the circumstances of the beneficiary shall apply with respect to this definition. In the case of all other benefit plans, circumstances of the trustee shall be examined for purposes of this definition. The Bank may utilize deposit or loan records or such other evidence provided to it to make a determination as to whether a Person is a resident. In all cases, however, such a determination shall be in the sole discretion of the Bank.

SEC – The Securities and Exchange Commission.

Special Meeting of Members – The special meeting of Voting Members and any adjournments thereof held to consider and vote upon this Plan.

Subscription Offering – The offering of Subscription Shares to Participants.

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Subscription Price – The price per Subscription Share to be paid by Participants and others in the Offering. The Subscription Price will be determined by the Board of Directors of the Holding Company and fixed prior to the commencement of the Subscription Offering.

Subscription Shares – Shares of Common Stock offered for sale in the Offering.

Supplemental Eligible Account Holder – Any Person, other than Directors and Officers of the Bank and the Holding Company and their Associates (except as otherwise permitted by the OTS), holding a Qualifying Deposit on the Supplemental Eligibility Record Date, who is not an Eligible Account Holder.

Supplemental Eligibility Record Date – The date for determining Supplemental Eligible Account Holders, which shall be the last day of the calendar quarter preceding OTS approval of the application for conversion.

Syndicated Community Offering – The offering of Subscription Shares, at the sole discretion of the Holding Company, following the Subscription and Community Offerings through a syndicate of broker-dealers.

Tax-Qualified Employee Stock Benefit Plan – Any defined benefit plan or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which, with its related trust, meets the requirements to be “qualified” under Section 401 of the Internal Revenue Code of 1986, as amended. The Bank may make scheduled discretionary contributions to a tax-qualified employee stock benefit plan, provided such contributions do not cause the Bank to fail to meet its regulatory capital requirements. A “Non-Tax-Qualified Employee Stock Benefit Plan” is any defined benefit plan or defined contribution plan that is not so qualified.

Voting Member – Any Person who at the close of business on the Voting Record Date is entitled to vote as a Member of the Bank pursuant to its charter and bylaws.

Voting Record Date – The date fixed by the Directors for determining eligibility to vote at the Special Meeting of Members.

3. PROCEDURES FOR CONVERSION

A. After approval of this Plan by the Board of Directors of the Bank, this Plan together with all other requisite material shall be submitted to the OTS for approval. Notice of the adoption of this Plan by the Board of Directors of the Bank and the submission of this Plan to the OTS for approval will be published in a newspaper having general circulation in each community in which an office of the Bank is located, and copies of this Plan will be made available at each office of the Bank for inspection by depositors. The Bank also will publish a notice of the filing with the OTS of an application to convert in accordance with the provisions of this Plan.

B. Promptly following approval by the OTS, this Plan will be submitted to a vote of the Voting Members at the Special Meeting of Members. The Bank will mail to all Voting Members, at their last known address appearing on the records of the Bank as of the Voting Record Date, a proxy statement in either long or summary form describing this Plan, which will be submitted to a vote of Voting Members at the Special Meeting of Members. The Holding Company also will mail to all Participants either a Prospectus and Order Form for the purchase of Subscription Shares or a letter informing them of their right to receive a Prospectus and Order Form and a postage-prepaid card to request such materials, subject to other provisions of this Plan. In addition, all Voting Members will receive, or be given the opportunity to request by either returning a postage-prepaid card which may be distributed with the proxy statement or by phone call or letter addressed to the Bank’s Secretary, a copy of this Plan. Upon approval of this Plan by a majority of the total number of votes entitled to be cast by Voting Members, the Holding Company and the Bank will take all other necessary steps pursuant to applicable laws and regulations to consummate the Conversion and the Offering. The Conversion must be completed within 24 months of the approval of this Plan by Voting Members, unless a longer time period is permitted by governing laws and regulations.

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C. The Conversion will be effected as follows, or in any other manner that is consistent with the purposes of this Plan and applicable laws and regulations: (1) the Bank will convert its charter to the federal stock savings bank charter, which authorizes the issuance of capital stock; (2) the Holding Company will purchase all of the capital stock issued by the Bank in connection with its conversion from mutual to stock form, for at least 50% of the net proceeds of the Offering; and (3) the Holding Company will issue the Common Stock in the Offering as provided in this Plan. Each of the steps set forth below shall be deemed to occur in such order as is necessary to consummate the Conversion pursuant to this Plan, the intent of the Board of Directors of the Holding Company and the Board of Directors of the Bank, and applicable federal and state regulations and policy. Approval of this Plan by Voting Members also shall constitute approval of each of the transactions necessary to implement this Plan.

The Board of Directors of the Bank may determine for any reason at any time prior to the issuance of the Subscription Shares not to utilize a holding company form of organization in the Conversion. If the Board of Directors determines not to complete the Conversion utilizing a holding company form of organization, the stock of the Bank will be issued and sold in accordance with this Plan. In such case, the Holding Company’s registration statement will be withdrawn from the SEC, the Bank will take steps necessary to complete the Conversion, including filing any necessary documents with the OTS and will issue and sell the Subscription Shares in accordance with this Plan. In such event, any subscriptions or orders received for Subscription Shares of the Holding Company shall be deemed to be subscriptions or orders for common stock of the Bank, and the Bank shall take such steps as permitted or required by the OTS, the Secretary and the SEC.

D. The Holding Company shall register the issuance of the Subscription Shares with the SEC and any appropriate state securities authorities.

E. Upon completion of the Conversion, the legal existence of the Bank shall not terminate but the stock Bank shall be a continuation of the entity of the mutual Bank and all property of the mutual Bank, including its right, title and interest in and to all property of whatever kind and nature, whether real, personal, or mixed, and things, and chooses in action, and every right, privilege, interest and asset of every conceivable value or benefit then existing or pertaining to it, or which would inure to it, immediately by operation of law and without the necessity of any conveyance or transfer and without any further act or deed shall vest in the stock Bank. The stock Bank shall have, hold, and enjoy the same in its own right as fully and to the same extent as the same was possessed, held and enjoyed by the mutual Bank. The stock Bank at the time and the taking effect of the Conversion shall continue to have and succeed to all the rights, obligations and relations of the mutual Bank. All pending actions and other judicial or administrative proceedings to which the Bank was a party shall not be discontinued by reason of the Conversion, but may be prosecuted to final judgment or order in the same manner as if the Conversion had not been made and the stock Bank resulting from the Conversion may continue the actions in its name notwithstanding the Conversion. Upon completion of the Conversion, each Person having a Deposit Account at the Bank prior to the Conversion will continue to have a Deposit Account, without further payment therefore, in the same amount and subject to the same terms and conditions (except for Liquidation Rights) as in effect prior to the Conversion. All of the Bank’s insured Deposit Accounts will continue to be insured by the FDIC to the extent provided by applicable law.

F. The home office and branch offices, if any, of the Bank shall be unaffected by the Conversion. The executive offices of the Holding Company shall be located at the current offices of the Bank.

4. HOLDING COMPANY APPLICATIONS AND APPROVALS

The Boards of Directors of the Holding Company and the Bank will take all necessary steps to convert the Bank to stock form, form the Holding Company and complete the Offering. The Holding Company shall make timely applications to the OTS and filings with the SEC for any requisite regulatory approvals to complete the Conversion.

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5. SALE OF SUBSCRIPTION SHARES

The Subscription Shares will be offered simultaneously in the Subscription Offering to the Participants in the respective priorities set forth in this Plan. The Subscription Offering may begin as early as the mailing of the proxy statement for the Special Meeting of Members. The Common Stock will not be insured by the FDIC. The Bank will not extend credit to any Person to purchase shares of Common Stock.

Any shares of Common Stock for which subscriptions have not been received in the Subscription Offering may be issued in the Community Offering. The Subscription Offering may begin prior to the Special Meeting of Members and, in that event, the Community Offering also may begin prior to the Special Meeting of Members. The offer and sale of Common Stock prior to the Special Meeting of Members, however, is subject to the approval of this Plan by Voting Members.

Shares of Common Stock remaining after the Subscription Offering, and the Community Offering should one be conducted, may be sold in a Syndicated Community Offering or in any manner that will achieve the widest distribution of the Common Stock. The Syndicated Community Offering may be conducted in addition to, or instead of, a Community Offering. The issuance of Common Stock in any Subscription Offering and any Community Offering will be consummated simultaneously on the date the sale of Common Stock in the Syndicated Community Offering is consummated and only if the required minimum number of shares of Common Stock has been issued and sold.

6. PURCHASE PRICE AND NUMBER OF SUBSCRIPTION SHARES

The total number of shares, or a range thereof, of Subscription Shares to be offered for sale in the Offering will be determined jointly by the Boards of Directors of the Bank and the Holding Company immediately prior to the commencement of the Subscription and Community Offerings, and will be based on the Appraised Value Range and the Subscription Price. The Offering Range will be equal to the Appraised Value Range divided by the Subscription Price. The estimated pro forma consolidated market value of the Holding Company will be subject to adjustment within the Appraised Value Range if necessitated by market or financial conditions, with the receipt of any required approvals of the OTS, and the maximum of the Appraised Value Range may be increased by up to 15% subsequent to the commencement of the Subscription Offering to reflect changes in market and financial conditions or demand for the shares. The number of Subscription Shares issued in the Offering will be equal to the estimated pro forma consolidated market value of the Holding Company, as may be amended, divided by the Subscription Price.

In the event that the Subscription Price multiplied by the number of Subscription Shares subscribed for in the Offering is below the minimum of the Appraised Value Range, or materially above the maximum of the Appraised Value Range, a resolicitation of subscribers may be required, provided that up to a 15% increase above the maximum of the Appraised Value Range will not be deemed material so as to require a resolicitation. Any such resolicitation shall be effected in such manner and within such time as the Bank and the Holding Company shall establish, if all required regulatory approvals are obtained.

Notwithstanding the foregoing, Subscription Shares will not be issued unless, prior to the consummation of the Offering, the Independent Appraiser confirms to the Bank, the Holding Company, and the OTS, that, to the best knowledge of the Independent Appraiser, nothing of a material nature has occurred which, taking into account all relevant factors, would cause the Independent Appraiser to conclude that the number of Subscription Shares issued in the Offering multiplied by the Subscription Price is incompatible with its estimate of the aggregate consolidated pro forma market value of the Holding Company. If such confirmation is not received, the Holding Company may cancel the Offering, extend the Offering and establish a new Subscription Price and/or Appraised Value Range, or take such other action as the OTS may permit.

The Common Stock to be issued in the Offering shall be fully paid and non-assessable.

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7. RETENTION OF OFFERING PROCEEDS BY THE HOLDING COMPANY

The Holding Company may retain up to 50% of the proceeds of the Offering. The Offering proceeds will provide additional capital to the Holding Company and the Bank for future growth of the Bank’s assets, products and services in a highly competitive and regulated financial services environment and would facilitate the continued expansion through acquisitions of financial service organizations, continued diversification into other related businesses and for other business and investment purposes, including the possible payment of dividends and possible future repurchases of the Common Stock as permitted by applicable federal and state regulations and policy. Following the Conversion, the Bank may distribute additional capital to the Holding Company from time to time, subject to the OTS regulations governing capital distributions.

8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)

A. Each Eligible Account Holder shall have nontransferable subscription rights to subscribe for in the Subscription Offering up to the greater of 15,000 shares of Common Stock, 0.10% of the total number of shares of Common Stock issued in the Offering, or fifteen times (15) the product (rounded down to the next whole number) obtained by multiplying the number of Subscription Shares offered in the Offering by a fraction of which the numerator is the amount of the Eligible Account Holder’s Qualifying Deposit and the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders, in each case on the Eligibility Record Date, subject to the provisions of Section 14.

B. In the event that Eligible Account Holders exercise subscription rights for a number of Subscription Shares in excess of the total number of such shares eligible for subscription, the Subscription Shares shall be allocated among the subscribing Eligible Account Holders so as to permit each subscribing Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation of Subscription Shares equal to the lesser of 100 shares or the number of shares for which such Eligible Account Holder has subscribed. Any remaining shares will be allocated among the subscribing Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the amount of the Qualifying Deposit of each Eligible Account Holder whose subscription remains unsatisfied bears to the total amount of the Qualifying Deposits of all Eligible Account Holders whose subscriptions remain unsatisfied. If the amount so allocated exceeds the amount subscribed for by any one or more Eligible Account Holders, the excess shall be reallocated (one or more times as necessary) among those Eligible Account Holders whose subscriptions are still not fully satisfied on the same principle until all available shares have been allocated.

C. Subscription rights as Eligible Account Holders received by Directors and Officers and their Associates that are based on deposits made by such persons during the 12 months preceding the Eligibility Record Date shall be subordinated to the subscription rights of all other Eligible Account Holders.

9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)

The Employee Plans of the Holding Company and the Bank shall have subscription rights to purchase in the aggregate up to 10% of the Subscription Shares issued in the Offering, including any Subscription Shares to be issued as a result of an increase in the maximum of the Offering Range after commencement of the Subscription Offering and prior to completion of the Offering. Consistent with applicable laws and regulations and practices and policies, the Employee Plans may use funds contributed by the Holding Company or the Bank and/or borrowed from an independent financial institution to exercise such subscription rights, and the Holding Company and the Bank may make scheduled discretionary contributions thereto, provided that such contributions do not cause the Holding Company or the Bank to fail to meet any applicable regulatory capital requirements. The Employee Plans shall not be deemed to be Associates or Affiliates of or Persons Acting in Concert with any Director or Officer of the Holding Company or the Bank. If the final valuation exceeds the maximum of the Appraised Value Range, up to 10% of the Subscription Shares issued in the Offering may be sold to the Employee Plans notwithstanding any oversubscription by Eligible Account Holders. Alternatively, if permitted by the OTS, the Employee Plans may purchase all or a portion of such shares in the open market.

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10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY)

A. Each Supplemental Eligible Account Holder shall have nontransferable subscription rights to subscribe for in the Subscription Offering up to the greater of 15,000 shares of Common Stock, 0.10% of the total number of shares of Common Stock issued in the Offering, or fifteen times (15) the product (rounded down to the next whole number) obtained by multiplying the number of Subscription Shares offered in the Offering by a fraction of which the numerator is the amount of the Supplemental Eligible Account Holder’s Qualifying Deposit and the denominator is the total amount of Qualifying Deposits of all Supplemental Eligible Account Holders, in each case on the Supplemental Eligibility Record Date, subject to the availability of sufficient shares after filling in full all subscription orders of the Eligible Account Holders and Employee Plans and to the purchase limitations specified in Section 14.

B. In the event that Supplemental Eligible Account Holders exercise subscription rights for a number of Subscription Shares in excess of the total number of such shares eligible for subscription, the Subscription Shares shall be allocated among the subscribing Supplemental Eligible Account Holders so as to permit each such subscribing Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation of Subscription Shares equal to the lesser of 100 shares or the number of shares for which each such Supplemental Eligible Account Holder has subscribed. Any remaining shares will be allocated among the subscribing Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the amount of the Qualifying Deposit of each such Supplemental Eligible Account Holder bears to the total amount of the Qualifying Deposits of all Supplemental Eligible Account Holders whose subscriptions remain unsatisfied. If the amount so allocated exceeds the amount subscribed for by any one or more Supplemental Eligible Account Holders, the excess shall be reallocated (one or more times as necessary) among those Supplemental Eligible Account Holders whose subscriptions are still not fully satisfied on the same principle until all available shares have been allocated.

11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)

A. Each Other Member shall have nontransferable subscription rights to subscribe for in the Subscription Offering up to the greater of 15,000 shares of Common Stock or 0.10% of the total number of shares of Common Stock issued in the Offering, subject to the availability of sufficient shares after filling in full all subscription orders of Eligible Account Holders, Employee Plans and Supplemental Eligible Account Holders and to the purchase limitations specified in Section 14.

B. In the event that such Other Members subscribe for a number of Subscription Shares which, when added to the Subscription Shares subscribed for by the Eligible Account Holders, Employee Plans and Supplemental Eligible Account Holders, is in excess of the total number of Subscription Shares to be issued, the available shares will be allocated to Other Members so as to permit each such subscribing Other Member, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation of Subscription Shares equal to the lesser of 100 shares or the number of shares for which each such Other Member has subscribed. Any remaining shares will be allocated among the subscribing Other Members whose subscriptions remain unsatisfied in the proportion that the amount of the subscription of each such Other Member bears to the total amount of the subscriptions of all Other Members whose subscriptions remain unsatisfied.

12. COMMUNITY OFFERING

Shares for which subscriptions have not been received in the Subscription Offering may be issued and sold in the Community Offering through a direct community marketing program that may use a broker, dealer, consultant or investment banking firm experienced and expert in the sale of savings institutions securities. Such entities may be compensated on a fixed fee basis or on a commission basis, or a combination thereof. In the event orders for Common Stock in the Community Offering exceed the number of shares available for sale, shares may be allocated (to the extent shares remain available) first to cover orders of natural persons residing in the Community, and thereafter to cover orders of other members of the general public, so that each Person in such category of the Community Offering may receive the lesser of 100 shares or the number of shares they ordered. Shares will then be allocated on an equal number of shares basis per order. The Holding Company shall use its best efforts consistent

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with this Plan to distribute Common Stock sold in the Community Offering in such a manner as to promote the widest distribution practicable of such stock. The Holding Company reserves the right to reject any or all orders in whole or in part, which are received in the Community Offering. Any Person may purchase up to 15,000 shares of Common Stock in the Community Offering, subject to the purchase limitations specified in Section 14.

13. SYNDICATED COMMUNITY OFFERING

If feasible, the Board of Directors may determine to offer Subscription Shares not issued in the Subscription Offering or the Community Offering in a Syndicated Community, subject to such terms, conditions and procedures as may be determined by the Holding Company, in a manner that will achieve the widest distribution of the Common Stock, subject to the right of the Holding Company to accept or reject in whole or in part any subscriptions in the Syndicated Community Offering. In the Syndicated Community Offering, any Person may purchase up to 15,000 shares of Common Stock, subject to the purchase limitations specified in Section 14.

Provided that the Subscription Offering has begun, the Holding Company may begin the Syndicated Community Offering at any time, provided that the completion of the offer and sale of the Common Stock will be conditioned upon the approval of this Plan by Voting Members. If the Syndicated Community Offering does not begin pursuant to the provisions of the preceding sentence, such offering will begin as soon as practicable following the date upon which the Subscription and Community Offerings terminate.

If for any reason a Syndicated Community Offering of shares of Common Stock not sold in the Subscription and Community Offerings cannot be effected, or in the event that any insignificant residue of shares of Common Stock is not sold in the Subscription and Community Offerings or in the Syndicated Community, if possible, the Holding Company will make other arrangements for the disposition of unsubscribed shares aggregating at least the minimum of the Offering Range. Such other purchase arrangements will be subject to receipt of any required approval of the OTS.

14. LIMITATION ON PURCHASES

The following limitations shall apply to all purchases and issuances of Subscription Shares:

A. The maximum number of shares of Common Stock that may be subscribed for and purchased in all categories in the Offering by any Person or Participant or group is 15,000 shares. The maximum number of shares of Common Stock that may be subscribed for or purchased in all categories in the Offering by any Person or Participant together with any Associate or group of Persons Acting in Concert is 15,000 shares, except that the Employee Plans may subscribe for up to 10% of the Common Stock issued in the Offering (including shares issued in the event of an increase in the maximum of the Offering Range of 15%). Notwithstanding any provision hereof to the contrary, but subject to the right of the Board of Directors to decrease or increase the purchase limitations in this Plan pursuant to this Section 14, in the event 15,000 shares exceeds 5.0% of the shares of Common Stock issued in the Offering, the 15,000 share purchase limitation will be reduced to equal 5.0% of the shares of Common Stock issued in the Offering.

B. The maximum number of shares of Common Stock that may be issued to or purchased in all categories of the Offering by Officers and Directors and their Associates in the aggregate, shall not exceed 34% of the shares of Common Stock issued in the Offering.

C. A minimum of 25 shares of Common Stock must be purchased by each Person or Participant purchasing shares in the Offering to the extent those shares are available; provided, however, that in the event the minimum number of shares of Common Stock purchased times the price per share exceeds $500, then such minimum purchase requirement shall be reduced to such number of shares which when multiplied by the price per share shall not exceed $500, as determined by the Board.

If the number of shares of Common Stock otherwise allocable pursuant to Sections 8 through 13, inclusive, to any Person or that Person’s Associates would be in excess of the maximum number of shares permitted as set forth above, the number of shares of Common Stock allocated to each such Person shall be reduced to the lowest limitation applicable to that Person, and then the number of shares allocated to each group consisting of a Person and that Person’s Associates shall be reduced so that the aggregate allocation to that Person and his or her Associates complies with the above limits.

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Depending upon market or financial conditions, the Board of Directors of the Holding Company, with the receipt of any required approvals of the OTS and without further approval of Voting Members, may decrease or increase the purchase limitations in this Plan, provided that the maximum purchase limitations may not be increased to a percentage in excess of 5.0% of the shares issued in the Offering except as provided below. If the Holding Company increases the maximum purchase limitations, the Holding Company is only required to resolicit Persons who subscribed for the maximum purchase amount in the Subscription Offering and may, in the sole discretion of the Holding Company, resolicit certain other large subscribers. In the event that the maximum purchase limitation is increased to 5.0% of the shares issued in the Offering, such limitation may be further increased to 9.99%, provided that orders for Common Stock exceeding 5.0% of the shares of Common Stock issued in the Offering shall not exceed in the aggregate 10.0% of the total shares of Common Stock issued in the Offering. Requests to purchase additional Subscription Shares in the event that the purchase limitation is so increased will be determined by the Board of Directors of the Holding Company in its sole discretion.

In the event of an increase in the total number of shares offered in the Offering due to an increase in the maximum of the Offering Range of up to 15% (the “Adjusted Maximum”), the additional shares may be used to fill the Employee Plans orders and then may be allocated in accordance with the priorities set forth in this Plan.

For purposes of this Section 14, the Directors, Officers and Employees of the Bank and the Holding Company shall not be deemed to be Associates or a group affiliated with each other or otherwise Acting in Concert solely as a result of their being Directors of the Bank or the Holding Company.

Each Person purchasing Common Stock in the Offering shall be deemed to confirm that such purchase does not conflict with the above purchase limitations contained in this Plan.

15. PAYMENT FOR SUBSCRIPTION SHARES

All payments for Common Stock subscribed for in the Subscription Offering and Community Offering must be delivered in full to the Bank or Holding Company, together with a properly completed and executed Order Form, on or prior to the expiration date of the Offering; provided, however, that if the Employee Plans subscribe for shares in the Subscription Offering, such plans will not be required to pay for the shares at the time they subscribe but rather may pay for such shares of Common Stock subscribed for by such plans at the Subscription Price upon consummation of the Offering.

Payment for Common Stock subscribed for shall be made by personal check, money order or bank draft. Alternatively, subscribers in the Subscription and Community Offerings may pay for the shares for which they have subscribed by authorizing the Bank on the Order Form to make a withdrawal from the designated types of Deposit Accounts at the Bank in an amount equal to the aggregate Subscription Price of such shares. Such authorized withdrawal shall be without penalty as to premature withdrawal. If the authorized withdrawal is from a certificate account, and the remaining balance does not meet the applicable minimum balance requirement, the certificate shall be canceled at the time of withdrawal, without penalty, and the remaining balance will earn interest at the passbook rate. Funds for which a withdrawal is authorized will remain in the subscriber’s Deposit Account but may not be used by the subscriber during the Subscription and Community Offerings. Thereafter, the withdrawal will be given effect only to the extent necessary to satisfy the subscription (to the extent it can be filled) at the Subscription Price per share. Interest will continue to be earned on any amounts authorized for withdrawal until such withdrawal is given effect. Funds received by check, money order or bank draft will be held in a segregated account at the Bank or, at the Bank’s discretion, at another insured depository institution. Interest on funds received by check, money order or bank draft will be paid by the Bank at not less than the passbook rate. Such interest will be paid from the date payment is processed by the Bank until consummation or termination of the Offering. If for any reason the Offering is not consummated, all payments made by subscribers in the Subscription and Community Offerings will be refunded to them with interest. In case of amounts authorized for withdrawal from Deposit Accounts, refunds will be made by canceling the authorization for withdrawal. The Bank is prohibited by regulation from knowingly making any loans or granting any lines of credit for the purchase of stock in the Offering, and therefore, will not do so.

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16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS

As soon as practicable after the Prospectus prepared by the Holding Company and the Bank has been declared effective by the SEC, Order Forms will be distributed to the Eligible Account Holders, Employee Plans, Supplemental Eligible Account Holders and Other Members at their last known addresses appearing on the records of the Bank as of the Voting Record Date for the purpose of subscribing for shares of Common Stock in the Subscription Offering and will be made available for use by those Persons to whom a Prospectus is delivered.

Each Order Form will be preceded or accompanied by a prospectus describing the Holding Company, the Bank, the Common Stock and the Offering. Each Order Form will contain, among other things, the following:

A. A specified date by which all Order Forms must be received by the Bank or the Holding Company, which date shall be not less than 20 days, nor more than 45 days, following the date on which the Order Forms are mailed by the Holding Company, and which date will constitute the termination of the Subscription Offering unless extended;

B. The Subscription Price per share for shares of Common Stock to be sold in the Offering;

C. A description of the minimum and maximum number of Subscription Shares that may be subscribed for pursuant to the exercise of subscription rights or otherwise purchased in the Subscription and Community Offering;

D. Instructions as to how the recipient of the Order Form is to indicate thereon the number of Subscription Shares for which such person elects to subscribe and the available alternative methods of payment therefore;

E. An acknowledgment that the recipient of the Order Form has received a final copy of the Prospectus prior to execution of the Order Form;

F. A statement to the effect that all subscription rights are nontransferable, will be void at the end of the Subscription Offering, and can only be exercised by delivering to the Holding Company within the subscription period such properly completed and executed Order Form, together with payment in the full amount of the aggregate purchase price as specified in the Order Form for the shares of Common Stock for which the recipient elects to subscribe in the Subscription Offering (or by authorizing on the Order Form that the Bank withdraw said amount from the subscriber’s Deposit Account at the Bank); and

G. A statement to the effect that the executed Order Form, once received by the Holding Company, may not be modified or amended by the subscriber without the consent of the Holding Company.

Notwithstanding the above, the Holding Company reserves the right in its sole discretion to accept or reject orders received on photocopied or facsimiled order forms.

17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT

In the event Order Forms (a) are not delivered by the United States Postal Service, (b) are not received back by the Holding Company or are received by the Holding Company after the expiration date specified thereon, (c) are defectively filled out or executed, (d) are not accompanied by the full required payment, unless waived by the Holding Company, for the shares of Common Stock subscribed for (including cases in which deposit accounts from which withdrawals are authorized are insufficient to cover the amount of the required payment), or (e) are not mailed pursuant to a “no mail” order placed in effect by the account holder, the subscription rights of the Person to whom such rights have been granted will lapse as though such Person failed to return the completed Order Form within the time period specified thereon; provided, however, that the Holding Company may, but will not be

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required to, waive any immaterial irregularity on any Order Form or require the submission of corrected Order Forms or the remittance of full payment for subscribed shares by such date as the Holding Company may specify. The interpretation of the Holding Company of terms and conditions of this Plan and of the Order Forms will be final, subject to the authority of the OTS.

18. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES

The Holding Company will make reasonable efforts to comply with the securities laws of all States in the United States in which Persons entitled to subscribe for shares of Common Stock pursuant to this Plan reside. However, no such Person will be issued subscription rights or be permitted to purchase shares of Common Stock in the Subscription Offering if such Person resides in a foreign country; or in a State of the United States with respect to which any of the following apply: (A) a small number of Persons otherwise eligible to subscribe for shares under this Plan reside in such state; (B) the issuance of subscription rights or the offer or sale of shares of Common Stock to such Persons would require the Holding Company under the securities laws of such state, to register as a broker, dealer, salesman or agent or to register or otherwise qualify its securities for sale in such state; and (C) such registration or qualification would be impracticable for reasons of cost or otherwise.

19. ESTABLISHMENT OF LIQUIDATION ACCOUNT

The Bank shall establish at the time of the Conversion, a Liquidation Account in an amount equal to the Bank’s total equity as reflected in the latest statement of financial condition contained in the final Prospectus used in the Offering. Following the Conversion, the Liquidation Account will be maintained by the Bank for the benefit of the Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain their Deposit Accounts at the Bank. Each Eligible Account Holder and Supplemental Eligible Account Holder shall, with respect to his Deposit Account, hold a related inchoate interest in a portion of the Liquidation Account balance, in relation to his Deposit Account balance at the Eligibility Record Date or Supplemental Eligibility Record Date, respectively, or to such balance as it may be subsequently reduced, as hereinafter provided.

In the unlikely event of a complete liquidation of the Bank (and only in such event), following all liquidation payments to creditors (including those to Account Holders to the extent of their Deposit Accounts) each Eligible Account Holder and Supplemental Eligible Account Holder shall be entitled to receive a liquidating distribution from the Liquidation Account, in the amount of the then adjusted subaccount balance for his Deposit Account then held, before any liquidation distribution may be made to any holders of the Bank’s capital stock. No merger, consolidation, purchase of bulk assets with assumption of Deposit Accounts and other liabilities, or similar transactions with an FDIC-insured institution, in which the Bank is not the surviving institution, shall be deemed to be a complete liquidation for this purpose. In such transactions, the Liquidation Account shall be assumed by the surviving institution.

The initial subaccount balance for a Deposit Account held by an Eligible Account Holder and Supplemental Eligible Account Holder shall be determined by multiplying the opening balance in the Liquidation Account by a fraction, the numerator of which is the amount of the Qualifying Deposits of such Account Holder and the denominator of which is the total amount of all Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible Account Holders. For Deposit Accounts in existence at both the Eligibility Record Date and the Supplemental Eligibility Record Date, separate initial subaccount balances shall be determined on the basis of the Qualifying Deposits in such Deposit Account on each such record date. Such initial subaccount balance shall not be increased, but shall be subject to downward adjustment as described below.

If, at the close of business on any September 30 annual closing date, commencing on or after the effective date of the Conversion, the deposit balance in the Deposit Account of an Eligible Account Holder or Supplemental Eligible Account Holder is less than the lesser of (i) the balance in the Deposit Account at the close of business on any other annual closing date subsequent to the Eligibility Record Date or Supplemental Eligibility Record Date, or (ii) the amount of the Qualifying Deposit in such Deposit Account as of the Eligibility Record Date or Supplemental Eligibility Record Date, the subaccount balance for such Deposit Account shall be adjusted by reducing such subaccount balance in an amount proportionate to the reduction in such deposit balance. In the event of such downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any subsequent increase in the deposit balance of the related Deposit Account. If any such Deposit Account is closed, the related subaccount shall be reduced to zero.

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The creation and maintenance of the Liquidation Account shall not operate to restrict the use or application of any of the equity accounts of the Bank, except that the Bank shall not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause its equity to be reduced below (i) the amount required for the Liquidation Account; or (ii) the regulatory capital requirements of the Bank.

20. VOTING RIGHTS OF STOCKHOLDERS

Following consummation of the Conversion, the holders of the voting capital stock of the Holding Company shall have the exclusive voting rights with respect to the Holding Company.

21. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION

A. All shares of Common Stock purchased by Directors or Officers of the Holding Company or the Bank in the Offering shall be subject to the restriction that, except as provided in this Section 21 or as may be approved by the OTS, no interest in such shares may be sold or otherwise disposed of for value for a period of one year following the date of purchase in the Offering.

B. The restriction on disposition of Subscription Shares set forth above in this Section 21 shall not apply to the following:

(1) Any exchange of such shares in connection with a merger or acquisition involving the Bank or the Holding Company, as the case may be, which has been approved by the appropriate federal regulatory agency; and

(2) Any disposition of such shares following the death of the person to whom such shares were initially sold under the terms of this Plan.

C. With respect to all Subscription Shares subject to restrictions on resale or subsequent disposition, each of the following provisions shall apply:

(1) Each certificate representing shares restricted by this section shall bear a legend prominently stamped on its face giving notice of the restriction;

(2) Instructions shall be issued to the stock transfer agent for the Holding Company not to recognize or effect any transfer of any certificate or record of ownership of any such shares in violation of the restriction on transfer; and

(3) Any shares of capital stock of the Holding Company issued with respect to a stock dividend, stock split, or otherwise with respect to ownership of outstanding Subscription Shares subject to the restriction on transfer hereunder shall be subject to the same restriction as is applicable to such Subscription Shares.

22. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE CONVERSION

For a period of three years following the Conversion, no Officer, Director or their Associates shall purchase, without the prior written approval of the OTS, any outstanding shares of Common Stock except from a broker-dealer registered with the SEC. This provision shall not apply to negotiated transactions involving more than 1% of the outstanding shares of Common Stock, the exercise of any options pursuant to a stock option plan or purchases of Common Stock made by or held by any Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock Benefit Plan of the Bank or the Holding Company (including the Employee Plans) which may be attributable to any Officer or Director. As used herein, the term “negotiated transaction” means a transaction in which the securities are offered and the terms and arrangements relating to any sale are arrived at through direct communications between the seller or any person acting on its behalf and the purchaser or his investment representative. The term “investment representative” shall mean a professional investment advisor acting as agent for the purchaser and independent of the seller and not acting on behalf of the seller in connection with the transaction.

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23. TRANSFER OF DEPOSIT ACCOUNTS

Each person holding a Deposit Account at the Bank at the time of Conversion shall retain an identical Deposit Account at the Bank following Conversion in the same amount and subject to the same terms and conditions (except as to voting and liquidation rights).

24. REGISTRATION AND MARKETING

Within the time period required by applicable laws and regulations, the Holding Company will register the securities issued in connection with the Offering pursuant to the Securities Exchange Act of 1934 and will not deregister such securities for a period of at least three years thereafter, except that the requirement that registration be maintained for three years may be fulfilled by any successor to the Holding Company. In addition, the Holding Company will use its best efforts to encourage and assist a market maker to establish and maintain a market for the Common Stock and to list those securities on a national or regional securities exchange or the Nasdaq Stock Market.

25. TAX RULINGS OR OPINIONS

Consummation of the Conversion is expressly conditioned upon prior receipt by the Bank of either a ruling or an opinion of counsel with respect to federal tax laws, and either a ruling, an opinion of counsel, or a letter of advice from their tax advisor with respect to applicable state tax laws, to the effect that consummation of the transactions contemplated by the Conversion and this Plan will not result in a taxable reorganization under the provisions of the applicable codes or otherwise result in any adverse tax consequences to the Holding Company or the Bank, or to the account holders receiving subscription rights before or after the Conversion, except in each case to the extent, if any, that subscription rights are deemed to have value on the date such rights are issued.

26. STOCK BENEFIT PLANS AND EMPLOYMENT AGREEMENTS

A. The Holding Company and the Bank are authorized to adopt Tax-Qualified Employee Stock Benefit Plans in connection with the Offering, including without limitation, an ESOP. Existing as well as any newly created Tax-Qualified Employee Stock Benefit Plans may purchase shares of Common Stock in the Offering, to the extent permitted by the terms of such benefit plans and this Plan.

B. The Holding Company and the Bank are authorized to enter into employment agreements with their executive officers.

C. The Holding Company and the Bank are authorized to adopt stock option plans, restricted stock grant plans and other Non-Tax-Qualified Employee Stock Benefit Plans, provided that such plans conform to any applicable requirements of federal regulations.

27. RESTRICTIONS ON ACQUISITION OF BANK AND HOLDING COMPANY

A. (1) The charter of the Bank may contain a provision stipulating that no person, except the Holding Company, for a period of five years following the closing date of the Offering, may directly or indirectly acquire or offer to acquire the beneficial ownership of more than 10% of any class of an equity security of the Bank, without the prior written approval of the OTS. Such charter may also provide that for a period of five years following the closing date of the Conversion, shares beneficially owned in violation of the above-described charter provision shall not be entitled to vote and shall not be voted by any person or counted as voting stock in connection with any matter submitted to stockholders for a vote. In addition, special meetings of the stockholders relating to changes in control or amendment of the charter may only be called by the Board of Directors, and stockholders shall not be permitted to cumulate their votes for the election of Directors.

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(2) For a period of three years from the date of consummation of the Conversion, no person, other than the Holding Company, may directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of any class of an equity security of the Bank without the prior written consent of the OTS.

B. The Articles of Incorporation of the Holding Company may contain a provision stipulating that in no event shall any record owner of any outstanding shares of Common Stock who beneficially owns in excess of 10% of such outstanding shares be entitled or permitted to any vote with respect to any shares held in excess of 10%. In addition, the Articles of Incorporation and Bylaws of the Holding Company may contain provisions that prohibit cumulative voting for the election of directors and provide for staggered terms of the directors, limitations on the calling of special meetings, a fair price provision for certain business combinations and certain notice requirements.

C. For the purposes of this section:

(1) The term “person” includes an individual, a firm, a corporation or other entity;

(2) The term “offer” includes every offer to buy or acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of, a security or interest in a security for value;

(3) The term “acquire” includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise; and

(4) The term “security” includes non-transferable subscription rights issued pursuant to a plan of conversion as well as a “security” as defined in 15 U.S.C. § 77b(a)1.

28. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK

A. The Holding Company shall comply with any applicable regulation in the repurchase of any shares of its capital stock following consummation of the Conversion.

B. The Bank shall not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause its regulatory capital to be reduced below (i) the amount required for the liquidation account, or (ii) the federal or state regulatory capital requirements.

29. CONSUMMATION OF CONVERSION AND EFFECTIVE DATE

The Effective Date of the Conversion shall be the date of the closing of the sale of all shares of the Common Stock after all requisite regulatory and Voting Member approvals have been obtained, all applicable waiting periods have expired, and sufficient subscriptions and orders for Subscription Shares have been received. The closing of the sale of all shares of Common Stock sold in the Offering shall occur simultaneously on the effective date of the closing.

30. EXPENSES OF CONVERSION

The Bank and the Holding Company may retain and pay for the services of legal, financial and other advisors to assist in connection with any or all aspects of the Conversion, including the Offering, and such parties shall use their best efforts to assure that such expenses are reasonable.

31. AMENDMENT OR TERMINATION OF PLAN

If deemed necessary or desirable, this Plan may be substantively amended as a result of comments from the OTS or otherwise at any time prior to solicitation of proxies from Voting Members to vote on this Plan by the Board of Directors of the Bank, and at any time thereafter by the Board of Directors of the Bank with the concurrence of the OTS. Any amendment to this Plan made after approval by Voting Members with the approval of the OTS shall not require further approval by Voting Members unless otherwise required by the OTS. The Board of Directors of the Bank may terminate this Plan at any time prior to the Special Meeting of Members to vote on this Plan, and at any time thereafter with the concurrence of the OTS.

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By adopting this Plan, Voting Members of the Bank authorize the Board of Directors of the Bank to amend or terminate this Plan under the circumstances set forth in this Section 31.

32. CONDITIONS TO CONVERSION

Consummation of the Conversion pursuant to this Plan is expressly conditioned upon the following:

A. Prior receipt by the Bank of rulings of the United States Internal Revenue Service and the state taxing authorities, or opinions of counsel or tax advisers as described in Section 25;

B. The issuance of the Subscription Shares offered in the Offering; and

C. The completion of the Conversion within the time period specified in Section 3.

33. INTERPRETATION

All interpretations of this Plan and application of its provisions to particular circumstances by a majority of the Board of Directors of the Bank shall be final, subject to the authority of the OTS.

Dated: October 21, 2009.

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EX-3.1

Exhibit 3.1

ARTICLES OF INCORPORATION

FAIRMOUNT BANCORP, INC.

The undersigned, Edward B. Crosland, Jr., whose address is 499 South Capitol St., S.W., Suite 600, Washington, DC 20003, being at least eighteen years of age, acting as incorporator, does hereby form a corporation under the general laws of the State of Maryland, having the following Articles of Incorporation (the “Articles”):

ARTICLE 1. Name. The name of the corporation is Fairmount Bancorp, Inc. (herein the “Corporation”).

ARTICLE 2. Principal Office. The address of the principal office of the Corporation in the State of Maryland is 8216 Philadelphia Road, Baltimore, Maryland 21237.

ARTICLE 3. Purpose. The purpose for which the Corporation is formed is to engage in any lawful act or activity for which corporations may be organized under the general laws of the State of Maryland as now or hereafter in force.

ARTICLE 4. Resident Agent. The name and address of the registered agent of the Corporation in the State of Maryland is The Corporation Trust Incorporated, 351 West Camden Street, Baltimore, Maryland 21201. Said resident agent is a Maryland corporation.

ARTICLE 5.

A. Capital Stock. The total number of shares of capital stock of all classes that the Corporation has authority to issue is five million (5,000,000) shares, consisting of:

1. One million (1,000,000) shares of preferred stock, par value one cent ($.01) per share (the “Preferred Stock”); and

2. Four million (4,000,000) shares of common stock, par value one cent ($.01) per share (the “Common Stock”).

The aggregate par value of all the authorized shares of capital stock is fifty thousand dollars ($50,000). Except to the extent required by governing law, rule or regulation, the shares of capital stock may be issued from time to time by the Board of Directors without further approval of the stockholders of the Corporation. The Corporation shall have the authority to purchase its capital stock out of funds lawfully available therefore, which funds shall include, without limitation, the Corporation’s unreserved and unrestricted capital surplus. The Board of Directors, pursuant to a resolution approved by a majority of the Whole Board (rounded up to the nearest whole number), and without action by the stockholders, may amend these Articles to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that the Corporation has authority to issue. For the purposes of these Articles, the term “Whole Board” shall mean the total number of directors that the Corporation would have if there were no vacancies on the Board of Directors at the time any such resolution is presented to the Board of Directors for adoption.

B. Common Stock. Except as provided under the terms of any series of Preferred Stock and as limited by Section D of this Article 5, the exclusive voting power shall be vested in the Common Stock, the holders thereof being entitled to one vote for each share of such Common Stock standing in the holder’s name on the books of the Corporation. Subject to any rights and preferences of any series of Preferred Stock, holders of Common Stock shall be entitled to such dividends as may be declared by the Board of Directors out of funds lawfully available therefore. Upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Common Stock shall be entitled to receive pro rata the remaining assets of the Corporation after payment or provision for payment of all debts and liabilities of the Corporation and payment or provision for payment of any amounts owed to the holders of any series of Preferred Stock having preference over the Common Stock on distributions on liquidation, dissolution or winding up of the Corporation.

C. Preferred Stock. The Board of Directors is hereby expressly authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of the Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required by law or pursuant to the terms of such Preferred Stock.

D. Restrictions on Voting Rights of the Corporation’s Equity Securities.

1. Notwithstanding any other provision of these Articles, in no event shall any record owner of any outstanding Common Stock that is beneficially owned, directly or indirectly, by a Person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of Common Stock (the “Limit”), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit. The number of votes that may be cast by any record owner by virtue of the provisions hereof in respect of Common Stock beneficially owned by such Person owning shares in excess of the Limit (a “Holder in Excess”) shall be a number equal to the total number of votes that a single record owner of all Common Stock owned by such Holder in Excess would be entitled to cast after giving effect to the provisions hereof, multiplied by a fraction, the numerator of which is the number of shares of such class or series beneficially owned by such Holder in Excess and owned of record by such record owner and the denominator of which is the total number of shares of Common Stock beneficially owned by such Holder in Excess. The provisions of this Section D of this Article 5 shall not be applicable if, before the Holder in Excess acquired beneficial ownership of such shares in excess of the Limit, such acquisition was approved by a majority of the “Unaffiliated Directors.” For this purpose, the term “Unaffiliated Director” means any member of the Board of Directors who is unaffiliated with the Holder in Excess and was a member of the Board of Directors prior to the time that the Holder in Excess became such, and any director who is thereafter chosen to fill any vacancy on the Board of Directors and who is elected and who, in either event, is unaffiliated with the Holder in Excess and in connection with his or her initial assumption of office is recommended for appointment or election by a majority of the Unaffiliated Directors then serving on the Board of Directors.

2. The following definitions shall apply to this Section D of this Article 5.

(a) An “affiliate” of a specified Person shall mean a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified.

(b) “Beneficial ownership” shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or statutory provision thereto, pursuant to said Rule 13d-3 as in effect on December 31, 2007; provided, however, that a Person shall, in any event, also be deemed the “beneficial owner” of any Common Stock:

(1) that such Person or any of its affiliates beneficially owns, directly or indirectly; or

(2) that such Person or any of its affiliates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of an agreement, contract, or other arrangement with the Corporation to effect any transaction of the type described in clause (i) or (ii) of the first sentence of Article 9 hereof) or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such Person nor any such affiliate is otherwise deemed the beneficial owner); or

(3) that are beneficially owned, directly or indirectly, by any other Person with which such first mentioned Person or any of its affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation; and provided further, however, that (i) no director or officer of the Corporation (or any affiliate of any such director or officer) shall, solely by reason of any or all of such directors or officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any Common Stock beneficially owned by any other such director or officer (or any affiliate thereof), and (ii) neither any employee stock ownership or similar plan of the Corporation or any subsidiary of the Corporation nor any trustee with respect thereto (or any affiliate of such trustee) shall, solely by reason of such capacity of such trustee, be deemed, for any purposes hereof, to beneficially own any Common Stock held under any such plan. For purposes of computing the percentage of beneficial ownership of Common Stock of a Person, the outstanding Common Stock shall include shares deemed owned by such Person through application of this subsection but shall not include any other shares of Common Stock that may be issuable by the Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. For all other purposes, the outstanding Common Stock shall include only Common Stock then outstanding and shall not include any Common Stock that may be issuable by the Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise.

(c) A “Person” shall mean any individual, firm, corporation, or other entity.

(d) The Board of Directors shall have the power to construe and apply the provisions of this Section D and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to (i) the number of shares of Common Stock beneficially owned by any Person, (ii) whether a Person is an affiliate of another, (iii) whether a Person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership, (iv) the application of any other definition or operative provision of this Section D to the given facts, or (v) any other matter relating to the applicability or effect of this Section D.

3. The Board of Directors shall have the right to demand that any Person reasonably believed by the Board of Directors to be a Holder in Excess (or holder of record of Common Stock beneficially owned by any Holder in Excess) supply the Corporation with complete information as to (i) the record owner(s) of all shares beneficially owned by such Holder in Excess, and (ii) any other factual matter relating to the applicability or effect of this section as may reasonably be requested of such Holder in Excess. The Board of Directors shall further have the right to receive from any Holder in Excess reimbursement for all expenses incurred by the Board in connection with its investigation of any matters relating to the applicability or effect of this section on such Holder in Excess, to the extent such investigation is deemed appropriate by the Board of Directors as a result of the Holder in Excess refusing to supply the Corporation with the information described in the previous sentence.

4. Except as otherwise provided by law or expressly provided in this Section D, the presence, in person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast a majority of the votes (after giving effect, if required, to the provisions of this Section D) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders, and every reference in these Articles to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock.

5. Any constructions, applications, or determinations made by the Board of Directors pursuant to this Section D in good faith and on the basis of such information and assistance as was then reasonably available for such purpose, shall be conclusive and binding upon the Corporation and its stockholders.

6. In the event any provision (or portion thereof) of this Section D shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Section D shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of the Corporation and its stockholders that each such remaining provision (or portion thereof) of this Section D remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, including Holders in Excess, notwithstanding any such finding.

E. Majority Vote. Notwithstanding any provision of law requiring the authorization of any action by a greater proportion than a majority of the total number of shares of all classes of capital stock or of the total number of shares of any class of capital stock, such action shall be valid and effective if authorized by the affirmative vote of the holders of a majority of the total number of shares of all classes outstanding and entitled to vote thereon, except as otherwise provided in these Articles.

ARTICLE 6. Preemptive Rights and Appraisal Rights.

A. Preemptive Rights. Except for preemptive rights approved by the Board of Directors pursuant to a resolution approved by a majority of the directors then in office, no holder of the capital stock of the Corporation or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued capital stock of any class or series, or any unissued bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for capital stock of any class or series or carrying any right to purchase stock of any class or series.

B. Appraisal Rights. Holders of shares of stock shall not be entitled to exercise any rights of an objecting stockholder provided for under Title 3, Subtitle 2 of the Maryland General Corporation Law (the “MGCL”) or any successor statute unless the Board of Directors, pursuant to a resolution approved by a majority of the directors then in office, shall determine that such rights apply with respect to all or any classes or series of stock, to one or more transactions occurring after the date of such determination in connection with which holders of such shares would otherwise be entitled to exercise such rights.

ARTICLE 7. Directors. The following provisions are made a part of these Articles for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:

A. Management of the Corporation. The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. All powers of the Corporation may be exercised by or under the authority of the Board of Directors, except as conferred on or as reserved to the stockholders by law or by these Articles or the Bylaws of the Corporation.

B. Number, Class and Terms of Directors; No Cumulative Voting. The number of directors constituting the Board of Directors of the Corporation shall initially be five (5), which number may be increased or decreased in the manner provided in the Bylaws of the Corporation; provided, however, that such number shall never be less than the minimum number of directors required by the MGCL now or hereafter in force. The directors, other than those who may be elected by the holders of any series of Preferred Stock, shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class (“Class I”) to expire at the conclusion of the first annual meeting of stockholders, the term of office of the second class (“Class II”) to expire at the conclusion of the annual meeting of stockholders one year thereafter and the term of office of the third class (“Class III”) to expire at the conclusion of the annual meeting of stockholders two years thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election or for such shorter period of time as the Board of Directors may determine, with each director to hold office until his or her successor shall have been duly elected and qualified.

The names of the individuals who will serve as directors of the Corporation until their successors are elected and qualify are as follows:

Class I Directors:	Term to Expire in
William G. Yanke	2011
Joseph M. Solomon	2011
Class II Directors:	Term to Expire in
Edward J. Lally	2012
Mary R. Craig	2012
Class III Directors:	Term to Expire in
James E. Elliott	2013

Stockholders shall not be permitted to cumulate their votes in the election of directors.

C. Vacancies. Any vacancies in the Board of Directors may be filled in the manner provided in the Bylaws of the Corporation.

D. Removal. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article 5 hereof) voting together as a single class.

E. Stockholder Proposals and Nominations of Directors. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation. Stockholder proposals to be presented in connection with a special meeting of stockholders shall be presented by the Corporation only to the extent required by Section 2-502 of the MGCL and the Bylaws of the Corporation.

ARTICLE 8. Bylaws. The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the Whole Board. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation. In addition to any vote of the holders of any class or series of stock of the Corporation required by law or by these Articles, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article 5 hereof), voting together as a single class, shall be required for the adoption, amendment or repeal of any provisions of the Bylaws of the Corporation by the stockholders.

ARTICLE 9. Evaluation of Certain Offers. The Board of Directors, when evaluating (i) any offer of another Person (as defined below) to (A) make a tender or exchange offer for any equity security of the Corporation, (B) merge or consolidate the Corporation with another corporation or entity, or (C) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation or (ii) any other actual or proposed transaction that would or may involve a change in control of the Corporation (whether by purchases of shares of stock or any other securities of the Corporation in the open market, or otherwise, tender offer, merger, consolidation, share exchange, dissolution, liquidation, sale of all or substantially all of the assets of the Corporation, proxy solicitation or otherwise), may, in connection with the exercise of its business judgment in determining what is in the best interests of the Corporation and its stockholders and in making any recommendation to the Corporation’s stockholders, give due consideration to all relevant factors, including, but not limited to: (A) the economic effect, both immediate and long-term, upon the Corporation’s stockholders, including stockholders, if any, who do not participate in the transaction; (B) the social and economic effect on the present and future employees, creditors and customers of, and others dealing with, the Corporation and its subsidiaries and on the communities in which the Corporation and its

subsidiaries operate or are located; (C) whether the proposal is acceptable based on the historical, current or projected future operating results or financial condition of the Corporation; (D) whether a more favorable price could be obtained for the Corporation’s stock or other securities in the future; (E) the reputation and business practices of the other entity to be involved in the transaction and its management and affiliates as they would affect the employees of the Corporation and its subsidiaries; (F) the future value of the stock or any other securities of the Corporation or the other entity to be involved in the proposed transaction; (G) any antitrust or other legal and regulatory issues that are raised by the proposal; (H) the business and historical, current or expected future financial condition or operating results of the other entity to be involved in the transaction, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the proposed transaction, and other likely financial obligations of the other entity to be involved in the proposed transaction; and (I) the ability of the Corporation to fulfill its objectives as a financial institution holding company and on the ability of its subsidiary financial institution(s) to fulfill the objectives of a federally insured financial institution under applicable statutes and regulations. If the Board of Directors determines that any proposed transaction of the type described in clause (i) or (ii) of the immediately preceding sentence should be rejected, it may take any lawful action to defeat such transaction, including, but not limited to, any or all of the following: advising stockholders not to accept the proposal; instituting litigation against the party making the proposal; filing complaints with governmental and regulatory authorities; acquiring the stock or any of the securities of the Corporation; selling or otherwise issuing authorized but unissued stock, other securities or granting options or rights with respect thereto; and obtaining a more favorable offer from another individual or entity. This Article 9 does not create any implication concerning factors that may be considered by the Board of Directors regarding any proposed transaction of the type described in clause (i) or (ii) of the first sentence of this Article 9.

For purposes of this Article 9, a “Person” shall include an individual, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group or entity formed for the purpose of acquiring, holding or disposing of securities.

ARTICLE 10. Indemnification, etc. of Directors and Officers.

A. Indemnification. The Corporation shall indemnify (1) its current and former directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the MGCL now or hereafter in force, including the advancement of expenses under the procedures and to the fullest extent permitted by law, and (2) other employees and agents to such extent as shall be authorized by the Board of Directors and permitted by law; provided, however, that, except as provided in Section B of this Article 10 with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.

B. Procedure. If a claim under Section A of this Article 10 is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall also be entitled to be reimbursed the expense of prosecuting or defending such suit. It shall be a defense to any action for advancement of expenses that the Corporation has not received both (i) an undertaking as required by law to repay such advances in the event it shall ultimately be determined that the standard of conduct has not been met and (ii) a written affirmation by the indemnitee of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable standard for indemnification set forth in the MGCL. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the MGCL, nor an actual determination by the Corporation (including its Board of

Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article 10 or otherwise shall be on the Corporation.

C. Non-Exclusivity. The rights to indemnification and to the advancement of expenses conferred in this Article 10 shall not be exclusive of any other right that any Person may have or hereafter acquire under any statute, these Articles, the Corporation’s Bylaws, any agreement, any vote of stockholders or the Board of Directors, or otherwise.

D. Insurance. The Corporation may maintain insurance, at its expense, to insure itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such Person against such expense, liability or loss under the MGCL.

E. Miscellaneous. The Corporation shall not be liable for any payment under this Article 10 in connection with a claim made by any indemnitee to the extent such indemnitee has otherwise actually received payment under any insurance policy, agreement, or otherwise, of the amounts otherwise indemnifiable hereunder. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article 10 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.

Any repeal or modification of this Article 10 shall not in any way diminish any rights to indemnification or advancement of expenses of such director or officer or the obligations of the Corporation arising hereunder with respect to events occurring, or claims made, while this Article 10 is in force.

ARTICLE 11. Limitation of Liability. An officer or director of the Corporation, as such, shall not be liable to the Corporation or its stockholders for money damages, except (A) to the extent that it is proved that the Person actually received an improper benefit or profit in money, property or services for the amount of the benefit or profit in money, property or services actually received; or (B) to the extent that a judgment or other final adjudication adverse to the Person is entered in a proceeding based on a finding in the proceeding that the Person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding; or (C) to the extent otherwise provided by the MGCL. If the MGCL is amended to further eliminate or limit the personal liability of officers and directors, then the liability of officers and directors of the Corporation shall be eliminated or limited to the fullest extent permitted by the MGCL, as so amended.

Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification.

ARTICLE 12. Amendment of the Articles of Incorporation. The Corporation reserves the right to amend or repeal any provision contained in these Articles in the manner prescribed by the MGCL, including any amendment altering the terms or contract rights, as expressly set forth in these Articles, of any of the Corporation’s outstanding stock by classification, reclassification or otherwise, and no stockholder approval shall be required if the approval of stockholders is not required for the proposed amendment or repeal by the MGCL, and all rights conferred upon stockholders are granted subject to this reservation.

The Board of Directors, pursuant to a resolution approved by a majority of the Whole Board (rounded up to the nearest whole number), and without action by the stockholders, may amend these Articles to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that the Corporation has authority to issue.

No proposed amendment or repeal of any provision of these Articles shall be submitted to a stockholder vote unless the Board of Directors shall have (1) approved the proposed amendment or repeal, (2) determined that it is advisable, and (3) directed that it be submitted for consideration at either an annual or special meeting of the stockholders pursuant to a resolution approved by the Board of Directors. Any proposed amendment or repeal of any provision of these Articles may be abandoned by the Board of Directors at any time before its effective time upon the adoption of a resolution approved by a majority of the Whole Board (rounded up to the nearest whole number).

The amendment or repeal of any provision of these Articles shall be approved by at least two-thirds of all votes entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote on the matter (after giving due effect to the provisions of Article 5 of these Articles), except that the proposed amendment or repeal of any provision of these Articles need only be approved by the vote of a majority of all the votes entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote on the matter (after giving due effect to the provisions of Article 5 of these Articles) if the amendment or repeal of such provision is approved by the Board of Directors pursuant to a resolution approved by at least two-thirds of the Whole Board (rounded up to the nearest whole number).

Notwithstanding any other provision of these Articles or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of the Corporation required by law or by these Articles, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article 5), voting together as a single class, shall be required to amend or repeal this Article 12, Section C, D or E of Article 5, Article 7, Article 8, Article 9, Article 10 or Article 11.

ARTICLE 13. Name and Address of Incorporator. The name and mailing address of the sole incorporator are as follows:

Edward B. Crosland, Jr., Esq.

499 Capitol South St., S.W., Suite 600

Washington, D.C. 20003

[Remainder of Page Intentionally Left Blank]

I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a corporation under the laws of the State of Maryland, do make, file and record this Charter, do certify that the facts herein stated are true, and, accordingly, have hereto set my hand this 30th day of November, 2009.

Edward B. Crosland, Jr., Incorporator

I hereby consent to my designation in this document as resident agent to this corporation.

THE CORPORATION TRUST INCORPORATED

By:

EX-3.2

Exhibit 3.2

FAIRMOUNT BANCORP, INC.

BYLAWS

ARTICLE I

STOCKHOLDERS

Section 1. Annual Meeting.

The Corporation shall hold an annual meeting of its stockholders to elect directors and to transact any other business within its powers, at such place, on such date during the month of January, and at such time as the Board of Directors shall fix. Failure to hold an annual meeting does not invalidate the Corporation’s existence or affect any otherwise valid corporate act.

Section 2. Special Meetings.

Special meetings of stockholders of the Corporation may be called by the President or by the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors that the Corporation would have if there were no vacancies on the Board of Directors (hereinafter the “Whole Board”). Special meetings of the stockholders shall be called by the Secretary at the request of stockholders only on the written request of stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting. Such written request shall state the purpose or purposes of the meeting and the matters proposed to be acted upon at the meeting, and shall be delivered at the principal office of the Corporation addressed to the President or the Secretary. The Secretary shall inform the stockholders who make the request of the reasonably estimated cost of preparing and mailing a notice of the meeting and, upon payment of these costs to the Corporation, notify each stockholder entitled to notice of the meeting. The Board of Directors shall have the sole power to fix (1) the record date for determining stockholders entitled to request a special meeting of stockholders and the record date for determining stockholders entitled to notice of and to vote at the special meeting and (2) the date, time and place of the special meeting and the means of remote communication, if any, by which stockholders and proxy holders may be considered present in person and may vote at the special meeting.

Section 3. Notice of Meetings; Adjournment.

Not less than ten (10) nor more than ninety (90) days before each stockholders’ meeting, the Secretary shall give notice of the meeting in writing or by electronic transmission to each stockholder entitled to vote at the meeting and to each other stockholder entitled to notice of the meeting. The notice shall state the time and place of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and may vote at the meeting, and, if the meeting is a special meeting or notice of the purpose is required by statute, the purpose of the meeting. Notice is given to a stockholder when it is personally delivered to the stockholder, left at the stockholder’s usual place of business, mailed to the stockholder at his or her address as it appears on the records of the Corporation, or transmitted to the stockholder by an electronic transmission to any address or number of the stockholder at which the stockholder receives electronic transmissions. If the Corporation has received a request from a stockholder that notice not be sent by electronic transmission, the Corporation may not provide notice to the stockholder by electronic transmission. Notwithstanding the foregoing provisions, each person who is entitled to notice waives notice if such person, before or after the meeting, delivers a written waiver or waiver by electronic transmission which is filed with the records of the stockholders’ meetings, or is present at the meeting in person or by proxy.

A meeting of stockholders convened on the date for which it was called may be adjourned from time to time without further notice to a date not more than one hundred twenty (120) days after the original record date. At any adjourned meeting, any business may be transacted that might have been transacted at the original meeting.

As used in these Bylaws, the term “electronic transmission” shall have the meaning given to such term by Section 1-101(k-1) of the Maryland General Corporation Law (the “MGCL”) or any successor provision.

Section 4. Quorum.

At any meeting of the stockholders, the holders of at least a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy (after giving effect to the provisions of Article 5.D of the Articles of Incorporation of the Corporation), shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. Unless the Articles of the Corporation provide otherwise, where a separate vote by a class or classes is required, a majority of the shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter.

If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock who are present at the meeting, in person or by proxy, may, in accordance with Section 3 of this Article I, adjourn the meeting to another place, date or time.

Section 5. Organization and Conduct of Business.

The Chairman of the Board of the Corporation or Chief Executive Officer, or in his or her absence, the President, or in his or her absence, such other person as may be designated by a majority of the Whole Board, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary, the secretary of the meeting shall be such person as the chairman appoints. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order.

Section 6. Advance Notice Provisions for Business to be Transacted at Annual Meetings and Elections of Directors.

(a) At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) as specified in the Corporation’s notice of the meeting, (ii) by or at the direction of the Board of Directors, or (iii) by any stockholder of the Corporation who (1) is a stockholder of record on the date of giving the notice provided for in this Section 6(a) and on the record date for the determination of stockholders entitled to vote at such annual meeting, and (2) complies with the notice procedures set forth in this Section 6(a). For business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of the immediately preceding sentence, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such business must otherwise be a proper matter for action by stockholders.

To be timely, a stockholder’s notice must be delivered or mailed to and received by the Secretary at the principal executive office of the Corporation by not later than the close of business on the 90^th day prior to the anniversary date of the date of the proxy statement relating to the preceding year’s annual meeting and not earlier than the close of business on the 120^th day prior to the anniversary date of the date of the proxy statement relating to the preceding year’s annual meeting; provided, however, that in the event the annual meeting is the first annual meeting of stockholders of the Corporation, notice by the stockholder to be timely must be so received by not later than the close of business on the 90^th day prior to the date of the annual meeting of stockholders of the Corporation, and not earlier than the close of business on the 120^th day prior to the date of the annual meeting of stockholders of the Corporation; provided, further, that in the event that the date of the annual meeting is advanced by more than 20 days, or delayed by more than 60 days, from the anniversary date of the preceding year’s annual meeting, notice by the stockholder to be timely must be so received not later than the close of business on the 90^th day prior to the date of such annual meeting and not earlier than the close of business on the 120^th day prior to the date of such annual meeting. No adjournment or postponement of a meeting of stockholders shall commence a new period for the giving of notice hereunder.

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A stockholder’s notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address of such stockholder as they appear on the Corporation’s books and of the beneficial owner, if any, on whose behalf the proposal is made; (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder and such beneficial owner; (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business; and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

Notwithstanding anything in these Bylaws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 6(a). The officer of the Corporation or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 6(a) and, if he or she should so determine, he or she shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted.

At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting pursuant to the Corporation’s notice of the meeting.

(b) Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who (1) is a stockholder of record on the date of giving the notice provided for in this Section 6(b) and on the record date for the determination of stockholders entitled to vote at such meeting, and (2) complies with the notice procedures set forth in this Section 6(b). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice shall be delivered or mailed to and received by the Secretary at the principal executive office of the Corporation by not later than the close of business on the 90^th day prior to the anniversary date of the date of the proxy statement relating to the preceding year’s annual meeting and not earlier than the close of business on the 120^th day prior to the anniversary date of the date of the proxy statement relating to the preceding year’s annual meeting; provided, however, that in the event the annual meeting is the first annual meeting of stockholders of the Corporation notice by the stockholder to be timely must be so received by not later than the close of business on the 90^th day prior to the date of the annual meeting of stockholders of the Corporation, and not earlier than the close of business on the 120^th day prior to the date of the annual meeting of stockholders of its Corporation; provided, further, that in the event that the date of the annual meeting is advanced by more than 20 days, or delayed by more than 60 days, from the anniversary date of the preceding year’s annual meeting, notice by the stockholder to be timely must be so received not later than the close of business on the 90^th day prior to the date of such annual meeting and not earlier than the close of business on the 120^th day prior to the date of such annual meeting.

A stockholder’s notice must be in writing and set forth (a) as to each person whom the stockholder proposes to nominate for election as a director, all information relating to such person that would indicate such person’s qualification under Article 2, Section 12, including an affidavit that such person would not be disqualified under the provisions of Section 12(b) and such information relating to such person that is required to be disclosed in connection with solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any successor rule or regulation; and (b) as to the stockholder giving the notice: (i) the name and address of such stockholder as they appear on the Corporation’s books and of the beneficial owner, if any, on whose behalf the nomination is made; (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder and such beneficial owner; (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder; (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings

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required to be made in connection with solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act or any successor rule or regulation. Such notice must be accompanied by a written consent of each proposed nominee to be named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the provisions of this Section 6(b). The officer of the Corporation or other person presiding at the meeting shall, if the facts so warrant, determine that a nomination was not made in accordance with such provisions and, if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded.

(c) For purposes of subsections (a) and (b) of this Section 6, the term “public announcement” shall mean disclosure (i) in a press release reported by a nationally recognized news service, (ii) in a document publicly filed or furnished by the Corporation with the U.S. Securities and Exchange Commission or (iii) on a website maintained by the Corporation.

Section 7. Proxies and Voting.

Unless the Articles of the Corporation provide for a greater or lesser number of votes per share or limits or denies voting rights, each outstanding share of stock, regardless of class, is entitled to one vote on each matter submitted to a vote at a meeting of stockholders; however, a share is not entitled to be voted if any installment payable on it is overdue and unpaid. In all elections for directors, directors shall be determined by a plurality of the votes cast, and except as otherwise required by law or as provided in the Articles of the Corporation, all other matters voted on by stockholders shall be determined by a majority of the votes cast on the matter.

A stockholder may vote the stock the stockholder owns of record either in person or by proxy. A stockholder may sign a writing authorizing another person to act as proxy. Signing may be accomplished by the stockholder or the stockholder’s authorized agent signing the writing or causing the stockholder’s signature to be affixed to the writing by any reasonable means, including facsimile signature. A stockholder may authorize another person to act as proxy by transmitting, or authorizing the transmission of, an authorization for the person to act as the proxy to the person authorized to act as proxy or to any other person authorized to receive the proxy authorization on behalf of the person authorized to act as the proxy, including a proxy solicitation firm or proxy support service organization. The authorization may be transmitted by a telegram, cablegram, datagram, electronic mail or any other electronic or telephonic means. Unless a proxy provides otherwise, it is not valid more than 11 months after its date. A proxy is revocable by a stockholder at any time without condition or qualification unless the proxy states that it is irrevocable and the proxy is coupled with an interest. A proxy may be made irrevocable for as long as it is coupled with an interest. The interest with which a proxy may be coupled includes an interest in the stock to be voted under the proxy or another general interest in the Corporation or its assets or liabilities.

Section 8. Consent of Stockholders in Lieu of Meeting.

Except as provided in the following sentence, any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting if a unanimous consent which sets forth the action is given in writing or by electronic transmission by each stockholder entitled to vote on the matter and is filed in paper or electronic format with the records of stockholder meetings. Unless the Articles of the Corporation require otherwise, the holders of any class of the Corporation’s stock other than common stock entitled to vote generally in the election of directors, may take action or consent to any action by delivering a consent in writing or by electronic transmission of the stockholders entitled to cast not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting of the stockholders if the Corporation gives notice of the action so taken to each stockholder not later than ten days after the effective time of the action.

Section 9. Conduct of Voting

The Board of Directors shall, in advance of any meeting of stockholders, appoint one or more persons as inspectors of election, to act at the meeting or any adjournment thereof and make a written report thereof, in accordance with applicable law. At all meetings of stockholders, the proxies and ballots shall be received, and all

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questions relating to the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided or determined by the inspector of election. All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefore by a stockholder entitled to vote or his or her proxy or the chairman of the meeting, a written vote shall be taken. Every written vote shall be taken by ballot, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballot shall be counted by an inspector or inspectors appointed by the chairman of the meeting. No candidate for election as a director at a meeting shall serve as an inspector at such meeting.

Section 10. Control Share Acquisition Act.

Notwithstanding any other provision of the Articles of the Corporation or these Bylaws, Title 3, Subtitle 7 of the MGCL (or any successor statute) shall not apply to any acquisition by any person of shares of stock of the Corporation. This Section 10 may be repealed, in whole or in part, at any time, whether before or after an acquisition of Control Shares (as defined in Section 3-701(d) of the MGCL, or any successor provision) and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent Control Share Acquisition (as defined in Section 3-701(d) of the MGCL, or any successor provision).

ARTICLE II

BOARD OF DIRECTORS

Section 1. General Powers, Number and Term of Office.

The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. The number of directors of the Corporation shall, by virtue of the Corporation’s election made hereby to be governed by Section 3-804(b) of the MGCL, be fixed from time to time exclusively by vote of the Board of Directors; provided, however, that such number shall never be less than the minimum number of directors required by the MGCL now or hereafter in force. The Board of Directors shall annually elect a Chairman of the Board from among its members and shall designate the Chairman of the Board or his designee to preside at its meetings.

The directors, other than those who may be elected by the holders of any series of preferred stock, shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the first annual meeting of stockholders, the term of office of the second class to expire at the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the annual meeting of stockholders two years thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the first annual meeting, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election or for such shorter period of time as the Board of Directors may determine, with each director to hold office until his or her successor shall have been duly elected and qualified.

Section 2. Vacancies and Newly Created Directorships.

By virtue of the Corporation’s election made hereby to be subject to Section 3-804(c) of the MGCL, any vacancies in the Board of Directors resulting from an increase in the size of the Board of Directors or the death, resignation or removal of a director may be filled only by the affirmative vote of two-thirds of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualifies. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

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Section 3. Regular Meetings.

Regular meetings of the Board of Directors shall be held at such place or places or by means of remote communication, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. Any regular meeting of the Board of Directors may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement.

Section 4. Special Meetings.

Special meetings of the Board of Directors may be called by one-third (1/3) of the directors then in office (rounded up to the nearest whole number), the Chairman of the Board, or by the President and shall be held at such place or by means of remote communication, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given to each director who has not waived notice by mailing and post-marking written notice not less than five days before the meeting, or by facsimile or other electronic transmission of the same not less than 72 hours before the meeting. Any director may waive notice of any special meeting, either before or after such meeting, by delivering a written waiver or a waiver by electronic transmission that is filed with the records of the meeting. Attendance of a director at a special meeting shall constitute a waiver of notice of such meeting, except where the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted nor the purpose of any special meeting of the Board of Directors need be specified in the notice of such meeting. Any special meeting of the Board of Directors may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement.

Section 5. Quorum.

At any meeting of the Board of Directors, a majority of the authorized number of directors then constituting the Board shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof.

Section 6. Participation in Meetings By Conference Telephone.

Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Such participation shall constitute presence in person at such meeting.

Section 7. Conduct of Business.

At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided in these Bylaws, the Corporation’s Articles or required by law. Action may be taken by the Board of Directors without a meeting if a unanimous consent which sets forth the action is given in writing or by electronic transmission by each member of the Board of Directors and filed in paper or electronic form with the minutes of proceedings of the Board of Directors.

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Section 8. Powers.

All powers of the Corporation may be exercised by or under the authority of the Board of Directors except as conferred on or reserved to the stockholders by law or by the Corporation’s Articles or these Bylaws. Consistent with the foregoing, the Board of Directors shall have, among other powers, the unqualified power:

(i) To declare dividends from time to time in accordance with law;

(ii) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine;

(iii) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith;

(iv) To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being;

(v) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents;

(vi) To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine;

(vii) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and

(viii) To adopt from time to time regulations, not inconsistent with these Bylaws, for the management of the Corporation’s business and affairs.

Section 9. Compensation of Directors.

Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors.

Section 10. Resignation.

Any director may resign at any time by giving written notice of such resignation to the President or the Secretary at the principal office of the Corporation. Unless otherwise specified therein, such resignation shall take effect upon receipt thereof.

Section 11. Presumption of Assent.

A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to such action unless such director announces his dissent at the meeting and (a) such director’s dissent is entered in the minutes of the meeting, (b) such director files his written dissent to such action with the secretary of the meeting before the adjournment thereof, or (c) such director forwards his written dissent within 24 hours after the meeting is adjourned, by certified mail, return receipt requested, bearing a postmark from the United States Postal Service, to the secretary of the meeting or the Secretary of the Corporation. Such right to dissent shall not apply to a director who voted in favor of such action or failed to make his dissent known at the meeting.

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Section 12. Qualifications

(a) Each Director shall be a stockholder of the Corporation. No person may be eligible for nomination, election, re-election, appointment or reappointment to the Board unless such person is under the age of 75 at the time of such nomination, election, re-election, appointment or reappointment; provided, however, that this restriction shall not apply to any person serving on the Board of the Corporation on the date of the consummation of the conversion of Midwest Federal Savings and Loan Association of St. Joseph from mutual to stock form.

(b) No person shall be eligible for nomination, election or appointment to the Board of Directors: (i) if such person has been the subject of supervisory action by a financial regulatory agency that resulted in a cease and desist order or an agreement or other written statement subject to public disclosure under 12 U.S.C. §1818(u), or any successor provision; (ii) if such person has been convicted of a crime involving dishonesty or breach of trust which is punishable by imprisonment for a term exceeding one year under state or federal law; (iii) if such person is currently charged in any information, indictment, or other complaint with the commission of or participation in such a crime; and (iv) unless such person has been, for a period of at least one year immediately before his or her nomination or appointment, a resident of the State of Maryland. No person may serve on the Board of Directors and at the same time be a director or officer of another savings bank, savings and loan association, co-operative bank, credit union, trust company, bank holding company or banking association (in each case whether chartered by a state, the federal government or any other jurisdiction) that engages in business activities in the same market area as the Corporation or any of its subsidiaries. No person shall be eligible for election or appointment to the Board of Directors if such person is the nominee or representative of a company, as that term is defined in Section 10 of the Home Owners’ Loan Act or any successor provision, of which any director, partner, trustee or stockholder controlling more than 10% of any class of voting stock would not be eligible for election to the Board of Directors under this Section 12. No person shall be eligible for election to the Board of Directors if such person is the nominee or representative of a person or group, or of a group acting in concert (as defined in 12 C.F.R. Section 574.4(d)), that includes a person who is ineligible for election to the Board of Directors under this Section 12. The Board of Directors shall have the power to construe and apply the provisions of this Section 12 and to make all determinations necessary or desirable to implement such provisions, including but not limited to determinations as to whether a person is a nominee or representative of a person, a company or a group, whether a person or company is included in a group, and whether a person is the nominee or representative of a group acting in concert.

Section 13. Attendance at Board Meetings.

The Board of Directors shall have the right to remove any director from the board upon a director’s unexcused absence of three consecutive regularly scheduled meetings of the board of directors.

ARTICLE III

COMMITTEES

Section 1. Committees of the Board of Directors.

(a) General Provisions. The Board of Directors may appoint from among its members an Audit Committee, a Compensation Committee, a Governance/Nominating Committee, and such other committees as the Board of Directors deems necessary or desirable. The membership of the Audit Committee, the Compensation Committee and the Governance/Nominating Committee shall consist of independent directors to the extent required by the applicable rules of the Securities and Exchange Commission or the NASDAQ Stock Market. The Board of Directors may delegate to any committee so appointed any of the powers and authorities of the Board of Directors to the fullest extent permitted by the MGCL and any other applicable law.

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(b) Composition. Each committee shall be composed of one or more Directors or any other number of members specified in these Bylaws. The Chairman of the Board may recommend committees, committee memberships, and committee chairmanships to the Board of Directors. The Board of Directors shall have the power at any time to appoint the chairman and the members of any committee, change the membership of any committee, to fill all vacancies on committees, to designate alternate members to replace or act in the place of any absent or disqualified member of a committee, or to dissolve any committee.

(c) Governance/Nominating Committee. The Governance/Nominating Committee, if appointed, shall consist of not less than three members who meet the applicable independence requirements referenced in Section 1.(a), above and shall have authority: (i) to review any nominations for election to the Board of Directors made by a stockholder of the Corporation pursuant to Article I, Section 6 of these Bylaws in order to determine compliance with such Bylaw provision; and (ii) to recommend to the Board of Directors nominees for election to the Board of Directors to replace those Directors whose terms expire at the annual meeting of stockholders next ensuing. No Director shall participate in the deliberations or vote in the meeting of the Governance/Nominating Committee at which he or she has been or is seeking to be proposed as a nominee.

(d) Issuance of Stock. If the Board of Directors has given general authorization for the issuance of stock providing for or establishing a method or procedure for determining the maximum number of shares to be issued, a committee of the Board of Directors, in accordance with that general authorization or any stock option or other plan or program adopted by the Board of Directors, may authorize or fix the terms of stock subject to classification or reclassification and the terms on which any stock may be issued, including all terms and conditions required or permitted to be established or authorized by the Board of Directors. Any committee so designated may exercise the power and authority of the Board of Directors if the resolution that designated the committee or a supplemental resolution of the Board of Directors shall so provide.

Section 2. Conduct of Business.

Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third of the members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if a unanimous consent which sets forth the action is given in writing or by electronic transmission by each member of the committee and filed in paper or electronic form with the minutes of the proceedings of such committee. The members of any committee may conduct any meeting thereof by conference telephone or other communications equipment in accordance with the provisions of Section 6 of Article II.

ARTICLE IV

OFFICERS

Section 1. Generally.

(a) The Board of Directors as soon as may be practicable after the annual meeting of stockholders shall choose a Chairman of the Board, Chief Executive Officer, President, one or more Vice Presidents, a Secretary and a Chief Financial Officer/Treasurer and from time to time may choose such other officers as it may deem proper. Any number of offices may be held by the same person, except that no person may concurrently serve as both President and Vice President of the Corporation.

(b) The term of office of all officers shall be until the next annual election of officers and until their respective successors are chosen, but any officer may be removed from office at any time by the affirmative vote of a majority of the authorized number of directors then constituting the Board of Directors.

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(c) All officers chosen by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof.

Section 2. Chairman of the Board of Directors.

The Chairman of the Board of Directors of the Corporation shall perform all duties and have all powers which are commonly incident to the office of Chairman of the Board or which are delegated to him or her by the Board of Directors. He or she shall have power to sign all stock certificates, contracts and other instruments of the Corporation that are authorized.

Section 3. Chief Executive Officer.

The Chief Executive Officer, subject to the control of the Board of Directors, shall serve in general executive capacity and have general power over the management and oversight of the administration and operation of the Corporation’s business and general supervisory power and authority over its policies and affairs. The Chief Executive Officer shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect.

Section 4. President.

The President shall perform the duties of the Chief Executive Officer in the Chief Executive Officer’s absence or during his or her disability to act. In addition, the President shall perform the duties and exercise the powers usually incident to their respective office and/or such other duties and powers as may be properly assigned to the President from time to time by the Board of Directors, the Chairman of the Board or the Chief Executive Officer.

Section 5. Vice President.

The Vice President or Vice Presidents (including Executive Vice Presidents or other levels of Vice President designated by the Board of Directors), if any, shall perform the duties of the Chief Executive Officer in the absence of both the Chief Executive Officer and the President, or during their disability to act. In addition, the Vice Presidents shall perform the duties and exercise the powers usually incident to their respective office and/or such other duties and powers as may be properly assigned to the Vice Presidents from time to time by the Board of Directors, the Chairman of the Board or the Chief Executive Officer.

Section 6. Secretary.

The Secretary or an Assistant Secretary shall issue notices of meetings, shall keep their minutes, shall have charge of the seal and the corporate books, shall perform such other duties and exercise such other powers as are usually incident to such offices and/or such other duties and powers as are properly assigned thereto by the Board of Directors, the Chairman of the Board or the Chief Executive Officer.

Section 7. Chief Financial Officer/Treasurer.

The Chief Financial Officer/Treasurer shall have charge of all monies and securities of the Corporation, other than monies and securities of any division of the Corporation that has a treasurer or financial officer appointed by the Board of Directors, and shall keep regular books of account. The funds of the Corporation shall be deposited in the name of the Corporation by the Chief Financial Officer/Treasurer with such banks or trust companies or other entities as the Board of Directors from time to time shall designate. The Chief Financial Officer/Treasurer shall sign or countersign such instruments as require his or her signature, shall perform all such duties and have all such powers as are usually incident to such office and/or such other duties and powers as are properly assigned to him or her by the Board of Directors, the Chairman of the Board or the Chief Executive Officer, and may be required to give bond for the faithful performance of his or her duties in such sum and with such surety as may be required by the Board of Directors.

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Section 8. Other Officers.

The Board of Directors may designate and fill such other offices in its discretion and the persons holding such other offices shall have such powers and shall perform such duties as the Board of Directors or Chief Executive Officer may from time to time assign.

Section 9. Action with Respect to Securities of Other Corporations

Stock of other corporations or associations, registered in the name of the Corporation, may be voted by the Chief Executive Officer, the President, a Vice-President, or a proxy appointed by either of them. The Board of Directors, however, may by resolution appoint some other person to vote such shares, in which case such person shall be entitled to vote such shares upon the production of a certified copy of such resolution.

ARTICLE V

STOCK

Section 1. Certificates of Stock.

The Board of Directors may determine to issue certificated or uncertificated shares of capital stock and other securities of the Corporation. For certificated stock, each stockholder is entitled to certificates which represent and certify the shares of stock he or she holds in the Corporation. Each stock certificate shall include on its face the name of the Corporation, the name of the stockholder or other person to whom it is issued, and the class of stock and number of shares it represents. It shall also include on its face or back (a) a statement of any restrictions on transferability and a statement of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the stock of each class which the Corporation is authorized to issue, of the differences in the relative rights and preferences between the shares of each series of preferred stock which the Corporation is authorized to issue, to the extent they have been set, and of the authority of the Board of Directors to set the relative rights and preferences of subsequent series of preferred stock or (b) a statement which provides in substance that the Corporation will furnish a full statement of such information to any stockholder on request and without charge. Such request may be made to the Secretary or to the Corporation’s transfer agent. Upon the issuance of uncertificated shares of capital stock, the Corporation shall send the stockholder a written statement of the same information required above on stock certificates. Each stock certificate shall be in such form, not inconsistent with law or with the Corporation’s Articles, as shall be approved by the Board of Directors or any officer or officers designated for such purpose by resolution of the Board of Directors. Each stock certificate shall be signed by the Chairman of the Board, the President, or a Vice-President, and countersigned by the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer. Each certificate may be sealed with the actual corporate seal or a facsimile of it or in any other form and the signatures may be either manual or facsimile signatures. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. A certificate may not be issued until the stock represented by it is fully paid.

Section 2. Transfers of Stock.

Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these Bylaws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefore.

Section 3. Record Dates or Closing of Transfer Books.

The Board of Directors may, and shall have the power to, set a record date or direct that the stock transfer books be closed for a stated period for the purpose of making any proper determination with respect to stockholders,

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including which stockholders are entitled to notice of a meeting, vote at a meeting, receive a dividend, or be allotted other rights. The record date may not be prior to the close of business on the day the record date is fixed nor, subject to Section 3 of Article I, more than 90 days before the date on which the action requiring the determination will be taken; the transfer books may not be closed for a period longer than 20 days; and, in the case of a meeting of stockholders, the record date or the closing of the transfer books shall be at least ten days before the date of the meeting. Any shares of the Corporation’s own stock acquired by the Corporation between the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders and the time of the meeting may be voted at the meeting by the holder of record as of the record date and shall be counted in determining the total number of outstanding shares entitled to be voted at the meeting.

Section 4. Lost, Stolen or Destroyed Certificates.

The Board of Directors of the Corporation may determine the conditions for issuing a new stock certificate in place of one which is alleged to have been lost, stolen, or destroyed, or the Board of Directors may delegate such power to any officer or officers of the Corporation. In their discretion, the Board of Directors or such officer or officers may require the owner of the certificate to give a bond, with sufficient surety, to indemnify the Corporation against any loss or claim arising as a result of the issuance of a new certificate. In their discretion, the Board of Directors or such officer or officers may refuse to issue such new certificate without the order of a court having jurisdiction over the matter.

Section 5. Stock Ledger.

The Corporation shall maintain a stock ledger which contains the name and address of each stockholder and the number of shares of stock of each class which the stockholder holds. The stock ledger may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. The original or a duplicate of the stock ledger shall be kept at the offices of a transfer agent for the particular class of stock or, if none, at the principal executive office of the Corporation.

Section 6. Regulations.

The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish.

ARTICLE VI

MISCELLANEOUS

Section 1. Facsimile Signatures.

In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.

Section 2. Corporate Seal.

The Board of Directors may provide a suitable seal, bearing the name of the Corporation, which shall be in the charge of the Secretary. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof. If the Corporation is required to place its corporate seal to a document, it is sufficient to meet the requirement of any law, rule, or regulation relating to a corporate seal to place the word “(seal)” adjacent to the signature of the person authorized to sign the document on behalf of the Corporation.

Section 3. Books and Records.

The Corporation shall keep correct and complete books and records of its accounts and transactions and minutes of the proceedings of its stockholders and Board of Directors and of any committee when exercising any of the powers of the Board of Directors. The books and records of the Corporation may be in written form or in any

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other form which can be converted within a reasonable time into written form for visual inspection. Minutes shall be recorded in written form but may be maintained in the form of a reproduction. The original or a certified copy of these Bylaws shall be kept at the principal office of the Corporation.

Section 4. Reliance upon Books, Reports and Records.

Each director, each member of any committee designated by the Board of Directors, and each officer and agent of the Corporation shall, in the performance of his or her duties, in addition to any protections conferred upon him or her by law, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director, committee member, officer or agent reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

Section 5. Fiscal Year.

The fiscal year of the Corporation shall be September 30, unless otherwise fixed by the Board of Directors.

Section 6. Time Periods.

In applying any provision of these Bylaws that requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded and the day of the event shall be included.

Section 7. Checks, Drafts, Etc.

All checks, drafts and orders for the payment of money, notes and other evidences of indebtedness, issued in the name of the Corporation, shall be signed by any officer, employee or agent of the Corporation that is authorized by the Board of Directors.

Section 8. Mail.

Any notice or other document that is required by these Bylaws to be mailed shall be deposited in the United States mail, postage prepaid.

Section 9. Contracts and Agreements.

To the extent permitted by applicable law, and except as otherwise prescribed by the Articles or these Bylaws, the Board of Directors may authorize any officer, employee or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances. A person who holds more than one office in the Corporation may not act in more than one capacity to execute, acknowledge, or verify an instrument required by law to be executed, acknowledged, or verified by more than one officer.

ARTICLE VII

AMENDMENTS

These Bylaws may be adopted, amended or repealed as provided in the Articles of the Corporation.

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EX-4

Exhibit 4

INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND

  No.     FAIRMOUNT BANCORP, INC.     Shares  

FULLY PAID AND NON-ASSESSABLE

PAR VALUE $0.01 PER SHARE

	CUSIP:
	THE SHARES REPRESENTED BY THIS
	CERTIFICATE ARE SUBJECT TO
	RESTRICTIONS, SEE REVERSE SIDE
THIS CERTIFIES that	is the owner of

SHARES OF COMMON STOCK

of

Fairmount Bancorp, Inc.

a Maryland corporation

The shares evidenced by this certificate are transferable only on the books of Fairmount Bancorp, Inc. by the holder hereof, in person or by attorney, upon surrender of this certificate properly endorsed. The capital stock evidenced hereby is not an account of an insurable type and is not insured by the Federal Deposit Insurance Corporation or any other Federal or state governmental agency.

IN WITNESS WHEREOF, Fairmount Bancorp, Inc. has caused this certificate to be executed by the facsimile signatures of its duly authorized officers and has caused a facsimile of its seal to be hereunto affixed.

By		[SEAL]	By
	EDWARD J. LALLY			JOSEPH M. SOLOMON
	CORPORATE SECRETARY			PRESIDENT AND CHIEF EXECUTIVE OFFICER

The Board of Directors of Fairmount Bancorp, Inc. (the “Company”) is authorized by resolution or resolutions, from time to time adopted, to provide for the issuance of more than one class of stock, including preferred stock in series, and to fix and state the voting powers, designations, preferences, limitations and restrictions thereof. The Company will furnish to any stockholder upon request and without charge a full description of each class of stock and any series thereof.

The shares evidenced by this certificate are subject to a limitation contained in the Articles of Incorporation to the effect that in no event shall any record owner of any outstanding common stock which is beneficially owned, directly or indirectly, by a person who beneficially owns in excess of 10% of the outstanding shares of common stock (the “Limit”) be entitled or permitted to any vote in respect of shares held in excess of the Limit.

The shares represented by this certificate may not be cumulatively voted on any matter. The Articles of Incorporation require that, with limited exceptions, no amendment, addition, alteration, change or repeal of the Articles of Incorporation shall be made, unless such is first approved by the Board of Directors of the Company and approved by the stockholders by a majority of the total shares entitled to vote, or in certain circumstances approved by the affirmative vote of up to eighty percent (80%) of the shares entitled to vote.

The following abbreviations when used in the inscription on the face of this certificate shall be construed as though they were written out in full according to applicable laws or regulations.

TEN COM	-as tenants in common	UNIF GIFT MIN ACT		Custodian
			(Cust)		(Minor)
TEN ENT	-as tenants by the entireties
			Under Uniform Gifts to Minors Act
JT TEN	-as joint tenants with right
	of survivorship and not as
	tenants in common		(State)

Additional abbreviations may also be used though not in the above list

For value received,                                                                               hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER

(please print or typewrite name and address including postal zip code of assignee)

                                                                                                                                                                                                     Shares of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint

                                                                                                                                                                                 Attorney to transfer the said shares on the books of the within named corporation with full power of substitution in the premises.

Dated,                     

In the presence of Signature:

NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER

EX-5.1

[LETTERHEAD OF JONES, WALKER, WAECHTER, POITEVENT, CARRÈRE &

DENÈGRE, L.L.P.]

EXHIBIT 5.1

December 17, 2009

Board of Directors

Fairmount Bancorp, Inc.

8216 Philadelphia Road

Baltimore, MD 21237

Re: Registration Statement on Form S-1

Ladies and Gentlemen:

We have acted as special counsel for Fairmount Bancorp, Inc., a Maryland corporation (the “Company”), in connection with the Registration Statement on Form S-1 (the “Registration Statement”) initially filed by the Company on December 17, 2009 with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Act”), and the regulations promulgated thereunder.

Pursuant to a Plan of Conversion adopted by the Board of Directors of Fairmount Bank (the “Bank”), the Registration Statement relates to the proposed issuance and sale by the Company of up to 661,250 shares (the “Offering Shares”) of common stock, par value $0.01 per share, of the Company (the “Common Stock”) in a subscription offering, a community offering and a syndicated community offering (the “Offerings”).

In preparation of this opinion, we have examined originals or copies identified to our satisfaction of: (i) the Company’s charter; (ii) the Company’s bylaws; (iii) the Registration Statement, including the prospectus contained therein and the exhibits thereto; (iv) certain resolutions of the Board of Directors of the Company relating to the issuance of the Common Stock being registered under the Registration Statement; (v) the Plan of Conversion; (vi) the Bank’s employee stock ownership plan (the “ESOP”) and the form of loan agreement between the Company and the ESOP; and (vii) the form of stock certificate to represent shares of the Common Stock. We have also examined originals or copies of such documents, corporate records, certificates of public officials and other instruments, and have conducted such other investigations of law and fact, as we have deemed necessary or advisable for purposes of our opinion.

Board of Directors

Fairmount Bancorp, Inc.

December 17, 2009

Page 2

In our examination, we have relied on the genuineness of all signatures, the authenticity of all documents and instruments submitted to us as originals, and the conformity to the originals of all documents and instruments submitted to us a certified or conformed copies. In addition, we have relied on the accuracy and completeness of all records, documents, instruments and materials made available to us by the Company.

Our opinion is limited to the matters set forth herein, and we express no opinion other than as expressly set forth herein. In rendering the opinions set forth below, we do not express any opinion concerning law other than the laws of the State of Maryland.

For purposes of this opinion, we have assumed that, prior to the issuance of any shares of Common Stock, (i) the Registration Statement, as finally amended, will have become effective under the Act and (ii) the conversion of the Bank will have become effective.

Based upon and subject to the foregoing, it is our opinion that, upon the due adoption by the Board of Directors of the Company (or authorized committee thereof) of a resolution fixing the number of Offering Shares to be sold in the Offerings, such Offering Shares, when issued and sold in the manner described in the Registration Statement, will be validly issued, fully paid and nonassessable.

We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the headings “The Conversion and Offering-Material Income Tax Consequences” and “Legal Matters” in the prospectus which is part of the Registration Statement, as such may be amended or supplemented, or incorporated by reference in any Registration Statement covering additional shares of Common Stock to be issued or sold under the Plan of Conversion that is filed pursuant to Rule 462(b) under the Act. In giving such consent, we do not hereby admit that we are experts or are otherwise within the category of persons whose consent is required under Section 7 of the Act or the rules or regulations of the Securities and Exchange Commission thereunder.

Very truly yours,

/s/ Jones, Walker, Waechter,

      Poitevent, Carrère &

      Denègre, LLP

EX-8.1

Exhibit 8.1

            , 2009

Board of Directors

Fairmount Bank

8216 Philadelphia Road

Baltimore, MD 22137

Board of Directors

Fairmount Bancorp, Inc.

8216 Philadelphia Road

Baltimore, MD 22137

Re: Certain Federal Income Tax Consequences Relating to the Conversion of Fairmount Bank from a Federal Mutual Savings Bank to a Federal Stock Savings Bank

To the Members of the Boards of Directors:

You have asked our opinion relating to the material United States Federal income tax consequences of the proposed conversion (the “Conversion”) of Fairmount Bank from a federally chartered mutual savings bank (also referred to as the “Bank”) to a federally chartered capital stock savings bank (also referred to as the “Stock Bank”), pursuant to the Plan of Conversion of Fairmount Bank dated as of October 21, 2009 (the “Plan of Conversion”). In the Conversion, all of the Bank’s to-be-issued capital stock will be acquired by Fairmount Bancorp, Inc., a newly organized Maryland corporation (hereinafter “Fairmount Bancorp” or the “Holding Company”). All other capitalized terms used but not defined herein shall have the meanings assigned to them in the Plan of Conversion.

BACKGROUND

The Bank is a federally chartered mutual savings bank that is in the process of converting to a federally chartered stock savings bank. As a federally chartered mutual savings association, the Bank has no authorized capital stock. Instead the Bank, in mutual form, has a unique equity structure. A depositor in the Bank is entitled to payment of interest on his account balance as declared and paid by the Bank. A depositor has no right to a distribution of any earnings of the Bank except for interest paid on his deposit account. However, a depositor has a right to share, pro rata, with respect to the withdrawal value of his account, in any liquidation proceeds distributed in the event the Bank is liquidated. All of the interests held by a depositor cease when such depositor closes his account with the Bank.

Boards of Directors

Fairmount Bank

Fairmount Bancorp, Inc.

            , 2009

Page 2

PROPOSED TRANSACTIONS

The Holding Company has been formed under the laws of the State of Maryland for the purpose of the proposed transactions described herein, to engage in business as a savings and loan holding company and to hold all of the stock of the Stock Bank. The Holding Company is offering for sale shares of its voting common stock (“Holding Company Conversion Stock”), upon completion of the mutual-to-stock conversion of the Bank, to persons purchasing such shares as described in greater detail below.

Subject to regulatory approval, the Plan of Conversion provides for the offer and sale of shares of Holding Company Conversion Stock in a Subscription Offering pursuant to nontransferable subscription rights on the basis of the following descending preference categories to:

(i) Eligible Account Holders of the Bank,

(ii) the Bank’s Employee Plans,

(iii) Supplemental Eligible Account Holders of the Bank, and

(iv) Other Members of the Bank,

all as described in the Plan of Conversion. If shares remain after all orders are filled in the preference categories described above, the Plan of Conversion authorizes a Community Offering for the sale of shares not purchased under the preference categories, a Syndicated Community Offering for the shares not sold in the Community Offering, and other arrangements for shares not sold in either the Community Offering or Syndicated Community Offering, subject to purchase limits set forth in the Plan of Conversion (collectively, the Subscription Offering, the Community Offering, the Syndicated Community Offering and the other arrangements are referred to as the “Stock Offering”).

Pursuant to the Plan of Conversion, all Holding Company Conversion Stock will be issued and sold at a uniform price per share. The estimated pro forma market value will be determined by Feldman Financial Advisors, Inc., an independent appraiser. The conversion of the Bank from mutual to stock form and the sale of newly issued shares of the stock of the Stock Bank to the Holding Company will be deemed effective concurrently with the closing of the sale of Holding Company Conversion Stock.

For purposes of this opinion, we have examined such documents and questions of law as we have considered necessary or appropriate including, but not limited to, the Holding Company’s Registration Statement on Form S-1 relating to the proposed issuance of up to      shares of common stock, par value $.01 per share, and Exhibits thereto, the Plan of Conversion, the Federal Stock Charter and Bylaws of the Stock Bank, and the Articles of Incorporation and Bylaws of the Holding Company. In such examination, we have assumed and have independently verified, the authenticity of all original documents, the accuracy of all copies, and the genuineness of all signatures.

Boards of Directors

Fairmount Bank

Fairmount Bancorp, Inc.

            , 2009

Page 3

In issuing our opinion, we have relied on the fact that the Plan of Conversion has been duly and validly authorized and has been approved and adopted by the board of directors of the Bank at a meeting duly called and held, that the Bank will comply with the terms and conditions of the Plan of Conversion, and that the various representations and warranties which are provided to us are accurate, complete, true and correct. Accordingly, we express no opinion concerning the effect, if any, of variations from the foregoing. This opinion addresses only the specific material United States federal income tax consequences of the transactions described herein, and we specifically express no opinion concerning tax matters relating to the Plan of Conversion under state, local, foreign or other tax laws or other tax consequences that may result form the transactions described herein.

In issuing the opinion set forth below, we have relied solely on existing provisions of the Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed Treasury Regulations, and existing administrative rulings, notices and procedures, and court decisions. Such laws, regulations, administrative rulings, notices, procedures and court decisions are subject to change at any time, possibly with retroactive effect. If there is a change, including a change having retroactive effect, the opinions expressed herein would necessarily have to be reevaluated in light of any such changes. Any such change could affect the continuing validity of the opinions set forth below. This opinion is as of the date hereof, and we disclaim any obligation to advise you of any change in any matter considered herein after the date hereof.

The opinions expressed herein are not binding on the Internal Revenue Service (“IRS”), and there can be no assurance that the IRS will not take a position contrary to any of the opinions expressed herein. The opinions expressed herein reflect what we regard to be the material Federal income tax consequences of the transactions as described herein; nevertheless, they are opinions only and should not be taken as assurance of the ultimate tax treatment.

In rendering our opinion, we have assumed that the persons and entities identified in the Plan of Conversion will at all times comply with applicable state and Federal laws and the factual representations of the Bank. In addition, we have assumed that the activities of the persons and entities identified in the Plan will be conducted strictly in accordance with the Plan of Conversion. Any variations may affect the opinions we are rendering. For purposes of this opinion, we are relying on the factual representations provided to us by the Bank, which are incorporated herein by reference.

We emphasize that the outcome of litigation cannot be predicted with certainty and, although we have attempted in good faith to opine as to the probable outcome of the merits of each tax issue with respect to which an opinion was requested, there can be no assurance that our conclusions are correct or that they would be adopted by the IRS or a court.

Boards of Directors

Fairmount Bank

Fairmount Bancorp, Inc.

            , 2009

Page 4

OPINION OF COUNSEL

Based upon and subject to the foregoing information, we render the following opinion.

1. The conversion of the Bank to a federally chartered stock savings bank will qualify as a tax-free reorganization within the meaning of Code Section 368(a)(1)(F).

2. No gain or loss will be recognized by the Holding Company or the Stock Bank on the transfer of a portion of the offering proceeds from Holding Company to Stock Bank in exchange for the Stock Bank shares or by Holding Company upon receipt of money from the sale of Holding Company Conversion Stock. (Section 1032(a) of the Code).

3. The assets of the Bank will have the same basis in the hands of the Stock Bank as they had in the hands of the Bank immediately prior to the Conversion. The holding period of the Bank’s assets to be received by the Stock Bank will include the period during which the assets were held by the Bank prior to the Conversion. (Sections 362(b) and 1223(2) of the Code).

4. No gain or loss will be recognized by the account holders of the Bank upon the issuance to them of withdrawable deposit accounts in the Stock Bank in the same dollar amount and under the same terms as their deposit accounts in the Bank and no gain or loss will be recognized by Eligible Account Holders or Supplemental Eligible Account Holders upon receipt by them of an interest in the Liquidation Account of the Stock Bank, in exchange for their deemed ownership interests in the Bank. (Section 354(a) of the Code).

5. The basis of the account holders’ deposit accounts in the Stock Bank will be the same as the basis of their deposit accounts in the Bank surrendered in exchange therefore. The basis of each Eligible Account Holder’s and Supplemental Eligible Account Holder’s interests in the Liquidation Account of the Stock Bank will be zero, that being the cost of such property.

6. It more likely than not that the nontransferable subscription rights have no value. Accordingly, no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders or Other Members upon distribution to them of nontransferable subscription rights to purchase shares of Holding Company Conversion Stock, provided that the amount to be paid for such common stock is equal to its fair market value. (Rev. Rul. 56-572, 1956-2 C.B. 182).

Boards of Directors

Fairmount Bank

Fairmount Bancorp, Inc.

            , 2009

Page 5

7. It is more likely than not that the basis of the Holding Company Conversion Stock to its stockholders will be the purchase price thereof. (Section 1012 of the Code). The holding period of the Holding Company Conversion Stock purchased pursuant to the exercise of nontransferable subscription rights will commence on the date on which the right to acquire such stock was exercised. (Section 1223(5) of the Code).

8. For purposes of Section 381 of the Code, the Stock Bank will be treated as if there had been no reorganization. Accordingly, the taxable year of the Bank will not end on the effective date of the Conversion merely because of the transfer of assets of the Bank to the Stock Bank, and the tax attributes of the Bank will be taken into account by the Stock Bank as if there had been no reorganization. (Treas. Reg. § 1.381(b)-(1)(a)(2)).

9. The part of the taxable year of the Bank before the reorganization and the part of the taxable year of the Stock Bank after the reorganization will constitute a single tax year of the Stock Bank. See Rev. Rul. 57-276, 1957-1 C.B. 126. Consequently, the Bank will not be required to file a federal income tax return for any portion of such taxable year solely by reason of the Conversion. Treas. Reg. § 1.38(b)-1(a)(2).

10. The tax attributes of the Bank enumerated in Code Section 381(c) will be taken into account by the Stock Bank. Treas. Reg. § 1.381(b)-1(a)(2).

Our opinion regarding the subscription rights above is predicated on the representation that no person shall receive any payment, whether in money or property, in lieu of the issuance of subscription rights, and on the position that the subscription rights to purchase shares of Holding Company Conversion Stock received by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members have a fair market value of zero. We understand that the subscription rights will be granted at no cost to the recipients, will be legally non-transferable and of short duration, and will provide the recipient with the right only to purchase shares of Holding Company Conversion Stock at the same price to be paid by members of the general public in any Community Offering. We also note that the IRS has not in the past reached a different conclusion with respect to the value of nontransferable subscription rights. If the subscription rights are subsequently found to have value, income may be recognized by various recipients of the subscription rights (in certain cases, whether or not the rights are exercised) and the Holding Company and/or the Stock Bank may be taxable on the distribution of the subscription rights.

Boards of Directors

Fairmount Bank

Fairmount Bancorp, Inc.

            , 2009

Page 6

CONSENT

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement on Form S-1 (“Registration Statement”) of the Holding Company filed with the Securities and Exchange Commission with respect to the Conversion, and as an exhibit to the Form AC Application for Conversion and Application H-(e)1-S filed with the Office of Thrift Supervision with respect to the Conversion, as applicable. We also hereby consent to the references to this firm in the prospectus which is a part of the Registration Statement and the Notice.

USE OF OPINION

We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the heading “Legal and Tax Opinions” in the Prospectus, which is a part of the Registration Statement, as such may be amended or supplemented.

Sincerely,

Jones, Walker, Waechter, Poitevent, Carrère

& Denègre, LLP

EX-8.2

EXHIBIT 8.2

Board of Directors

Fairmount Bank

8216 Philadelphia Road

Baltimore, MD 22137

and,

Fairmount Bancorp, Inc.

8216 Philadelphia Road

Baltimore, MD 22137

Re: State Income Tax Opinion Relating to the Conversion of Fairmount Bank from a Federally-chartered Mutual Savings Bank to a Federally-chartered Stock Savings Bank

To the Members of the Boards of Directors:

You have requested our opinion regarding the Maryland state income tax consequences of the proposed conversion of Fairmount Bank (Bank) from a federally-chartered mutual savings bank to a federally-chartered stock savings bank (Converted Bank) and the acquisition of the Bank’s capital stock by Fairmount Bancorp, Inc., a Maryland corporation (Holding Company), pursuant to a Plan of Conversion initially adopted by the Board of Directors of the Bank on October 21, 2009 (Plan of Conversion). All capitalized terms used but not defined herein shall have the meanings assigned to them in the Plan of Conversion.

In connection with the opinions expressed below, we have examined and relied upon originals, or copies certified or otherwise identified to our satisfaction, of the Plan of Conversion and of such corporate records of the parties to the conversion as we have deemed appropriate. We have also relied upon, without independent verification, the representations of Fairmount Bank and Fairmount Bancorp, Inc. We have assumed that such representations are true and that the parties to the conversion will act in accordance with the Plan of Conversion.

Our opinion is limited solely to Maryland state income tax consequences and will not apply to any other taxes, jurisdictions, transactions or issues.

In rendering the opinion set-forth below, we have relied on the opinion of Jones, Walker, Waechter, Poitevent, Carrére & Denégre, LLP related to the federal tax consequences of the proposed conversion (Federal Tax Opinion), without undertaking to verify the federal tax consequences by independent investigation.

Our opinion is subject to the truth and accuracy of certain representations made by the Bank to us and Jones, Walker, Waechter, Poitevent, Carrére & Denégre, LLP and the consummation of the proposed conversion in accordance with the terms of the Plan of Conversion and applicable state law.

Fairmount Bank

and,

Fairmount Bancorp, Inc.

Page 2 of 4

Our opinion is based on currently existing provisions of the Annotated Code of Maryland and current administrative rulings and court decisions there under. There can be no assurance that future legislative, judicial or administrative changes or interpretations will not adversely affect the accuracy of our opinion or of the statements and conclusions set-forth herein. Any such changes or interpretations could be applied retroactively and could affect the tax consequences of the proposed conversion. We are under no obligation to update our opinion for such changes or interpretations. Furthermore, our opinion will not bind the Comptroller of Maryland and; therefore, the Comptroller of Maryland is not precluded from asserting a contrary position.

OPINION OF JONES, WALKER, WAECHTER, POITEVENT, CARRERE & DENEGRE, LLP

Jones, Walker, Waechter, Poitevent, Carrére & Denégre, LLP has provided an opinion that addresses the material federal income tax consequences of the planned conversion and re-organization. The opinion, which relies upon standard factual representations given by the Bank, concluded, as follows:

1. The conversion of the Bank to a federally chartered stock savings bank will qualify as a tax-free reorganization within the meaning of Code Section 368(a)(l)(F).

2. No gain or loss will be recognized by the Holding Company or the Stock Bank on the transfer of a portion of the offering proceeds from Holding Company to Stock Bank in exchange for the Stock Bank shares or by Holding Company upon receipt of money from the sale of Holding Company Conversion Stock. (Section 1032(a) of the Code).

3. The assets of the Bank will have the same basis in the hands of the Stock Bank as they had in the hands of the Bank immediately prior to the Conversion. The holding period of the Bank’s assets to be received by the Stock Bank will include the period during which the assets were held by the Bank prior to the Conversion. (Sections 362(b) and 1223(2) of the Code)

4. No gain or loss will be recognized by the account holders of the Bank upon the issuance to them of withdrawable deposit accounts in the Stock Bank in the same dollar amount and under the same terms as their deposit accounts in the Bank and no gain or loss will be recognized by Eligible Account Holders or Supplemental Eligible Account Holders upon receipt by them of an interest in the Liquidation Account of the Stock Bank, in exchange for their deemed ownership interests in the Bank. (Section 354(a) of the Code).

5. The basis of the account holders’ deposit accounts in the Stock Bank will be the same as the basis of their deposit accounts in the Bank surrendered in exchange therefore. The basis of each Eligible Account Holder’s and Supplemental Eligible Account Holder’s interests in the Liquidation Account of the Stock Bank will be zero, that being the cost of such property.

Fairmount Bank

and,

Fairmount Bancorp, Inc.

Page 3 of 4

6. It is more likely than not that the nontransferable subscription rights have no value. Accordingly, no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders or Other Members upon distribution to them of nontransferable subscription rights to purchase shares of Holding Company Conversion Stock, provided that the amount to be paid for such common stock is equal to its fair market value. (Rev. Rul. 56-572, 1956-2 C.B.182).

7. It is more likely than not that the basis of the Holding Company Conversion Stock to its stockholders will be the purchase price thereof. (Section 1012 of the Code). The holding period of the Holding Company Conversion Stock purchased pursuant to the exercise of nontransferable subscription rights will commence on the date on which the right to acquire such stock was exercised. (Section 1223(5) of the Code).

8. For purposes of Section 381 of the Code, the Stock Bank will be treated as if there had been no reorganization. Accordingly, the taxable year of the Bank will not end on the effective date of the Conversion merely because of the transfer of assets of the Bank to the Stock Bank, and the tax attributes of the Bank will be taken into account by the Stock Bank as if there had been no reorganization. (Treas. Reg.§ 1.381(b)-(1)(a)(2)).

9. The part of the taxable year of the Bank before the reorganization and the part of the taxable year of the Stock Bank after the reorganization will constitute a single tax year of the Stock Bank. See Rev. Rul. 57-276, 1957-l C.B. 126. Consequently, the Bank will not be required to file a federal income tax return for any portion of such taxable year solely by reason of the Conversion. Treas. Reg. § 1.38(b)-l (a)(2).

10. The tax attributes of the Bank enumerated in Code Section 381(c) will be taken into account by the Stock Bank. Treas. Reg. § 1.381(b)-1(a)(2).

DISCUSSION RELATED TO MARYLAND STATE INCOME TAX CONSEQUENCES

Title 10 of the Annotated Code of Maryland outlines the provisions for income tax in the State of Maryland. Income tax for individuals and corporations is addressed in Subtitle 2 and Subtitle 3 of the Annotated Code of Maryland, respectively. The Maryland modified income of a corporation is the corporation’s federal taxable income for the taxable year as determined under the Internal Revenue Code and as adjusted under Title 10, Subtitle 3, Part II of the Annotated Code of Maryland. Accordingly, based upon the facts and representation stated herein and the existing law, it is the opinion of Smith Elliott Kearns & Company, LLC regarding the Maryland state income tax consequences of the planned conversion and re-organization that:

1. No gain or loss will be recognized by the Bank by reason of the conversion of the Bank from a mutual to a stock form of organization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code.

2. No income tax will be imposed on account holders by reason of the conversion of the Bank from a mutual to a stock form of organization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code.

Fairmount Bank

and,

Fairmount Bancorp, Inc.

Page 4 of 4

3. No gain or loss will be recognized by the Holding Company upon the sale of shares of common stock in the Offering (Section 1032(a) of the Internal Revenue Code).

4. No income tax will be imposed on account holders of the Bank upon the issuance to them of accounts in the Converted Bank immediately after the conversion, in the same dollar amounts and on the same terms and conditions as their accounts at the Bank, plus interests in the liquidation account in the Converted Bank (Section 354(a) of the Internal Revenue Code).

5. No income tax will be imposed on eligible account holders, supplemental eligible account holders and other members upon the issuance to them of Subscription Rights.

6. The holding period and tax basis of any stock involved in the planned conversion and reorganization will be the same as for federal tax purposes.

LEGAL DISCLAIMER

The opinions contained herein are rendered only with respect to the specific matters discussed herein and we express no opinion with respect to any other legal federal, state or local tax aspect of these transactions. This opinion is not binding upon any tax authority, including the Maryland Department of Revenue or any court, and no assurance can be given that a position contrary to that expressed herein will not be assessed by a tax authority.

However, all of the foregoing authorities are subject to change or modification which can be retroactive in effect and; therefore, could also affect our opinions. We undertake no responsibility to update our opinions for any subsequent change or modification.

CONSENT

This opinion is given solely for the benefit of the Bank, the Holding Company, eligible account holders, supplemental eligible account holders and other members described in the Plan of Conversion who will receive Subscription Rights and may not be relied upon by any other party or entity otherwise referred to in any document without our express written consent. We hereby consent to the filing of this opinion as an exhibit to the Application for Conversion filed with the Office of Thrift Supervision and to this opinion in the prospectus included in the registration statement on Form S-1 under the headings “Legal and Tax Opinions”. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended.

/s/Smith Elliott Kearns & Company, LLC

Chambersburg, Pennsylvania

December 9, 2009

EX-10.1

Exhibit 10.1

FAIRMOUNT FEDERAL SAVINGS BANK

EMPLOYMENT AGREEMENT

THE AGREEMENT entered into as of the 31st day of March, 2008, by and between Fairmount Federal Savings Bank (the “Bank”), and Joseph M. Solomon (the “Employee”), effective as of the above date (the “Effective Date”).

WHEREAS, the Employee has heretofore been employed by the Bank as its President and Chief Executive Officer and is experienced in all phases of the business of the Bank; and

WHEREAS, the Board of Directors of the Bank believes it is in the best interests of the Bank to enter into this Agreement with the Employee in order to assure continuity of management of the Bank and to reinforce and encourage the continued attention and dedication of the Employee to his assigned duties; and

WHEREAS, the parties desire to set forth the continuing employment relationship of the Bank and the Employee:

NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereby agree as follows:

1. Defined Terms

When used anywhere in this Agreement, the following terms shall have the meanings set forth herein.

(a) “Change in Control” shall mean any one of the following events subsequent to the date hereof: (i) the acquisition of ownership, holding or power to vote more than 25% of the voting power of the Bank or of a holding company for the Bank, (ii) the acquisition of the ability to control the election of a majority of the directors of the Bank or a holding company therefore, (iii) the acquisition of a controlling influence over the management or policies of the Bank by any person or by persons acting as a “group” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or (iv) during any period of two consecutive years, individuals (the “Continuing Directors^”) who at the beginning of such period constitute the Board of Directors of the Bank (the “Existing Board”) cease for any reason to constitute at least two-thirds thereof; provided, however, that any individual whose election or nomination for election as a member of the Existing Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director. Notwithstanding the foregoing, in the case of (i), (ii) and (iii) hereof, (a) the conversion of the Bank from the mutual to stock form of organization in which the Employee shall continue to be employed as President and Chief Executive Officer of the Bank, and (b) the acquisition of ownership or control of the Bank by a holding company formed for such purpose by the Bank, and of which the Employee shall be employed as President and Chief Executive Officer, shall not constitute a Change in Control. For purposes of this paragraph only, the term “person^” refers to an individual or a corporation, partnership, trust, Bank, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. The decision of the Bank’s non-employee directors as to whether or not a Change in Control has occurred shall be conclusive and binding.

(b) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and as interpreted through applicable rulings and regulations in effect from time to time.

(c) “Code §280G Maximum” shall mean the product of 2.99 and the Employee’s “base amount” as defined in Code § 28OG(b)(3).

(d) “Good Reason” shall mean termination of employment by the Employee based on: (i) without the Employee’s express written consent, a material reduction by the Bank of the Employee’s base compensation as the same may be increased from time to time; (ii) without the Employee’s express written consent, a material diminution in the Employee’s authority, duties or responsibilities; (iii) a material diminution in the authority, duties or responsibilities of the supervisor to whom the Employee is required to report; (iv) the principal executive office of the Bank is relocated more than 30 miles from its present location, or the Bank requires the Employee to be based anywhere other than an area in which the Bank’s principal executive office is located, except for reasonably required travel on behalf of the business of the Bank; or (v) the failure by the Bank to obtain the assumption of and agreement to perform this Agreement by any successor as contemplated in Section 16(a) hereof. The Employee must provide written notice to the Bank or its successor of the existence of such condition. The Bank shall have 30 days after receipt of such notice to remedy the condition and, if remedied, the Employee shall not be entitled to be paid the benefits described in Section 12 in connection with the Employee’s termination of employment.

(e) “Just Cause” shall mean, in the good faith determination of the Board, the Employee’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. The Employee shall have no right to receive compensation or other benefits for any period after termination for Just Cause. No act, or failure to act, on the Employee’s part shall be considered “willful” unless he has acted, or failed to act, with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Bank.

(f) “Trust” shall mean a grantor trust that is designed in accordance with Revenue Procedure 92-64 issued by the Internal Revenue Service and has a trustee independent of the Bank.

2. Employment. During the term of this Agreement, the Bank agrees to continue to employ the Employee, and the Employee agrees to continue to serve, as the President and Chief Executive Officer of the Bank. The Employee shall render such administrative and management services for the Bank as are currently tendered and as are customarily performed by persons situated in a similar executive capacity. The Employee shall also promote, by entertainment or otherwise, as and to the extent permitted by law, the business of the Bank. The Employee’s other duties shall be such as the Board may from time to time reasonably direct, including normal duties as an officer of the Bank.

2

3. Base Compensation. The Bank agrees to pay the Employee during the term of this Agreement a salary at the rate of $115,000 per annum, payable in cash not less frequently than monthly. The Board shall review, not less often than annually, the rate of the Employee’s salary, and in its sole discretion may decide to increase his salary. Notwithstanding the foregoing, following a Change in Control, the Board shall continue to review annually the rate of the Employee’s salary, and shall increase said rate of salary by a percentage that is not less than the average annual percentage increase in salary that the Employee received over the three calendar years immediately preceding the year in which the Change in Control occurs.

4. Discretionary Bonuses. The Employee shall participate in an equitable manner with all other senior management employees of the Bank in discretionary bonuses that the Board may award from time to time to the Bank’s senior management employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee’s right to participate in such discretionary bonuses. Notwithstanding the foregoing, following a Change in Control, the Employee shall receive discretionary bonuses that are made no less frequently than, and in annual amounts not less than, the average annual discretionary bonuses paid to the Employee during each of the three calendar years immediately preceding the year in which such Change in Control occurs. The Employee must remain employed at the end of the fiscal year to be eligible to receive a bonus for such year. Any bonus hereunder shall be paid no later than December 15 of the fiscal year following the end of the fiscal year for which it is earned.

5. Participation in Plans; Expenses; Indemnification

(a) Participation in Retirement, Medical and Other Plans. During the term of this Agreement, the Employee shall be eligible to participate in any plan that the Bank maintains for the benefit of its employees that relates to (i) pension, profit-sharing or other retirement benefits, (ii) medical insurance or the reimbursement of medical or dependant care expenses, or (iii) other group benefits, including disability and life insurance plans. The Bank will not, without the Employee’s prior written consent, make any changes in such plans, arrangements or perquisites that would adversely affect the Employee’s rights or benefits thereunder as in existence as of the Effective Date.

(b) Employee Benefit Plans; Expenses. The Employee shall be eligible to participate in any fringe benefits that are or may become available to the Bank’s senior management employees, including any incentive compensation plans, and any other benefits which are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement. Nothing paid to the Employee under any such plan shall be deemed to be in lieu of the base and other compensation to which the Employee is entitled under this Agreement. In addition, the Employee shall be reimbursed for all reasonable out-of-pocket travel or other business expenses that he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with the policies of the Bank.

(c) Liability Insurance; Indemnification. The Bank shall provide the Employee (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at the Bank’s expense, or in lieu thereof, shall indemnify the Employee (and his heirs, executors and administrators) to the fullest extent permitted under Federal law against all expenses and liabilities reasonably incurred by him in

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connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Bank; such expenses and liabilities to include, but not to be limited to, judgments, court costs and attorneys’ fees and the cost of reasonable settlements, and such settlements to be approved by the Board; provided, however, that such indemnification shall not extend to matters as to which the Employee is finally adjudged to be liable for willful misconduct or gross negligence in the performance of his duties as a director or officer of the Bank.

6. Term. The Bank hereby employs the Employee, and the Employee hereby accepts such employment under this Agreement, for the period commencing on the Effective Date and ending 36 months thereafter (or such earlier date as is determined in accordance with Section 10 hereof). Additionally, on each annual anniversary date from the Effective Date, this Agreement and the Employee’s term of employment may be extended for an additional one-year period beyond the then-effective expiration date; provided, however, that the Board determines in a duly adopted resolution that the performance of the Employee has met the Board’s requirements and standards, and that this Agreement shall be extended. Only those members of the Board who have no personal interest in this Employment Agreement shall discuss and vote on the approval and subsequent review of this Agreement. By written notice, the Board will inform the Employee as soon as possible after the Board’s annual review whether the Board has determined to extend the term of this Agreement.

7. Loyalty; Noncompetition

(a) During the period of his employment hereunder and except for illnesses, reasonable vacation periods, and reasonable leaves of absence, the Employee shall devote all his full business time, attention, skill and efforts to the faithful performance of his duties hereunder; provided, however, from time to time, that the Employee may serve on the boards of directors of and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with the Bank or any of its subsidiaries or affiliates, or unfavorably affect the performance of the Employee^’s duties pursuant to this Agreement, or will not violate any applicable statute or regulation. “Full business time” is hereby defined as that amount of time usually devoted to like companies by similarly situated executive officers. During the term of his employment under this Agreement, the Employee shall not engage in any business or activity contrary to the business affairs or interests of the Bank or be gainfully employed in any other position or job other than as provided above.

(b) The Employee shall not, during or after the term of this Agreement, disclose any knowledge of the past, present or contemplated business of the Bank or of any affiliate thereof to any person for any reason or purpose. Notwithstanding the foregoing, the Employee may disclose any information required in writing by Federal bank regulatory agencies and may disclose to any person information regarding the Bank that is otherwise publicly available or any knowledge of banking or financial concepts or ideas that are not solely and exclusively derived from the business plans and activities of the Bank.

(c) Nothing contained in this Section 7 shall be deemed to prevent or limit the Employee^’s right to invest in the capital stock or other securities of any business dissimilar from that of the Bank, or, solely as a passive or minority investor, in any business.

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8. Standards. The Employee shall perform his duties under this Agreement in accordance with such reasonable standards as the Board may establish from time to time. The Bank will provide Employee with the working facilities and staff customary for similar executives and necessary for him to perform his duties.

9. Vacation and Sick Leave

At such reasonable times as the Board shall in its discretion permit, the Employee shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment under this Agreement, all such voluntary absences to count as vacation time, provided that:

(a) The Employee shall be entitled to an annual vacation in accordance with the policies that the Board periodically establishes for senior management employees of the Bank.

(b) The Employee shall not receive any additional compensation from the Bank on account of his failure to take a vacation or sick leave, and the Employee shall not accumulate unused vacation or sick leave from one fiscal year to the next, except in either case to the extent authorized by the Board.

(c) In addition to the aforesaid paid vacations, the Employee shall be entitled without loss of pay, to absent himself voluntarily from the performance of his employment with the Bank for such additional periods of time and for such valid and legitimate reasons as the Board may in its discretion determine. Further, the Board may grant to the Employee a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as the Board in its discretion may determine.

(d) In addition, the Employee shall be entitled to an annual sick leave benefit established by the Board.

10. Termination and Termination Pay. Subject to Section 12 hereof, the Employee’s employment hereunder may be terminated under the following circumstances:

(a) Death. The Employee’s employment under this Agreement shall terminate upon his death during the term of this Agreement, in which event the Employee’s estate shall be entitled to receive the compensation due the Employee through the last day of the calendar month in which his death occurred.

(b) Retirement. The Employee’s employment under this Agreement may terminate in accordance with the Bank ^’s retirement policy or in accordance with any retirement arrangement established with the Employee’s consent with respect to the Employee. Upon termination of the Employee upon retirement under such policy or arrangement, the Employee shall be entitled to all benefits under any retirement plan of the Bank and other plans to which the Employee is a party.

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(c) Disability.

(1) The Bank may terminate the Employee’s employment after having established the Employee^’s Disability. For purposes of this Agreement, “Disability ^” means a physical or mental infirmity that impairs the Employee’s ability to substantially perform his duties under this Agreement and that results in the Employee^’s becoming eligible for long-term disability benefits under the Bank’s long-term disability plan (or, if the Bank has no such plan in effect, that impairs the Employee’s ability to substantially perform his duties under this Agreement for a period of 180 consecutive days). The Employee shall be entitled to the compensation and benefits provided for under this Agreement for (i) any period during the term of this Agreement and prior to the establishment of the Employee’s Disability during which the Employee is unable to work due to the physical or mental infirmity, or (ii) any period of Disability prior to the Employee’s termination of employment pursuant to this Section 10(c); provided, however, that any benefits paid pursuant to the Bank’s long-term disability plan will continue as provided in such plan. Payments to the Employee under the Bank’s long-term disability plan shall be deducted from the compensation and benefits provided for under this Agreement.

(2) During any period in which the Employee shall receive disability benefits and to the extent that the Employee shall be physically and mentally able to do so, he shall furnish such information, assistance and documents so as to assist in the continued ongoing business of the Bank and, if able, shall make himself available to the Bank to undertake reasonable assignments consistent with his prior position and his physical and mental health. The Bank shall pay all reasonable expenses incident to the performance of any assignment given to the Employee during the disability period.

(d) Just Cause. The Board may, by written notice to the Employee pursuant to Section 13, terminate his employment at any time, for Just Cause. The Employee shall have no night to receive compensation or other benefits for any period after termination for Just Cause.

(e) Without Just Cause; Constructive Discharge.

(1) The Board may, by written notice to the Employee pursuant to Section 13, immediately terminate his employment at any time for a reason other than Just Cause, in which event the Employee shall be entitled to receive the following payments in a lump sum within 10 days of effectiveness of termination of employment: (i) the greater of (A) the salary provided pursuant to Section 3 hereof, up to the expiration date of this Agreement including any renewal term (the “Expiration Date”), or (B) the severance benefit provided for in Section 12(b), and (ii) an amount equal to the cost to the Employee of obtaining all health, life, disability and other benefits in which the Employee would have been eligible to participate through the Expiration Date based upon benefit levels substantially equal to those that the Bank provided for the Employee at the date of termination of employment. Such payments shall not be reduced in the event the Employee obtains other employment following termination of his employment with the Bank.

(2) The Employee shall be entitled to receive the payments payable under subsection 10(e)(1) hereof in the event that the Employee voluntarily terminates employment by resignation upon 30 days prior written notice given within 60 days of an event that constitutes Good Reason. Notwithstanding the preceding sentence, in the event of a continuing

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breach of this Agreement by the Bank, the Employee, after giving due notice of an event that constitutes Good Reason within the required time period, shall not waive any of his rights under this Section 10(e) by virtue of the fact that the Employee has submitted his resignation but has remained in the employ of the Bank and is engaged in good faith discussions to resolve any occurrence of an event constituting Good Reason.

(f) Termination or Suspension Under Federal Law

(1) If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (the “FDIA”) (12 U.S.C. §§ 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement shall terminate, as of the effective date of the order, but vested rights of the parties shall not be affected.

(2) If the Bank is in default (as defined in Section 3(x)(1) of the EDIA), all obligations under this Agreement shall terminate as of the date of default; however, this paragraph shall not affect the vested rights of the parties.

(3) All obligations under this Agreement shall terminate, except to the extent that continuation of this Agreement is necessary for the continued operation of the Bank: (i) by the Director of the Office of Thrift Supervision (“Director of OTS”), or his or her designee, at the time that the Federal Deposit Insurance Corporation (“FDIC^”) enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA; or (ii) by the Director of the OTS, or his or her designee, at the time that the Director of the OTS, or his or her designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director of the OTS to be in an unsafe or unsound condition. Such action shall not affect any vested rights of the parties.

(4) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. § 1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits the Employee from participating in the conduct of the Bank^’s affairs, the Bank’s obligations under this Agreement shall be suspended as of the date of such service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

(g) Voluntary Termination by Employee. Subject to Section 12 hereof, the Employee may voluntarily terminate employment with the Bank during the term of this Agreement, upon at least 60 days^’ prior written notice to the Board, in which event the Employee shall receive only his compensation, vested rights and employee benefits up to the date of his termination (unless such termination occurs pursuant to Section 10(e)(2) hereof or, within the Protected Period, Section 12(a) hereof, in which event the benefits and compensation provided for in Sections 10(e) or 12(b), as applicable, shall apply).

11. No Mitigation. The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Employee in any subsequent employment.

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12. Change in Control

(a) Trigger Events. The Employee shall be entitled to collect the severance benefits set forth in Section 12(b) in the event that the Employee terminates employment for Good Reason in connection with or within 12 months after any Change in Control of the Bank or any holding company for the Bank.

(b) Amount of Severance Benefit. If the Employee becomes entitled to collect severance benefits pursuant to Section 12(a), the Bank shall pay the Employee a severance benefit equal to the difference between the Code § 280G Maximum and the sum of any other ^“parachute payments^” as defined under Code § 280G(b)(2) received by the Employee on account of the Change in Control. Such payment shall be made upon the effectiveness of the termination of employment. In the event that the Employee and the Bank jointly agree that the Employee has collected an amount exceeding the Code § 280G Maximum, the parties may agree in writing that such excess shall be treated as a loan ab initio that the Employee shall repay to the Bank, on terms and conditions mutually agreeable to the parties, together with interest at the applicable federal rate provided for in Section 7872(f)(2)(B) of the Code.

(c) Funding of Grantor Trust Upon Change in Control. Not later than 10 business days after a Change in Control, the Bank shall (i) deposit in a Trust an amount equal to the Code § 280G Maximum, unless the Employee has previously provided a written release of any claims under this Agreement, and (ii) provide the trustee of the Trust with a written direction to hold said amount and any investment return thereon in a segregated account for the benefit of the Employee until notified by the Bank that the Employee’s employment has terminated under circumstances that entitle Employee to a payment under this Agreement, and to follow the instructions of the Bank as to such payment of such amounts from the Trust. Upon the earlier of the Trust’s final payment of all amounts due under the following paragraph or the date 15 months after the Change in Control, the trustee of the Trust shall pay to the Bank the entire balance remaining in the segregated account maintained for the benefit of the Employee. The Employee shall thereafter have no further interest in the Trust.

Upon the earlier of (i) any payment from the Trust to the Employee, or (ii) the date 12 months after the date on which the Bank makes the deposit referred to in the first paragraph of this Section 12(c), the trustee of the Trust shall pay to the Bank the entire balance remaining in the segregated account maintained for the benefit of the Employee. The Employee shall thereafter have no further interest in the Trust pursuant to this Agreement.

(d) Limitation by Section 18(k) of the FDIA. Notwithstanding anything herein to the contrary, any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with section 18(k) of the FDIA (12 U.S.C. § 1828(k)) and any regulations promulgated thereunder.

13. Notice

(a) Any purported termination by the Bank or the Employee shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice that shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment under such provision.

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(b) “Date of Termination^” shall mean the date specified in the Notice of Termination. In the case of a termination for Just Cause, such date shall be not less than 30 days from the date the Notice of Termination is received by the Employee.

(c) If, within 30 days after any Notice of Termination is given, the party receiving such Notice notifies the other party that a dispute exists concerning the termination (except upon the occurrence of a Change in Control and upon a voluntary termination by the Employee, in which case the date of termination shall be the date specified in the Notice), the Date of Termination shall be the date on which the dispute is finally determined (i) by mutual written agreement of the parties, (ii) by a binding arbitration award, or (iii) by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal having expired and no appeal having been perfected); provided, however, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Bank shall continue to pay the Employee his full compensation in effect when the notice giving rise to the dispute was given and continue the Employee in all compensation, benefit, retirement, and insurance plans in which he was participating when the notice of dispute was given, until the dispute is resolved; provided, however, that such dispute is resolved within nine months after the Date of Termination specified in the Notice of Termination. If such dispute is not resolved within such nine-month period, the Bank shall not be obligated pending final resolution of the dispute to pay the Employee compensation and other amounts after nine months from the Date of Termination specified in the Notice of Termination. Amounts paid under this Section 13 are in addition to all amounts due under this Agreement, and shall not be offset against or reduce any other amounts due under this Agreement.

14. Reimbursement of Employee for Enforcement Proceedings. In the event that any dispute arises between the Employee and the Bank as to the terms or interpretation of this Agreement, whether instituted by formal legal proceedings or otherwise, including any action that the Employee takes to defend against any action taken by the Bank, the Employee shall be reimbursed for all costs and expenses, including reasonable attorneys’ fees, arising from such dispute, proceedings or actions; provided, however, that the Employee obtains either a written settlement or a final judgment by a court of competent jurisdiction substantially in his favor. Such reimbursement shall be paid within 10 days of Employee’s furnishing to the Bank written evidence, which may be in the form, among other things, of a cancelled check or receipt, of any costs or expenses incurred by the Employee.

15. Federal Income Tax Withholding. The Bank may withhold all federal and state income or other taxes from any benefit payable under this Agreement as shall be required pursuant to any law or government regulation or ruling.

16. Successors and Assigns

(a) Bank. The Bank shall require any successor or assignee of the Bank that shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or

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substantially all of the assets or stock of the Bank expressly and unconditionally to assume and agree to perform the Bank’s obligations under this Agreement, in the same manner and to the same extent that the Bank would be required to perform if no such succession or assignment had taken place. This Agreement shall not be otherwise assignable by the Bank.

(b) Employee. Since the Bank is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank; provided, however, that nothing in this paragraph shall preclude (i) the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death, or (ii) the executors, administrators, or other legal representatives of the Employee or his estate from assigning any rights hereunder to the person or persons entitled thereunto.

(c) Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect.

17. Amendments. No amendments or additions to this Agreement shall be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided.

18. Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived,

19. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

20. Applicable Law. Except to the extent preempted by Federal law, the laws of the State of Maryland shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

21. Entire Agreement. This Agreement, together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto and shall supersede any prior agreement between the parties.

22. Section 409A. The severance payments provided in this Agreement are intended to qualify as short-term deferrals under Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations and guidance thereunder.

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IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first hereinabove written.

ATTEST:	FAIRMOUNT FEDERAL SAVINGS BANK
	By:
Secretary
WITNESS:	EMPLOYEE
	Joseph M. Solomon

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EX-10.2

Exhibit 10.2

FAIRMOUNT BANK

EMPLOYMENT AGREEMENT

THIS AGREEMENT (the “Agreement”) entered into this      day of             , 2010 by and between Fairmount Bank located at 8216 Philadelphia Road, Baltimore, Maryland 21237 (the “Bank”), and Joseph M. Solomon (“Executive”).

WHEREAS, Executive and Bank entered into an agreement dated on March 31, 2008 (the “Prior Agreement”), pursuant to which Executive serves as President and Chief Executive Officer of the Bank; and

WHEREAS, the parties hereto desire to set forth the terms of a revised Agreement and the continuing employment relationship between the Bank and Executive, and the Prior Agreement is hereby replaced in its entirety by this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1. Employment. During the term of this Agreement, which is effective as of the date of the conversion (the “Conversion”) of the Bank from the mutual to stock form of organization (the “Commencement Date”), Executive shall serve in the capacity of President and Chief Executive Officer of the Bank. Executive shall render such administrative and management services to the Bank as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. Executive shall promote the business of the Bank. Executive’s other duties shall be such as the Board of Directors of the Bank (the “Board of Directors” or “Board”) may from time to time reasonably direct, including normal duties as an officer of the Bank.

2. Service on the Board of Directors. During the term of this Agreement, Executive will continue to serve on the Board of Directors of the Bank as a director. If at any time during the term of this Agreement Executive shall fail to be re-nominated to the Board of Directors other than for reasons of Just Cause (as defined in Section 9(d) of this Agreement), Executive shall have “Good Reason” (as defined in Section 9(e) of this Agreement) to terminate his employment under this Agreement, and Executive shall have no further obligations under this Agreement.

3. Base Compensation. The Bank agrees to pay Executive during the term of this Agreement (as hereinafter defined in Section 7) a base salary at the rate of $125,580 per annum, payable in accordance with the customary payroll practices of the Bank; provided, however, that the rate of Executive’s base salary shall be reviewed by the Board of Directors not less often than annually, and Executive shall be entitled to receive annual increases at such percentage or in such an amount as the Board of Directors, in its sole discretion, may decide.

4. Discretionary Bonus. Executive shall be entitled to receive an annual bonus in an amount which is based on the bonus program maintained by the Bank as of the date of this Agreement and shall be eligible to participate in any future bonus program adopted by the Bank in an equitable manner. No other compensation provided for in this Agreement shall be deemed a substitute for Executive’s right to receive bonuses when and as declared by the Board of Directors or as provided for by any plan or program of the Bank.

5. Expenses. During the term of this Agreement, Executive shall be entitled to receive prompt reimbursement of all reasonable expenses incurred (in accordance with the policies and procedures of the Bank) in performing services under this Agreement; provided, however, that Executive properly accounts for expenses in accordance with the policies of the Bank.

6. Employee Benefits.

(a) Participation in Retirement and Executive Benefit Plans. Executive shall be entitled, while employed under the terms of this Agreement, to receive all benefits under any tax-qualified or non-qualified employee benefit plan or arrangement in effect as of the date of this Agreement or that the Bank implements at any time during the term of this Agreement. Executive shall be entitled to participate in such future plans or arrangements on the same terms as other employees of the Bank or as established by the Bank for Executive or other selected employees.

(b) Fringe Benefits. Executive shall be entitled to receive any benefits under any fringe benefit plan or policy that is in effect as of the date of this Agreement, or that the Bank implements at any time during the term of this Agreement, on the same terms as the Bank’s senior management employees. Nothing paid to Executive under any plan or arrangement presently in effect or made available in the future will be deemed to be in lieu of base salary or other compensation to Executive under this Agreement.

(c) Paid Leave Time. Executive shall be entitled to leave time in accordance with the standard policies or practices of the Bank for senior executive officers, as in effect from time to time.

7. Term of Agreement. Executive’s employment under this Agreement shall be deemed to have commenced as of the Commencement Date and shall continue for a period of thirty-six (36) calendar months from the Commencement Date. Commencing on the first anniversary of the Commencement Date and continuing on each anniversary thereafter (each an “Anniversary Date”), the disinterested members of the Board of Directors of the Bank may extend the Agreement an additional year such that the remaining term of the Agreement shall be thirty-six (36) months, unless Executive elects not to extend the term of this Agreement by giving written notice in accordance with Section 16 of this Agreement. The Board of Directors of the Bank will review the Agreement and Executive’s performance annually for purposes of determining whether to extend the Agreement and the rationale and results thereof shall be included in the minutes of the Board’s meeting. The Board of Directors of the Bank shall give written notice to Executive as soon as possible after such review as to whether the Agreement is to be extended; provided, however, that if the Board fails to conduct such review or if written notice of nonrenewal is provided to Executive, then in such case the term of this Agreement shall become fixed and shall cease at the end of thirty-six (36) full calendar months following the Anniversary Date.

8. Loyalty; Noncompetition.

(a) During the period of his employment hereunder and except for illnesses, reasonable vacation periods, and reasonable leaves of absence, Executive shall devote all his full business time, attention, skill and efforts to the faithful performance of his duties hereunder; provided, however, from time to time, that Executive may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with the Bank or any of its subsidiaries or affiliates, or unfavorably affect the performance of Executive’s duties pursuant to this Agreement, or will not violate any applicable statute or regulation. “Full business time” is hereby defined as that amount of time usually devoted to like companies by similarly situated executive officers. During the term of his employment under this Agreement, Executive shall not engage in any business or activity contrary to the business affairs or interests of the Bank or be gainfully employed in any other position or job other than as provided above.

(b) Executive shall not, during or after the term of this Agreement, disclose any knowledge of the past, present or contemplated business of the Bank, or of any affiliate thereof, to any person for any reason or purpose. Notwithstanding the foregoing, Executive may disclose any information required in writing by Federal bank regulatory agencies and may disclose to any person information regarding the Bank that is otherwise publicly available or any knowledge of banking or financial concepts or ideas that are not solely and exclusively derived from the business plans and activities of the Bank.

(c) Nothing contained in this Section 8 shall be deemed to prevent or limit the Executive’s right to invest in the capital stock or other securities of any business dissimilar from that of the Bank, or, solely as a passive or minority investor, in any business.

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9. Termination.

Executive’s employment under this Agreement shall be terminated upon any of the following occurrences:

(a) Death. Executive’s employment under this Agreement shall terminate upon his death. Executive’s estate shall be entitled to receive payments of base salary, payable in accordance with the regular payroll practices of the Bank, for sixty (60) days immediately following the date of Executive’s death and any other compensation accrued as of the date of death.

(b) Termination of Employment by the Board of Directors Without Just Cause or by the Executive for Good Reason. In the event that (i) the Board of Directors terminates Executive’s employment without “Just Cause” (as defined in Section 9(d)) or (ii) such employment is terminated by the Executive for “Good Reason” (as defined in Section 9(b)(iii), Executive shall be entitled to:

(i) His base salary for the remaining term of the Agreement, including any renewals or extensions thereof, at the current rate in effect pursuant to Section 3 of this Agreement, plus the amount of the annual cash bonus earned in the calendar year preceding the year of termination, and a cash equivalent amount equal to the additional retirement benefits under any retirement program (whether tax-qualified or non-qualified) that Executive would have been entitled to had his employment continued through the remaining term of the Agreement (with the amount of benefits determined by reference to the benefits received by the Executive or accrued on his behalf under such programs during the twelve (12) months preceding his termination).

(ii) Coverage under the Bank’s life insurance plans and non-taxable medical, health, and dental plans (each being a “Welfare Plan”) in the same manner in which Executive received coverage on the last day of his employment with the Bank. Executive and his covered dependents (if any) shall continue participating in such Welfare Plans, subject to the same premium contributions (if any) on the part of Executive as were required immediately prior to his termination until the earlier of (i) his death; (ii) his employment by another employer other than one of which he is the majority owner; or (iii) three (3) years from his termination date.

(iii) For purposes of this Agreement, termination of Executive’s employment hereunder for “Good Reason” shall be limited to Executive’s voluntary termination of employment after the occurrence of any of the following events which have not been consented to in advance by Executive in writing; provided that Executive has given written notice to the Bank within ninety (90) days after the initial occurrence of such event and that the Bank has been given at least thirty (30) days to cure the situation (but the Bank may waive its right to cure): (i) if Executive would be required to move his personal residence or perform his principal executive functions more than thirty (30) miles from Executive’s primary office as of the Commencement Date; (ii) if, in the organizational structure of the Bank, Executive would be required to report to a person or persons other than the Board of Directors; (iii) if the Bank should fail to maintain Executive’s base compensation in effect pursuant to Section 3 of this Agreement, or fail to maintain the existing employee benefit plans or arrangements in which Executive participates as of the date of this Agreement, including any material fringe benefit, bonus plan and/or retirement plan, except to the extent that such reduction in compensation or benefit programs is part of an overall adjustment in compensation and benefits for all employees of the Bank and the Executive is otherwise compensated for such an overall adjustment in an equitable manner; (iv) if Executive would be assigned duties and responsibilities other than those normally associated with his position as referenced in Section 1 of this Agreement; (v) if Executive’s responsibilities or authority have in any way been materially diminished or reduced other than for reasons of Just Cause; or (vi) if Executive is not re-elected to the Board of Directors or appointed as Chairman of the Board other than for reasons of Just Cause.

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(iv) The sum due under Section 9(b)(i) shall be paid in one lump sum within thirty (30) calendar days after such termination. Notwithstanding the foregoing, in the event Executive is a Specified Employee (within the meaning of Treasury Regulations §1.409A-1(i)), then, to the extent necessary to avoid penalties under Code Section 409A, payment shall be withheld and shall be paid to Executive on the first day of the seventh month following Executive’s termination of employment by the Bank without Just Cause.

(v) For purposes of Section 9(b), termination of employment as used herein shall mean “Separation from Service” as defined in Code Section 409A and the Treasury Regulations promulgated thereunder.

(c) Disability.

(i) Termination by the Bank of Executive’s employment based on “Disability” shall occur if: (A) Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for a continuous period of not less than twelve (12) months; (B) by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for a continuous period of not less than twelve (12) months; or (C) Executive is determined to be totally disabled by the Social Security Administration. Executive shall be entitled to receive benefits under any short or long-term disability plan maintained by the Bank.

(ii) The Bank shall pay Executive, as disability pay, a monthly payment equal to Executive’s monthly rate of base salary. These disability payments shall commence within thirty (30) days of the date of Executive’s termination due to Disability and will end on the earlier of (A) the date Executive returns to the full-time employment of the Bank in the same capacity as he was employed prior to his termination for Disability and pursuant to an employment agreement between Executive and the Bank; (B) the date Executive begins full-time employment with another employer; (C) the date Executive attains the normal retirement age (as defined in the Bank’s defined contribution plan) or begins receiving benefits under any substitute retirement plan adopted by the Bank; or (D) the date of Executive’s death. Notwithstanding any other provision to the contrary, the Bank’s obligation for any payments required to be made under this Section 9(c) shall be reduced by any proceeds received by Executive from disability income insurance or any other disability policy or plan maintained by the Bank for Executive which was paid for by the Bank as partial satisfaction of its obligation under this Section 9(c).

(iii) The Bank shall cause to be continued life insurance and non-taxable medical and dental coverage substantially identical to the coverage maintained by the Bank for Executive prior to his termination for Disability. This coverage shall cease upon the earlier of (A) the date Executive returns to the full-time employment of the Bank, in the same capacity as he was employed prior to his termination for Disability and pursuant to an employment agreement between Executive and the Bank; (B) the date Executive begins full-time employment with another employer; (C) the date Executive attains the normal retirement age or begins receiving benefits under the Bank’s retirement plan; or (D) the date of Executive’s death.

(iv) Notwithstanding the foregoing, there will be no reduction in the compensation otherwise payable to Executive during any period during which Executive is incapable of performing his duties hereunder by reason of temporary disability.

(d) Termination of Employment by the Board of Directors for Just Cause. In the event Executive’s employment is terminated for “Just Cause,” no continued payments or benefits shall be due under this Agreement. For purposes of this Agreement, termination for “Just Cause” shall be defined as termination due to Executive’s personal dishonesty, incompetence, willful misconduct, breach of

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fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement Any determination of “Just Cause” as defined by this Section 9(d) shall be determined by a majority vote of the entire membership of the Board of Directors at a meeting of such Board called and held for the purpose (after reasonable notice to Executive and an opportunity for Executive to be heard before the Board with counsel), of finding that in the good faith opinion of the Board, Executive committed the conduct described above and specifying the particulars thereof.

(e) Voluntary Termination of Employment by Executive Other Than for Good Reason. The voluntary termination of employment by Executive during the term of this Agreement, other than for Good Reason, with the delivery of no less than sixty (60) days written notice to the Board of Directors, entitles Executive to receive only the base salary, vested rights, and all employee benefits up to Executive’s termination date.

(f) Termination and Board Membership. To the extent Executive is a member of the board of directors of Fairmount Bancorp Inc. (the “Company”) or the Bank or any of their affiliates on the date of an involuntary termination of employment with the Company or the Bank or a termination of employment for Good Reason, Executive shall be deemed to have automatically resigned from all of the boards of directors immediately following such termination of employment with the Company or the Bank.

(g) Termination and Release of Claims. Any payments to be made under this Agreement shall be contingent on Executive’s execution and non-revocation of a mutual release in a form acceptable to the Company and the Bank; provided, however, that if the Company or the Bank refuse to execute such mutual release, the Executive’s obligation to execute and not revoke the release as a precondition to receiving such severance benefits shall terminate. The mutual release agreement shall release the Company and the Bank from any and all claims and other actions by Executive and it shall also release the Executive from any and all claims and other actions by the Company and the Bank.

10. Change in Control.

(a) For purposes of this Agreement, a Change in Control of the Company or the Bank shall be deemed to have occurred if and when:

(i) there occurs a change in control of the Company or the Bank within the meaning of the Home Owners Loan Act of 1933 or 12 C.F.R. Part 574 as applied to the Company or the Bank as if it were a federally chartered institution;

(ii) as a result of, or in connection with, any merger or other business combination, sale of assets or contested election, wherein the persons who were non-employee directors of the Company or the Bank before such transaction or event cease to constitute a majority of the Board of Directors of the Company or the Bank or any successor to the Company or the Bank;

(iii) the Company or the Bank transfers substantially all of its assets to another corporation or entity which is not an affiliate of the Company or the Bank; or

(iv) the Company or the Bank is merged or consolidated with another corporation or entity and, as a result of such merger or consolidation, less than sixty percent (60%) of the equity interest in the surviving or resulting corporation is owned by the former shareholders or depositors of the Company or the Bank.

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For purposes of Section 10 of this Agreement, a Change in Control shall not occur as a result of the Conversion. Upon the Conversion, the resulting bank and holding company shall be subject to this Agreement and the obligations of the Bank set forth herein.

(b) If Executive’s employment is terminated for any reason other than for Just Cause within twelve (12) months following a Change in Control, Executive shall be entitled to receive the greater of the following:

(i) the amount of the payment and benefits specified in Section 9(b), or

(ii) the amount of the payment and benefits specified in Section 10(c).

Such payment shall be made in a lump sum within thirty (30) days following Executive’s termination of employment. For purposes of this Section 10, termination of employment as used herein shall mean “Separation from Service” as defined in Code Section 409A and the Treasury Regulations promulgated thereunder. Notwithstanding the foregoing, in the event Executive is a Specified Employee (within the meaning of Treasury Regulations §1.409A-1(i)), then, to the extent necessary to avoid penalties under Code Section 409A, payment shall be withheld and shall be paid to Executive on the first day of the seventh month following Executive’s termination of employment.

(c) For purposes of Section 10(b)(ii), the amount of payment and benefits shall be equal to:

(i) an amount equal to three (3) times his “base amount,” as defined in Code Section 280G(b)(3), less one (1) dollar (“Code § 280G Maximum”); and

(ii) coverage under the Bank’s life insurance plan and non-taxable medical, health and dental plans (each being a “Welfare Plan”) in the same manner in which Executive received coverage on the last day of his employment with the Bank. Executive and his covered dependents (if any) shall continue participating in such Welfare Plans, subject to the same premium contributions (if any) on the part of Executive as were required immediately prior to his termination until the earlier of (i) his death; (ii) his employment by another employer other than one of which he is the majority owner; or (iii) three (3) years from his termination date.

(d) Not later than ten (10) business days after a Change in Control, the Bank shall (i) establish a grantor trust (the “Trust”) designed in accordance with Revenue Procedure 92-64 and having a trustee independent of the Bank and Fairmount Bancorp, Inc., (ii) deposit in said Trust an amount equal to the Code §280G Maximum, unless Executive has previously provided a written release of any claims under this Agreement, and (iii) provide the trustee of the Trust with a written direction to hold said amount and any investment return thereon in a segregated account for the benefit of Executive, and to follow the procedures set forth in the next paragraph as to the payment of such amounts from the Trust.

(e) During the 39-consecutive month period after a Change in Control, Executive may provide the trustee of the Trust with a written notice requesting that the trustee pay to Executive an amount designated in the notice as being payable pursuant to this Agreement. Within three (3) business days after receiving said notice, the trustee of the Trust shall pay such amount to Executive, and coincidentally shall provide the Bank or its successor with notice of such payment. Upon the earlier of the Trust’s final payment of all amounts due under the preceding paragraph or the date 39 months after the Change in Control, the trustee of the Trust shall pay to the Bank the entire balance remaining in the segregated account maintained for the benefit of Executive. Executive shall thereafter have no further interest in the Trust. Such notice shall not have the effect of changing the timing of any payment under this Agreement, for purposes of Section 409A.

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11. Limitation of Benefits under Certain Circumstances.

(a) In no event shall the payments and benefits received by Executive exceed three times Executive’s average compensation over the past five years, in accordance with the OTS regulations.

(b) If the payments and benefits pursuant to Section 10 of this Agreement, either alone or together with other payments and benefits which the Executive has the right to receive from the Bank, would constitute a “parachute payment” under Section 280G of the Code, the cash severance payable by the Bank pursuant to Section 10 shall be reduced by the amount, if any, which is the minimum amount necessary to result in no portion of the payments and benefits under Section 10 being non-deductible to the Bank pursuant to Section 280G of the Code and subject to the excise tax imposed under Section 4999 of the Code. The determination of any reduction in the payments and benefits shall be based upon the opinion of the Bank’s independent public accountants and paid for by the Bank. In the event that the Bank and/or the Executive do not agree with the opinion of such accountants, (i) the Bank shall pay to the Executive the maximum amount of payments and benefits as selected by the Executive, which such opinion indicates there is a high probability do not result in any of such payments and benefits being non-deductible to the Bank and subject to the imposition of the excise tax imposed under Section 4999 of the Code and (ii) the Bank may request, and the Executive shall have the right to demand that they request, a ruling from the IRS as to whether the disputed payments and benefits have such consequences. Any such request for a ruling from the IRS shall be promptly prepared and filed by the Bank, but in no event later than thirty (30) days from the date of the accountant’s opinion referred to above, and shall be subject to the Executive’s approval prior to filing, which shall not be unreasonably withheld. The Bank and the Executive agree to be bound by any ruling received from the IRS and to make appropriate payments to each other to reflect any such rulings, together with interest at the applicable federal rate.

12. Successors and Assigns.

(a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets of the Bank.

(b) Since the Bank is contracting for the unique and personal skills of Executive, Executive shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank.

13. Amendments. No amendments or additions to this Agreement shall be binding upon the parties hereto unless made in writing and signed by both parties, except as herein otherwise specifically provided.

14. Applicable Law. This agreement shall be governed in all respects, whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of Maryland, except to the extent that Federal law shall be deemed to apply.

15. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

16. Notices. Any notices, requests, demands and other communications provided for or deemed necessary by this Agreement shall be sufficient if set forth in writing and delivered in person or sent by registered or certified mail, postage prepaid, to, in the case of Executive, the last address filed in writing by Executive with the Bank, or, in the case of the Bank, to the Bank at its main office to the attention of the Board of Directors.

17. Indemnification. The Bank shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at its expense, or in lieu thereof, shall indemnify Executive (and his heirs, executors and administrators) to the fullest extent permitted

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under law and applicable regulation or under any existing indemnification agreement by and between Executive and the Bank against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Bank (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities). Such expenses and liabilities may include, but are not limited to, judgment, court costs and attorneys’ fees and the cost of reasonable settlements. The Bank shall pay such expenses and liabilities in advance of a final judicial decision (hereinafter an “advancement of expenses”); provided, however, that, an advancement of expenses incurred by Executive in his capacity as a director or executive officer of the Bank (and not in any other capacity in which service was or is rendered by Executive including, without limitation, services to an employee benefit plan) shall be made only upon delivery to the Bank of an undertaking, by or on behalf of Executive, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that Executive is not entitled to be indemnified for such expenses under this Section 17 or otherwise. Indemnification under this Section 17 shall be made in accordance with 12 C.F.R. §545.121 or any successor thereto.

18. Entire Agreement. This Agreement together with any understanding or modifications thereof as may be agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto.

19. Required Regulatory Provisions.

In the event any of the provisions of this Section 19 are in conflict with the terms of this Agreement, this Section 19 shall prevail.

(a) The Bank may terminate Executive’s employment at any time, but any termination by the Bank, other than Termination for Just Cause, shall not prejudice Executive’s right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Just Cause as defined in Section 9(d) hereinabove.

(b) If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(3) or (g)(1); the Bank’s obligations under this contract shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion: (i) pay Executive all or part of the compensation withheld while their contract obligations were suspended; and (ii) reinstate (in whole or in part) any of the obligations which were suspended.

(c) If Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1813(x)(1) all obligations of the Bank under this contract shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties.

(e) All obligations of the Bank under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the institution: (i) by the Director of the OTS (or his designee) or the FDIC, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. §1823(c); or (ii) by the Director of the OTS (or his designee) at the time the Director of the OTS (or his designee) approves a supervisory merger to resolve problems related to the operations of the Bank or when the Bank is determined by the Director of the OTS to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action.

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(f) Any payments made to Executive pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder.

20. Arbitration.

(a) Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a location selected by Executive within fifty (50) miles from the location of the Bank, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until the date of termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.

(b) In the event any dispute or controversy arising under or in connection with Executive’s termination is resolved in favor of Executive, whether by judgment, arbitration or settlement, Executive shall be entitled to the payment of all back-pay, including salary, bonuses and any other cash compensation, fringe benefits and any compensation and benefits due Executive under this Agreement.

21. Payment of Costs and Legal Fees. All reasonable costs and legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Bank, if Executive is successful with respect to such dispute or question of interpretation pursuant to a legal judgment, arbitration or settlement. Such reimbursements shall be paid to Executive within two and one-half (2 ¹/2) months after the dispute is settled or resolved in Executive’s favor.

IN WITNESS WHEREOF, the parties have executed this Agreement on the latest date set forth below.

	FAIRMOUNT BANK
,	By:
Date		Chairman of the Board
,
Date		Joseph M. Solomon

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EX-10.3

Exhibit 10.3

FAIRMOUNT BANCORP, INC.

EMPLOYMENT AGREEMENT

THIS AGREEMENT (the “Agreement”) is made and entered into this      day of             , 2010, by and between Fairmount Bancorp, Inc., a Maryland corporation (the “Company”), and Joseph M. Solomon (“Executive”).

WITNESSETH

WHEREAS, Executive is currently employed as President and Chief Executive Officer of Fairmount Bank (the “Bank”); and

WHEREAS, the Company desires to assure itself of the continued availability of the Executive’s services as provided in this Agreement; and

WHEREAS, Executive is willing to serve the Company on the terms and conditions hereinafter set forth; and

WHEREAS, Executive has previously entered into a separate employment agreement with the Bank.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1. Employment. During the term of this Agreement, which is effective as of the date of the conversion (the “Conversion”) of the Bank from the mutual to stock form of organization (the “Commencement Date”), Executive shall serve in the capacity of President and Chief Executive Officer of the Company. Executive shall render such administrative and management services to the Company as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. Executive shall promote the business of the Company. Executive’s other duties shall be such as the Board of Directors of the Company (the “Board of Directors” or “Board”) may from time to time reasonably direct, including normal duties as an executive officer of the Company.

2. Service on the Board of Directors. During the term of this Agreement, Executive will continue to serve on the Board of Directors of the Company as a director. If at any time during the term of this Agreement Executive shall fail to be re-nominated to the Board of Directors other than for reasons of Just Cause (as defined in Section 9(d) of this Agreement), Executive shall have “Good Reason” (as defined in Section 9(b) of this Agreement) to terminate his employment under this Agreement, and Executive shall have no further obligations under this Agreement.

3. Base Compensation. The Company agrees to pay Executive during the term of this Agreement (as hereinafter defined in Section 7) a base salary at the rate of $125,580 per annum, payable in accordance with the customary payroll practices of the Company; provided, however, that the rate of Executive’s base salary shall be reviewed by the Board of Directors not less often than annually, and Executive shall be entitled to receive annual increases at such percentage or in such an amount as the Board of Directors, in its sole discretion, may decide.

4. Discretionary Bonus. Executive shall be entitled to receive an annual bonus in an amount which is based on any bonus program maintained by the Company in an equitable manner. No other compensation provided for in this Agreement shall be deemed a substitute for Executive’s right to receive bonuses when and as declared by the Board of Directors or as provided for by any plan or program of the Company.

5. Expenses. During the term of this Agreement, Executive shall be entitled to receive prompt reimbursement of all reasonable expenses incurred (in accordance with the policies and procedures of the Company) in performing services under this Agreement; provided, however, that Executive properly accounts for expenses in accordance with the policies of the Company.

6. Employee Benefits.

(a) Participation in Retirement and Executive Benefit Plans. Executive shall be entitled, while employed under the terms of this Agreement, to receive all benefits under any tax-qualified or non-qualified employee benefit plan or arrangement in effect as of the date of this Agreement or that the Company implements at any time during the term of this Agreement. Executive shall be entitled to participate in such future plans or arrangements on the same terms as other employees of the Company or as established by the Company for Executive or other selected employees.

(b) Fringe Benefits. Executive shall be entitled to receive any benefits under any fringe benefit plan or policy that is in effect as of the date of this Agreement, or that the Company implements at any time during the term of this Agreement, on the same terms as the Company’s senior management employees. Nothing paid to Executive under any plan or arrangement presently in effect or made available in the future will be deemed to be in lieu of base salary or other compensation to Executive under this Agreement.

(c) Paid Leave Time. Executive shall be entitled to leave time in accordance with the standard policies or practices of the Company for senior executive officers, as in effect from time to time.

7. Term of Agreement. Executive’s employment under this Agreement shall be deemed to have commenced as of the Commencement Date and shall continue for a period of thirty-six (36) calendar months from the Commencement Date. Commencing on the first anniversary of the Commencement Date and continuing on each anniversary thereafter (each an “Anniversary Date”), the disinterested members of the Board of Directors of the Company may extend the Agreement an additional year such that the remaining term of the Agreement shall be thirty-six (36) months, unless Executive elects not to extend the term of this Agreement by giving written notice in accordance with Section 15 of this Agreement. The Board of Directors of the Company will review the Agreement and Executive’s performance annually for purposes of determining whether to extend the Agreement and the rationale and results thereof shall be included in the minutes of the Board’s meeting. The Board of Directors of the Company shall give written notice to Executive as soon as possible after such review as to whether the Agreement is to be extended; provided, however, that if the Board fails to conduct such review or if written notice of nonrenewal is provided to Executive, then in such case the term of this Agreement shall become fixed and shall cease at the end of thirty-six (36) full calendar months following the Anniversary Date.

8. Loyalty; Noncompetition.

(a) During the period of his employment hereunder and except for illnesses, reasonable vacation periods, and reasonable leaves of absence, Executive shall devote all his full business time, attention, skill and efforts to the faithful performance of his duties hereunder; provided, however, from time to time, that Executive may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with the Company or any of its subsidiaries or affiliates, or unfavorably affect the performance of Executive’s duties pursuant to this Agreement, or will not violate any applicable statute or regulation. “Full business time” is hereby defined as that amount of time usually devoted to like companies by similarly situated executive officers. During the term of his employment under this Agreement, Executive shall not engage in any business or activity contrary to the business affairs or interests of the Bank or be gainfully employed in any other position or job other than as provided above.

(b) Executive shall not, during or after the term of this Agreement, disclose any knowledge of the past, present or contemplated business of the Company, or of any affiliate thereof, to any person for any reason or purpose. Notwithstanding the foregoing, Executive may disclose any information required in writing by Federal bank regulatory agencies and may disclose to any person information regarding the Company that is otherwise publicly available or any knowledge of banking or financial concepts or ideas that are not solely and exclusively derived from the business plans and activities of the Company.

(c) Nothing contained in this Section 8 shall be deemed to prevent or limit the Executive’s right to invest in the capital stock or other securities of any business dissimilar from that of the Company, or, solely as a passive or minority investor, in any business.

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9. Termination.

Executive’s employment under this Agreement shall be terminated upon any of the following occurrences:

(a) Death. Executive’s employment under this Agreement shall terminate upon his death. Executive’s estate shall be entitled to receive payments of base salary, payable in accordance with the regular payroll practices of the Company, for sixty (60) days immediately following the date of Executive’s death and any other compensation accrued as of the date of death.

(b) Termination of Employment by the Board of Directors Without Just Cause or by the Executive for Good Reason. In the event that (i) the Board of Directors terminates Executive’s employment without “Just Cause” (as defined in Section 9(d)) or (ii) such employment is terminated by the Executive for “Good Reason” (as defined in Section 9(b)(iii), Executive shall be entitled to:

(i) His base salary for the remaining term of the Agreement, including any renewals or extensions thereof, at the current rate in effect pursuant to Section 3 of this Agreement, plus the amount of the annual cash bonus earned in the calendar year preceding the year of termination, and a cash equivalent amount equal to the additional retirement benefits under any retirement program (whether tax-qualified or non-qualified) that Executive would have been entitled to had his employment continued through the remaining term of the Agreement (with the amount of benefits determined by reference to the benefits received by the Executive or accrued on his behalf under such programs during the twelve (12) months preceding his termination).

(ii) Coverage under the Company’s life insurance plans and non-taxable medical, health, and dental plans (each being a “Welfare Plan”) in the same manner in which Executive received coverage on the last day of his employment with the Company. Executive and his covered dependents (if any) shall continue participating in such Welfare Plans, subject to the same premium contributions (if any) on the part of Executive as were required immediately prior to his termination until the earlier of (i) his death; (ii) his employment by another employer other than one of which he is the majority owner; or (iii) three (3) years from his termination date.

(iii) For purposes of this Agreement, termination of Executive’s employment hereunder for “Good Reason” shall be limited to Executive’s voluntary termination of employment after the occurrence of any of the following events which have not been consented to in advance by Executive in writing; provided that Executive has given written notice to the Company within ninety (90) days after the initial occurrence of such event and that the Company has been given at least thirty (30) days to cure the situation (but the Company may waive its right to cure): (i) if Executive would be required to move his personal residence or perform his principal executive functions more than thirty (30) miles from Executive’s primary office as of the Commencement Date; (ii) if, in the organizational structure of the Company, Executive would be required to report to a person or persons other than the Board of Directors; (iii) if the Company should fail to maintain Executive’s base compensation in effect pursuant to Section 3 of this Agreement, or fail to maintain the existing employee benefit plans or arrangements in which Executive participates as of the date of this Agreement, including any material fringe benefit, bonus plan and/or retirement plan, except to the extent that such reduction in compensation or benefit programs is part of an overall adjustment in compensation and benefits for all employees of the Company and the Executive is otherwise compensated for such an overall adjustment in an equitable manner; (iv) if Executive would be assigned duties and responsibilities other than those normally associated with his position as referenced in Section 1 of this Agreement; (v) if Executive’s responsibilities or authority have in any way been materially diminished or reduced other than for reasons of Just Cause; or (vi) if Executive is not re-elected to the Board of Directors other than for reasons of Just Cause.

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(iv) The sum due under Section 9(b)(i) shall be paid in one lump sum within thirty (30) calendar days after such termination. Notwithstanding the foregoing, in the event Executive is a Specified Employee (within the meaning of Treasury Regulations §1.409A-1(i)), then, to the extent necessary to avoid penalties under Code Section 409A, payment shall be withheld and shall be paid to Executive on the first day of the seventh month following Executive’s termination of employment by the Company without Just Cause.

(v) For purposes of Section 9(b), termination of employment as used herein shall mean “Separation from Service” as defined in Code Section 409A and the Treasury Regulations promulgated thereunder.

(c) Disability.

(i) Termination by the Company of Executive’s employment based on “Disability” shall occur if: (A) Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for a continuous period of not less than twelve (12) months; (B) by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for a continuous period of not less than twelve (12) months; or (C) Executive is determined to be totally disabled by the Social Security Administration. Executive shall be entitled to receive benefits under any short or long-term disability plan maintained by the Company.

(ii) The Company shall pay Executive, as disability pay, a monthly payment equal to Executive’s monthly rate of base salary. These disability payments shall commence within thirty (30) days of the date of Executive’s termination due to Disability and will end on the earlier of (A) the date Executive returns to the full-time employment of the Company in the same capacity as he was employed prior to his termination for Disability and pursuant to an employment agreement between Executive and the Company; (B) the date Executive begins full-time employment with another employer; (C) the date Executive attains the normal retirement age (as defined in the Company’s defined contribution plan) or begins receiving benefits under any substitute retirement plan adopted by the Company; or (D) the date of Executive’s death. Notwithstanding any other provision to the contrary, the Company’s obligation for any payments required to be made under this Section 9(c) shall be reduced by any proceeds received by Executive from disability income insurance or any other disability policy or plan maintained by the Company for Executive which was paid for by the Company as partial satisfaction of its obligation under this Section 9(c).

(iii) The Company shall cause to be continued life insurance and non-taxable medical and dental coverage substantially identical to the coverage maintained by the Company for Executive prior to his termination for Disability. This coverage shall cease upon the earlier of (A) the date Executive returns to the full-time employment of the Company, in the same capacity as he was employed prior to his termination for Disability and pursuant to an employment agreement between Executive and the Company; (B) the date Executive begins full-time employment with another employer; (C) the date Executive attains the normal retirement age or begins receiving benefits under the Company’s retirement plan; or (D) the date of Executive’s death.

(iv) Notwithstanding the foregoing, there will be no reduction in the compensation otherwise payable to Executive during any period during which Executive is incapable of performing his duties hereunder by reason of temporary disability.

(d) Termination of Employment by the Board of Directors for Just Cause. In the event Executive’s employment is terminated for “Just Cause,” no continued payments or benefits shall be due under this Agreement. For purposes of this Agreement, termination for “Just Cause” shall be defined as termination due to Executive’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit,

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intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement Any determination of “Just Cause” as defined by this Section 9(d) shall be determined by a majority vote of the entire membership of the Board of Directors at a meeting of such Board called and held for the purpose (after reasonable notice to Executive and an opportunity for Executive to be heard before the Board with counsel), of finding that in the good faith opinion of the Board, Executive committed the conduct described above and specifying the particulars thereof.

(e) Voluntary Termination of Employment by Executive Other Than for Good Reason. The voluntary termination of employment by Executive during the term of this Agreement, other than for Good Reason, with the delivery of no less than sixty (60) days written notice to the Board of Directors, entitles Executive to receive only the base salary, vested rights, and all employee benefits up to Executive’s termination date.

(f) Termination and Board Membership. To the extent Executive is a member of the board of directors of the Company or the Bank or any of their affiliates on the date of an involuntary termination of employment with the Company or the Bank or a termination of employment for Good Reason, Executive shall be deemed to have automatically resigned from all of the boards of directors immediately following such termination of employment with the Company or the Bank.

(g) Termination and Release of Claims. Any payments to be made under this Agreement shall be contingent on Executive’s execution and non-revocation of a mutual release in a form acceptable to the Company and the Bank; provided, however, that if the Company or the Bank refuse to execute such mutual release, the Executive’s obligation to execute and not revoke the release as a precondition to receiving such severance benefits shall terminate. The mutual release agreement shall release the Company and the Bank from any and all claims and other actions by Executive and it shall also release the Executive from any and all claims and other actions by the Company and the Bank.

10. Change in Control.

(a) For purposes of this Agreement, a Change in Control of the Company or the Bank shall be deemed to have occurred if and when:

(i) there occurs a change in control of the Company or the Bank within the meaning of the Home Owners Loan Act of 1933 or 12 C.F.R. Part 574 as applied to the Company or the Bank as if it were a federally chartered institution;

(ii) as a result of, or in connection with, any merger or other business combination, sale of assets or contested election, wherein the persons who were non-employee directors of the Company or the Bank before such transaction or event cease to constitute a majority of the Board of Directors of the Company or the Bank or any successor to the Company or the Bank;

(iii) the Company or the Bank transfers substantially all of its assets to another corporation or entity which is not an affiliate of the Company or the Bank; or

(iv) the Company or the Bank is merged or consolidated with another corporation or entity and, as a result of such merger or consolidation, less than sixty percent (60%) of the equity interest in the surviving or resulting corporation is owned by the former shareholders or depositors of the Company or the Bank.

For purposes of Section 10 of this Agreement, a Change in Control shall not occur as a result of the Conversion.

(b) If Executive’s employment is terminated for any reason other than for Just Cause within twelve (12) months following a Change in Control, Executive shall be entitled to receive the greater of the following:

(i) the amount of the payment and benefits specified in Section 9(b), or

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(ii) the amount of the payment and benefits specified in Section 10(c).

Such payment shall be made in a lump sum within thirty (30) days following Executive’s termination of employment. For purposes of this Section 10, termination of employment as used herein shall mean “Separation from Service” as defined in Code Section 409A and the Treasury Regulations promulgated thereunder. Notwithstanding the foregoing, in the event Executive is a Specified Employee (within the meaning of Treasury Regulations §1.409A-1(i)), then, to the extent necessary to avoid penalties under Code Section 409A, payment shall be withheld and shall be paid to Executive on the first day of the seventh month following Executive’s termination of employment.

(c) For purposes of Section 10(b)(ii), the amount of payment and benefits shall be equal to:

(i) an amount equal to three (3) times his “base amount,” as defined in Code Section 280G(b)(3), less one (1) dollar; and

(ii) coverage under the Company’s or Bank’s life insurance plan and non-taxable medical, health and dental plans (each being a “Welfare Plan”) in the same manner in which Executive received coverage on the last day of his employment with the Company. Executive and his covered dependents (if any) shall continue participating in such Welfare Plans, subject to the same premium contributions (if any) on the part of Executive as were required immediately prior to his termination until the earlier of (i) his death; (ii) his employment by another employer other than one of which he is the majority owner; or (iii) three (3) years from his termination date.

(d) If Executive becomes liable, in any taxable year, for the payment of an excise tax under Code Section 4999 on account of any payments to Executive pursuant to this Section 10, and the Company chooses not to contest the liability or has exhausted all administrative and judicial appeals contesting the liability, the Company shall pay Executive (i) an amount equal to the excise tax for which Executive is liable under Code Section 4999, (ii) the federal, state, and local income taxes, and interest if any, for which Executive is liable on account of the payments pursuant to item (i), and (iii) any additional excise tax under Code Section 4999 and any federal, state and local income taxes for which Executive is liable on account of payments made pursuant to items (i) and (ii).

(e) This Section 10(e) applies if the amount of payments to Executive under Section 10(d) has not been determined with finality by the exhaustion of administrative and judicial appeals. In such circumstances, the Company and Executive shall, as soon as practicable after the event or series of events has occurred giving rise to the imposition of the excise tax, cooperate in determining the amount of Executive’s excise tax liability for purposes of paying the estimated tax. Executive shall thereafter furnish to the Company or its successor a copy of each tax return which reflects a liability for an excise tax under Code Section 4999 at least 20 days before the date on which such return is required to be filed with the Internal Revenue Service. The liability reflected on such return shall be dispositive for the purposes hereof, unless, within 15 days after such notice is given, the Company furnishes Executive with a letter of the auditors or tax advisor selected by the Company indicating a different liability or that the matter is not free from doubt under the applicable laws and regulations and that Executive may, in such auditor’s or advisor’s opinion, cogently take a different position, which shall be set forth I the letter with respect to the payments in question. Such letter shall be addressed to Executive and state that he is entitled to rely thereon. If the Company furnish such a letter to Executive, the position reflected in such letter shall be dispositive for purposes of this Agreement, except as provided in Section 10(f) below.

(f) Notwithstanding anything in this Agreement to the contrary, if Executive’s liability for the excise tax under Code Section 4999 for a taxable year is subsequently determined to be less than the amount paid by the Company pursuant to Section 10(e), Executive shall repay the Company at the time that the amount of such excise tax and excise tax payments attributable to the reduction (plus interest on the amount of such repayment at the rate provided on Code Section 1274(b)(2)(B) and if Executive’s liability for the excise tax under Code Section 4999 Code for a taxable year is subsequently determined to exceed the amount paid by the Company pursuant to Section 10, the Company shall make an additional payment of income and excise taxes in the amount of such excess, as well as the amount of any penalty and interest assessed with respect thereto at the time that the amount of such excess and any penalty and interest is finally determined.

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(g) Not later than ten (10) business days after a Change in Control, the Bank shall (i) establish a grantor trust (the “Trust”) designed in accordance with Revenue Procedure 92-64 and having a trustee independent of the Company and Fairmount Bank, (ii) deposit in said Trust an amount equal to the Code §280G Maximum, unless Executive has previously provided a written release of any claims under this Agreement, and (iii) provide the trustee of the Trust with a written direction to hold said amount and any investment return thereon in a segregated account for the benefit of Executive, and to follow the procedures set forth in the next paragraph as to the payment of such amounts from the Trust.

(h) During the 39-consecutive month period after a Change in Control, Executive may provide the trustee of the Trust with a written notice requesting that the trustee pay to Executive an amount designated in the notice as being payable pursuant to this Agreement. Within three (3) business days after receiving said notice, the trustee of the Trust shall pay such amount to Executive, and coincidentally shall provide the Company or its successor with notice of such payment. Upon the earlier of the Trust’s final payment of all amounts due under the preceding paragraph or the date 39 months after the Change in Control, the trustee of the Trust shall pay to the Company the entire balance remaining in the segregated account maintained for the benefit of Executive. Executive shall thereafter have no further interest in the Trust. Such notice shall not have the effect of changing the timing of any payment under this Agreement, for purposes of Section 409A.

11. Successors and Assigns.

(a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Company which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets of the Company.

(b) Since the Company is contracting for the unique and personal skills of Executive, Executive shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Company.

12. Amendments. No amendments or additions to this Agreement shall be binding upon the parties hereto unless made in writing and signed by both parties, except as herein otherwise specifically provided.

13. Applicable Law. This agreement shall be governed in all respects, whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of Maryland, except to the extent that Federal law shall be deemed to apply.

14. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

15. Notices. Any notices, requests, demands and other communications provided for or deemed necessary by this Agreement shall be sufficient if set forth in writing and delivered in person or sent by registered or certified mail, postage prepaid, to, in the case of Executive, the last address filed in writing by Executive with the Company, or, in the case of the Company, to the Company at its main office to the attention of the Board of Directors.

16. Indemnification. The Company shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at its expense, or in lieu thereof, shall indemnify Executive (and his heirs, executors and administrators) to the fullest extent permitted under law and applicable regulation or under any existing indemnification agreement by and between Executive and the Company against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Company (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities). Such expenses and liabilities may include, but are not limited to, judgment, court costs and attorneys’

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fees and the cost of reasonable settlements. The Company shall pay such expenses and liabilities in advance of a final judicial decision (hereinafter an “advancement of expenses”); provided, however, that, an advancement of expenses incurred by Executive in his capacity as a director or executive officer of the Company (and not in any other capacity in which service was or is rendered by Executive including, without limitation, services to an employee benefit plan) shall be made only upon delivery to the Company of an undertaking, by or on behalf of Executive, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that Executive is not entitled to be indemnified for such expenses under this Section 16 or otherwise. Indemnification under this Section 16 shall be made in accordance with 12 C.F.R. §545.121 or any successor thereto.

17. Entire Agreement. This Agreement together with any understanding or modifications thereof as may be agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto.

18. Source of Payments. Notwithstanding any provision in this Agreement to the contrary, to the extent payments and benefits, as provided for under this Agreement, are paid or received by Executive under the employment agreement in effect between Executive and the Bank, the payments and benefits paid by the Bank will be subtracted from any amount or benefit due simultaneously to Executive under similar provisions of this Agreement. Payments will be allocated in proportion to the level of activity and the time expended by Executive on activities related to the Company and the Bank, respectively, as determined by the Company and the Bank.

19. Required Regulatory Provisions.

(a) The Company may terminate Executive’s employment at any time, but any termination by the Company, other than Termination for Just Cause, shall not prejudice Executive’s right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Just Cause as defined in Section 9(d) hereinabove.

(b) Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 12 U.S.C. Section 1828(k), FDIC regulation 12 C.F.R. Part 359, Golden Parachute and Indemnification Payments.

20. Arbitration.

(a) Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a location selected by Executive within fifty (50) miles from the location of the Company, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until the date of termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.

(b) In the event any dispute or controversy arising under or in connection with Executive’s termination is resolved in favor of Executive, whether by judgment, arbitration or settlement, Executive shall be entitled to the payment of all back-pay, including salary, bonuses and any other cash compensation, fringe benefits and any compensation and benefits due Executive under this Agreement.

21. Payment of Costs and Legal Fees. All reasonable costs and legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Company, if Executive is successful with respect to such dispute or question of interpretation pursuant to a legal judgment, arbitration or settlement. Such reimbursements shall be paid to Executive within two (2) months after the dispute is settled or resolved in Executive’s favor.

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IN WITNESS WHEREOF, the parties have executed this Agreement on the latest date set forth below.

	FAIRMOUNT BANCORP, INC.
	(in organization)
	By:
Date		Chairman of the Board
Date		Joseph M. Solomon

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EX-10.4

Exhibit 10.4

FAIRMOUNT BANCORP, INC.

FAIRMOUNT BANK

Change in Control Severance Agreement

THIS Change in Control Severance Agreement (the “Agreement”) is dated effective as of the (Enter Date)* (the “Effective Date”), by and between (Employee Name) (the “Employee”), Fairmount Bank (the “Bank”), and Fairmount Bancorp, Inc. (the “Holding Company”).

WHEREAS, the Employee is employed by the Bank and will also provide services to the Holding Company;

WHEREAS, the Bank and the Holding Company deem it to be in their respective best interests to enter into the Agreement as an additional incentive to the Employee; and

WHEREAS, the parties desire by this writing to set forth their understanding as to their respective rights and obligations in the event a change of control occurs with respect to the Bank or the Holding Company.

NOW, THEREFORE, the undersigned parties agree as follows:

1. Defined Terms. When used anywhere in this Agreement, the following terms shall have the meaning set forth herein.

(a) “Board” shall mean the Board of Directors of the Employer.

(b) “Change in Control” shall mean (i) a change in control of the Holding Company, of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”) or any successor thereto, whether or not any security of the Holding Company is registered under Exchange Act; provided that, without limitation, such a Change in Control shall be deemed to have occurred if any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, or securities of the Holding Company representing 25% or more of the combined voting power of the Holding Company then outstanding securities; (ii) during any period of two consecutive years, individuals (the “Continuing Directors”) who at the beginning of such period constitute the Board of Directors (the “Existing Board”) of the Holding Company cease for any reason to constitute at least two-thirds thereof, provided that any individual whose election or nomination for election as a member of the Existing Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be

* Date of conversion to stock form of origination.

considered a Continuing Director unless his or her initial assumption of office occurs as a result of an actual or threatened contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies by or on behalf of someone other than a Continuing Director; or (iii) the acquisition of ownership, holding or power to vote more than 25% of the voting stock of the Bank by any person other than the Holding Company.

(c) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and as interpreted through applicable rulings and regulations in effect from time to time.

(d) “Code §280G Maximum” shall mean the product of 2.99 and the Employee’s “base amount” within the meaning of Code §280G(b)(3).

(e) “Date of Termination” shall mean the date Employee has a “separation from service” as defined in Treasury Regulation §1.409A-1(h)(1).

(f) “Disability” shall mean termination of the Employee’s employment because of any physical or mental impairment which qualifies the Employee for disability benefits under the applicable long-term disability plan maintained by the Employers or, if no such plan applies, which would qualify the Employee for disability benefits under the Federal Social Security System.

(g) “Employer” means the Holding Company or the Bank, whichever employs the Employee.

(h) “Good Reason” shall mean (i) without the Employee’s express written consent: the assignment to the Employee, by the Employer, of any duties which are materially inconsistent with the Employee’s positions, duties, responsibilities and status with the Employer immediately prior to a Change in Control, or a material change or diminution in the Employee’s reporting responsibilities, titles or offices as an employee and as in effect immediately prior to such a Change in Control, or any removal of the Employee from or any failure to re-elect the Employee to any of such responsibilities, titles or offices, except in connection with the termination of the Employee’s employment for Just Cause or Disability or as a result of the Employee’s death or by the Employee other than for Good Reason; (ii) without the Employee’s express written consent, a reduction by the Employer in the Employee’s base salary as in effect on the date of the Change in Control or as the same may be increased from time to time thereafter or a reduction in the package of fringe benefits provided to the Employee; (iii) any purported termination of the Employee’s employment for Just Cause or Disability which is not effected pursuant to a Notice of Termination satisfying the requirements hereof; (iv) the failure by the Bank or the Holding Company to obtain the assumption of and agreement to perform this Agreement by any successor as contemplated in Section 8 hereto; (v) requirement that the Employee principally perform all services at location more than 30 miles from such location on the Effective Date. For purposes of this Section 1(h), any good faith determination of “Good Reason” made by the Employee shall create a rebuttable presumption that “Good Reason” exists. Anything in this Agreement to the contrary notwithstanding, a termination by the Employee for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement.

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(i) “Just Cause” shall mean, in the good faith determination of the Board, the Employee’s personal dishonesty, incompetence in the performance of duties, willful violation of any law, rule, regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of this Agreement.

No act or failure to act, on the Employee’s part shall be considered “willful” unless it is done, or omitted to be done, by him in bad faith or without reasonable belief that his action or omission was in the Employer’s best interests. Any act, or failure to act, based upon authority given pursuant to a resolution of the Board or instructions of the Chief Executive Officer or a senior officer of the Employer or the advice of counsel for the Employer shall be conclusively presumed to be in good faith and in the Employer’s best interests. The cessation of Employee’s employment shall not be deemed to be for Just Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the vote of not less than three-quarters of the entire membership of the Board at a meeting called and held for such purpose (after reasonable notice is provided to the Employee and he is given an opportunity, together with counsel, to be heard before the Board), finding that, in the Board’s good faith opinion, the Employee is guilty of the conduct described in the preceding paragraph, and specifying the particulars thereof in detail.

(j) “Notice of Termination” shall mean any purported termination by the Employer for Just Cause or Disability or by the Employee for Good Reason shall be communicated by written “Notice of Termination” to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee’s employment under the provision so indicated, (iii) specifies a date of termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Employer’s termination of Employee’s employment for Just Cause, and (iv) is given in the manner specified in this Agreement.

(k) “Protected Period” shall mean the period that begins on the date three months before a Change in Control and ends on the later of the third annual anniversary of the Change in Control or the expiration date of this Agreement; except that if the Employee’s employment with the Employer is terminated prior to the first day of this period at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or otherwise in connection with or anticipation of a Change in Control, then the Protected Period shall commence on the date immediately prior to the date of such termination.

(l) “Section 409A” shall mean Section 409A of the Internal Revenue Code of 1986, as amended, and all regulations and guidance issued thereunder.

(m) “Separation from Service” shall have the meaning provided in Section 409A.

(n) “Specified Employee” shall have the meaning provided in Section 409A.

2. Trigger Events. The Employee shall be entitled to collect the severance benefits set forth in Section 3 of this Agreement in the event that (i) the Employee voluntarily terminates

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employment within 90 days of an event that both occurs during the Protected Period and constitutes Good Reason, (ii) the Employer or its successor(s) in interest terminate the Employee’s employment for any reason other than Just Cause during the Protected Period, or (iii) the Employee voluntarily terminates employment for any reason other than Just Cause within 30 days after a Change in Control; provided that any such termination constitutes a Separation from Service.

3. Amount of Severance Benefit.

(a) If the Employee becomes entitled to collect severance benefits pursuant to Section 2 hereof, the Employee shall receive from the Employer a severance benefit equal to     % of the Code §280G Maximum.

(b) The amount payable under this Section 3(a) shall be paid in one lump sum in cash ten days following the Date of Termination, except that if the Employee is a Specified Employee it shall be paid in cash on the first business day that is more than six months following the Date of Termination.

(c) In addition, for 39 months following termination, the Employer will maintain in full force and effect for the continued benefit of the Employee and his dependents each employee’s medical and life benefit plan (as such term is defined in the Employee Retirement Income Security Act of 1974, as amended) in which the Employee was entitled to participate immediately prior to the date of his termination, unless an essentially equivalent benefit is provided by another source. If the terms of any employee medical and life benefit plan of the Employer or applicable laws do not permit continued participation by the Employee, the Employer will arrange to provide to the Employee a benefit substantially similar to, and no less favorable than, the benefit he was entitled to receive under such plan at the end of the period of coverage. The right of Employee to continued coverage under the health and medical insurance plans of the Employer pursuant to Section 4980B of the Code shall commence upon the expiration of such period. Notwithstanding this subparagraph (c), if the Employee is a Specified Employee, and if any benefits provided to the Employee under this subparagraph (c) are taxable to the Employee, then, with the exception of medical insurance benefits, the value of the aggregate amount of such taxable benefits provided to the Employee and paid for by the Employer pursuant to this subparagraph (c) during the six month period following the Date of Termination shall be limited to the amount specified by Code §402(g)(1)(B) for the year of the Date of Termination (e.g. $15,500 in 2008). Employee shall pay the cost of any benefits that exceed the amount specified in the prior sentence during the six month period following the Date of Termination, but shall be reimbursed by the Employer for such payments during the seventh month after the Date of Termination.

(d) If the Employee becomes liable, in any taxable year, for the payment of an excise tax under Section 4999 of the Code on account of any payments to the Employee pursuant to this Section 3, and the Employer chooses not to contest the liability or have exhausted all administrative and judicial appeals contesting the liability, the Employer shall pay the Employee (i) an amount equal to the excise tax for which the Employee is liable under Section 4999 of the Code, (ii) the federal, state, and local income taxes, and interest if any, for which the Employee is liable on account of the payments pursuant to item (i), and (iii) any additional excise tax under

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Section 4999 of the Code and any federal, state and local income taxes for which the Employee is liable on account of payments made pursuant to items (i) and (ii). Such payment shall be made as soon as feasible and in all cases no later than the end of the calendar year following the year in which the applicable taxes were remitted to the applicable taxing authority.

(e) This subsection 5(e) applies if the amount of payments to the Employee under subsection 5(d) has not been determined with finality by the exhaustion of administrative and judicial appeals. In such circumstances, the Employer and the Employee shall, as soon as practicable after the event or series of events has occurred giving rise to the imposition of the excise tax, cooperate in determining the amount of the Employee’s excise tax liability for purposes of paying the estimated tax. The Employee shall thereafter furnish to the Employer or their successors a copy of each tax return which reflects a liability for an excise tax under Section 4999 of the Code at least 20 days before the date on which such return is required to be filed with the IRS. The liability reflected on such return shall be dispositive for the purposes hereof unless, within 15 days after such notice is given, the Employer furnishes the Employee with a letter of the auditors or tax advisor selected by the Employer indicating a different liability or that the matter is not free from doubt under the applicable laws and regulations and that the Employee may, in such auditor’s or advisor’s opinion, cogently take a different position, which shall be set forth in the letter with respect to the payments in question. Such letter shall be addressed to the Employee and state that he is entitled to rely thereon. If the Employer furnishes such a letter to the Employee, the position reflected in such letter shall be dispositive for purposes of this Agreement, except as provided in subsection 5(f) below. Any payment to reimburse taxes paid by the Employee shall be made as soon as feasible and in all cases no later than the end of the calendar year following the calendar year in which the applicable taxes were remitted to the applicable taxing authority.

(f) Notwithstanding anything in this Agreement to the contrary, if the Employee’s liability for the excise tax under Section 4999 of the Code for a taxable year is subsequently determined to be less than the amount paid by the Employer pursuant to subsection 5(e), the Employee shall repay the Employer at the time that the amount of such excise tax liability is finally determined, the portion of such income and excise tax payments attributable to the reduction (plus interest on the amount of such repayment at the rate provided on Section 1274(b)(2)(B) of the code) and if the Employee’s liability for the excise tax under Section 4999 of the Code for a taxable year is subsequently determined to exceed the amount paid by the Employer pursuant to Section 3(d), the Employer shall make an additional payment of income and excise taxes in the amount of such excess, as well as the amount of any penalty and interest assessed with respect thereto at the time that the amount of such excess and any penalty and interest is finally determined, such additional payment by the Employer to be made as soon as feasible and in all cases no later than the end of the calendar year following the year in which the applicable taxes were remitted to the applicable taxing authority.

4. Funding of Grantor Trust upon Change in Control.

(a) Not later than ten business days after a Change in Control, the Employer shall (i) establish a grantor trust (the “Trust”) designed in accordance with Revenue Procedure 92-64 and having a trustee independent of the Bank and the Holding Company, (ii) deposit in said Trust an amount equal to the Code §280G Maximum, unless the Employee has previously provided a

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written release of any claims under this Agreement, and (iii) provide the trustee of the Trust with a written direction to hold said amount and any investment return thereon in a segregated account for the benefit of the Employee, and to follow the procedures set forth in the next paragraph as to the payment of such amounts from the Trust.

(b) During the 39-consecutive month period after a Change in Control, the Employee may provide the trustee of the Trust with a written notice requesting that the trustee pay to the Employee an amount designated in the notice as being payable pursuant to this Agreement. Within three business days after receiving said notice, the trustee of the Trust shall pay such amount to the Employee, and coincidentally shall provide the Employer or its successor with notice of such payment. Upon the earlier of the Trust’s final payment of all amounts due under the preceding paragraph or the date 39 months after the Change in Control, the trustee of the Trust shall pay to the Employer the entire balance remaining in the segregated account maintained for the benefit of the Employee. The Employee shall thereafter have no further interest in the Trust. The notice provided pursuant to this subsection 4(b) shall not have the effect of changing the timing of any payment under this Agreement, for purposes of Section 409A.

5. Term of the Agreement. This Agreement shall remain in effect for the period commencing on the Effective Date and ending on the earlier of (i) the date thirty-six months after the Effective Date, and (ii) the date on which the Employee terminates employment with the Employer; provided that the Employee’s rights hereunder shall continue following the termination of this employment with the Employer under any of the circumstances described in Section 2 hereof. Additionally, on each annual anniversary date from the Effective Date, the term of this Agreement shall be extended for an additional one-year period beyond the then effective expiration date, unless the Board of Directors of the Employer has notified the Employee in writing that this Agreement shall not be extended.

6. Termination or Suspension Under Federal Law.

(a) If the Employee is removed and/or permanently prohibited from participating in the conduct of the Employer’s affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. 1818(e)(4) or (g)(1)), all obligations of the Employer and the Holding Company under this Agreement shall terminate, as of the effective date of the order, but the vested rights of the parties shall not be affected.

(b) If the Employer is in default (as defined in Section 3(x)(1) of FDIA), all obligations of the Employer under this Agreement shall terminate as of the date of default; however, this Paragraph shall not affect the vested rights of the parties.

(c) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)) suspends and/or temporarily prohibits the Employee from participating in the conduct of the Employer’s affairs, the Employer’s obligations under this Agreement shall be suspended as of the date of such service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Employer shall reinstate (in whole or in part) any of its obligations which were suspended.

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7. Expense Reimbursement. In the event that any dispute arises between the Employee and the Employer or the Holding Company as to the terms or interpretation of this Agreement, whether instituted by formal legal proceedings or otherwise, including any action that the Employee takes to enforce the terms of this Agreement or to defend against any action taken by the Employer or the Holding Company, they shall reimburse the Employee for all costs and expenses, including reasonable attorneys’ fees, arising from such dispute, proceedings or actions. Such reimbursement shall be paid within ten days of Employee’s furnishing to the Employer written evidence, which may be in the form, among other things, of a cancelled check or receipt, of any costs or expenses incurred by the Employee. Employee must submit such evidence no later than six months after the end of the calendar year in which the costs and expenses were incurred, and the costs and expenses will be reimbursed to the Employee as soon as feasible after submission of written evidence of the expense, but in all cases no later than the end of the calendar year following the calendar year in which the costs and expenses were incurred.

8. Successors and Assigns.

(a) This Agreement shall not be assignable by the Bank or the Holding Company, provided that this Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank or the Holding Company which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank or the Holding Company.

(b) Since the Employer is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Employer; provided, however that nothing in this paragraph shall preclude (i) the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death, or (ii) the executors, administrators, or other legal representatives of the Employee or his estate from assigning any rights hereunder to the person or person entitled thereunto.

9. Amendments. No amendments or additions to this Agreement shall be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided.

10. Applicable Law. Except to the extent preempted by Federal law, the laws of the State of Maryland shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

11. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

12. Entire Agreement. This Agreement, together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto.

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13. Interpretation. If any provision in this Agreement is capable of being interpreted in more than one manner, to the extent feasible, the provision shall be interpreted in a manner that does not result in an excise tax under Section 409A.

14. No Acceleration. Except as provided under the terms of this Agreement or as otherwise allowed under Section 409A, there shall be no acceleration of any payment due to the Employee pursuant to this Agreement.

15. Reimbursements or In-Kind Benefits. In accordance with Section 409A, the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a taxable year of the Employee shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year of the Employee. All reimbursements will be made on or before the last day of the year following the year in which the expense was incurred. The right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

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IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first hereinabove written.

	FAIRMOUNT BANK
	By:
Witness		Joseph M. Solomon
		President and CEO
Witness		Employee

IN CONSIDERATION of the Employee’s provision of valuable services for the Bank and the Employee’s past, present, or future services for the Holding Company, IT IS AGREED by the Holding Company that it shall be jointly and severally liable for the Bank’s obligations under this Agreement (determined without regard for Section 6 of the Agreement).

FAIRMOUNT BANCORP, INC.
By
	Joseph M. Solomon
	President and CEO

9

EX-10.5

Exhibit 10.5

FAIRMOUNT BANCORP, INC.

EMPLOYEE STOCK OWNERSHIP PLAN

(adopted effective                     , 2010)

FAIRMOUNT BANCORP, INC.

EMPLOYEE STOCK OWNERSHIP PLAN

This Fairmount Bancorp, Inc. Employee Stock Ownership Plan (the “Plan”) has been executed on the date set forth below, by Fairmount Bancorp, Inc., (“Company”), a Maryland corporation and the holding company for Fairmount Bank, a federally chartered stock savings bank.

WITNESSETH THAT:

WHEREAS, the board of directors of the Company has resolved to adopt an employee stock ownership plan for eligible employees of the Company and subsidiaries of the Company, if any, in accordance with the terms and conditions set forth herein;

NOW, THEREFORE, the Company hereby adopts the following Plan setting forth the terms and conditions pertaining to contributions by the Employer and the payment of benefits to Participants and Beneficiaries.

IN WITNESS WHEREOF, the Company has adopted this Plan and caused this instrument to be executed by its duly authorized officer on the date set forth below.

	FAIRMOUNT BANCORP, INC.
Date	President and Chief Executive Officer

1

Table of Contents

		Page
Section 1.	Plan Identity	1
1.1	Name	1
1.2	Purpose	1
1.3	Effective Date	1
1.4	Fiscal Period	1
1.5	Single Plan for All Employers	1
1.6	Interpretation of Provisions	1
Section 2.	Definitions	1
Section 3.	Eligibility for Participation	9
3.1	Initial Eligibility	9
3.2	Definition of Eligibility Year	9
3.3	Terminated Employees	9
3.4	Certain Employees Ineligible	9
3.5	Participation and Reparticipation	10
3.6	Omission of Eligible Employee	10
3.7	Inclusion of Ineligible Employee	10
3.8	Treatment of Qualified Military Service	10
Section 4.	Contributions and Credits	11
4.1	Discretionary Contributions	11
4.2	Contributions for Stock Obligations	11
4.3	Conditions as to Contributions	12
4.4	Rollover Contributions	12
Section 5.	Limitations on Contributions and Allocations	12
5.1	Limitation on Annual Additions	12
5.2	Effect of Limitations	14
5.3	Limitations as to Certain Participants	14
5.4	Erroneous Allocations	15
Section 6.	Trust Fund and Its Investment	15
6.1	Creation of Trust Fund	15
6.2	Stock Fund and Investment Fund	15
6.3	Acquisition of Stock	15
6.4	Participants’ Option to Diversify	16
6.5	Post-Service Termination Investments	17
Section 7.	Voting Rights and Dividends on Stock	17
7.1	Voting and Tendering of Stock	17
7.2	Application of Dividends	18
Section 8.	Adjustments to Accounts	19

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8.1	ESOP Allocations	19
8.2	Charges to Accounts	20
8.3	Stock Fund Account	20
8.4	Investment Fund Account	21
8.5	Adjustment to Value of Trust Fund	21
8.6	Participant Statements	21
Section 9.	Vesting of Participants’ Interests	22
9.1	Vesting in Accounts	22
9.2	Computation of Vesting Years	22
9.3	Full Vesting Upon Certain Events	23
9.4	Full Vesting Upon Plan Termination	24
9.5	Forfeiture, Repayment, and Restoral	24
9.6	Accounting for Forfeitures	25
9.7	Vesting and Nonforfeitability	25
Section 10.	Payment of Benefits	25
10.1	Benefits for Participants	25
10.2	Time for Distribution	26
10.3	Marital Status	31
10.4	Delay in Benefit Determination	31
10.5	Accounting for Benefit Payments	31
10.6	Options to Receive Stock	31
10.7	Restrictions on Disposition of Stock	32
10.8	Continuing Loan Provisions; Creations of Protections and Rights	32
10.9	Direct Rollover of Eligible Distribution	32
10.10	Waiver of 30-Day Period After Notice of Distribution	33
Section 11.	Rules Governing Benefit Claims and Review of Appeals	34
11.1	Claim for Benefits	34
11.2	Notification by Committee	34
11.3	Claims Review Procedure	34
Section 12.	The Committee and its Functions	35
12.1	Authority of Committee	35
12.2	Identity of Committee	35
12.3	Duties of Committee	35
12.4	Valuation of Stock	36
12.5	Compliance with ERISA	36
12.6	Action by Committee	36
12.7	Execution of Documents	36
12.8	Adoption of Rules	36
12.9	Responsibilities to Participants	36
12.10	Alternative Payees in Event of Incapacity	36
12.11	Indemnification by Employers	37
12.12	Nonparticipation by Interested Member	37
Section 13.	Adoption, Amendment, or Termination of the Plan	37

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13.1	Adoption of Plan by Other Employers	37
13.2	Plan Adoption Subject to Qualification	37
13.3	Right to Amend or Terminate	37
Section 14.	Miscellaneous Provisions	38
14.1	Plan Creates No Employment Rights	38
14.2	Nonassignability of Benefits	38
14.3	Nonassignability of Benefits	38
14.4	Treatment of Expenses	38
14.5	Number and Gender	39
14.6	Nondiversion of Assets	39
14.7	Separability of Provisions	39
14.8	Service of Process	39
14.9	Governing State Law	39
14.10	Employer Contributions Conditioned on Deductibility	39
14.11	Unclaimed Accounts	39
14.12	Qualified Domestic Relations Order	40
14.13	Use of Electronic Media to Provide Notices and Make Participant Elections	40
Section 15.	Top-Heavy Provisions	41
15.1	Top-Heavy Plan	41
15.2	Definitions	41
15.3	Top-Heavy Rules of Application	42
15.4	Minimum Contributions	43
15.5	Top-Heavy Provisions Control in Top-Heavy Plan	43

iii

FAIRMOUNT BANCORP, INC.

EMPLOYEE STOCK OWNERSHIP PLAN

Section 1. Plan Identity.

1.1 Name. The name of this Plan is “Fairmount Bancorp, Inc. Employee Stock Ownership Plan.”

1.2 Purpose. The purpose of this Plan is to describe the terms and conditions under which contributions made pursuant to the Plan will be credited and paid to Participants and Beneficiaries.

1.3 Effective Date. The Effective Date of this Plan is                     , 2010.

1.4 Fiscal Period. This Plan shall be operated on the basis of the calendar year for the purpose of keeping the Plan’s books and records and distributing or filing any reports or returns required by law. [Confirm – 401(k) is on calendar year but bank is on 9/30 fiscal year]

1.5 Single Plan for All Employers. This Plan shall be treated as a single plan with respect to all participating Employers for the purpose of crediting contributions and forfeitures and distributing benefits, determining whether there has been any termination of Service, and applying the limitations set forth in Section 5.

1.6 Interpretation of Provisions. The Employers intend this Plan and the Trust Agreement to be a qualified stock bonus plan under Section 401(a) of the Code and an employee stock ownership plan within the meaning of Section 407(d)(6) of ERISA and Section 4975(e)(7) of the Code. The Plan is intended to have its assets invested primarily in qualifying employer securities of one or more Employers within the meaning of Section 407(d)(3) of ERISA, and to satisfy any requirement under ERISA or the Code applicable to such a plan. Accordingly, the Plan and Trust Agreement shall be interpreted and applied in a manner consistent with this intent and shall be administered at all times and in all respects in a nondiscriminatory manner.

Section 2. Definitions.

The following capitalized words and phrases shall have the meanings specified when used in this Plan and in the Trust Agreement, unless the context clearly indicates otherwise:

“Account” means a Participant’s interest in the assets accumulated under this Plan as expressed in terms of a separate account balance which is periodically adjusted to reflect his Employer’s contributions, the Plan’s investment experience, and distributions and forfeitures.

“Active Participant” means a Participant who has satisfied the eligibility requirements under Section 3 and who has at least [1,000 is the maximum, and the provision in the 401(k) Plan] Hours of Service during the current Plan Year. However, a Participant shall not qualify as an Active Participant unless (i) he is in active Service with an Employer as of the last day of the Plan Year, (ii) he is on a Recognized Absence as of such date, (iii) his Service terminated during the Plan Year by reason of Disability, death, or Normal Retirement.

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“Bank” means Fairmount Bank and any entity which succeeds to the business of Fairmount Bank.

“Beneficiary” means the person or persons who are designated by a Participant to receive benefits payable under the Plan on the Participant’s death. In the absence of any designation or if all the designated Beneficiaries shall die before the Participant dies or shall die before all benefits have been paid, the Participant’s Beneficiary shall be his surviving Spouse, if any, or his estate if he is not survived by a Spouse. The Committee may rely upon the advice of the Participant’s executor or administrator as to the identity of the Participant’s Spouse.

“Break in Service” means any Plan Year, or, for the initial eligibility computation period under Section 3.2, the 12-consecutive month period beginning on the first day of which an Employee has an Hour of Service, in which an Employee has 500 or fewer Hours of Service. Solely for this purpose, an Employee shall be considered employed for his normal hours of paid employment during a Recognized Absence (said Employee shall not be credited with more than 501 Hours of Service to avoid a Break in Service), unless he does not resume his Service at the end of the Recognized Absence. Further, if an Employee is absent for any period (i) by reason of the Employee’s pregnancy, (ii) by reason of the birth of the Employee’s child, (iii) by reason of the placement of a child with the Employee in connection with the Employee’s adoption of the child, or (iv) for purposes of caring for such child for a period beginning immediately after such birth or placement, the Employee shall be credited with the Hours of Service which would normally have been credited but for such absence, up to a maximum of 501 Hours of Service. Hours of Service shall be credited only in the year in which the absence from work begins, if a Participant would be prevented from incurring a one-year Break in Service in such year solely because the period of absence is treated as Hours of Service, or in any other case, in the immediately following year.

“Code” means the Internal Revenue Code of 1986, as amended.

“Committee” means the committee responsible for the administration of this Plan in accordance with Section 12.

“Company” means Fairmount Bancorp Inc., the holding company of the Bank, and any successor entity which succeeds to the business of the Company and adopts this Plan as its own pursuant to Section 13.1 of the Plan.

“Disability” means the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. An individual shall not be considered to be permanently and totally disabled unless he furnishes proof of the existence thereof in such form and manner, and at such times, as the Committee may require.

“Eligible Employee” means an Employee, other than an Employee identified in Section 3.4, who has performed 1,000 Hours of Service in the applicable Eligibility Year in accordance with Section 3.2 and who has attained age 21.

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“Employee” means any individual who is or has been employed or self-employed by an Employer. “Employee” also means an individual employed by a leasing organization who, pursuant to an agreement between an Employer and the leasing organization, has performed services for the Employer and any related persons (within the meaning of Section 414(n)(6) of the Code) on a substantially full-time basis for more than one year, if such services are performed under the primary direction or control of the Employer. However, such a “leased employee” shall not be considered an Employee if (i) he participates in a money purchase pension plan sponsored by the leasing organization which provides for immediate participation, immediate full vesting, and an annual contribution of at least 10 percent of the Employee’s 415 Compensation, and (ii) leased employees do not constitute more than 20 percent of the Employer’s total work force (including leased employees, but excluding Highly Compensated Employees and any other Employees who have not performed services for the Employer on a substantially full-time basis for at least one year). However, “Employee” shall not include any individual who is not reported on the payroll records of the Employer as a common law employee, regardless of any subsequent determination by a court or governmental agency.

“Employer” means the Company or any affiliate within the purview of Section 414(b), (c) or (m) and 415(h) of the Code, any other corporation, partnership, or proprietorship which adopts this Plan with the Company’s consent pursuant to Section 13.1, and any entity which succeeds to the business of any Employer and adopts the Plan pursuant to Section 13.2. As of the effective date of the Plan, Fairmount Bank is the only Employer other than the Company.

“Entry Date” means the Effective Date of the Plan and the first day of the first, fourth, seventh and tenth months of each Plan Year after the Effective Date.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“415 Compensation” shall mean:

(a) Wages (including overtime pay, bonuses and commissions), as defined in Code Section 3401(a) for purposes of income tax withholding at the source.

(b) Any elective deferral as defined in Code Section 402(g)(3) (any Employer contributions made on behalf of a Participant to the extent not includible in gross income and any Employer contributions to purchase an annuity contract under Code Section 403(b) under a salary reduction agreement) and any amount which is contributed or deferred by the Employer at the election of the Participant and which is not includible in gross income of the Participant by reason of Code Section 125 (including any “deemed” Code Section 125 compensation) (Cafeteria Plan), Code Section 457 or 132(f)(4) shall also be included in the definition of 415 Compensation.

(c) 415 Compensation may also include the following types of compensation paid after a Participant’s severance from employment with the Employer, provided that amounts described in paragraphs (i) and (ii) below shall only be included in 415 Compensation to the extent such amounts are paid by the later of 2 1/2 months after severance from employment, or by the end of the limitation year that includes the date of such severance from employment.

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(i) Regular Pay. 415 Compensation shall include regular pay after severance from employment if (a) the payment is for regular compensation for services during the Participant’s regular working hours, or compensation for services outside of the Participant’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments, and (b) the payment would have been paid to the Participant prior to severance from employment if the Participant had continued in employment with the Employer.

(ii) Leave Cashouts and Deferred Compensation. Leave cashouts shall be included in 415 Compensation if those amounts would have been included in the definition of 415 Compensation if they were paid prior to the Participant’s severance from employment, and the amounts are payment for unused accrued bona fide sick, vacation or other leave, but only if the Participant would have been able to use the leave if his employment had continued. In addition, deferred compensation shall be included in 415 Compensation if the compensation would have been included in the definition of 415 Compensation if it had been paid prior to the Participant’s severance from employment, and the compensation is received pursuant to a nonqualified unfunded deferred compensation plan, but only if the payment would have been paid at the same time if the Participant had continued in employment with the Employer and only to the extent that the payment is includible in the Participant’s gross income.

(iii) Salary Continuation Payments for Qualified Military Service. 415 Compensation does not include payments to an individual who does not currently perform services for the Employer by reason of Qualified Military Service (as defined in Code Section 414(u)(1)), to the extent that those payments do not exceed the amounts the individual would have received if the individual had continued to perform services for the Employer rather than entering Qualified Military Service. Notwithstanding the preceding sentence, differential wage payments from the Employer to Participants who are performing Qualified Military Service will be included as 415 Compensation.

(iv) Salary Continuation Payments for Participants with a Disability. 415 Compensation does not include compensation paid to a Participant who has incurred a Disability.

(v) “First Few Weeks” Rule. 415 Compensation shall not include amounts earned but not paid during the limitation year solely because of the timing of the pay periods and pay dates.

(d) 415 Compensation in excess of $245,000 (as indexed) shall be disregarded for all Participants. For purposes of this sub-section, the $245,000 limit shall be referred to as the “applicable limit” for the Plan Year in question. The $245,000 limit shall be adjusted for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code, effective for the Plan Year which begins within the applicable calendar year. For purposes of the applicable limit, 415 Compensation shall be prorated over short Plan

4

Years and only compensation for the portion of the Plan Year during which the individual was a Participant shall be taken into account.

“Highly Compensated Employee” for any Plan Year means an Employee who, during either that or the immediately preceding Plan Year was at any time a five percent owner of the Employer (as defined in Code Section 416(i)(1)) or, during the immediately preceding Plan Year, had 415 Compensation exceeding $110,000 (the limit for 2009, which determines Highly Compensated Employees for 2010) and was among the most highly compensated one-fifth of all Employees (the $110,000 amount is adjusted at the same time and in the same manner as under Code Section 415(d). For these purposes, “the most highly compensated one-fifth of all Employees” shall be determined by taking into account all individuals working for all related Employer entities described in the definition of “Service,” but excluding any individual who has not completed six months of Service, who normally works fewer than 17 1/2 hours per week or in fewer than six months per year, who has not reached age 21, whose employment is covered by a collective bargaining agreement, or who is a nonresident alien who receives no earned income from United States sources. The applicable year for which a determination is being made is called a “determination year” and the preceding 12-month period is called a look-back year.

“Hours of Service” means hours to be credited to an Employee under the following rules:

(a) Each hour for which an Employee is paid or is entitled to be paid for services to an Employer is an Hour of Service.

(b) Each hour for which an Employee is directly or indirectly paid or is entitled to be paid for a period of vacation, holidays, illness, disability, lay-off, jury duty, temporary military duty, or leave of absence is an Hour of Service. However, except as otherwise specifically provided, no more than 501 Hours of Service shall be credited for any single continuous period which an Employee performs no duties. No more than 501 Hours of Service will be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). Further, no Hours of Service shall be credited on account of payments made solely under a plan maintained to comply with worker’s compensation, unemployment compensation, or disability insurance laws, or to reimburse an Employee for medical expenses.

(c) Each hour for which back pay (ignoring any mitigation of damages) is either awarded or agreed to by an Employer is an Hour of Service. However, no more than 501 Hours of Service shall be credited for any single continuous period during which an Employee would not have performed any duties. The same Hours of Service will not be credited both under paragraph (a) or (b) as the case may be, and under this paragraph (c). These hours will be credited to the employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award agreement or payment is made.

5

(d) Hours of Service shall be credited in any one period only under one of the foregoing paragraphs (a), (b) and (c); an Employee may not get double credit for the same period.

(e) If an Employer finds it impractical to count the actual Hours of Service for any class or group of non-hourly Employees, each Employee in that class or group shall be credited with one of the following, in the discretion of the Plan Administrator: (1) 190 Hours of Services for each month in which he has at lest one hour of service; (3) 95 Hours of Service for each semi-monthly pay period in which he has at least one hour of service; (3) 90 Hours of Service for each bi-weekly pay period in which he has at least one hour of service; (4) 45 Hours of Services for each weekly pay period in which he has at least one hour of service; or (5) 10 Hours of Service for each for each day in which he has at least one hour of service. However, an Employee shall be credited only for his normal working hours during a paid absence.

(f) Hours of Service to be credited on account of a payment to an Employee (including back pay) shall be recorded in the period of Service for which the payment was made. If the period overlaps two or more Plan Years, the Hours of Service credit shall be allocated in proportion to the respective portions of the period included in the several Plan Years. However, in the case of periods of 31 days or less, the Administrator may apply a uniform policy of crediting the Hours of Service to either the first Plan Year or the second.

(g) In all respects an Employee’s Hours of Service shall be counted as required by Section 2530.200b-2(b) and (c) of the Department of Labor’s regulations under Title I of ERISA.

“Investment Fund” means that portion of the Trust Fund consisting of assets other than Stock. Notwithstanding the above, assets from the Investment Fund may be used to purchase Stock in the open market or otherwise, or used to pay on the Stock Obligation, and shares so purchased will be allocated to a Participant’s Stock Fund.

“Normal Retirement” means retirement on or after the Participant’s Normal Retirement Date.

“Normal Retirement Date” means the Participant’s 65^th birthday.

“Participant” means any Eligible Employee who is an Active Participant participating in the Plan, or Eligible Employee or former Employee who was previously an Active Participant and still has a balance credited to his Account.

“Plan Administrator” means the Committee.

“Plan Compensation” means all remuneration received by an Employee for services performed for the Employer that is required to be reported on Form W-2. Compensation shall include any amount deferred under a salary deferral agreement which is not includible in the gross income of a Participant under [Code Section 125 in connection with a cafeteria plan] Code Section 402(e)(3) in connection with a cash or deferred plan, Code Section 402(h)(1)(B) in

6

connection with a Simplified Employee Pension Plan, and Code Section 403(b) in connection with a tax-sheltered annuity plan. A Participant’s wages include all remuneration paid to an Employee by the Employer (in the course of the Employer’s trade or business) for which the Employer is required to furnish the Employee a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Such amount must be determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed. For Limitation years beginning after December 31, 1997, for purposes of applying the limitations of this paragraph, compensation paid or made available during such Limitation year shall include any elective deferral [as defined in Code Section 402(g)(3)] or Roth elective deferrals, and any amount which is contributed or deferred by the Employer at the election of the Employee and which is not includible in the gross income o the Employee by reasons of Code Sections [125], 132(f)(4), 402(e)(3), 402(h)(1), 403(b), or 457. Plan Compensation in excess of $245,000 (as indexed pursuant to Section 401(a)(17)(B) of the Code) shall be disregarded for all Participants. For purposes of the limit in the preceding sentence, Plan Compensation shall be prorated over short Plan Years, and only compensation for the portion of the Plan Year during which the individual was a Participant shall be taken into account.

“Plan Year” means the twelve-month period commencing January 1 and ending December 31 and each period of 12 consecutive months beginning on January 1 of each succeeding year.

“Qualified Military Service” means any period of duty on a voluntary or involuntary basis in the United States Armed Forces, the Army National Guard and Air National Guard when engaged in active duty for training, inactive duty for training or full-time National Guard duty, the commissioned corps of the Public Health Service and any other category of persons designated by the President of the United States in time of war or emergency. Such periods of duty shall include active duty, active duty for training, initial active duty for training, inactive duty training, full-time National Guard duty and absence from employment for an examination to determine fitness for such duty.

“Recognized Absence” means a period for which —

(a) an Employer grants an Employee a leave of absence for a limited period, but only if an Employer grants such leave on a nondiscriminatory basis; or

(b) an Employee is temporarily laid off by an Employer because of a change in business conditions; or

(c) an Employee is on Qualified Military Service.

“Service” means an Employee’s period(s) of employment or self-employment with an Employer, excluding for initial eligibility purposes any period in which the individual was a nonresident alien and did not receive from an Employer any earned income which constituted income from sources within the United States. An Employee’s Service shall include any Service which constitutes Service with a predecessor Employer within the meaning of Section 414(a) of the Code, provided, however, that Service with an acquired entity shall not be considered Service under the Plan unless required by applicable law or agreed to by the parties to such transaction.

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An Employee’s Service shall also include any Service with an entity which is not an Employer, but only either (i) in which the other entity is a member of a controlled group of corporations or is under common control with other trades and businesses within the meaning of Section 414(b) or 414(c) of the Code, and a member of the controlled group or one of the trades and businesses is an Employer, (ii) in which the other entity is a member of an affiliated service group within the meaning of Section 414(m) of the Code, and a member of the affiliated service group is an Employer, or (iii) all Employers aggregated with the Employer under Section 414(o) of the Code. Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to Qualified Military Service will be provided in accordance with Section 414(u) of the Code.

“Spouse” means the individual, if any, who is the opposite sex of a Participant and to whom a Participant is lawfully married on the date benefit payments to the Participant are to begin, or on the date of the Participant’s death, if earlier. A former Spouse shall be treated as the Spouse or surviving Spouse to the extent provided under a qualified domestic relations order as described in section 414(p) of the Code.

“Stock” means shares of the Company’s voting common stock or preferred stock meeting the requirements of Section 409(e)(3) of the Code issued by an Employer which is a member of the same controlled group of corporations within the meaning of Code Section 414(b). The term “Stock” shall include fractional shares, unless the context clearly indicates otherwise.

“Stock Fund” means that portion of the Trust Fund consisting of Stock.

“Stock Obligation” means an indebtedness arising from any extension of credit to the Plan or the Trust which satisfies the requirements set forth in Section 6.3 and which was obtained for any or all of the following purposes:

(i) to acquire qualifying Employer securities as defined in Treasury Regulations § 54.4975-12;

(ii) to repay such Stock Obligation; or

(iii) to repay a prior exempt loan.

“Trust” or “Trust Fund” means the trust fund created under this Plan.

“Trust Agreement” means the agreement between the Company and the Trustee concerning the Trust Fund. If any assets of the Trust Fund are held in a co-mingled trust fund with assets of other qualified retirement plans, “Trust Agreement” shall be deemed to include the trust agreement governing that co-mingled trust fund. With respect to the allocation of investment responsibility for the assets of the Trust Fund, the provisions of Article II of the Trust Agreement are incorporated herein by reference.

“Trustee” means one or more corporate persons or individuals selected from time to time by the Company to serve as trustee or co-trustees of the Trust Fund.

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“Unallocated Stock Fund” means that portion of the Stock Fund consisting of the Plan’s holding of Stock which has been acquired in exchange for one or more Stock Obligations and which has not yet been allocated to the Participant’s Accounts in accordance with Section 4.2.

“Valuation Date” means, for so long as there is a generally-recognized market for the Stock, each business day. If at any time there shall be no generally-recognized market for the Stock, then “Valuation Date” shall mean the last day of the Plan Year and each other date as of which the Committee shall determine the investment experience of the Investment Fund and adjust the Participants’ Accounts accordingly.

“Valuation Period” means the period following a Valuation Date and ending with the next Valuation Date.

“Vesting Year” means a unit of Service credited to a Participant pursuant to Section 9.2 for purposes of determining his vested interest in his Account.

Section 3. Eligibility for Participation.

3.1 Initial Eligibility. An Eligible Employee shall enter the Plan as of the Entry Date coincident with or next following the last day of the Eligible Employee’s first Eligibility Year and attainment of age 21.

3.2 Definition of Eligibility Year. “Eligibility Year” means an applicable eligibility period (as defined below) in which the Eligible Employee has completed 1,000 Hours of Service for the Employer. For this purpose:

(i) an Eligible Employee’s first “eligibility period” is the 12-consecutive month period beginning on the first day on which he has an Hour of Service, and

(ii) his subsequent eligibility periods will be 12-consecutive month periods beginning on each January 1 after that first day of Service.

3.3 Terminated Employees. No Employee shall have any interest or rights under this Plan if he is never in active Service with an Employer on or after the Effective Date.

3.4 Certain Employees Ineligible.

3.4-1. No Employee shall participate in the Plan while his Service is covered by a collective bargaining agreement between an Employer and the Employee’s collective bargaining representative if (i) retirement benefits have been the subject of good faith bargaining between the Employer and the representative and (ii) the collective bargaining agreement does not provide for the Employee’s participation in the Plan.

3.4-2. Leased Employees are not eligible to participate in the Plan.

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3.4-3. Employees who are nonresident aliens with no earned income (within the meaning of Code Section 911(d)(2)) from the Employer which constitutes income from sources within the United States (within the meaning of Code Section 861(a)(3)).

3.4-4. An Eligible Employee may elect not to participate in the Plan, provided, however, such election is made solely to meet the requirements of Code Section 409(n). For an election to be effective for a particular Plan Year, the Eligible Employee or Participant must file the election in writing with the Plan Administrator no later than the last day of the Plan Year for which the election is to be effective. The Employer may not make a contribution under the Plan for the Eligible Employee or for the Participant for the Plan Year for which the election is effective, nor for any succeeding Plan Year, unless the Eligible Employee or Participant re-elects to participate in the Plan. The Eligible Employee or Participant may elect again not to participate, but not earlier than the first Plan Year following the Plan Year in which the re-election was first effective.

3.5 Participation and Reparticipation. Subject to the satisfaction of the foregoing requirements, an Eligible Employee shall participate in the Plan during each period of his Service from the date on which he first becomes eligible until his termination. For this purpose, an Eligible Employee who returns before five (5) consecutive one year Breaks in Service who previously satisfied the initial eligibility requirements or who returns after five (5) consecutive one year Breaks in Service with a vested Account balance in the Plan shall re-enter the Plan as of the date of his return to Service with an Employer.

3.6 Omission of Eligible Employee. If, in any Plan Year, any Eligible Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Eligible Employee in the amount which the said Employer would have contributed regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code.

3.7 Inclusion of Ineligible Employee. If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible person shall constitute a forfeiture for the fiscal year in which the discovery is made. Any person who, after the close of a Plan Year, is retroactively treated by the Company, an affiliated company or any other party as an Employee for such prior Plan Year shall not, for purposes of the Plan, be considered an Employee for such prior Plan Year unless expressly so treated as such by the Company.

3.8 Treatment of Qualified Military Service. Notwithstanding any provision of this Plan to the contrary, contributions, benefits, and service credit with respect to Qualified Military Service will be provided in accordance with Code Section 414(u).

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Section 4. Contributions and Credits.

4.1 Discretionary Contributions

4.1-1. The Employer shall from time to time contribute, with respect to a Plan Year, such amounts as it may determine from time to time. The Employer shall have no obligation to contribute any amount under this Plan except as so determined in its sole discretion. The Employer’s contributions and available forfeitures for a Plan Year shall be credited as of the last day of the year to the Accounts of the Active Participants in the manner set forth in Section 8.1-2.

4.1-2. Upon a Participant’s reemployment after performing Qualified Military Service, the Employer shall make an additional contribution on behalf of such Participant that would have been made on his or her behalf during the Plan Year or Years corresponding to the Participant’s Qualified Military Service.

4.2 Contributions for Stock Obligations. If the Trustee, upon instructions from the Committee, incurs any Stock Obligation upon the purchase of Stock, the Employer may contribute for each Plan Year an amount sufficient to cover all payments of principal and interest as they come due under the terms of the Stock Obligation. If there is more than one Stock Obligation, the Employer shall designate the one to which any contribution is to be applied. Investment earnings realized on Employer contributions and any dividends paid by the Employer on Stock held in the Unallocated Stock Account, shall be applied to the Stock Obligation related to that Stock, subject to Section 7.2.

In each Plan Year in which Employer contributions, earnings on contributions, or dividends on Stock in the Unallocated Stock Fund are used as payments under a Stock Obligation, a certain number of shares of the Stock acquired with that Stock Obligation which is then held in the Unallocated Stock Fund shall be released for allocation among the Participants. The number of shares released shall bear the same ratio to the total number of those shares then held in the Unallocated Stock Fund (prior to the release) as (i) the principal and interest payments made on the Stock Obligation in the current Plan Year bears to (ii) the sum of (i) above, and the remaining principal and interest payments required (or projected to be required on the basis of the interest rate in effect at the end of the Plan Year) to satisfy the Stock Obligation.

At the direction of the Committee, the current and projected payments of interest under a Stock Obligation may be ignored in calculating the number of shares to be released in each year if (i) the Stock Obligation provides for annual payments of principal and interest at a cumulative rate that is not less rapid at any time than level annual payments of such amounts for 10 years, (ii) the interest included in any payment is ignored only to the extent that it would be determined to be interest under standard loan amortization tables, and (iii) the term of the Stock Obligation, by reason of renewal, extension, or refinancing, has not exceeded 10 years from the original acquisition of the Stock.

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4.3 Conditions as to Contributions. Employers’ contributions shall in all events be subject to the limitations set forth in Section 5. Contributions may be made in the form of cash, or securities and other property to the extent permissible under ERISA, including Stock, and shall be held by the Trustee in accordance with the Trust Agreement. In addition to the provisions of Section 13.3 for the return of an Employer’s contributions in connection with a failure of the Plan to qualify initially under the Code, any amount contributed by an Employer due to a good faith mistake of fact, or based upon a good faith but erroneous determination of its deductibility under Section 404 of the Code, shall be returned to the Employer within one year after the date on which the contribution was originally made, or within one year after its nondeductibility has been finally determined. However, the amount to be returned shall be reduced to take account of any adverse investment experience within the Trust Fund in order that the balance credited to each Participant’s Account is not less that it would have been if the contribution had never been made.

4.4 Rollover Contributions This Plan shall not accept a direct rollover or rollover contribution of an “eligible rollover distribution” as such term is defined in Section 10.9-1 of the Plan.

Section 5. Limitations on Contributions and Allocations.

5.1 Limitation on Annual Additions. Notwithstanding anything herein to the contrary, allocation of Employer contributions for any Plan Year shall be subject to the following:

5.1-1 If allocation of Employer contributions in accordance with Section 4.1 will result in an allocation of more than one-third the total contributions for a Plan Year to the Accounts of Highly Compensated Employees, then allocation of such amount shall be adjusted so that such excess will not occur.

5.1-2 After adjustment, if any, required by the preceding paragraph, the annual additions during any Plan Year to any Participant’s Account under this and any other defined contribution plans maintained by the Employer or an affiliate (within the purview of Section 414(b), (c) and (m) and Section 415(h) of the Code, which affiliate shall be deemed the Employer for this purpose) shall not exceed the lesser of $49,000 (or such other dollar amount which results from cost-of-living adjustments under Section 415(d) of the Code) (the “dollar limitation”) or 100 percent of the Participant’s 415 Compensation for such limitation year (the “percentage limitation”). In the event Stock is released from the Unallocated Stock Fund and allocated to a Participant’s account for a particular Plan Year, the Employer may determine for such year that an annual addition shall be calculated on the basis of the fair market value of the Stock so released and allocated (such fair market value to be based on the valuation as of the Valuation Date immediately preceding the Plan Year in respect of which the release and allocation are made) if the annual addition, as so calculated, is lower than the annual addition calculated on the basis of Employer contributions. The percentage limitation shall not apply to any contribution for medical benefits after severance from employment (within the meaning of Section 401(h) or Section 419A(f)(2) of the Code) which is otherwise treated as an annual addition. If, as a result of the allocation of forfeitures, a reasonable error in

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estimating a Participant’s annual compensation, a reasonable error in determining the amount of elective deferrals (within the meaning of Code Section 402(g)(3)) that may be made with respect to any individual under the limits of Code Section 415, or under other limited facts and circumstances that the Commissioner of the Internal Revenue Service finds justify the availability of the rules set forth in this paragraph, the annual additions under the terms of the Plan for a particular Participant would cause the limitations of Code Section 415 applicable to that Participant for the limitation year to be exceeded, the Plan may only correct such excess in accordance with the Employee Plans Compliance Resolution System (EPCRS) as set forth in Revenue Procedure 2008-50 or any subsequent guidance.

5.1-3 For purposes of this Section 5.1, the “annual addition” to a Participant’s Accounts means the sum of (i) Employer contributions, (ii) Employee contributions, if any, and (iii) forfeitures. For these purposes, annual additions to a defined contribution plan shall not include the allocation of the excess amounts remaining in the Unallocated Stock Fund subsequent to a sale of stock from such fund in accordance with a transaction described in Section 8.1 of the Plan. Notwithstanding the foregoing, “annual additions” shall not include a restorative payment in accordance with Treasury Regulation Section 1.415(c)-1(b)(2)(C) that is made to restore losses to the Plan resulting from actions by a fiduciary for which there is a reasonable risk of liability for breach of fiduciary duty under ERISA or other applicable federal and state law.

5.1-4 Notwithstanding the foregoing, if no more than one-third of the Employer contributions to the Plan for a year which are deductible under Section 404(a)(9) of the Code are allocated to Highly Compensated Employees (within the meaning of Section 414(q) of the Internal Revenue Code), the limitations imposed herein shall not apply to:

(i) forfeitures of Employer securities (within the meaning of Section 409 of the Code) under the Plan if such securities were acquired with the proceeds of a loan described in Section 404(a)(9)(A) of the Code), or

(ii) Employer contributions to the Plan which are deductible under Section 404(a)(9)(B) and charged against a Participant’s Account.

5.1-5 If the Employer contributes amounts, on behalf of Eligible Employees covered by this Plan, to other “defined contribution plans” as defined in Section 3(34) of ERISA, the limitation on annual additions provided in this Section shall be applied to annual additions in the aggregate to this Plan and to such other plans. Reduction of annual additions, where required, shall be accomplished first by reductions under such other plan pursuant to the directions of the named fiduciary for administration of such other plans or under priorities, if any, established under the terms of such other plans and then by allocating any remaining excess for this Plan in the manner and priority set out above with respect to this Plan.

5.1-6 A “limitation year” shall mean each 12 consecutive month period ending on December 31.

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5.2 Effect of Limitations. The Committee shall take whatever action may be necessary from time to time to assure compliance with the limitations set forth in Section 5.1. Specifically, the Committee shall see that each Employer restricts its contributions for any Plan Year to an amount which, taking into account the amount of available forfeitures, may be completely allocated to the Participants consistent with those limitations. Where the limitations would otherwise be exceeded by any Participant, further allocations to the Participant shall be curtailed to the extent necessary to satisfy the limitations. Where an excessive amount is contributed on account of a mistake as to one or more Participants’ compensation, or there is an amount of forfeitures which may not be credited in the Plan Year in which it becomes available, the amount shall be corrected in accordance with Section 5.1-2 of the Plan. If it is determined at any time that the Committee and/or Trustee has erred in accepting and allocating any contributions or forfeitures under this Plan, or in allocating net gain or loss pursuant to Sections 8.2 and 8.3, then the Committee, in a uniform and nondiscriminatory manner, shall determine the manner in which such error shall be corrected and shall promptly advise the Trustee in writing of such error and of the method for correcting such error. The Accounts of any or all Participants may be revised, if necessary, in order to correct such error.

5.3 Limitations as to Certain Participants. Aside from the limitations set forth in Section 5.1, if the Plan acquires any Stock in a transaction as to which a selling shareholder or the estate of a deceased shareholder is claiming the benefit of Section 1042 of the Code, the Committee shall see that none of such Stock, and no other assets in lieu of such Stock, are allocated to the Accounts of certain Participants in order to comply with Section 409(n) of the Code.

This restriction shall apply at all times to a Participant who owns (taking into account the attribution rules under Section 318(a) of the Code, without regard to the exception for employee plan trusts in Section 318(a)(2)(B)(i)) more than 25 percent of any class of stock of a corporation which issued the Stock acquired by the Plan, or another corporation within the same controlled group, as defined in Section 409(l)(4) of the Code (any such class of stock hereafter called a “Related Class”). For this purpose, a Participant who owns more than 25 percent of any Related Class at any time within the one year preceding the Plan’s purchase of the Stock shall be subject to the restriction as to all allocations of the Stock, but any other Participant shall be subject to the restriction only as to allocations which occur at a time when he owns more than 25 percent of any Related Class.

Further, this restriction shall apply to the selling shareholder claiming the benefit of Section 1042 and any other Participant who is related to such a shareholder within the meaning of Section 267(b) of the Code, during the period beginning on the date of sale and ending on the later of (1) the date that is ten years after the date of sale, or (2) the date of the Plan allocation attributable to the final payment of acquisition indebtedness incurred in connection with the sale.

This restriction shall not apply to any Participant who is a lineal descendant of a selling shareholder if the aggregate amounts allocated under the Plan for the benefit of all such descendants do not exceed five percent of the Stock acquired from the shareholder.

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5.4 Erroneous Allocations. No Participant shall be entitled to any annual additions or other allocations to his Account in excess of those permitted under Section 5. If it is determined at any time that the Plan Administrator and/or Trustee have erred in accepting and allocating any contributions or forfeitures under this Plan, or in allocating investment adjustments, or in excluding or including any person as a Participant, then the Plan Administrator, in a uniform and nondiscriminatory manner, shall determine the manner in which such error shall be corrected, after taking into consideration Sections 3.6 and 3.7 and any revenue procedure or other notice published by the Internal Revenue Service regarding permissible correction methods, if applicable, and shall promptly advise the Trustee in writing of such error and of the method for correcting such error. The Accounts of any or all Participants may be revised, if necessary, in order to correct such error.

Section 6. Trust Fund and Its Investment.

6.1 Creation of Trust Fund. All amounts received under the Plan from Employers and investments shall be held as the Trust Fund pursuant to the terms of this Plan and of the Trust Agreement between the Company and the Trustee. The benefits described in this Plan shall be payable only from the assets of the Trust Fund, and none of the Company, any other Employer, its board of directors or trustees, its stockholders, its officers, its employees, the Committee, and the Trustee shall be liable for payment of any benefit under this Plan except from the Trust Fund.

6.2 Stock Fund and Investment Fund. The Trust Fund held by the Trustee shall be divided into the Stock Fund, consisting entirely of Stock, and the Investment Fund, consisting of all assets of the Trust other than Stock. The Trustee shall have no investment responsibility for the Stock Fund, but shall accept any Employer contributions made in the form of Stock, and shall acquire, sell, exchange, distribute, and otherwise deal with and dispose of Stock in accordance with the instructions of the Committee. The Trustee shall have full responsibility for the investment of the Investment Fund, except to the extent such responsibility may be delegated from time to time to one or more investment managers pursuant to Section 2.3 of the Trust Agreement, or to the extent the Committee directs the Trustee to purchase Stock with the assets in the Investment Fund.

6.3 Acquisition of Stock. From time to time the Committee may, in its sole discretion, direct the Trustee to acquire Stock from the issuing Employer or from shareholders, including shareholders who are or have been Employees, Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for such Stock no more than its fair market value, which shall be determined conclusively by the Committee pursuant to Section 12.4. The Committee may direct the Trustee to finance the acquisition of Stock by incurring or assuming indebtedness to the seller or another party, which indebtedness shall be called a “Stock Obligation.” The term “Stock Obligation” shall refer to a loan made to the Plan by a disqualified person within the meaning of Section 4975(e)(2) of the Code, or a loan to the Plan which is guaranteed by a disqualified person. A Stock Obligation includes a direct loan of cash, a purchase-money transaction, and an assumption of an obligation of a tax-qualified employee stock ownership plan under Section 4975(e)(7) of the Code (“ESOP”). For these purposes, the term “guarantee” shall include an unsecured guarantee and the use of assets of a disqualified person as collateral for a loan, even though the use of assets may not be a guarantee under applicable state law. An

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amendment of a Stock Obligation in order to qualify as an “exempt loan” is not a refinancing of the Stock Obligation or the making of another Stock Obligation. The term “exempt loan” refers to a loan that is primarily for the benefit of the Plan participants and their beneficiaries and that satisfies the provisions of this paragraph. A “non-exempt loan” fails to satisfy this paragraph. Any Stock Obligation shall be subject to the following conditions and limitations:

6.3-1 A Stock Obligation shall be for a specific term, shall not be payable on demand except in the event of default, and shall bear a reasonable rate of interest.

6.3-2 A Stock Obligation may, but need not, be secured by a collateral pledge of either the Stock acquired in exchange for the Stock Obligation, or the Stock previously pledged in connection with a prior Stock Obligation which is being repaid with the proceeds of the current Stock Obligation. No other assets of the Plan and Trust may be used as collateral for a Stock Obligation, and no creditor under a Stock Obligation shall have any right or recourse to any Plan and Trust assets other than Stock remaining subject to a collateral pledge.

6.3-3 Any pledge of Stock to secure a Stock Obligation must provide for the release of pledged Stock in connection with payments on the Stock obligations in the ratio prescribed in Section 4.2.

6.3-4 Repayments of principal and interest on any Stock Obligation shall be made by the Trustee only from Employer cash contributions designated for such payments, from earnings on such contributions, and from cash dividends received on Stock, in the last case, however, subject to the further requirements of Section 7.2. The payment on the Stock Obligation during the Plan Year must not exceed an amount equal to the sum of contributions and earnings received during such year or prior to such year, less such payments in prior years. Such contributions and earnings must be accounted for separately in the books and accounts of the Plan until the Stock Obligation is fully repaid.

6.3-5 In the event of default of a Stock Obligation, the value of Plan assets transferred in satisfaction of the Stock Obligation must not exceed the amount of the default. If the lender is a disqualified person within the meaning of Section 4975 of the Code, a Stock Obligation must provide for a transfer of Plan assets upon default only upon and to the extent of the failure of the Plan to meet the payment schedule of said Stock Obligation. For purposes of this paragraph, the making of a guarantee does not make a person a lender.

6.4 Participants’ Option to Diversify. The Committee shall provide for a procedure under which each Participant may, during the qualified election period, elect to “diversify” a portion of the Employer Stock allocated to his Account, as provided in Section 401(a)(28)(B) of the Code. An election to diversify must be made on the prescribed form and filed with the Committee within the period specified herein. For each of the first five (5) Plan years in the qualified election period, the Participant may elect to diversify an amount which does not exceed 25% of the number of shares allocated to his Account since the inception of the Plan, less all shares with respect to which an election under this Section has already been made. For the last year of the qualified election period, the Participant may elect to have up to 50 percent of the

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value of his Account committed to other investments, less all shares with respect to which an election under this Section has already been made. The term “qualified election period” shall mean the six (6) Plan Year period beginning with the first Plan Year in which a Participant has both attained age 55 and completed 10 years of participation in the Plan. A Participant’s election to diversify his Account may be made within each year of the qualified election period and shall continue for the 90-day period immediately following the last day of each year in the qualified election period. Once a Participant makes such election, the Plan must complete diversification in accordance with such election within 90 days after the end of the period during which the election could be made for the Plan Year. In the discretion of the Committee, the Plan may satisfy the diversification requirement by any of the following methods:

6.4-1 The Plan may distribute all or part of the amount subject to the diversification election.

6.4-2 The Plan may offer the Participant at least three other distinct investment options, if available under the Plan. The other investment options shall be designed to satisfy the requirements of Regulations under Section 404(c) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

6.4-3 The Plan may transfer the portion of the Participant’s Account subject to the diversification election to another qualified defined contribution plan of the Employer that offers at least three investment options satisfying the requirements of the Regulations under Section 404(c) of ERISA, such as the Fairmount Bank 401(k) Plan.

6.5 Post-Service Investments. If any part of a Participant’s Account is retained in the Trust after his Service ends, his Accounts will continue to be treated as described in Section 8. However, unless the Participant was an Active Participant during a portion of the Plan Year at issue, such Accounts shall not be credited with any additional contributions. The Committee may determine (based upon a nondiscriminatory policy) that the Accounts of former Employees will be diversified and invested in assets other than Stock.

Section 7. Voting Rights and Dividends on Stock.

7.1 Voting and Tendering of Stock.

7.1-1. The Trustee generally shall vote all shares of Stock held under the Plan in accordance with the written instructions of the Committee. However, if any Employer has a registration-type class of securities within the meaning of Section 409(e)(4) of the Code, or if a matter submitted to the holders of the Stock involves a merger, consolidation, recapitalization, reclassification, liquidation, dissolution, or sale of substantially all assets of an entity, then (i) the shares of Stock which have been allocated to Participants’ Accounts shall be voted by the Trustee in accordance with the Participants’ written instructions, and (ii) the Trustee shall vote any unallocated Stock, allocated Stock for which it has received no voting instructions, and Stock for which Participants vote to “abstain,” in the same proportions as it votes the allocated Stock for which it has received instructions from Participants. In the event no shares of Stock have been allocated to Participants’ Accounts at the time Stock is to be voted and any exempt

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loan which may be outstanding is not in default, each Participant shall be deemed to have one share of Stock allocated to his or her Account, for the sole purpose of providing the Trustee with voting instructions.

Notwithstanding any provision hereunder to the contrary, all unallocated shares of Stock must be voted by the Trustee in a manner determined by the Trustee to be for the exclusive benefit of the Participants and Beneficiaries. Whenever such voting rights are to be exercised, the Employers shall provide the Trustee, in a timely manner, with the same notices and other materials as are provided to other holders of the Stock, which the Trustee shall distribute to the Participants. The Participants shall be provided with adequate opportunity to deliver their instructions to the Trustee regarding the voting of Stock allocated to their Accounts. The instructions of the Participants’ with respect to the voting of allocated shares hereunder shall be confidential.

7.1-2 In the event of a tender offer, Stock shall be tendered by the Trustee in the same manner as set forth above in Section 7.1-1 with respect to the voting of Stock. Notwithstanding any provision hereunder to the contrary, Stock must be tendered by the Trustee in a manner determined by the Trustee to be for the exclusive benefit of the Participants and Beneficiaries.

7.2 Application of Dividends.

7.2-1 Stock Dividends. Stock Dividends that are received by the Trustee in the form of additional Stock shall be retained in the Stock Fund, and shall be allocated among the Participants’ Accounts and the Unallocated Stock Fund in accordance with their holdings of the Stock on which the dividends are paid.

7.2-2 Cash Dividends. The treatment of dividends paid in cash shall be determined after consideration to whether the cash dividends are paid on Stock held in Participants’ Accounts or the Unallocated Stock Fund.

(i) On Stock in Participants’ Accounts. (A) Employer Exercises Discretion. Dividends on Stock credited to Participants’ Accounts which are received by the Trustee in the form of cash shall, at the direction of the Employer paying the dividends, either (i) be credited to the Accounts in accordance with Section 8.4(c) and invested as part of the Investment Fund; (ii) be distributed immediately to the Participants in proportion with the Participants’ Stock Fund Account balance; (iii) be distributed to the Participants within 90 days of the close of the Plan Year in which paid in proportion with the Participants’ Stock Fund Account balance; or (iv) be used to make payments on the Stock Obligation. If dividends on Stock allocated to a Participant’s Account are used to repay the Stock Obligation, Stock with a fair market value equal to the dividends so used must be allocated to such Participant’s Account in lieu of the dividends.

(B) Participant Exercises Discretion over Dividend. In addition, in the sole discretion of the Employer, the Employer may grant Participants the right to elect: (I) to have cash dividends paid on shares of Stock credited to such Participants’

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Stock Fund Accounts distributed to the Participant, or (II) to leave the cash dividends allocated to the Participant’s Account in the Plan, to be credited to the Stock Fund Account and invested in shares of Stock. Dividends on which such election may be made will be fully vested in the Participant (even if not otherwise vested, absent the ability to make such election). Accordingly, the Employer may choose to offer this election only to Participants who are fully vested in their Account. In the event the Employer elects to give Participants the right to determine the treatment of such dividends, the Participant’s election shall be made by filing with the Committee the appropriate written direction as provided by the Committee at such time and in accordance with such procedures and limitations which the Committee may from time to time establish; provided, however, that the procedures established by the Committee shall provide a reasonable opportunity to change the election at least annually, may establish a default election if a Participant fails to make an affirmative election within the time established for making elections, may provide that the election is applicable for the Plan Year and cannot be revoked with respect to such Plan Year, shall otherwise be implemented in a manner such that the dividends paid or reinvested will constitute “applicable dividends” which may be deducted under Code Section 404(k), and are in accordance with applicable guidance issued or to be issued by the Secretary of the Treasury. If the Employer elects to give Participants the right to exercise the discretion in this Paragraph 7.2-2(i)(B), the ability to make such election shall be available to the Participant with respect to dividends paid for the entire Plan Year.

(ii) On Stock in the Unallocated Stock Fund. Dividends received on shares of Stock held in the Unallocated Stock Fund shall be applied to the repayment of principal and interest then due on the Stock Obligation used to acquire such shares. If the amount of dividends exceeds the amount needed to repay such principal and interest (including any prepayments of principal and interest deemed advisable by the Employer), then in the sole discretion of the Committee, the excess shall: (A) be allocated to Active Participants on a non-discriminatory basis, consistent with Section 7.2-2(i) above, and in the discretion of the Committee, treated as a dividend described in such Section, or (B) be deemed to be general earnings of the Trust Fund and used for paying appropriate Plan or Trust related expenditures for the Plan Year. Notwithstanding the foregoing, dividends paid on a share of Stock may not be used to make payments on a particular Stock Obligation unless the share was acquired with the proceeds of such loan or a refinancing of such loan.

Section 8. Adjustments to Accounts.

8.1 ESOP Allocations. Amounts available for allocation for a particular Plan Year will be divided into two categories. The first category relates to shares of Stock released from the Unallocated Stock Fund attributable to using cash dividends to make Stock Obligation payments. The second category relates to contributions made by the Employer, shares of Stock released from the Unallocated Stock Fund on the basis of Employer contributions (or on the basis of the complete repayment of the Stock Obligation through the sale or other disposition of Stock in the Unallocated Stock Fund) and amounts forfeited from Stock Fund Accounts pursuant to Section 9.5.

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8.1-1. Shares of Stock attributable to the first category will be allocated to the Stock Fund Accounts of eligible Participants as follows:

(i) first, if dividends paid on shares of Stock held in Participants’ Stock Fund Accounts are used to make payments on an Stock Obligation, there shall be allocated to each such account a number of shares of Stock released from the Unallocated Stock Fund with a fair market value (determined as of the Valuation Date coincident with or immediately preceding the loan payment date) that at least equals the amount of dividends so used,

(ii) second, if necessary, any remaining shares of Stock shall be applied to reinstate amounts forfeited from Stock Fund Accounts of former employees who are entitled to a reinstatement under Section 9.5, and

(iii) finally, any remaining shares of Stock shall be allocated as a general investment gain in proportion to the number of shares held in the Active Participants’ Stock Fund Accounts as of the last Valuation Date of the Plan Year for which they are allocated in the same manner as described in Section 7.2-2(i).

8.1-2. Shares of Stock or cash attributable to the second category (i.e., Employer contributions, Stock released from the Unallocated Stock Fund on the basis of Employer contributions, and amounts forfeited) will be allocated to the Stock Fund Accounts or Investment Fund Accounts, as the case may be, pro rata, in proportion to the Plan Compensation of each Active Participant that was earned by such Participant during the period of the Plan Year in which such person participated in the Plan compared to total Plan Compensation for all Active Participants.

8.1-3. Shares of Stock or cash attributable to contributions made under Section 4.1-2 shall be allocated specifically to the Participants on whose behalf such contributions were made.

8.2 Charges to Accounts. When a Valuation Date occurs, any distributions made to or on behalf of any Participant or Beneficiary since the last preceding Valuation Date shall be charged to the proper Accounts maintained for that Participant or Beneficiary.

8.3 Stock Fund Account. Subject to the provisions of Sections 5 and 8.1, as of the last day of each Plan Year, the Trustee shall credit to each Participant’s Stock Fund Account: (a) the Participant’s allocable share of Stock purchased by the Trustee or contributed by the Employer to the Trust Fund for that year; (b) the Participant’s allocable share of the Stock that is released from the Unallocated Stock Fund for that year; (c) the Participant’s allocable share of any forfeitures of Stock arising under the Plan during that year; and (d) any stock dividends declared and paid during that year on Stock credited to the Participant’s Stock Fund Account.

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If, in any Plan Year during which an outstanding Stock Obligation exists, the Employer directs the Trustee to sell or otherwise dispose of a number of shares of Stock in the Unallocated Stock Fund sufficient to repay, in its entirety, the Stock Obligations, and following such repayment, there remains Stock or other assets in the Unallocated Stock Fund, such Stock or other assets shall be allocated as of the last day of the Plan Year in which the repayment occurred as earnings of the Plan to Active Participants, in proportion to the number of shares held in Active Participants’ Stock Fund Accounts.

8.4 Investment Fund Account. Subject to the provisions of Sections 5 and 8.1 as of the last day of each Plan Year, the Trustee shall credit to each Participant’s Investment Fund Account: (a) the Participant’s allocable share of any contribution for that year made by the Employer in cash or in property other than Stock that is not used by the Trustee to purchase Employer Stock or to make payments due under a Stock Obligation; (b) the Participant’s allocable share of any forfeitures from the Investment Fund Accounts of other Participants arising under the Plan during that year; (c) any cash dividends paid during that year on Stock credited to the Participant’s Stock Fund Account, other than dividends which are paid directly to the Participant and other than dividends which are used to repay Stock Obligation; and (d) the share of the net income or loss of the Trust Fund properly allocable to that Participant’s Investment Fund Account, as provided in Section 8.5.

8.5 Adjustment to Value of Trust Fund. As of the last day of each Plan Year, the Trustee shall determine: (i) the net worth of that portion of the Trust Fund which consists of properties other than Stock (the “Investment Fund”); and (ii) the increase or decrease in the net worth of the Investment Fund since the last day of the preceding Plan Year. The net worth of the Investment Fund shall be the fair market value of all properties held by the Trustee under the Trust Agreement other than Stock, net of liabilities other than liabilities to Participants and their beneficiaries. The Trustee shall allocate to the Investment Fund Account of each Participant that percentage of the increase or decrease in the net worth of the Investment Fund equal to the ratio which the balances credited to the Participant’s Investment Fund Account bear to the total amount credited to all Participants’ Investments Fund Accounts. This allocation shall be made after application of Section 7.2, but before application of Sections 8.1, 8.4 and 5.1.

8.6 Participant Statements. Each Plan Year, the Trustee will provide each Participant with a statement of his or her Account balances, and the vested percentage thereof, as of the last day of the Plan Year.

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Section 9. Vesting of Participants’ Interests.

9.1 Vesting in Accounts. A Participant’s vested interest in his Account shall be based on his Vesting Years in accordance with the following table, subject to the balance of this Section 9:

Vesting Years	Percentage of Interest Vested
Fewer than 1	0	%
1 but fewer than 2	20	%
2 but fewer than 3	40	%
3 but fewer than 4	60	%
4 but fewer than 5	80	%
5 or more	100	%

9.2 Computation of Vesting Years. For purposes of this Plan, a “Vesting Year” means generally a Plan Year in which an Eligible Employee has performed at least 1,000 Hours of Service, beginning with the first Plan Year in which the Eligible Employee has completed an Hour of Service with the Employer, and including Service with other Employers as provided in the definition of “Service.” Notwithstanding the above, an Eligible Employee who was employed with the Employer prior to the Effective Date shall receive credit for vesting purposes for each calendar year, up to three years of continuous employment with the Employer in which such Eligible Employee completed 1,000 Hours of Service (such years shall also be referred to as “Vesting Years”). However, a Participant’s Vesting Years shall be computed subject to the following conditions and qualifications:

9.2-1 A Participant’s Vesting Years shall not include any Service prior to the date on which an Employee attains age 18.

9.2-2 To the extent applicable, a Participant’s vested interest in his Account accumulated before five (5) consecutive one year Breaks in Service shall be determined without regard to any Service after such five consecutive Breaks in Service. Further, if a Participant has five (5) consecutive one year Breaks in Service before his interest in his Account has become vested to some extent, pre-Break in Service years of Service shall not be required to be taken into account for purposes of determining his post-Break in Service vested percentage.

9.2-3 To the extent applicable, in the case of a Participant who has five (5) or more consecutive one year Breaks in Service, the Participant’s pre-Break in Service will count in vesting of the Employer-derived post-Break in Service accrued benefit only if either:

(i) such Participant has any nonforfeitable interest in the accrued benefit attributable to Employer contributions at the time of severance from employment, or

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(ii) upon returning to Service the number of consecutive one year Breaks in Service is less than the number of years of Service.

9.2-4 Notwithstanding any provision of the Plan to the contrary, calculation of service for determining Vesting Years with respect to Qualified Military Service will be provided in accordance with Section 414(u) of the Code.

9.2-5 To the extent applicable, if any amendment changes the vesting schedule, including an automatic change to or from a top-heavy vesting schedule, any Participant with three (3) or more Vesting Years may, by filing a written request with the Employer, elect to have his vested percentage computed under the vesting schedule in effect prior to the amendment. The election period must begin not later than the later of sixty (60) days after the amendment is adopted, the amendment becomes effective, or the Participant is issued written notice of the amendment by the Employer or the Committee.

9.3 Full Vesting Upon Certain Events.

9.3-1 Notwithstanding Section 9.1, a Participant’s interest in his Account shall fully vest on the Participant’s Normal Retirement Date. The Participant’s interest in his or her Account shall also fully vest in the event that his Service is terminated by Disability or by death. Participants who die while performing Qualified Military Service shall be deemed to be fully vested, in accordance with the HEART Act of 2008.

9.3-2 The Participant’s interest in his Account shall also fully vest in the event of a “Change in Control” of the Bank, or the Company. For these purposes, “Change in Control” shall mean an event of a nature that (i) would be required to be reported in response to Item 5.01 of the Current Report on Form 8K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or (ii) results in a Change in Control of the Bank or the Company within the meaning of the Home Owners’ Loan Act, as amended, and applicable rules and regulations promulgated thereunder as in effect at the time of the Change in Control (collectively, the “HOLA”); or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (a) any “Person” (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Bank or the Company representing 25% or more of the Bank’s or the Company’s outstanding securities except for any securities purchased by the Company’s employee stock ownership plan or trust; or (b) individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided, however, that this sub-section (b) shall not apply if the Incumbent Board is replaced by the appointment by a Federal banking agency of a conservator or receiver for Company or the Bank and, provided further that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least two-thirds of the directors comprising the Incumbent Board or whose nomination for election by the Company’s stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (b), considered as though he were a member of the Incumbent Board; or (c) a reorganization, merger,

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consolidation, sale of all or substantially all the assets of the Bank or the Company, or similar transaction in which the Bank or Company is not the surviving institution occurs; or (d) a proxy statement is distributed soliciting proxies from stockholders of the Company, by someone other than the current management of the Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the Plan are to be exchanged for or converted into cash or property or securities not issued by the Company; or (e) a tender offer is made for 25% or more of the voting securities of the Company and the shareholders owning beneficially or of record 25% or more of the outstanding securities of the Company have tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror. Notwithstanding anything herein to the contrary, the reorganization of the Company by way of a second step conversion shall not be considered a “Change in Control.”

9.3-3 Upon a Change in Control described in 9.3-2, the Plan shall be terminated and the Plan Administrator shall direct the Trustee to sell a sufficient amount of Stock from the Unallocated Stock Fund to repay any outstanding Stock Obligation in full. The proceeds of such sale shall be used to repay such Stock Obligation. After repayment of the Stock Obligation, all remaining shares in the Unallocated Stock Fund (or the proceeds thereof, if applicable) shall be deemed to be earnings and shall be allocated in accordance with the requirements of Section 8.3.

9.4 Full Vesting Upon Plan Termination. Notwithstanding Section 9.1, a Participant’s interest in his Account shall fully vest upon termination of this Plan or upon the permanent and complete discontinuance of contributions by his Employer. In the event of a partial termination, the interest of each affected Participant shall fully vest with respect to that part of the Plan which is terminated. A partial termination of the Plan shall be determined by the Internal Revenue Service Commissioner based on the facts and circumstances of the particular case in accordance with Code Section 411(d)(3) and the Treasury Regulations issued thereunder.

9.5 Forfeiture, Repayment, and Restoral. If a Participant’s Service terminates before his interest in his Account is fully vested, that portion which has not vested shall be forfeited after a one-year Break in Service. If a Participant’s Service terminates prior to having any portion of his Account become vested, such Participant shall be deemed to have received a distribution of his vested interest immediately upon his termination of Service.

If a Participant who has suffered a forfeiture of the nonvested portion of his Account returns to Service before he has five (5) consecutive one-year Breaks in Service, the nonvested portion shall be restored, provided that, if the Participant had received a distribution of his vested Account balance, the amount distributed shall be repaid prior to such restoral. The Participant may repay such amount at any time within five years after he has returned to Service. The amount repaid shall be credited to his Account at the time it is repaid; an additional amount equal to that portion of his Account which was previously forfeited shall be restored to his Account at the same time from other Employees’ forfeitures and, if such forfeitures are insufficient, then from amounts allocated in accordance with Section 8.1-1(ii), and if insufficient, then from a special contribution by his Employer for that year. A Participant who was deemed to have

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received a distribution of his vested interest in the Plan shall have his Account restored as of the first day on which he performs an Hour of Service after his return.

In addition, if a Participant did not receive a distribution of his vested Account balance but his non-vested Account balance was forfeited after a one-year Break in Service, such nonvested Account balance shall be restored if the Plan terminates before the Participant has a five-year Break in Service. If the Participant did not receive a distribution of his vested Account balance, any forfeiture restored shall include earnings that would have been credited to the Account but for the forfeiture.

9.6 Accounting for Forfeitures. If a portion of a Participant’s Account is forfeited, Stock allocated to said Participant’s Account shall be forfeited only after other assets are forfeited. If interests in more than one class of Stock have been allocated to a Participant’s Account, the Participant must be treated as forfeiting the same proportion of each class of Stock. A forfeiture shall be charged to the Participant’s Account as of the first day of the first Valuation Period in which the forfeiture becomes certain pursuant to Section 9.5. Except as otherwise provided in that Section, a forfeiture shall be added to the contributions of the terminated Participant’s Employer which are to be credited to other Participants pursuant to Section 4.1 as of the last day of the Plan Year in which the forfeiture becomes certain.

9.7 Vesting and Nonforfeitability. A Participant’s interest in his Account which has become vested shall not be forfeited for any reason.

Section 10. Payment of Benefits.

10.1 Benefits for Participants. For a Participant whose Service ends for any reason, distribution will be made to or for the benefit of the Participant or, in the case of the Participant’s death, his Beneficiary, by payment in a lump sum or installments, in accordance with Section 10.2. Prior to any such distribution, any Participant entitled to a distribution will receive a form upon which the Participant can elect the form and manner of such distribution (e.g., whether to receive the distribution directly or transfer such distribution to an individual retirement account or other tax-qualified plan), a special tax notice regarding the consequences of such distribution, and, if applicable, that the Participant has the right not to consent to a distribution at such time.

If a Participant so desires, he may direct how his benefits are to be paid to his Beneficiary. Notice to the Participant with regard to having the right to elect the manner in which his vested Account balance will be distributed to him may be given up to 180 days before the first day of the first period for which an amount is payable. If a deceased Participant did not file a direction with the Committee, the Participant’s benefits shall be distributed to his Beneficiary in a lump sum. Notwithstanding any provision to the contrary, if the value of a Participant’s vested Account balance at the time of any distribution does not exceed $1,000, then such Participant’s vested Account shall be distributed, without regard to whether the Participant consents, in a lump sum within 60 days after the end of the Plan Year in which employment terminates. If the value of a Participant’s vested Account balance is in excess of $5,000, then his benefits shall not be paid prior to his Normal Retirement Date unless he elects an early payment date in a written election filed with the Committee. A Participant may modify such an election at any time,

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provided any new benefit payment date is at least 30 days after a modified election is delivered to the Committee. Failure of a Participant to consent to a distribution prior his Normal Retirement Date shall be deemed to be an election to defer commencement of payment of any benefit under this section. Notwithstanding the foregoing, unless a Participant elects to receive a distribution, the Plan administrator shall transfer accounts of $1,000 or more, but not exceeding $5,000, in a direct rollover to an individual retirement account designated by the Plan Administrator in accordance with Code Section 401(a)(31)(B) and the Treasury Regulations thereunder. All distributions of $5,000 or less that are made pursuant to this Section without the Participant’s consent shall be made in cash.

10.2 Time for Distribution.

10.2-1 A Participant’s Account will be distributed following his termination of Service, but only at the time and in the manner determined by the Committee. The Committee shall establish a nondiscriminatory written distribution policy which satisfies the requirements of this Section 10, and such policy may be modified by the Committee from time to time in a nondiscriminatory manner.

The following alternative modes of distribution may be selected by the Committee (after considering the liquid assets of the Company and the Trust):

(i) Distribution of a Participant’s Account in a single lump sum; or

(ii) Distribution of a Participant’s Account in substantially equal, annual installments over a period not exceeding five years (provided that the period over which installments may be distributed may be extended an additional year (up to an additional five years) for each $985,000 or fraction thereof by which his Account exceeds $985,000 (as adjusted after 2010 for increases in the cost of living pursuant to Section 409(o)(2) of the Code)); or

(iii) Any combination of the foregoing.

10.2-2 If the Participant and, if applicable, with the consent of the Participant’s spouse, elects the distribution of the Participant’s Account balance in the Plan, distribution shall commence no later than one year after the close of the Plan Year in which the Participant severs employment by reason of attainment of Normal Retirement Age under the Plan, Disability, or death, or which is the fifth Plan Year following the Plan Year in which the Participant otherwise severs employment, except that this clause shall not apply if the Participant is reemployed by the Employer before distribution is required to begin. Furthermore, the preceding sentence shall not apply to the extent that a Participant’s Account consist of Stock that was acquired pursuant to a Stock Obligation, if the Committee elects to defer distribution of this portion of the Participants’ Accounts that is attributable to such Stock until the Plan Year following the Plan Year in which the Stock Obligation has been fully repaid.

10.2-3 Unless the Participant elects otherwise, the distribution of the balance of a Participant’s Account shall commence not later than the 60th day after the latest of the close of the Plan Year in which -

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(i) the Participant attains the age of 65;

(ii) occurs the tenth anniversary of the year in which the Participant commenced participation in the Plan; or

(iii) the Participant terminates his Service with the Employer.

10.2-4 Minimum Distribution Requirements.

(i) General Rules.

(A) TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of this Section 10, distributions may be made under a designation made before January 1, 1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (“TEFRA”) and the provisions of the Plan that relate to Section 242(b)(2) of TEFRA.

(ii) Time and Manner of Distribution.

(A) Required Beginning Date. The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s Required Beginning Date.

(B) Death of Participant before Distributions Begin. If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:

(I) if the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, then, distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70 1/2, if later.

(II) if the Participant’s surviving spouse is not the Participant’s sole Designated Beneficiary, then, distributions to the Designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

(III) if there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(IV) if the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this Section 10.2.4(ii)(B), other than Section 10.2.4(ii)(B)(I), will apply if the surviving spouse were the Participant.

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For purposes of this Section 10.2.4(ii)(B) and Section 10.2.4(iv), unless Section 10.2.4(ii)(B)(IV) applies, distributions are considered to begin on the Participant’s Required Beginning Date. If Section 10.2.4(ii)(B)(IV) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 10.2.4(ii)(B)(I).

(C) Forms of Distribution. Unless the Participant’s interest is distributed in a lump sum on or before the Required Beginning Date, as of the first distribution calendar year distributions will be made in accordance with Sections 10.2.4(iii) and Section 10.2.4(iv).

(iii) Required Minimum Distributions During Participant’s Lifetime.

(A) Amount of Required Minimum Distribution for Each Distribution Calendar Year. During the Participant’s lifetime, the minimum amount that will be distributed for each Distribution Calendar Year is the lesser of:

(I) the quotient obtained by dividing the Participant’s Account Balance by the distribution period in the Uniform Lifetime Table (as set forth in Section 1.401(a)(9)-9 of the Treasury Regulations), using the Participant’s age as of the Participant’s birthday in the Distribution Calendar Year; or

(II) if the Participant’s sole Designated Beneficiary for the Distribution Calendar Year is the Participant’s spouse, the quotient obtained by dividing the Participant’s Account Balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s and spouse’s ages as of the Participant’s and spouse’s birthdays in the Distribution Calendar Year.

(B) Lifetime Required Minimum Distributions Continue through Year of Participant’s Death. Required minimum distributions will be determined under this Section 10.2.4 beginning with the first Distribution Calendar Year and up to and including the Distribution Calendar Year that includes the Participant’s date of death.

(iv) Required Minimum Distributions After Participant’s Death.

(A) Death On or After Date Distributions Begin.

(I) Participant Survived by Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the longer of the remaining Life Expectancy of the Participant or the remaining Life Expectancy of the Participant’s Designated Beneficiary, determined as follows:

The Participant’s remaining Life Expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year. If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, the remaining Life Expectancy of the surviving spouse is calculated for each Distribution Calendar Year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For Distribution Calendar Years after the year of the surviving spouse’s death, the remaining Life Expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

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If the Participant’s surviving spouse is not the Participant’s sole Designated Beneficiary, the Designated Beneficiary’s remaining Life Expectancy is calculated using the age of the Beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

(II) No Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is no Designated Beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the Participant’s remaining Life Expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(B) Death before Date Distributions Begin.

(I) Participant Survived by Designated Beneficiary. If the Participant dies before the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the remaining Life Expectancy of the Participant’s Designated Beneficiary, determined as provided in Section 10.2.4(iv)(A).

(II) No Designated Beneficiary. If the Participant dies before the date distributions begin and there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(III) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin. If the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under Section 10.2.4(ii)(B)(I), this Section 10.2.4(iv)(B) will apply as if the surviving spouse were the Participant.

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(iv) Definitions.

(A) “Designated Beneficiary.” The individual who is designated as the Beneficiary under the Plan and is the Designated Beneficiary under Section 401(a)(9) of the Code and Section 1.401(1)(9)-1, Q&A-4 of the Treasury Regulations.

(B) “Distribution Calendar Year.” A calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant’s required beginning date. For distributions beginning after the Participant’s death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin under Section 10.2.4(ii)(B). The required minimum distribution for the Participant’s first Distribution Calendar Year will be made on or before the Participant’s required beginning date. The required minimum distribution for other Distribution Calendar Years, including the required minimum distribution for the Distribution Calendar Year in which the Participant’s required beginning date occurs, will be made on or before December 31 of that Distribution Calendar Year.

(C) “Life Expectancy.” Life Expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9 of the Treasury Regulations.

(D) “Participant’s Account Balance.” The Account balance as of the last Valuation Date in the calendar year immediately preceding the Distribution Calendar Year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the Account balance as of dates in the valuation calendar year after the Valuation Date and decreased by distributions made in the valuation calendar year after the Valuation Date. The Account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the Distribution Calendar Year if distributed or transferred in the valuation calendar year.

(E) “Required Beginning Date.” The Required Beginning Date shall be, with respect to a 5-percent owner (as defined in Code Section 416), not later than April 1 of the calendar year next following the calendar year in which the Participant attains age 70 1/2, and (2) with respect to all other Participants, the Required Beginning Date shall be not later than April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2, or, if later, the year in which the Participant retires.

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10.3 Marital Status. The Committee, the Plan, the Trustee, and the Employers shall be fully protected and discharged from any liability to the extent of any benefit payments made as a result of the Committee’s good faith and reasonable reliance upon information obtained from a Participant and his Employer as to his marital status.

10.4 Delay in Benefit Determination. If the Committee is unable to determine the benefits payable to a Participant or Beneficiary on or before the latest date prescribed for payment pursuant to Section 10.1 or 10.2, the benefits shall in any event be paid within 60 days after they can first be determined, with whatever makeup payments may be appropriate in view of the delay.

10.5 Accounting for Benefit Payments. Any benefit payment shall be charged to the Participant’s Account as of the first day of the Valuation Period in which the payment is made.

10.6 Options to Receive Stock. Unless ownership of virtually all Stock is restricted to active Employees and qualified retirement plans for the benefit of Employees pursuant to the certificates of incorporation or by-laws of the Employers issuing Stock, a terminated Participant or the Beneficiary of a deceased Participant may instruct the Committee to distribute the Participant’s entire vested interest in his Account in the form of Stock. In that event, the Committee shall apply the Participant’s vested interest in the Investment Fund to purchase sufficient Stock from the Stock Fund or from any owner of Stock to make the required distribution. In all other cases, other than as specifically set forth in Section 10.1, the Participant’s vested interest in the Stock Fund shall be distributed in shares of Stock, and his vested interest in the Investment Fund shall be distributed in cash. If Stock acquired with the proceeds of a Stock Obligation available for distribution consists of more than one class of Stock, the Participant (or Beneficiary, if applicable) must receive substantially the same proportion of each such class.

Any Participant who receives Stock pursuant to Section 10.1, and any person who has received Stock from the Plan or from such a Participant by reason of the Participant’s death or incompetence, by reason of divorce or separation from the Participant, or by reason of a rollover contribution described in Section 402(a)(5) of the Code, shall have the right to require the Employer which issued the Stock to purchase the Stock for its current fair market value (hereinafter referred to as the “put right”). The put right shall be exercisable by written notice to the Committee during the first 60 days after the Stock is distributed by the Plan, and, if not exercised in that period, during the first 60 days in the following Plan Year after the Committee has communicated to the Participant its determination as to the Stock’s current fair market value. However, the put right shall not apply to the extent that the Stock, at the time the put right would otherwise be exercisable, may be sold on an established market in accordance with federal and state securities laws and regulations. Similarly, the put option shall not apply with respect to the portion of a Participant’s Account which the Employee elected to have reinvested under Code Section 401(a)(28)(B). If the put right is exercised, the Trustee may, if so directed by the Committee in its sole discretion, assume the Employer’s rights and obligations with respect to purchasing the Stock. Notwithstanding anything herein to the contrary, in the case of a plan established by a bank (as defined in Code Section 581), the put option shall not apply if prohibited by a federal or state law and Participants are entitled to elect their benefits be distributed in cash.

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The Employer or the Trustee, as the case may be, may elect to pay for the Stock in equal periodic installments, not less frequently than annually, over a period beginning not later than 30 days after the exercise of the put right and not exceeding five years, with adequate security and interest at a reasonable rate on the unpaid balance, all such terms to be set forth in a promissory note delivered to the seller with normal terms as to acceleration upon any uncured default.

Nothing contained herein shall be deemed to obligate any Employer to register any Stock under any federal or state securities law or to create or maintain a public market to facilitate the transfer or disposition of any Stock. The put right described herein may only be exercised by a person described in the second preceding paragraph, and may not be transferred with any Stock to any other person. As to all Stock purchased by the Plan in exchange for any Stock Obligation, the put right shall be nonterminable. The put right for Stock acquired through a Stock Obligation shall continue with respect to such Stock after the Stock Obligation is repaid or the Plan ceases to be an employee stock ownership plan.

10.7 Restrictions on Disposition of Stock. Except in the case of Stock which is traded on an established market, a Participant who receives Stock pursuant to Section 10.1, and any person who has received Stock from the Plan or from such a Participant by reason of the Participant’s death or incompetence, by reason of divorce or separation from the Participant, or by reason of a rollover contribution described in Section 402(a)(5) of the Code, shall, prior to any sale or other transfer of the Stock to any other person, first offer the Stock to the issuing Employer and to the Plan at the greater of (i) its current fair market value, or (ii) the purchase price offered in good faith by an independent third party purchaser. This restriction shall apply to any transfer, whether voluntary, involuntary, or by operation of law, and whether for consideration or gratuitous. Either the Employer or the Trustee may accept the offer within 14 days after it is delivered. Any Stock distributed by the Plan shall bear a conspicuous legend describing the right of first refusal under this Section 10.7, as well as any other restrictions upon the transfer of the Stock imposed by federal and state securities laws and regulations. The Company may require that a Participant entitled to a distribution of Stock execute an appropriate stock transfer agreement (evidencing the right of first refusal) prior to receiving a certificate for Stock.

10.8 Continuing Loan Provisions; Creations of Protections and Rights. Except as otherwise provided in Sections 10.6 and 10.7 and this Section, no shares of Employer Stock held or distributed by the Trustee may be subject to a put, call or other option, or buy-sell arrangement. The provisions of this Section shall continue to be applicable to such Stock even if the Plan ceases to be an employee stock ownership plan under Section 4975(e)(7) of the Code.

10.9 Direct Rollover of Eligible Distribution. A Participant or distributee may elect, at the time and in the manner prescribed by the Trustee or the Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the Participant or distributee in a direct rollover.

10.9-1 An “eligible rollover” is any distribution that does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the Participant and the Participant’s Beneficiary,

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or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); any hardship distribution described in Section 401(k)(2)(B)(i)(IV) of the Code; and the portion of any distribution that is not included in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). A portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be transferred only to an individual retirement account or annuity described in section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in section 401(a) or 403(a) of the Code that agrees to separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

10.9-2 An “eligible retirement plan” is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), a deemed individual retirement account described in Code Section 408(q), an annuity plan described in Code Section 403(a), a Roth individual retirement account in accordance with Code Section 408A(e), or a qualified trust described in Code Section 401(a), that accepts the distributee’s eligible rollover distribution. An eligible retirement plan shall also include an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan.

10.9-3 A “direct rollover” is a payment by the Plan to the eligible retirement plan specified by the distributee.

10.9-4 The term “distributee” shall refer to a deceased Participant’s Spouse or a Participant’s former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), and shall include non-spouse Beneficiaries pursuant to Code Section 402(c)(11).

10.9-5 The Administrator shall provide Participants or other distributes of eligible rollover distributions with a written notice designed to comply with the requirements of Code Section 402(f). Such notice shall be provided within a reasonable period of time before making an eligible rollover distribution. Such notice may be provided up to 180 days before the first day of the first period for which an amount is payable.

10.10 Waiver of 30-Day Period After Notice of Distribution. If a distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the notice required under Treasury Regulations Section 1.411(a)-11(c) is given, provided that:

(i) the Trustee or Committee, as applicable, clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular option), and

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(ii) the Participant, after receiving the notice, affirmatively elects a distribution.

Section 11. Rules Governing Benefit Claims and Review of Appeals.

11.1 Claim for Benefits. Any Participant or Beneficiary who qualifies for the payment of benefits shall file a claim for his benefits with the Committee on a form provided by the Committee. The claim, including any election of an alternative benefit form, shall be filed at least 30 days before the date on which the benefits are to begin. If a Participant or Beneficiary fails to file a claim by the day before the date on which benefits become payable, he shall be presumed to have filed a claim for payment for the Participant’s benefits in the standard form prescribed by Sections 10.1 or 10.2.

11.2 Notification by Committee. Within 90 days after receiving a claim for benefits (or within 180 days, if special circumstances require an extension of time and written notice of the extension is given to the Participant or Beneficiary within 90 days after receiving the claim for benefits), the Committee shall notify the Participant or Beneficiary whether the claim has been approved or denied. If the Committee denies a claim in any respect, the Committee shall set forth in a written notice to the Participant or Beneficiary:

(i) each specific reason for the denial;

(ii) specific references to the pertinent Plan provisions on which the denial is based;

(iii) a description of any additional material or information which could be submitted by the Participant or Beneficiary to support his claim, with an explanation of the relevance of such information; and

(iv) an explanation of the claims review procedures set forth in Section 11.3.

11.3 Claims Review Procedure. Within 60 days after a Participant or Beneficiary receives notice from the Committee that his claim for benefits has been denied in any respect, he may file with the Committee a written notice of appeal setting forth his reasons for disputing the Committee’s determination. In connection with his appeal the Participant or Beneficiary or his representative may inspect or purchase copies of pertinent documents and records to the extent not inconsistent with other Participants’ and Beneficiaries’ rights of privacy. Within 60 days after receiving a notice of appeal from a prior determination (or within 120 days, if special circumstances require an extension of time and written notice of the extension is given to the Participant or Beneficiary and his representative within 60 days after receiving the notice of appeal), the Committee shall furnish to the Participant or Beneficiary and his representative, if any, a written statement of the Committee’s final decision with respect to his claim, including the reasons for such decision and the particular Plan provisions upon which it is based.

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Section 12. The Committee and its Functions.

12.1 Authority of Committee. The Committee shall be the “plan administrator” within the meaning of ERISA and shall have exclusive responsibility and authority to control and manage the operation and administration of the Plan, including the interpretation and application of its provisions, except to the extent such responsibility and authority are otherwise specifically (i) allocated to the Company, the Bank, the Employers, or the Trustee under the Plan and Trust Agreement, (ii) delegated in writing to other persons by the Company, the Bank, the Employers, the Committee, or the Trustee, or (iii) allocated to other parties by operation of law. The Committee shall have exclusive responsibility regarding decisions concerning the payment of benefits under the Plan. The Committee shall have no investment responsibility with respect to the Investment Fund except to the extent, if any, specifically provided in the Trust Agreement. In the discharge of its duties, the Committee may employ accountants, actuaries, legal counsel, and other agents (who also may be employed by an Employer or the Trustee in the same or some other capacity) and may pay their reasonable expenses and compensation.

12.2 Identity of Committee. The Committee shall consist of two or more individuals selected by the Bank. Any individual, including a director, trustee, shareholder, officer, or Employee of an Employer, shall be eligible to serve as a member of the Committee. The Bank shall have the power to remove any individual serving on the Committee at any time without cause upon 10 days written notice, and any individual may resign from the Committee at any time upon 10 days written notice to the Bank. The Bank shall notify the Trustee of any change in membership of the Committee.

12.3 Duties of Committee. The Committee shall keep whatever records may be necessary to implement the Plan and shall furnish whatever reports may be required from time to time by the Bank. The Committee shall furnish to the Trustee whatever information may be necessary to properly administer the Trust. The Committee shall see to the filing with the appropriate government agencies of all reports and returns required of the Plan under ERISA and other laws.

Further, the Committee shall have exclusive responsibility and authority with respect to the Plan’s holdings of Stock and shall direct the Trustee in all respects regarding the purchase, retention, sale, exchange, and pledge of Stock and the creation and satisfaction of Stock Obligations. The Committee shall at all times act consistently with the Company’s long-term intention that the Plan, as an employee stock ownership plan, be invested primarily in Stock. Subject to the direction of the board as to the application of Employer contributions to Stock Obligations, and subject to the provisions of Sections 6.4 and 10.6 as to Participants’ rights under certain circumstances to have their Accounts invested in Stock or in assets other than Stock, the Committee shall determine in its sole discretion the extent to which assets of the Trust shall be used to repay Stock Obligations, to purchase Stock, or to invest in other assets to be selected by the Trustee or an investment manager. No provision of the Plan relating to the allocation or vesting of any interests in the Stock Fund or the Investment Fund shall restrict the Committee from changing any holdings of the Trust, whether the changes involve an increase or a decrease in the Stock or other assets credited to Participants’ Accounts. In determining the proper extent of the Trust’s investment in Stock, the Committee shall be authorized to employ investment counsel, legal counsel, appraisers, and other agents and to pay their reasonable expenses and compensation.

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12.4 Valuation of Stock. If the valuation of any Stock is not established by reported trading on a generally recognized public market, the valuation of such Stock shall be determined by an independent appraiser. For purposes of the preceding sentence, the term “independent appraiser” means any appraiser meeting requirements similar to the requirements of the regulations prescribed under Section 170(a)(1) of the Code.

12.5 Compliance with ERISA. The Committee shall perform all acts necessary to comply with ERISA. Each individual member or employee of the Committee shall discharge his duties in good faith and in accordance with the applicable requirements of ERISA.

12.6 Action by Committee. All actions of the Committee shall be governed by the affirmative vote of a number of members which is a majority of the total number of members currently appointed, including vacancies.

12.7 Execution of Documents. Any instrument executed by the Committee shall be signed by any member of the Committee.

12.8 Adoption of Rules. The Committee shall adopt such rules and regulations of uniform applicability as it deems necessary or appropriate for the proper administration and interpretation of the Plan.

12.9 Responsibilities to Participants. The Committee shall determine which Employees qualify to enter the Plan. The Committee shall furnish to each Eligible Employee whatever summary plan descriptions, summary annual reports, and other notices and information may be required under ERISA. The Committee also shall determine when a Participant or his Beneficiary qualifies for the payment of benefits under the Plan. The Committee shall furnish to each such Participant or Beneficiary whatever information is required under ERISA (or is otherwise appropriate) to enable the Participant or Beneficiary to make whatever elections may be available pursuant to Sections 6 and 10, and the Committee shall provide for the payment of benefits in the proper form and amount from the assets of the Trust Fund. The Committee may decide in its sole discretion to permit modifications of elections and to defer or accelerate benefits to the extent consistent with applicable law and the best interests of the individuals concerned.

12.10 Alternative Payees in Event of Incapacity. If the Committee finds at any time that an individual qualifying for benefits under this Plan is a minor or is incompetent, the Committee may direct the benefits to be paid, in the case of a minor, to his parents, his legal guardian, or a custodian for him under the Uniform Gifts to Minors Act, or, in the case of an incompetent, to his spouse, or his legal guardian, the payments to be used for the individual’s benefit. The Committee and the Trustee shall not be obligated to inquire as to the actual use of the funds by the person receiving them under this Section 12.10, and any such payment shall completely discharge the obligations of the Plan, the Trustee, the Committee, and the Employers to the extent of the payment.

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12.11 Indemnification by Employers. Except as separately agreed in writing, the Committee, and any member or employee of the Committee, shall be indemnified and held harmless by the Employer, jointly and severally, to the fullest extent permitted by ERISA, and subject to and conditioned upon compliance with 12 C.F.R. Section 545.121, to the extent applicable, against any and all costs, damages, expenses, and liabilities reasonably incurred by or imposed upon it or him in connection with any claim made against it or him or in which it or he may be involved by reason of its or his being, or having been, the Committee, or a member or employee of the Committee, to the extent such amounts are not paid by insurance.

12.12 Nonparticipation by Interested Member. Any member of the Committee who also is a Participant in the Plan shall take no part in any determination specifically relating to his own participation or benefits, unless his abstention would leave the Committee incapable of acting on the matter.

Section 13. Adoption, Amendment, or Termination of the Plan.

13.1 Adoption of Plan by Other Employers. With the consent of the Bank, any entity may become a participating Employer under the Plan by (i) taking such action as shall be necessary to adopt the Plan, (ii) becoming a party to the Trust Agreement establishing the Trust Fund, and (iii) executing and delivering such instruments and taking such other action as may be necessary or desirable to put the Plan into effect with respect to the entity’s Employees.

13.2 Plan Adoption Subject to Qualification. Notwithstanding any other provision of the Plan, the adoption of the Plan and the execution of the Trust Agreement are conditioned upon their being determined initially by the Internal Revenue Service to meet the qualification requirements of Section 401(a) of the Code, so that the Employers may deduct currently for federal income tax purposes their contributions to the Trust and so that the Participants may exclude the contributions from their gross income and recognize income only when they receive benefits. In the event that this Plan is held by the Internal Revenue Service not to qualify initially under Section 401(a), the Plan may be amended retroactively to the earliest date permitted by U.S. Treasury Regulations in order to secure qualification under Section 401(a). If this Plan is held by the Internal Revenue Service not to qualify initially under Section 401(a) either as originally adopted or as amended, each Employer’s contributions to the Trust under this Plan (including any earnings thereon) shall be returned to it and this Plan shall be terminated. In the event that this Plan is amended after its initial qualification and the Plan as amended is held by the Internal Revenue Service not to qualify under Section 401(a), the amendment may be modified retroactively to the earliest date permitted by U.S. Treasury Regulations in order to secure approval of the amendment under Section 401(a).

13.3 Right to Amend or Terminate. The Company intends to continue this Plan as a permanent program. However, each participating Employer separately reserves the right to suspend, supersede, or terminate the Plan at any time and for any reason, as it applies to that Employer’s Employees, and the Company reserves the right to amend, suspend, supersede, merge, consolidate, or terminate the Plan at any time and for any reason, as it applies to the Employees of each Employer. No amendment, suspension, supersession, merger, consolidation, or termination of the Plan shall (i) reduce any Participant’s or Beneficiary’s proportionate interest in the Trust Fund, (ii) reduce or restrict, either directly or indirectly, the benefit provided

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any Participant prior to the amendment, or (iii) divert any portion of the Trust Fund to purposes other than the exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan. Moreover, there shall not be any transfer of assets to a successor plan or merger or consolidation with another plan unless, in the event of the termination of the successor plan or the surviving plan immediately following such transfer, merger, or consolidation, each participant or beneficiary would be entitled to a benefit equal to or greater than the benefit he would have been entitled to if the plan in which he was previously a participant or beneficiary had terminated immediately prior to such transfer, merger, or consolidation. Following a termination of this Plan by the Company, the Trustee shall continue to administer the Trust and pay benefits in accordance with the Plan as amended from time to time and the Committee’s instructions.

Section 14. Miscellaneous Provisions.

14.1 Plan Creates No Employment Rights. Nothing in this Plan shall be interpreted as giving any Employee the right to be retained as an Employee by an Employer, or as limiting or affecting the rights of an Employer to control its Employees or to terminate the Service of any Employee at any time and for any reason, subject to any applicable employment or collective bargaining agreements.

14.2 Nonassignability of Benefits. No assignment, pledge, or other anticipation of benefits from the Plan will be permitted or recognized by the Employer, the Committee, or the Trustee. Moreover, benefits from the Plan shall not be subject to attachment, garnishment, or other legal process for debts or liabilities of any Participant or Beneficiary, to the extent permitted by law. This prohibition on assignment or alienation shall apply to any judgment, decree, or order (including approval of a property settlement agreement) which relates to the provision of child support, alimony, or property rights to a present or former spouse, child or other dependent of a Participant pursuant to a state domestic relations or community property law, unless the judgment, decree, or order is determined by the Committee to be a qualified domestic relations order within the meaning of Section 414(p) of the Code, as more fully set forth in Section 14.12 hereof.

14.3 Nonassignability of Benefits. The liability of the Employer with respect to Participants under this Plan shall be limited to making contributions to the Trust from time to time, in accordance with Section 4.

14.4 Treatment of Expenses. All expenses incurred by the Committee and the Trustee in connection with administering this Plan and Trust Fund shall be paid by the Trustee from the Trust Fund to the extent the expenses have not been paid or assumed by the Employer or by the Trustee. The Committee may determine that, and shall inform the Trustee when, reasonable expenses may be charged directly to the Account or Accounts of a Participant or group of Participants to whom or for whose benefit such expenses are allocable, subject to the guidelines set forth in Field Assistance Bulletin 2003-03, to the extent not superseded, or any successor directive, guidance, or regulations issued by the Department of Labor.

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14.5 Number and Gender. Any use of the singular shall be interpreted to include the plural, and the plural the singular. Any use of the masculine, feminine, or neuter shall be interpreted to include the masculine, feminine, or neuter, as the context shall require.

14.6 Nondiversion of Assets. Except as provided in Sections 5.2 and 14.12, under no circumstances shall any portion of the Trust Fund be diverted to or used for any purpose other than the exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan.

14.7 Separability of Provisions. If any provision of this Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan.

14.8 Service of Process. The agent for the service of process upon the Plan shall be the president of the Bank, or such other person as may be designated from time to time by the Bank.

14.9 Governing State Law. This Plan shall be interpreted in accordance with the laws of the State of Maryland to the extent those laws are applicable under the provisions of ERISA.

14.10 Employer Contributions Conditioned on Deductibility. Employer Contributions to the Plan are conditioned on deductibility under Code Section 404. In the event that the Internal Revenue Service shall determine that all or any portion of an Employer Contribution is not deductible under that Section, the nondeductible portion shall be returned to the Employer within one year of the disallowance of the deduction.

14.11 Unclaimed Accounts. Neither the Employer nor the Trustees shall be under any obligation to search for, or ascertain the whereabouts of, any Participant or Beneficiary. The Employer or the Trustees, by certified or registered mail addressed to his last known address of record with the Employer, shall notify any Participant or Beneficiary that he is entitled to a distribution under this Plan, and the notice shall quote the provisions of this Section. If the Participant or Beneficiary fails to claim his benefits or make his whereabouts known in writing to the Employer or the Trustees within seven (7) calendar years after the date of notification, the benefits of the Participant or Beneficiary under the Plan will be disposed of as follows:

(i) If the whereabouts of the Participant is unknown but the whereabouts of the Participant’s Beneficiary is known to the Trustees, distribution will be made to the Beneficiary.

(ii) If the whereabouts of the Participant and his Beneficiary are unknown to the Trustees, the Plan will forfeit the benefit, provided that the benefit is subject to a claim for reinstatement if the Participant or Beneficiary makes a claim for the forfeited benefit.

Any payment made pursuant to the power herein conferred upon the Trustees shall operate as a complete discharge of all obligations of the Trustees, to the extent of the distributions so made.

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14.12 Qualified Domestic Relations Order. Section 14.2 shall not apply to a “qualified domestic relations order” defined in Code Section 414(p), and such other domestic relations orders permitted to be so treated under the provisions of the Retirement Equity Act of 1984. Further, to the extent provided under a “qualified domestic relations order,” a former Spouse of a Participant shall be treated as the Spouse or surviving Spouse for all purposes under the Plan.

In the case of any domestic relations order received by the Plan:

(i) The Employer or the Committee shall promptly notify the Participant and any other alternate payee of the receipt of such order and the Plan’s procedures for determining the qualified status of domestic relations orders, and

(ii) Within a reasonable period after receipt of such order, the Employer or the Committee shall determine whether such order is a qualified domestic relations order and notify the Participant and each alternate payee of such determination. The Employer or the Committee shall establish reasonable procedures to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders.

During any period in which the issue of whether a domestic relations order is a qualified domestic relations order is being determined (by the Employer or Committee, by a court of competent jurisdiction, or otherwise), the Employer or the Committee shall segregate in a separate account in the Plan or in an escrow account the amounts which would have been payable to the alternate payee during such period if the order had been determined to be a qualified domestic relations order. If within eighteen (18) months the order (or modification thereof) is determined to be a qualified domestic relations order, the Employer or the Committee shall pay the segregated amounts (plus any interest thereon) to the person or persons entitled thereto. If within eighteen (18) months it is determined that the order is not a qualified domestic relations order, or the issue as to whether such order is a qualified domestic relations order is not resolved, then the Employer or the Committee shall pay the segregated amounts (plus any interest thereon) to the person or persons who would have been entitled to such amounts if there had been no order. Any determination that an order is a qualified domestic relations order which is made after the close of the eighteen (18) month period shall be applied prospectively only. The term “alternate payee” means any Spouse, former Spouse, child or other dependent of a Participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefit payable under a Plan with respect to such Participant.

14.13 Use of Electronic Media to Provide Notices and Make Participant Elections. 14.13. Pursuant to Treasury Regulations Section 1.401(a)-21, the Plan may elect to use electronic media to provide notices required to be provided to Participants under the Plan and will accept elections from Participants communicated to the Plan using such electronic media.

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Section 15. Top-Heavy Provisions.

15.1 Top-Heavy Plan. This Plan is top-heavy if any of the following conditions exist:

(i) If the top-heavy ratio for this Plan exceeds sixty percent (60%) and this Plan is not part of any required aggregation group or permissive aggregation group;

(ii) If this Plan is a part of a required aggregation group (but is not part of a permissive aggregation group) and the aggregate top-heavy ratio for the group of Plans exceeds sixty percent (60%); or

(iii) If this Plan is a part of a required aggregation group and part of a permissive aggregation group and the aggregate top-heavy ratio for the permissive aggregation group exceeds sixty percent (60%).

15.2 Definitions.

In making this determination, the Committee shall use the following definitions and principles:

15.2-1 The “Determination Date,” with respect to the first Plan Year of any plan, means the last day of that Plan Year, and with respect to each subsequent Plan Year, means the last day of the preceding Plan Year. If any other plan has a Determination Date which differs from this Plan’s Determination Date, the top-heaviness of this Plan shall be determined on the basis of the other plan’s Determination Date falling within the same calendar years as this Plan’s Determination Date.

15.2-2 A “Key Employee” means any employee or former employee (including any deceased employee) who at any time during the plan year that includes the determination date was an officer of the employer having annual compensation greater than $160,000 (as adjusted under section 416(i)(1) of the Code), a 5-percent owner of the employer, or a 1-percent owner of the employer having annual compensation of more than $160,000. For this purpose, annual compensation means compensation within the meaning of section 415(c)(3) of the Code. The determination of who is a key employee will be made in accordance with section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder.

15.2-3 A “Non-key Employee” means an Employee who at any time during the five years ending on the top-heavy Determination Date for the Plan Year has received compensation from an Employer and who has never been a Key Employee, and the Beneficiary of any such Employee.

15.2-4 A “required aggregation group” includes (a) each qualified Plan of the Employer in which at least one Key Employee participates in the Plan Year containing the Determination Date and (b) any other qualified Plan of the Employer which enables a Plan described in (a) to meet the requirements of Code Sections 401(a)(4) or 410. For purposes of the preceding sentence, a qualified Plan of the Employer includes a

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terminated Plan maintained by the Employer within the period ending on the Determination Date. In the case of a required aggregation group, each Plan in the group will be considered a top-heavy Plan if the required aggregation group is a top-heavy group. No Plan in the required aggregation group will be considered a top-heavy Plan if the required aggregation group is not a top-heavy group. All Employers aggregated under Code Sections 414(b), (c) or (m) or (o) (but only after the Code Section 414(o) regulations become effective) are considered a single Employer.

15.2-5 A “permissive aggregation group” includes the required aggregation group of Plans plus any other qualified Plan(s) of the Employer that are not required to be aggregated but which, when considered as a group with the required aggregation group, satisfy the requirements of Code Sections 401(a)(4) and 410 and are comparable to the Plans in the required aggregation group. No Plan in the permissive aggregation group will be considered a top-heavy Plan if the permissive aggregation group is not a top-heavy group. Only a Plan that is part of the required aggregation group will be considered a top-heavy Plan if the permissive aggregation group is top-heavy.

15.3 Top-Heavy Rules of Application.

For purposes of determining the value of Account balances and the present value of accrued benefits the following provisions shall apply:

15.3-1 The value of Account balances and the present value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the twelve (12) month period ending on the Determination Date.

15.3-2 For purposes of testing whether this Plan is top-heavy, the present value of an individual’s accrued benefits and an individual’s Account balances is counted only once each year.

15.3-3 The Account balances and accrued benefits of a Participant who is not presently a Key Employee but who was a Key Employee in a Plan Year beginning on or after January 1, 1984 will be disregarded.

15.3-4 Employer contributions attributable to a salary reduction or similar arrangement will be taken into account. Employer matching contributions also shall be taken into account for purposes of satisfying the minimum contribution requirements of Section 416(c)(2) of the Code and the Plan.

15.3-5 When aggregating Plans, the value of Account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year.

15.3-6 The present values of accrued benefits and the amounts of account balances of an employee as of the determination date shall be increased by the distributions made with respect to the employee under the plan and any plan aggregated with the plan under Section 416(g)(2) of the Code during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a

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terminated plan which, had it not been terminated, would have been aggregated with the plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than severance from employment, death, or disability, this provision shall be applied by substituting “five (5) year period” for “one (1) year period.”

15.3-7 Accrued benefits and Account balances of an individual shall not be taken into account for purposes of determining the top-heavy ratios if the individual has performed no services for the Employer during the one (1) year period ending on the applicable Determination Date. Compensation for purposes of this subparagraph shall not include any payments made to an individual by the Employer pursuant to a qualified or non-qualified deferred compensation plan.

15.3-8 The present value of the accrued benefits or the amount of the Account balances of any Employee participating in this Plan shall not include any rollover contributions or other transfers voluntarily initiated by the Employee except as described below. If this Plan transfers or rolls over funds to another Plan in a transaction voluntarily initiated by the Employee, then this Plan shall count the distribution for purposes of determining Account balances or the present value of accrued benefits. A transfer incident to a merger or consolidation of two or more Plans of the Employer (including Plans of related Employers treated as a single Employer under Code Section 414), or a transfer or rollover between Plans of the Employer, shall not be considered as voluntarily initiated by the Employee.

15.4 Minimum Contributions. For any Top-Heavy Year, each Employer shall make a special contribution on behalf of each Participant to the extent that the total allocations to his Account pursuant to Section 4 is less than the lesser of:

(i) three percent of his 415 Compensation for that year, or

(ii) the highest ratio of such allocation to 415 Compensation received by any Key Employee for that year. For purposes of the special contribution of this Section 15.2, a Key Employee’s 415 Compensation shall include amounts the Key Employee elected to defer under a qualified 401(k) arrangement. Such a special contribution shall be made on behalf of each Participant who is employed by an Employer on the last day of the Plan Year, regardless of the number of his Hours of Service, and shall be allocated to his Account.

If the Employer maintains a qualified plan in addition to this Plan and more than one such plan is determined to be Top-Heavy, a minimum contribution or a minimum benefit shall be provided in one of such other plans, including a plan that consists solely of a cash or deferred arrangement which meets the requirements of Section 401(k)(12) of the Code and matching contributions with respect to which the requirements of Section 401(m)(11) of the Code are met.

15.5 Top-Heavy Provisions Control in Top-Heavy Plan. In the event this Plan becomes top-heavy and a conflict arises between the top-heavy provisions herein set forth and the remaining provisions set forth in this Plan, the top-heavy provisions shall control.

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EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Fairmount Bancorp, Inc. and Fairmount Bank

Baltimore, Maryland

We hereby consent to the use in the Registration Statement on Form S-1 and the Application for Conversion of our report dated December 2, 2009, relating to the financial statements of Fairmount Bank and to the reference to our Firm under the caption “Experts” in the Prospectus.

/s/ Smith Elliott Kearns & Company, LLC

Chambersburg, Pennsylvania

December 16, 2009

EX-23.3

Exhibit 23.3

FELDMAN FINANCIAL ADVISORS, INC.

1001 CONNECTCUT AVENUE, NW — SUITE 840

WASHINGTON, DC 20036

202-467-6862 — (FAX) 202-467-6963

December 17, 2009

Board of Directors

Fairmount Bank

8216 Philadelphia Road

Baltimore, Maryland 21237

Members of the Board:

We hereby consent to the use of our firm’s name in the Application for Conversion on Form AC, and amendments thereto, filed by Fairmount Bank with the Office of Thrift Supervision. We also consent to the use of our firm’s name in the Registration Statement on Form S-1, and amendments thereto, filed by Fairmount Bancorp, Inc. with the Securities and Exchange Commission. Additionally, we consent to the inclusion of, summary of, and reference to our Conversion Valuation Appraisal Report in such filings and amendments, including the Prospectus of Fairmount Bancorp, Inc.

We further consent to reference in the aforementioned filings and amendments the summary of our opinion as to the value of subscription rights granted by Fairmount Bank pursuant to its Plan of Conversion.

Sincerely,

FELDMAN FINANCIAL ADVISORS, INC.

EX-99.1

Exhibit 99.1

FELDMAN FINANCIAL ADVISORS, INC.

1001 CONNECTICUT AVENUE, NW — SUITE 840

WASHINGTON, DC 20036

(202) 467-6862 — FAX (202) 467-6963

August 3, 2009                            

Confidential

Board of Directors

Fairmount Bank

8201 Philadelphia Road

Baltimore, Maryland 21237

Members of the Board:

This letter sets forth the agreement (“Agreement”) between Fairmount Bank (“Fairmount” or the “Bank”) and Feldman Financial Advisors, Inc. (“FFA”), whereby Fairmount has engaged FFA to provide an independent appraisal of the estimated aggregate pro forma market value (the “Valuation”) of the shares of common stock that are to be issued and sold by the Bank (or, if applicable, its newly formed holding company) in connection with the conversion (“Conversion”) of the Bank from the mutual to the stock form of organization.

FFA agrees to deliver the Valuation, in a written report, to Fairmount at the address above on or before a mutually agreed upon date. Further, FFA agrees to perform such other services as are necessary or required of the independent appraiser in connection with comments from Fairmount’s regulatory authorities and subsequent updates of the Valuation as from time to time may be necessary, both after initial approval by Fairmount’s regulatory authorities and prior to the time the Conversion is completed. If requested, FFA will assist Fairmount in responding to all regulatory inquiries regarding the Valuation and will also assist Fairmount at all meetings with the regulatory authorities concerning the Valuation.

Fairmount agrees to pay FFA a professional consulting fee for FFA’s appraisal services related to preparation of the initial appraisal report and subsequent appraisal updates. Fairmount also agrees to reimburse FFA for certain out-of-pocket expenses necessary and incident to the completion of the services described above. These expenses shall not exceed $500 without the prior consent of Fairmount. Reimbursable expenses for copying, report reproduction, data materials, express mail delivery, and travel shall be paid to FFA as incurred and billed. Payment of the professional consulting fee shall be made according to the following schedule:

• $ 5,000 upon execution of this Agreement;

• $15,000 upon delivery of the completed appraisal report to Fairmount; and,

• $3,000 upon completion of each updated appraisal as necessary.

If, during the course of the Conversion, unforeseen events occur so as to materially change the nature of the work content of the appraisal services described above such that FFA must supply services beyond that contemplated at the time this contract was executed, the terms of this Agreement shall be subject to renegotiation by Fairmount and FFA. Such unforeseen

FELDMAN FINANCIAL ADVISORS, INC.

Board of Directors

Fairmount Bank

August 3, 2009

Page 2

events shall include, but not be limited to, material changes in regulations governing the Conversion, material changes in mutual-to-stock appraisal guidelines or processing procedures as administered by the relevant regulatory authorities, major changes in Fairmount’s management or operating policies, and excessive delays or suspension of processing of the Conversion.

In the event Fairmount shall for any reason discontinue the Conversion prior to delivery of the completed appraisal report and payment of the progress payment fee totaling $15,000, Fairmount agrees to compensate FFA according to FFA’s standard billing rates for consulting appraisal services based on accumulated and verifiable time expended, provided that the total of such charges shall not exceed $20,000 plus reimbursable expenses.

In order to induce FFA to render the aforesaid services, Fairmount agrees to the following:

1. Fairmount agrees to supply FFA such information with respect to Fairmount’s business and financial condition as FFA may reasonably request in order for FFA to perform the appraisal services. Such information shall include, without limitation: annual financial statements, periodic regulatory filings and material agreements, corporate books and records, and such other documents as are material for the performance by FFA of the appraisal services.

2. Fairmount hereby represents and warrants to FFA (i) that to its best knowledge any information provided to FFA by or on behalf of Fairmount, will not, at any relevant time, contain any untrue statement of a material fact or fail to state a material fact necessary to make the information or statements therein not false or misleading, (ii) that Fairmount will not use the product of FFA’s services in any manner, including in a proxy or offering circular, in connection with any untrue statement of a material fact or in connection with the failure to state a material fact necessary to make other statements not false or misleading, and (iii) that all documents incorporating or relying upon FFA’s services or the product of FFA’s services will otherwise comply with all applicable federal and state laws and regulations.

3. Any valuations or opinions issued by FFA may be included in its entirety in any communication by Fairmount in any regulatory application, proxy statement or offering prospectus; however, such valuations or opinions may not be excerpted or otherwise publicly referred to without FFA’s prior written consent nor shall FFA be publicly referred to without FFA’s prior written consent; however, such consent shall not be unreasonably withheld.

FELDMAN FINANCIAL ADVISORS, INC.

Board of Directors

Fairmount Bank

August 3, 2009

Page 3

4. FFA’s Valuation will be based upon Fairmount’s representation that the information contained in the Conversion application and additional information furnished to us by Fairmount and its independent auditors is truthful, accurate, and complete in all material respects. FFA will not independently verify the financial statements and other information provided by Fairmount and its independent auditors, nor will FFA independently value the assets or liabilities of Fairmount. The Valuation will consider Fairmount only as a going concern and will not be considered as an indication of the liquidation value of Fairmount.

5. FFA’s Valuation is not intended, and must not be represented to be, a recommendation of any kind as to the advisability of purchasing shares of common stock in the Conversion. Moreover, because the Valuation is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, FFA will give no assurance that persons who purchase shares of common stock in the Conversion will thereafter be able to sell such shares at prices related to FFA’s Valuation.

6. Fairmount agrees to indemnify FFA and its affiliates and all persons employed by or associated with FFA or its affiliates against all claims, liabilities and related expenses, as incurred, arising out of this engagement, unless, upon final adjudication, such claims, liabilities and expenses are found to have resulted primarily from FFA’s bad faith or willful misconduct. No termination, completion or modification hereof shall limit or affect such indemnification obligation. In the event FFA becomes aware of a claim or a possible claim arising out of this Agreement, it shall notify Fairmount as soon as possible. Fairmount will attempt to resolve the claim. In the event Fairmount is not able to resolve the claim, it has the option to retain legal counsel on behalf of FFA to defend the claim.

7. Fairmount and FFA are not affiliated, and neither Fairmount nor FFA has an economic interest in, or is held in common with, the other and has not derived a significant portion of its gross revenues, receipts or net income for any period from transactions with the other. It is understood that FFA is not a seller of securities within the scope of any federal or state securities law and any report prepared by FFA shall not be used as an offer or solicitation with respect to the purchase or sale of any security, it being understood that the foregoing shall not be construed to prohibit the filing of any such report as part of the Conversion application or SEC and blue sky filings or customary references thereto in applications, filings, proxy statements and prospectuses.

FELDMAN FINANCIAL ADVISORS, INC.

Board of Directors

Fairmount Bank

August 3, 2009

Page 4

Please acknowledge your concurrence with the foregoing by signing as indicated below and returning to FFA a signed copy of this Agreement and the initial payment.

Yours very truly,
FELDMAN FINANCIAL ADVISORS, INC.
By:
	Peter W. L. Williams
	Principal

AGREED TO AND ACCEPTED FOR FAIRMOUNT BANK BY:

Name:

Title:

Date:

EX-99.2

Exhibit 99.2

FELDMAN FINANCIAL ADVISORS, INC.

1001 CONNECTICUT AVENUE, NW — SUITE 840

WASHINGTON, DC 20036

202-467-6862 • (FAX) 202-467-6963

December 11, 2009

Board of Directors

Fairmount Bank

8216 Philadelphia Road

Baltimore, Maryland 21237

Members of the Board:

It is the opinion of Feldman Financial Advisors, Inc., that the subscription rights to be received by the eligible account holders and other eligible subscribers of Fairmount Bank (the “Bank”), pursuant to the Plan of Conversion (the “Plan”) adopted by the Board of Directors of the Bank, do not have any ascertainable market value at the time of distribution or at the time the rights are exercised in the subscription offering.

In connection with the Plan, the Bank will convert from the mutual to stock form of organization, issue all of its capital stock to a newly formed holding company, Fairmount Bancorp, Inc. (the “Company”), and the Company will offer all of its outstanding shares of common stock for sale in a subscription offering to eligible account holders, an employee stock ownership plan, supplemental eligible account holders, and other members. Any shares of common stock that remain unsubscribed for in the subscription offering will be offered by the Company for sale in a community offering to members of the general public.

Our opinion is based on the fact that the subscription rights are acquired by the recipients without cost, are nontransferable and of short duration, and afford the recipients the right only to purchase shares of common stock of the Company at a price equal to its estimated pro forma market value, which will be the same price at which any unsubscribed shares will be purchased in the community offering.

Sincerely,

FELDMAN FINANCIAL ADVISORS, INC.

EX-99.3

Exhibit 99.3

FELDMAN FINANCIAL ADVISORS, INC.

1001 CONNECTICUT AVENUE, NW — SUITE 840

WASHINGTON, DC 20036

202-467-6862 — (FAX) 202-467-6963

Fairmount Bank

Baltimore, Maryland

Conversion Valuation Appraisal Report

Valued as of November 30, 2009

Prepared By

Feldman Financial Advisors, Inc.

Washington, DC

FELDMAN FINANCIAL ADVISORS, INC.

1001 CONNECTICUT AVENUE, NW — SUITE 840

WASHINGTON, DC 20036

202-467-6862 — (FAX) 202-467-6963

November 30, 2009

Board of Directors

Fairmount Bank

8216 Philadelphia Road

Baltimore, Maryland 21237

Members of the Board:

At your request, we have completed and hereby provide an independent appraisal (“Appraisal”) of the estimated pro forma market value of Fairmount Bank (“Fairmount” or the “Bank”) in connection with the simultaneous conversion of the Bank from the mutual to stock form of organization, the issuance of the Bank’s capital stock to Fairmount Bancorp, Inc. (the “Company”), and the offering of shares of common stock of the Company for sale to certain depositors of the Bank, employee benefit plans of the Bank, and other members of the general public (collectively referred to herein as the “Conversion”). This Appraisal is furnished pursuant to the Bank’s regulatory filing of the Application for Conversion (“Form AC”) with the Office of Thrift Supervision (“OTS”).

Feldman Financial Advisors, Inc. (“Feldman Financial”) is a financial consulting and economic research firm that specializes in financial valuations and analyses of business enterprises and securities in the thrift, banking, and mortgage industries. The background of Feldman Financial is presented in Exhibit I. In preparing the Appraisal, we conducted an analysis of the Bank that included discussions with the Bank’s management, the Bank’s legal counsel, Jones, Walker, Waechter, Poitevent, Carrère & Denègre, L.L.P., and the Bank’s independent auditor, Smith Elliott Kearns & Company, LLC. In addition, where appropriate, we considered information based on other available published sources that we believe are reliable; however, we cannot guarantee the accuracy and completeness of such information.

We also reviewed, among other factors, the economy in the Bank’s primary market area and compared the Bank’s financial condition and operating performance with that of selected publicly traded thrift institutions. We reviewed conditions in the securities markets in general and in the market for thrift institution common stocks in particular.

The Appraisal is based on the Bank’s representation that the information contained in the Application and additional evidence furnished to us by the Bank and its independent auditor are truthful, accurate, and complete. We did not independently verify the financial statements and other information provided by the Bank and its independent auditor, nor did we independently value the assets or liabilities of the Bank. The Appraisal considers the Bank only as a going concern and should not be considered as an indication of the liquidation value of the Bank.

FELDMAN FINANCIAL ADVISORS, INC.

Board of Directors

Fairmount Bank

November 30, 2009

Page Two

It is our opinion that, as of November 30, 2009, the estimated aggregate pro forma market value of the Bank was within a range (the “Valuation Range”) of $4,250,000 to $5,750,000 with a midpoint of $5,000,000. The Valuation Range was based upon a 15% decrease from the midpoint to determine the minimum and a 15% increase from the midpoint to establish the maximum. Assuming an additional 15% increase above the maximum value would result in an adjusted maximum of $6,612,500. Thus, assuming an offering price of $10.00 per share of common stock, the Company will offer a minimum of 425,000 shares, a midpoint of 500,000 shares, a maximum of 575,000 shares, and an adjusted maximum of 661,250 shares.

Our Appraisal is not intended, and must not be construed, to be a recommendation of any kind as to the advisability of purchasing shares of common stock in the Conversion. Moreover, because the Appraisal is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of stock in the Conversion will thereafter be able to sell such shares at prices related to the foregoing estimate of the Bank’s pro forma market value. Feldman Financial is not a seller of securities within the meaning of any federal or state securities laws and any report prepared by Feldman Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities.

The valuation reported herein will be updated as appropriate. These updates will consider, among other factors, any developments or changes in the Bank’s operating performance, financial condition, or management policies, and current conditions in the securities markets for thrift institution common stocks. Should any such new developments or changes be material, in our opinion, to the valuation of the Bank, appropriate adjustments to the estimated pro forma market value will be made. The reasons for any such adjustments will be explained in detail at that time.

Respectfully submitted,

Feldman Financial Advisors, Inc.

Trent R. Feldman

President

Peter W. L. Williams

Principal

FELDMAN FINANCIAL ADVISORS, INC.

TABLE OF CONTENTS

TAB			PAGE
	INTRODUCTION		1
I.	Chapter One – BUSINESS OF FAIRMOUNT BANK
	General Overview		4
	Financial Condition		11
	Income and Expense Trends		21
	Interest Rate Risk Management		27
	Asset Quality		31
	Subsidiary Activity		33
	Office Facilities		34
	Market Area		35
	Summary Outlook		43
II.	Chapter Two – COMPARISONS WITH PUBLICLY TRADED THRIFTS
	General Overview		44
	Selection Criteria		45
	Recent Financial Comparisons		49
III.	Chapter Three – MARKET VALUE ADJUSTMENTS
	General Overview		63
	Earnings Prospects		64
	Financial Condition		65
	Market Area		67
	Management		67
	Dividend Policy		68
	Liquidity of the Issue		69
	Subscription Interest		70
	Recent Acquisition Activity		71
	Effect of Government Regulations and Regulatory Reform		71
	Stock Market Conditions		73
	New Issue Discount		75
	Adjustments Conclusion		76
	Valuation Approach		78
	Valuation Conclusion		80
IV.	Appendix – EXHIBITS
	I	Background of Feldman Financial Advisors, Inc	I-1
	II-1	Consolidated Balance Sheets	II-1
	II-2	Consolidated Income Statements	II-2
	II-3	Loan Portfolio Composition	II-3
	II-4	Net Loan Activity	II-4
	II-5	Investment Portfolio Composition	II-5
	II-6	Deposit Account Distribution	II-6
	II-7	Borrowed Funds Distribution	II-7
	II-8	Real Estate Properties	II-8
	III	Financial and Market Data for All Public Thrifts	III-1
	IV-1	Pro Forma Assumptions for Conversion Stock Offering	IV-1
	IV-2	Pro Forma Conversion Valuation Range	IV-2
	IV-3	Pro Forma Conversion Analysis at the Maximum Valuation	IV-3
	IV-4	Comparative Valuation Ratio Differential	IV-4

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FELDMAN FINANCIAL ADVISORS, INC.

LIST OF TABLES

TAB			PAGE
I.	Chapter One – BUSINESS OF FAIRMOUNT BANK
	Table 1	Selected Financial Condition Data	11
	Table 2	Relative Balance Sheet Concentrations	12
	Table 3	Income Statement Summary	22
	Table 4	Income Statement Ratios	23
	Table 5	Yield and Cost Summary	25
	Table 6	Interest Rate Risk Analysis	30
	Table 7	Non-performing Assets and Loan Loss Allowance Summary	32
	Table 8	Selected Demographic Data	38
	Table 9	Deposit Market Share in the Baltimore MSA	41
	Table 10	Residential Mortgage Lending Market Share in the Baltimore MSA	42
II.	Chapter Two – COMPARISONS WITH PUBLICLY TRADED THRIFTS
	Table 11	Comparative Group Operating Summary	48
	Table 12	Key Financial Comparisons	50
	Table 13	General Operating Characteristics	57
	Table 14	General Financial Performance Ratios	58
	Table 15	Income and Expense Analysis	59
	Table 16	Yield-Cost Structure and Growth Rates	60
	Table 17	Balance Sheet Composition	61
	Table 18	Regulatory Capital, Credit Risk, and Loan Composition	62
III.	Chapter Three – MARKET VALUE ADJUSTMENTS
	Table 19	Summary of Recent Maryland Acquisition Activity	72
	Table 20	Comparative Stock Index Performance	74
	Table 21	Summary of Recent Standard Conversion Stock Offerings	77
	Table 22	Comparative Pro Forma Market Valuation Analysis	82

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FELDMAN FINANCIAL ADVISORS, INC.

INTRODUCTION

As requested, we have completed and hereby provide an independent appraisal (“Appraisal”) of the estimated pro forma market value of Fairmount Bank (“Fairmount” or the “Bank”) in connection with the simultaneous conversion of the Bank from the mutual to stock form of organization, the issuance of the Bank’s capital stock to Fairmount Bancorp, Inc. (the “Company”), and the offering of shares of common stock of the Company for sale to certain depositors of the Bank, employee benefit plans of the Bank, and other members of the general public (collectively referred to herein as the “Conversion”). This appraisal report is furnished pursuant to the Bank’s regulatory filing of the Application for Conversion (“Form AC”) with the Office of Thrift Supervision (“OTS”).

In the course of preparing the Appraisal, we reviewed and discussed with the Bank’s management and the Bank’s independent accountants, Smith Elliott Kearns & Company, LLC, the audited financial statements of the Bank’s operations for the years ended September 30, 2008 and 2009. We also reviewed and discussed with management other financial matters of the Bank.

Where appropriate, we considered information based upon other available public sources, which we believe to be reliable; however, we cannot guarantee the accuracy or completeness of such information. We visited the Bank’s primary market area and examined the prevailing economic conditions. We also examined the competitive environment within which the Bank operates and assessed the Bank’s relative strengths and weaknesses.

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FELDMAN FINANCIAL ADVISORS, INC.

We examined and compared the Bank’s financial performance with selected segments of the thrift industry and selected publicly traded thrift institutions. We reviewed conditions in the securities markets in general and the market for thrift institution common stocks in particular. We included in our analysis an examination of the potential effects of the Conversion on the Bank’s operating characteristics and financial performance as they relate to the estimated pro forma market value of the Bank.

In preparing the Appraisal, we have relied upon and assumed the accuracy and completeness of financial and statistical information provided by the Bank and its independent accountants. We did not independently verify the financial statements and other information provided by the Bank and its independent accountants, nor did we independently value the assets or liabilities of the Bank. The Appraisal considers the Bank only as a going concern and should not be considered as an indication of the liquidation value of the Bank.

Our Appraisal is not intended, and must not be construed, to be a recommendation of any kind as to the advisability of purchasing shares of common stock in the Conversion. Moreover, because such the Appraisal is necessarily based on estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of common stock in the Conversion will thereafter be able to sell such shares at prices related to the foregoing estimate of the Bank’s pro forma market value. Feldman Financial is not a seller of securities within the meaning of any federal and state securities laws and any report prepared by Feldman Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities.

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FELDMAN FINANCIAL ADVISORS, INC.

The valuation reported in this Appraisal will be updated as appropriate. These updates will consider, among other factors, any developments or changes in the Bank’s financial performance or management policies, and current conditions in the securities market for thrift institution common stocks. Should any such developments or changes be material, in our opinion, to the valuation of the Bank, appropriate adjustments to the estimated pro forma market value will be made. The reasons for any such adjustments will be explained in detail at that time.

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FELDMAN FINANCIAL ADVISORS, INC.

I. BUSINESS OF FAIRMOUNT BANK

General Overview

Fairmount Bank is a federally chartered savings bank association located in the Rosedale area of Baltimore County, Maryland. Over the course of its history, Fairmount has operated as a community-oriented institution by offering a variety of loan and deposit products and serving other financial needs of the local community. The Bank conducts its business from one office at its new headquarters, which was recently completed and occupied in mid-September 2009. At September 30, 2009, Fairmount had total assets of $64.0 million, net loans of $50.3 million, deposits of $45.8 million, and equity capital of $6.8 million or 10.60% of total assets. The Bank is regulated by the OTS and its deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Atlanta.

Fairmount was founded in 1879 as a state-chartered mutual savings and loan association with the name “The Fairmount and Chapel Streets Permanent Building, Savings and Loan Assn. No. 1 Inc.” In 1960, the name of the association was changed to “The Fairmount Savings and Loan Association, Inc.” and the association became insured by the Maryland Savings Share Insurance Corporation. In 1985, the association converted to a mutual savings bank, changed its name to “Fairmount Federal Savings Bank” and became federally insured. In May 2009, in conjunction with its 130th anniversary, Fairmount changed the name to “Fairmount Bank” under its federal charter. The change in corporate title signified the Bank’s desire to broaden and expand its services and strengthen its community presence.

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FELDMAN FINANCIAL ADVISORS, INC.

The Bank’s business consists primarily of accepting deposits from the general public and investing those deposits, together with funds generated from operations, in one- to four-family residential mortgage loans. At September 30, 2009, one- to four-family residential mortgage loans totaled $39.6 million, or 78.7% of the Bank’s loan portfolio. The Bank’s residential mortgage loan portfolio included $22.1 million of owner occupied loans and $17.5 million of non-owner occupied loans. To a lesser extent, the Bank also originates home equity and second mortgage loans, loans secured by other properties, construction and land development loans, secured commercial loans, and loans on savings accounts. The Bank also invests in various investment securities.

Fairmount’s business strategy is to operate as a well-capitalized and profitable community bank dedicated to providing quality customer service. The Bank’s current business objectives emphasize residential mortgage lending and Fairmount will continue to offer these types of loans. However, the Bank also intends to introduce additional loan products, including commercial real estate loans and, to a lesser extent, various types of commercial and consumer loans, and to originate more construction loans and second mortgage loans. The Bank also plans to introduce commercial checking accounts and focus on growing transaction deposit accounts, as well as to offer debit cards and internet banking for its customers. The Bank plans to hire a senior commercial real estate loan officer in the first half of 2010 to help generate increased volumes of non-residential loans.

Since its establishment in 1879, the Bank has been operating continuously in the Baltimore market. The Bank is committed to meeting the financial needs of the communities in which it operates, and is dedicated to providing quality personal service to its customers and

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FELDMAN FINANCIAL ADVISORS, INC.

responding promptly to customer needs and inquiries. The Bank believes that its community orientation is attractive to customers and distinguishes it from the larger banks that operate in the local area. Fairmount is presently focused on strengthening and expanding customer relationships to generate additional internal growth from its franchise.

The principal elements of the Bank’s business strategy are as follows:

• Growing and Diversifying the Loan Portfolio. The Bank plans to pursue loan portfolio diversification with an emphasis on credit risk management to increase its origination of loans that provide higher returns. The Bank anticipates increased origination of commercial real estate loans. These loans provide higher returns than loans secured by one- to four-family real estate. However, commercial real estate loans involve a greater degree of credit risk than one- to four-family residential mortgage loans. Because payments on these loans are often dependent on the successful operation or management of the properties or business, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. The Bank intends to hire a senior lender with experience in commercial real estate lending. The Bank also plans to increase its originations of construction loans, and, to a lesser extent, commercial business and consumer loans.

• Continuing to Emphasize Residential Real Estate Lending. Historically, the Bank has emphasized one- to four-family, fixed-rate residential lending within its market area. As of September 30, 2009, $39.6 million, or 78.7%, of the total loan portfolio consisted of one- to four-family residential mortgage loans. During the year ended September 30, 2009, the Bank originated $15.9 million of one- to four-family residential mortgage loans, a significant portion of which were secured by one- to four-family non-owner occupied investor loans. In addition, to a lesser extent, the Bank originates construction/permanent loans and second mortgage loans.

• Maintaining Strong Asset Quality Through Conservative Underwriting Standards. The Bank believes that maintaining high asset quality is a key to long-term financial success. Fairmount has sought to maintain favorable asset quality as reflected by low levels of non-performing assets, low charge-offs, and adequacy of loan loss reserves. It is the Bank’s viewpoint that its underwriting standards are conservative and collection efforts are diligently monitored. At September 30, 2009, $414,000 or 0.82% of the Bank’s total loan portfolio was categorized as non-performing. Although the Bank aims to diversify its lending activities by emphasizing commercial real estate loans, construction loans, and consumer loans after the Conversion, it intends to maintain a conservative approach to underwriting loans. The Bank does not offer, and does not intend to offer, “interest only,” “Option ARM,” “sub-prime” or “Alt-A” loans, nor does it hold any securities backed by these mortgages.

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FELDMAN FINANCIAL ADVISORS, INC.

• Building Lower Cost Deposits. The Bank currently offers NOW checking accounts, savings accounts, and certificates of deposit. At September 30, 2009, certificates of deposit represented 71.7% of total deposits. The Bank intends to introduce new commercial checking accounts and focus on growing transaction deposit accounts after the Conversion. Checking accounts, NOW accounts and savings accounts are generally lower-cost sources of funds than certificate of deposits and are less sensitive to withdrawal when interest rates fluctuate. As the Bank increases its commercial loan portfolio, it expects to attract core deposits from new commercial loan customers. It also expects to attract additional core deposits as a result of its new automated teller machine (“ATM”), its new drive-through facility, and internet banking, which is expected to be available to customers in mid-2010.

• Offering New and Enhanced Products and Services. In the future, Fairmount plans to utilize technology to increase productivity and provide new and enhanced products and services. The Bank expects to begin offering debit cards in early 2010. In addition, the Bank anticipates implementing internet banking by mid-2010. The Bank believes that these new products and services will help to maintain and increase its deposit base, attract business and retail customers, and increase productivity. On an ongoing basis, the Bank plans to analyze the profitability of products and services and allocate resources to those areas that it believes offer the greatest future potential.

• Expanding the Bank’s Branch Network. Historically, the Bank has conducted business from its sole office. The Bank intends to pursue opportunities to expand its franchise in the local market through the enhanced presence in the community provided by its new main office facility and by opening additional banking offices, as well as possibly through acquisitions of other financial institutions and banking related businesses. The Bank’s business plan contemplates opening an additional branch office in 2012. However, the Bank has no current plans, understandings, or agreements with respect to any new branch openings or acquisitions.

• Maintaining a Strong Capital Position Through Disciplined Growth and Earnings. Fairmount’s longstanding policy has been to protect the safety and soundness of the Bank through conservative risk management, sound operations, and a strong capital position. The Bank has consistently maintained capital in excess of regulatory requirements. The Bank’s ratio of equity capital to total assets was 10.60% at September 30, 2009. The infusion of net offering proceeds from the Conversion will help fortify the Bank’s capital level in this challenging operating environment for financial institutions and support the Bank’s future growth.

The Bank intends to remain a well capitalized, profitable, community oriented financial institution and leverage the significant level of customer loyalty it has amassed through its many years of operation. While the Bank realizes that it may be restrained by limited resources as a

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FELDMAN FINANCIAL ADVISORS, INC.

relatively small financial institution, it has attempted to add competent and versatile personnel to broaden its staff expertise. The President and Chief Executive Officer (“CEO”) of Fairmount, Joseph M. Solomon, joined the Bank in April 2007 and has been instrumental in expanding the Bank’s loan portfolio over the past several years. The Vice President of Bank Operations, Lisa A. Cuddy, was hired following the addition of the President and CEO as they both worked together previously at another financial institution. Recently, in September 2009, the Bank’s Chief Financial Officer (“CFO”), Jodi L. Beal, transitioned from a part-time acting role to full-time employee. The current management team has considerable experience in the local financial services industry.

The Bank’s new headquarters building positions Fairmount for future growth. It provides customers with the conveniences of drive-through banking and an ATM. The expanded office space will also allow the Bank to hire additional employees as may be required by future staffing needs. The Bank’s former headquarters building is located across the street from the new building. Fairmount intends to list this property for sale since it is no longer used for the Bank’s operations. In the near term, the new headquarters will impose added pressure on earnings due to increased occupancy and equipment expenses along with the larger carry of a non-earning asset on the balance sheet. However, the Bank anticipates that its enhanced franchise and community image will deliver increased customer appeal and eventually more business opportunities.

While the Bank’s present equity capital level is solid at 10.60% of total assets as of September 30, 2009, the Bank believes it must raise additional capital in order to facilitate its growth objectives and loan diversification, and provide a greater cushion in response to the heightened risk profile associated with uncertain economic and expansion risks. As a stock

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FELDMAN FINANCIAL ADVISORS, INC.

corporation upon completion of the Conversion, the Bank will be organized in the form used by commercial banks, most major corporations, and a majority of savings institutions. The ability to raise new equity capital through the issuance and sale of capital stock will allow the Bank the flexibility to increase its equity capital position more rapidly than by accumulating earnings.

The Bank also believes that the ability to attract new capital also will help address the needs of the communities it serves and enhance its ability to expand or to make acquisitions. After the Conversion, the Bank will have increased ability to merge with or acquire other financial institutions or business enterprises. Finally, the Bank expects to benefit from its employees and directors having stock ownership in its business, since that is viewed as an effective performance incentive and a means of attracting, retaining, and compensating employees and directors.

In summary, Fairmount’s primary reasons for implementing the Conversion and raising additional capital through the offering are to:

• provide a large capital cushion for asset growth, which will primarily be realized through existing operations;

• support growth and diversification of operations, products, and services to transition Fairmount into a full-service community bank;

• improve the Bank’s overall capital and competitive position;

• increase the Bank’s loans to one borrower limit and allow it to make larger loans, including larger commercial real estate loans;

• provide additional financial resources to pursue branch expansion and possible acquisition opportunities;

• provide better capital management tools, including the ability to pay dividends and to repurchase shares of common stock, subject to market conditions; and

• attract and retain qualified directors, officers, and other employees by establishing stock-based compensation plans, including a stock option plan, a stock recognition and retention plan, and an employee stock ownership plan.

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FELDMAN FINANCIAL ADVISORS, INC.

The remainder of Chapter I examines in more detail the trends addressed in this section, including the impact of changes in the Bank’s economic and competitive environment, and recent management initiatives. The discussion is supplemented by the exhibits in the Appendix. Exhibit II-1 summarizes the Bank’s consolidated balance sheets as of the years ended September 30, 2008 and 2009. Exhibit II-2 presents the Bank’s consolidated income statements for the years ended September 30, 2007 to 2009.

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FELDMAN FINANCIAL ADVISORS, INC.

Financial Condition

Table 1 presents selected data concerning the Bank’s financial position as of September 30, 2006 to 2009. Table 2 displays relative balance sheet concentrations for the Bank as of similar fiscal year-end periods.

Table 1

Selected Financial Condition Data

As of September 30, 2006 to 2009

(Dollars in Thousands)

	September 30,
	2009		2008		2007		2006
Total assets	$	64,041	$	55,512	$	46,879	$	40,967
Cash and cash equivalents		328		367		490		426
Federal funds sold and int.-bearing. deps.		4,305		1,045		1,475		1,996
Investment securities		5,094		7,019		11,005		11,851
Federal Home Loan Bank stock		601		539		199		80
Loans receivable, net		50,334		45,155		32,240		26,142
Total deposits		45,838		38,891		37,748		34,951
Borrowed funds		11,000		10,000		2,750		—
Equity capital		6,790		6,192		5,954		5,762

Source: Fairmount Bank, audited financial statements.

Asset Composition

The Bank’s total assets amounted to $64.0 million at September 30, 2009, reflecting approximately a $23.0 million increase over assets of $41.0 million at September 30, 2006. The asset growth over this three-year period measured 16.0% compounded annually. The increase in assets was fueled by the expansion of the loan portfolio, which increased by $24.2 million from fiscal year-end 2006 to fiscal year-end 2009. The concentration of net loans to total assets increased from 63.8% at September 30, 2006 to 78.6% at September 30, 2009. Conversely, as shown in Table 2, the ratio of cash and investments to assets declined from 35.0% to 16.1%

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Table 2

Relative Balance Sheet Concentrations

As of September 30, 2006 to 2009

(Percent of Total Assets)

	September 30,
	2009	2008	2007	2006
Cash and investments	16.13	16.16	28.09	35.04
Loans receivable, net	78.60	81.34	68.77	63.81
Other assets	5.27	2.50	3.14	1.15
Total Assets	100.00	100.00	100.00	100.00
Total deposits	71.58	70.06	80.52	85.32
Borrowed funds	17.18	18.01	5.87	0.00
Other liabilities	0.64	0.78	0.91	0.62
Total Liabilities	89.40	88.85	87.30	85.94
Equity capital	10.60	11.15	12.70	14.06
Total Liabilities and Equity	100.00	100.00	100.00	100.00

Source: Fairmount Bank, audited financial statement data.

For many years, the Bank operated as a traditional thrift institution emphasizing one loan product – long-term, fixed-rate, owner-occupied, single-family residential mortgage loans. While residential mortgages continue to be the predominant loan type within the Bank’s portfolio, the Bank began to diversify its loan mix commencing approximately five years ago. As presented in Exhibit II-3, the Bank’s current loan portfolio particularly includes an increased level of non-owner occupied residential mortgages, along with lesser contributions of mobile home loans, commercial real estate loans, construction loans, and consumer loans.

Fairmount’s lending activities increased significantly in recent years following the hiring of a new President and a new loan officer. After the Conversion, the Bank plans to continue to expand and diversify the loan portfolio. Specifically, in addition to a continuing emphasis on residential lending, the Bank intends to diversify the loan portfolio by focusing on the origination

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of commercial real estate loans, which are expected to represent an increasing portion of the portfolio in future years. In addition, the Bank intends to increase its originations of construction loans and second mortgage loans. In conjunction with its expanded lending activities, the Bank expects to hire additional staff, including a commercial loan officer.

A significant portion of the Bank’s primary lending activity consists of the origination of first mortgage loans secured by one- to four-family owner occupied residential properties located in the Bank’s market area. Loans are generated through the Bank’s existing customers and referrals, real estate brokers and other marketing efforts. The Bank generally has limited its real estate loan originations to the financing of properties located within its market area and has not made out-of-state loans, except for its mobile lending program which was discontinued in June 2007. At September 30, 2009, $22.1 million or 44.0% of the loan portfolio, consisted of one- to four-family owner occupied residential mortgage loans.

The Bank’s residential mortgage loans generally have terms of 15, 20, or 30 years. Fairmount offers only fixed-rate residential loans, and does not currently originate adjustable-rate mortgages (“ARMs”). However, following the Conversion, the Bank may consider implementing a program to originate ARMs. All of the owner occupied loans originated are retained in portfolio for long-term investment. The Bank has not sold these loans in the secondary mortgage market; however, the Bank’s loans are underwritten to secondary mortgage standards. Adhering to a conservative lending strategy, the Bank does not offer interest only, option ARM, negative amortization, Alt-A, or sub-prime loans. Furthermore, the Bank has not experienced any foreclosures in recent years within its owner occupied, residential mortgage loan portfolio.

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An increased segment of the Bank’s recent lending activity has been the origination of first mortgage loans secured by one- to four-family non-owner occupied residential properties in the local market area. These loans are generated through Fairmount’s existing customer base and referrals, real estate brokers, real estate investors and other marketing efforts. As of September 30, 2009, $17.5 million or 34.7% of the loan portfolio consisted of this type of mortgage loan. As shown in Exhibit 3, originations of non-owner occupied residential mortgages totaled $11.4 million and $14.0 million in fiscal 2008 and fiscal 2009, respectively, and accounted for 58.1% and 71.9% of total loan originations during these corresponding periods.

Most loans originated in the Bank’s non-owner occupied mortgage program have payment periods of 25 years, subject to a balloon payment at 7 or 10 years. The Bank requires that the properties be occupied at the time the loan is made and require a minimum debt coverage ratio of 1.25 times. The maximum loan-to-value ratio is 75%, and a majority of current loan originations are sold on a participation basis to other community banks. A majority of the properties are occupied by tenants receiving government vouchers that subsidize their rent payments. The subsidy represents a majority of the rent payment and is paid to the owner of the property who is responsible for the mortgage payment. While the Bank plans to continue originating these loans, the targeted portfolio growth is limited since the Bank expects to sell 90% to 95% participation interests in a majority of these loans. The Bank receives loan fees as well as a servicing fee on these loans. At September 30, 2009, the Bank had four non-owner occupied residential loans made to the same borrower on non-accrual status totaling $362,000. In addition, one loan to a different borrower was in foreclosed real estate. The foreclosed property is currently under contract, and settlement is expected before December 31, 2009.

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As of September 30, 2009, mobile home loans totaled $3.1 million or 6.1% of the Bank’s loan portfolio. Fairmount Bank commenced origination of mobile home loans in calendar 2005 and ceased origination in June 2007. The Bank has no plans to originate these types of loans in the future. Fairmount’s existing mobile home loans were purchased from a third-party originator and funded by the Bank at settlement. The Bank paid a premium/loan origination fee to the third-party originator, of which one-half was wired upon settlement and the remainder was retained by the Bank in a depository account as a reserve for any losses or prepayments. At September 30, 2009, the Bank had prepaid loan origination fees related to this program of $531,000, and the balance in the reserve account available to the Bank was $233,000. At September 30, 2009, the Bank had one mobile home loan on non-accrual status totaling $52,000.

The Bank’s home equity loans and home equity lines of credit are secured by second mortgages on owner occupied, one- to four-family residences. At September 30, 2009, the Bank’s home equity loans and lines of credit secured by second mortgages totaled $1.8 million or 3.7% of total loans. Home equity loans consist of fixed-rate loans with terms to a maximum of 20 years and totaled $1.2 million at September 30, 2009. Home equity lines of credit are adjustable monthly based on the prime rate and totaled $681,000 at September 30, 2009.

On a limited basis, the Bank originates residential construction loans to individuals for the construction and permanent financing of their personal residences. Also on a limited basis, the Bank provides residential construction and land development loans to homebuilders and developers. At September 30, 2009, the balance of these loans was $2.7 million or 5.5% of the total loan portfolio. When market conditions improve, the Bank anticipates an expansion of construction and land development loan activity. The Bank is currently not experiencing any delinquencies in this portfolio; however, a specific reserve of $51,000 was established against a land development loan on which the Bank purchased a participation interest from another financial institution.

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Although the Bank’s loan policies permit the origination of loans secured by commercial real estate including multi-family dwellings, during recent years the loan portfolio has not included a significant amount of these loans. The current portfolio of commercial real loans was $2.0 million or 4.0% of total loans. The current loan-to-value ratio of these loans does not exceed 80%, and the Bank had no delinquent loans in the commercial real estate loan portfolio at September 30, 2009. As noted previously, the Bank intends to place additional emphasis on the origination of commercial real estate loans following the Conversion.

The Bank provides commercial loans to businesses that demonstrate the ability to repay the debt through corporate cash flows. The majority of the Bank’s commercial loan portfolio is secured by assignments of corporate assets and includes personal guarantees of the business owners. At September 30, 2009, commercial loans totaled $981,000 or 1.9% of total loans. The Bank also provides consumer loans on a limited basis. Currently, the Bank’s consumer loans consist of deposit account loans and amounted to $60,000 or 0.1% of total loans. Generally, these loans are made at an interest rate that is 2.00% above the account rate for up to 80% of the account balance and for a term through the next maturity date.

Exhibit II-4 displays the Bank’s net loan activity for the years ended September 30, 2008 and 2009. Total loan originations amounted to $19.7 million and $19.5 million in fiscal 2008 and fiscal 2009, respectively. The majority of loan volume in both periods was attributable to non-owner occupied residential loans. During the past fiscal year, the Bank also purchased $1.1 million in owner occupied residential loans from another local community bank. Currently, a majority of the Bank’s non-owner occupied loan originations are sold on a 90% to 95% participation basis to other community banks.

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Exhibit II-5 presents a summary of the Bank’s investment portfolio as of September 30, 2008 and 2009. As mentioned previously, the Bank’s investment and liquidity holdings have declined in recent years as lending volumes expanded. At September 30, 2009, the Bank’s investment securities amounted to $5.1 million and consisted of mortgage-backed securities, U.S. government and federal agency obligations, and state and municipal securities. The U.S. government and federal agency obligations consisted of fixed-rate callable Freddie Mac securities at September 30, 2009.

At September 30, 2009, the Bank’s held-to-maturity portfolio which is carried at amortized cost, totaled $1.8 million or 2.8% of total assets and its available-for-sale portfolio which is carried at fair value totaled $3.3 million or 5.2% of total assets. The Bank also held $4.2 million in federal funds sold at other institutions, $92,000 in interest-bearing deposits at other banks, and $601,000 of stock in the FHLB of Atlanta at September 30, 2009. The Bank’s investment objectives are to maintain high asset quality, provide liquidity, establish an acceptable level of interest rate and credit risk, provide an alternate source of low-risk investments when demand for loans is weak, and generate a favorable return.

Liability Composition

Deposits are the Bank’s major external source of funds for lending and other investment purposes. Exhibit II-6 presents a summary of the Bank’s deposit composition as of September 30, 2008 and 2009. Total deposits amounted to $45.8 million or 71.6% of total assets and 80.1%

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of total liabilities at September 30, 2009. Deposits increased by a compound annual rate of 9.7% between fiscal year-end 2006 and fiscal year-end 2009. Over the past year, deposits increased by 17.9% from $38.9 million at September 30, 2008 to $45.8 million at September 30, 2009.

Fairmount generate deposits primarily from within its market area. The Bank relies on competitive pricing and customer service to attract and retain deposits. The Bank offers a variety of deposit accounts with a range of interest rates and terms. The Bank’s current deposit account offerings consist of checking accounts, savings accounts, money market accounts, and certificates of deposit. The Bank periodically reviews and establishes interest rates, maturity terms, service fees, and withdrawal penalties for its deposit accounts. Deposit rates and terms are based primarily on current operating strategies, market interest rates, liquidity requirements, interest rates paid by competitors, and deposit growth goals.

Certificates of deposit are the largest deposit category at Fairmount and accounted for $32.9 million or 71.7% of total deposits at September 30, 2009. Approximately 62.9% or $20.7 million of the certificate portfolio had remaining maturities of one year or less. The Bank has managed to maintain a relatively stable concentration of savings accounts, which equaled $9.2 million or 20.0% of total deposits at September 30, 2009. The Bank has a very loyal segment of its customer base that prefers the passbook savings account. Interest-bearing demand deposits amounted to $3.4 million or 7.4% of total deposits and have been targeted for growth by the Bank. As of September 30, 2009, the weighted average costs of interest-bearing demand, savings, and certificate accounts were 1.14%, 1.12%, and 3.21%, respectively. The weighted average cost of total deposits was 2.61%.

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The Bank’s deposit flow is influenced by general economic conditions, changes in money market rates, prevailing interest rates, and competition. The Bank’s deposits are obtained predominantly from the surrounding market area where its main office is located. Historically, the Bank has relied primarily on customer service and longstanding relationships with customers to attract and retain these deposits; however, market interest rates and rates offered by competing financial institutions significantly affect its ability to attract and retain deposits. As of September 30, 2009, the Bank had no brokered deposit accounts and the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $11.4 million. The Bank plans to emphasize the growth of core deposits (non-certificate transaction accounts) by offering new products and services that attract full-service banking relationships, developing an enhanced sales culture among branch personnel, and providing online internet banking access.

The Bank utilizes borrowings as a supplemental, cost-effective source of funds when they can be invested at a positive interest rate spread or to meet asset/liability management objectives. The Bank’s borrowings consist of advances from the FHLB of Atlanta. As of September 30, 2009, the Bank had $11.0 million in FHLB advances outstanding and the ability to borrow an additional $8.2 million of advances. The weighted average interest rate of outstanding FHLB advances at September 30, 2009 was 2.50%. The Bank’s average balance of FHLB advances outstanding increased from $5.9 million in fiscal 2008 to $10.8 million in fiscal 2009. The weighted average cost of borrowings declined from 3.77% in fiscal 2008 to 2.66% in fiscal 2009. Fairmount has used the increased level of borrowings to support its increased loan portfolio.

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Equity Capital

The Bank has historically maintained solid capital levels. The increased leverage of the Bank’s capital base has facilitated the recent expansion of the balance sheet. Fairmount’s equity capital increased from $5.8 million at September 30, 2006 to $6.8 million at September 30, 2009 as a result of profitable operating results. Over the same time period, the Bank’s ratio of total equity to total assets decreased from 14.06% to 10.60%. Fairmount’s capital levels remain strong in comparison to minimum regulatory requirements. The Bank’s regulatory capital ratios of Tier 1 leverage capital, Tier 1 risk-based capital, and total risk-based capital were 10.52%, 18.80%, and 19.27%, respectively, as of September 30, 2009. In comparison, the minimum regulatory requirements under OTS guidelines were 1.50%, 3.00%, and 8.00%, and the threshold requirements for regulatory “well capitalized” levels were 5.00%, 6.00%, and 10.00%, respectively. Based on these capital ratios and measures, the Bank was considered “well capitalized” as of September 30, 2009.

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Income and Expense Trends

Table 3 displays the main components of the Bank’s earnings performance over the fiscal years ended September 30, 2006 to 2009. Table 4 displays the Bank’s principal income and expense ratios as a percent of average assets for the corresponding periods. Table 5 displays the Bank’s weighted average yields on interest-earning assets and weighted average costs of interest-bearing liabilities for recent periods.

Four-Year Overview

Fairmount has exhibited a steady record of moderate profitability, attributable largely to low levels of operating expenses and provisions for loan losses. In recent years, the Bank’s increased lending activity has contributed to considerable improvements in the net interest margin. The Bank recorded earnings of $279,000 in fiscal 2006, representing a return on average assets (“ROA”) of 0.69% and a return on average equity (“ROE”) of 5.01%. The Bank’s net income declined to $161,000 in fiscal 2007 due to decreased levels of net interest income, increased provision for loans losses, and higher operating expenses. The Bank’s ROA and ROE measured 0.37% and 2.75%, respectively, in fiscal 2007.

As the Bank’s lending activity expanded, earnings improved to $246,000 in fiscal 2008. Increased operating expenses were offset by higher net interest income. The Bank’s ROA and ROE amounted to 0.48% and 4.03%, respectively, in fiscal 2008. The Bank’s net interest margin expanded significantly in fiscal 2009 and fueled the increase in net income to $445,000. The Bank’s ROA and ROE advanced to 0.74% and 6.77%, respectively, in fiscal 2009. Net interest income increased by $649,000 in fiscal 2009 and offset the $132,000 increase in the provision for loan losses and a $203,000 increase in operating expenses.

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Table 3

Income Statement Summary

For the Years Ended September 30, 2006 to 2009

(Dollars in Thousands)

	Year Ended September 30,
	2009		2008		2007		2006
Total interest income	$	3,437	$	2,950	$	2,417	$	2,113
Total interest expense (1)		1,458		1,619		1,354		947
Net interest income		1,979		1,331		1,063		1,166
Provision for loan losses		182		50		35		—
Net interest income after provision		1,797		1,281		1,028		1,166
Total non-interest income		157		151		32		23
Total non-interest expense		1,241		1,037		810		769
Income before taxes		714		395		250		420
Income tax expense		269		149		89		141
Net income	$	445	$	246	$	161	$	279

(1) Includes capitalized interest.

Source: Fairmount Bank, audited financial statements.

Recent Years Ended September 30, 2008 and 2009

Net income increased by $199,000, or 80.9%, to $445,000 for fiscal 2009 from $246,000 for fiscal 2008. As noted previously, the Bank’s ROA and ROE improved to 0.74% and 6.77%, respectively, in fiscal 2009. The increase in earnings was primarily due to an increase in net interest income of $649,000, or 48.7%, to $2.0 million for fiscal 2009 from $1.3 million for fiscal 2008. Non-interest expense increased $204,000, to $1.2 million for fiscal 2009 from $1.0 million for fiscal 2008. The provision for loan losses increased by $132,000 to $182,000 for fiscal 2009 from $50,000 in fiscal 2008.

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Table 4

Income Statement Ratios

For the Years Ended September 30, 2006 to 2009

(Percent of Average Assets)

	Year Ended September 30,
	2009		2008		2007		2006
Total interest income	5.70	%	5.78	%	5.50	%	5.24	%
Total interest expense (1)	2.42		3.17		3.08		2.35
Net interest income	2.97		2.61		2.42		2.89
Provision for loan losses	0.30		0.10		0.08		0.00
Net interest income after provision	2.98		2.51		2.34		2.89
Total non-interest income	0.26		0.30		0.07		0.06
Total non-interest expense	2.06		2.03		1.84		1.91
Income before taxes	1.18		0.77		0.57		1.04
Income tax expense	0.44		0.29		0.20		0.35
Net income	0.74	%	0.48	%	0.37	%	0.69	%

(1) Includes capitalized interest.

Source: Fairmount Bank; Feldman Financial.

Net interest income increased by $649,000, or 48.3%, to $2.0 million for fiscal 2009 from $1.3 million for fiscal 2008. The increase primarily resulted from the combined effects of an increase of $488,000 in total interest income to $3.4 million in fiscal 2009 from $2.9 million in fiscal 2008, and a decrease of $161,000 in total interest expense to $1.5 million for fiscal 2009 from $1.6 million in fiscal 2008. The increase in total interest income was mainly the result of a $10.5 million increase in the average balance of loans due to the Bank’s emphasis to grow the loan portfolio. Total interest expense decreased primarily as a result of the decrease in average rates paid on deposits and borrowings. The weighted average cost of interest-bearing liabilities declined from 3.70% in fiscal 2008 to 2.85% in fiscal 2009.

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As shown in Table 5, the weighted average yield on interest-earning assets declined slightly from 6.01% in fiscal 2008 to 5.94% in fiscal 2009. The ratio of average loans to average assets increased from 73.8% in fiscal 2008 to 79.8% in fiscal 2009. Concurrently, the weighted average yield of the loan portfolio increased from 6.45% in 2008 to 6.52% in fiscal 2009. The expansion of the non-owner occupied residential mortgage portfolio contributed to the loan portfolio yield improvement. The 7 basis point decrease in the interest-earning asset yield was accompanied by an 85 basis point decrease in interest-bearing liability cost. As a result, the Bank’s net interest spread improved by 78 basis points from 2.31% in fiscal 2008 to 3.09% in fiscal 2009 due to lower funding costs. The Bank’s net interest margin expanded by 63 basis points from 2.71% in fiscal 2008 to 3.34% in fiscal 2009.

The Bank’s provision for loan losses increased by $132,000 to $182,000 for fiscal 2009 from $50,000 in fiscal 2008, primarily due to a specific reserve of $51,000 established against a land development loan, expansion of the loan portfolio, and general uncertainty regarding the housing market. The Bank’s loan loss allowance increased from $103,000 or 0.23% of total loans at September 30, 2008 to $220,000 or 0.44% of total loans at September 30, 2009.

Non-interest income was $157,000 for fiscal 2009, which was an increase of $6,000 or 4.0% from $151,000 in fiscal 2008. Service charges and fees increased by $25,000 or 20.5% from $122,000 in fiscal 2008 to $147,000 for fiscal 2009. This increase in service fees and charges was primarily due to an increase in loan settlements during the fiscal year. This increase was offset by a decrease of $21,000 in revenue from the gain on sale of securities from $22,000 in fiscal 2008 to $1,000 for fiscal 2009. The decrease was due to fewer security sales and fluctuations in the market during the fiscal year.

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Table 5

Yield and Cost Summary

For the Years Ended September 30, 2008 to 2009

And as of September 30, 2009

	As of Sept. 30,		Year Ended September 30,
	2009		2009		2008
Weighted Average Yields
Loans receivable(1)	6.54	%	6.52	%	6.45	%
Federal funds sold and int.-bearing deposits	0.25		0.26		3.43
Investment securities	4.82		4.95		4.92
Federal Home Loan Bank stock	0.41		0.22		5.13
Total interest-earning assets	5.88		5.94		6.01
Weighted Average Costs
Interest-bearing demand deposits	1.14		1.45		2.46
Savings deposits	1.12		1.17		1.25
Certificates of deposit	3.21		3.57		4.65
Borrowed funds	2.50		2.66		3.77
Total interest-bearing liabilities	2.61		2.85		3.70
Net interest spread(2)	3.27		3.09		2.31
Net interest margin(3)	NA		3.34		2.71

⁽¹⁾ Includes non-accrual loans for the respective periods.

⁽²⁾ Difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

⁽³⁾ Net interest income as a percentage of average interest-earning assets.

Source: Fairmount Bank, preliminary prospectus.

The Bank’s total non-interest expense increased by $204,000 or 19.7% to $1.2 million for fiscal 2009 from $1.0 million for fiscal 2008. The increase in operating expenses was primarily due to higher salaries, fees and employment expenses and an increase in FDIC insurance premiums. In relation to average assets, non-interest expense increased from 2.03% in fiscal 2008 to 2.06% in fiscal 2009. Salaries, fees and employment expenses increased by $89,000 or 13.7% from $650,000 in fiscal 2008 to $739,000 for fiscal 2009. FDIC insurance premiums increased by $42,000 from $4,000 in fiscal 2008 to $46,000 in fiscal 2009. Several factors

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contributed to the increase in FDIC insurance premiums including, an increase in the FDIC quarterly multiplier, which is used to compute the payment amount, the depletion of the one-time assessment credit, and the payment of a $28,000 special assessment in the quarter ending September 30, 2009. Fairmount also incurred additional advertising, stationery, printing and supplies expenses when the Bank’s name was changed in May 2009 and when the Bank opened its new headquarters facility in September 2009. Advertising expenses increased from $10,000 in fiscal 2008 to $23,000 in fiscal 2009, and stationery, printing and supplies costs increased from $17,000 in fiscal 2008 to $37,000 in fiscal 2009.

The provision for income taxes increased $120,000 to $269,000 for fiscal 2009 from $149,000 in fiscal 2008. This increase in provision for income taxes was due to an increase in net income before taxes of $319,000 from $395,000 in fiscal 2008 to $714,000 for fiscal 2009. The Bank’s combined effective federal and state income rate was 37.6% in fiscal 2008 and 37.7% in fiscal 2009.

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Interest Rate Risk Management

The Bank seeks to reduce its earnings vulnerability to changes in market interest rates by managing the mismatch between asset and liability maturities and interest rates. Management actively monitors and manages the Bank’s interest rate risk exposure. The principal objective of the Bank’s interest rate risk management function is to evaluate the interest rate risk embedded in certain balance sheet accounts, determine the level of risk appropriate given the Bank’s business strategy, operating environment, capital and liquidity requirements and performance objectives, and manage the risk consistent with guidelines approved by the Board of Directors. The Bank strives to maintain an acceptable balance between maximizing net interest spread potential and limiting its exposure to changes in interest rates.

Because the net present value of the majority of the Bank’s assets and liabilities are sensitive to changes in interest rates, the most significant form of market risk is interest rate risk. The Bank is vulnerable to an increase in interest rates to the extent that its interest-bearing liabilities mature or reprice more quickly than its interest-earning assets. Interest rate risk management is administered by the Bank’s President/CEO and its Vice President/CFO. Interest rate risk reports are reviewed on a quarterly basis by the Board.

The Bank has emphasized the origination of fixed-rate mortgage loans in its portfolio in order to maximize net interest income and control credit risk. The Bank assumes increased exposure to interest rate fluctuations as a result of its investment in such loans. In a period of rising interest rates, the Bank’s net interest rate spread and net interest income may be negatively affected. However, this negative impact is expected to be mitigated somewhat by the net proceeds from the offering which will support the future growth of interest-earning assets. In addition, Fairmount has sought to manage and mitigate its exposure to interest rate risks in the following ways:

• Diversifying its loan mix to include other types of loans that feature short-term maturities or adjustable interest rates.

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• Maintaining relatively high level of short-term liquid assets.

• Lengthening the weighted average maturity of interest-bearing liabilities through retail deposit pricing strategies and FHLB advances.

• Investing in short- to medium-term securities and in securities with step-up rate features providing for increased interest rates prior to maturity.

• Maintaining high levels of capital

• Maintaining favorable credit quality ratios so as to limit non-interest earning assets on the balance sheet.

The Bank measures its interest rate sensitivity based on the net portfolio value (“NPV”) of market equity as facilitated by the regulatory analytical framework. NPV reflects the simulated equity of the Bank as obtained by estimating the economic present value of its assets, liabilities, and off-balance sheet items under different interest rate scenarios. Table 6 summarizes the interest rate sensitivity of the Bank’s NPV as of September 30, 2009, assuming instantaneous and sustained parallel shifts in the U.S. Treasury yield curve of 100 to 300 basis points either up or down in various increments. Because of the current level of interest rates, scenarios of down 200-plus basis points have not been considered.

As shown in Table 6, the Bank’s NPV would be negatively impacted by an increase in interest rates. An increase in rates would negatively impact the Bank’s NPV as a result of deposit accounts and FHLB borrowings repricing more rapidly than loans and securities due to the fixed-rate nature of a large portion of the Bank’s loan and investment portfolios. As rates rise, the market value of fixed-rate assets declines due to both the rate increases and slowing prepayments.

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Table 6 indicates that the Bank’s NPV was $10.2 million or 15.10% of the present value of portfolio assets as of September 30, 2009. Based upon the assumptions utilized, an immediate 200 basis point increase in market interest rates would result in a $1.8 million decrease in the Bank’s NPV and would result in a 225 basis point decrease in the NPV ratio to 12.85%. An immediate 100 basis point increase in market interest rates would result in a $776,000 decrease in the Bank’s NPV and a 95 basis point decrease in the NPV ratio to 14.15%. Conversely, an immediate 100 basis point decrease in market interest rates would result in a $252,000 increase in the Bank’s NPV and a 26 basis point increase in the NPV ratio to 15.36%.

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Table 6

Interest Rate Risk Analysis

Net Portfolio Value

As of September 30, 2009

(Dollars in Thousands)

Change in Interest Rates(1) (basis points)	Estimated NPV(2)		Change from Base (000s)			Change from Base (%)		NPV Ratio(3)		Basis Point Change in NPV Ratio
+ 300 b.p.	$	7,336	$	(2,910	)	(28.4	)%	11.39	%	(371) b.p.
+ 200 b.p.		8,448		(1,798	)	(17.6	)%	12.85	%	(225) b.p.
+ 100 b.p.		9,471		(776	)	(7.6	)%	14.15	%	(95) b.p.
+ 50 b.p.		9,979		(268	)	(2.6	)%	14.80	%	(30) b.p.
0 b.p.		10,247		—		—		15.10	%	—
- 50 b.p.		10,373		127		1.2	%	15.22	%	12 b.p.
- 100 b.p.		10,498		252		2.4	%	15.36	%	26 b.p.

⁽¹⁾ Assumes instantaneous and sustained parallel shifts in interest rates.

⁽²⁾ NPV is the discounted present value of expected cash flows from assets, liabilities, and off-balance sheet contracts.

⁽³⁾ NPV divided by the present value of assets.

Source: Fairmount Bank, preliminary prospectus.

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FELDMAN FINANCIAL ADVISORS, INC.

Asset Quality

Table 7 summarizes the Bank’s total non-performing assets (“NPAs”) as of September 30, 2008 and 2009. The Bank’s ratio of non-performing assets to total assets increased from 0.00% at September 30, 2008 to 0.79% at September 30, 2009. The Bank’s ratio of non-performing loans to total loans increased from 0.00% at September 30, 2008 to 0.82% at September 30, 2009. Historically, the Bank has maintained very low levels of non-performing assets due in part to conservative underwriting criteria, its limited portfolio diversification, and restrained lending volumes. In recent years, the increased lending volumes and portfolio diversification have also contributed to increases in non-performing asset levels. However, the Bank’s non-performing asset ratios still compare favorably to thrift industry benchmarks.

As of September 30, 2009, the Bank’s non-performing assets totaled $509,000 and comprised $362,000 in non-owner occupied residential loans, $52,000 in mobile home loans, and $95,000 in foreclosed assets. The non-performing loans in the non-owner occupied residential portfolio consisted of four loans made to the same borrower. In addition, one loan in the non-owner occupied residential portfolio was in foreclosed real estate. The foreclosed property is currently under contract, and settlement is expected before December 31, 2009.

In order to reflect the increased risk inherent in the loan portfolio, the Bank increased its provision for loan losses from $50,000 in fiscal 2008 to $182,000 in fiscal 2009. Net charge-offs increased from $26,000 in fiscal 2008 to $65,000 in fiscal 2009. Total charge-offs of $65,000 consisted of $40,000 for non-owner occupied loans and $27,000 for commercial leases. As a result, the allowance for loan losses increased by $117,000 from $103,000 or 0.23% of total loans at September 30, 2008 to $220,000 or 0.44% of total loans at September 30, 2009.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 7

Non-performing Assets and Loan Loss Allowance Summary

As of or For the Years Ended September 30, 3008 and 2009

(Dollars in Thousands)

	As of or For the Year Ended Sept. 30,
	2009			2008
Non-performing Assets
Non-accruing loans:
One- to four-family non-owner occupied	$	362		$	—
Mobile home		52			—
Total non-accruing loans		414			—
Total accruing loans 90 days past due		—			—
Total non-performing loans		414			—
Foreclosed assets		95			—
Total non-performing assets	$	509		$	—
Total non-performing loans as a % of total loans		0.82	%		0.00	%
Total non-performing assets as a % total assets		0.79	%		0.00	%
Allowance for Loan Losses
Beginning balance	$	103		$	79
Charge-offs:
One- to four-family non-owner occupied		40			—
Commercial leases		27			6
Other		—			20
Total charge-offs		67			26
Recoveries on previous charge-offs:
Commercial leases		2			—
Total recoveries		2			—
Net (charge-offs) recoveries		(65	)		(26	)
Provision for loan losses		182			50
Ending balance	$	220		$	103
Net charge-offs to average loans		0.14	%		0.07	%
Allowance as a % of non-performing loans		53.11	%		NM	(1)
Allowance as a % of total loans		0.44	%		0.23	%

⁽¹⁾ Not meaningful

Source: Fairmount Bank, preliminary prospectus.

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FELDMAN FINANCIAL ADVISORS, INC.

Subsidiary Activity

The Bank does not own or operate any subsidiaries. At the present time, the Bank has no plans, agreements, or understandings to establish or acquire any subsidiary businesses.

As a federally chartered savings association, the Bank is permitted by OTS regulations to invest up to 2% of its assets in the stock of, or loans to, service corporation subsidiaries. The Bank may invest an additional 1% of its assets in service corporations if the additional funds are used for inner-city or community development purposes, and up to 50% of its total capital in conforming loans to service corporations in which it owns more than 10% of the capital stock. In addition to investments in service corporations, the Bank may invest an unlimited amount in operating subsidiaries engaged solely in activities in which the Bank may engage as a federal savings bank.

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FELDMAN FINANCIAL ADVISORS, INC.

Office Facilities

The Bank currently conducts business from its main office in the Rosedale community of Baltimore County, Maryland. The new headquarters facility is located at 8216 Philadelphia Road, Baltimore, Maryland 21237. The Bank completed and occupied the new office in mid-September 2009. The net book value of the Bank’s premises and equipment at 8216 Philadelphia Road was $2.6 million at September 30, 2009. As a result of the investment in the new headquarters, the net book value of the Bank’s premises and equipment increased from $1.0 million or 1.9% of total assets at September 30, 2008 to $2.9 million or 4.5% of total assets at September 30, 2009.

The Bank also own a property contiguous to its headquarters building that may be used for expansion and/or developed and sold. At September 30, 2009, the book value of this property was $242,000. The Bank’s previous headquarters at 8201 Philadelphia Road is still owned by the Bank and reflected on the balance sheet at a net book value of $85,000 at September 30, 2009. The Bank estimates the current market value of this property at approximately $400,000. Fairmount plans to list this property for sale since it is no longer used for the Bank’s operations. Exhibit II-8 sets forth the net book value of the land, building and leasehold improvements, and certain other information with respect to the Bank’s premises and equipment as of September 30, 2009.

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FELDMAN FINANCIAL ADVISORS, INC.

Market Area

Overview of Market Area

Fairmount primarily serves communities located in Baltimore City and in Baltimore and Harford Counties in Maryland from its office in the Rosedale area of Baltimore County, which is contiguous to Baltimore City, the largest city in Maryland, and located near the District of Columbia. Baltimore City and Baltimore and Harford Counties have an estimated combined total population of approximately 1.7 million. The Baltimore City population has decreased 3.6% since 2000, while the population in Baltimore and Harford Counties has increased 5.8% and 13.3%, respectively since 2000. The economy of the greater Baltimore metropolitan area constitutes a diverse cross section of employment sectors, with a mix of services, manufacturing, wholesale/retail trade, federal and local government, health care facilities and finance related employment. The largest employers in the Baltimore metropolitan area include the University System of Maryland, John Hopkins University, John Hopkins Hospital and Health System, U.S. Social Security Administration, Fort Meade, and Aberdeen Proving Ground.

Estimated per capita annual income in 2009 was $20,456 for Baltimore City, $31,637 for Baltimore County, and $31,980 for Harford County, as compared to the Maryland state average of $32,538 and the United States average of $27,277. Median household income levels showed similar patterns, as the Baltimore City median was $36,540 and Baltimore and Harford Counties reported median income of $63,608 and $74,142, respectively, compared to $67,267 for Maryland and $54,719 for the United States. The October 2009 unemployment rate was 10.8% in Baltimore City and 7.8% and 7.2%, respectively, in Baltimore and Harford Counties, compared to 7.2% in the state of Maryland and 10.2% in the United States.

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FELDMAN FINANCIAL ADVISORS, INC.

Overview of Office Network

The Bank conducts operations through its main office located in the Rosedale community in Baltimore County, which is a part of the Baltimore metropolitan statistical area (“MSA”). In mid-September 2009, the Bank relocated it main office across the street to a newly constructed facility. The Bank owns the new office as well as the old office. At the present time, the Bank does not operate any other branch offices.

Demographic Profile of Market Area

The Baltimore MSA consists of the following counties: Baltimore City, Baltimore County, Anne Arundel County, Carroll County, Harford County, Howard County, and Queen Anne’s County. The Baltimore MSA is the 20th most populous metropolitan area in the United States, and together with Washington, DC and Northern Virginia, constitutes the fourth largest combined statistical area in the United States. Located adjacent to major transportation corridors and the Washington, DC MSA, the Baltimore MSA provides a diversified economic base, with employment sectors that include a mix of services, manufacturing, wholesale/retail trade, federal and local government, health care facilities, finance, and defense contractors. In addition, the Bank’s market area demonstrates relatively strong population growth trends (except for Baltimore City) resulting from the shift to suburban markets for job opportunities and exhibits above average wealth in terms of income levels. The Baltimore MSA is home to six Fortune 1000 companies, Constellation Energy (utilities), W.R. Grace (chemicals), Black & Decker (industrial and farm equipment), Legg Mason (investments), T. Rowe Price (investments), and McCormick & Company (consumer foods)

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FELDMAN FINANCIAL ADVISORS, INC.

Table 8 presents comparative demographic data for the United States, the state of Maryland, the Baltimore MSA, Baltimore County, and Baltimore City. The state of Maryland had an estimated population in 2009 of 5.7 million. Approximately 47% of the state’s residents, or 2.7 million, resided in the Baltimore MSA. Baltimore County and Baltimore City had estimated populations in 2008 of approximately 798,000 and 628,000, respectively. Baltimore City has experienced a net population decline in recent years, while population growth rates in the outlying counties (Carroll, Harford, Howard, and Queen Anne’s) are projected to surpass the national and state growth rates over the net five years.

Compared to national demographic trends, the Baltimore MSA reflects a slightly older and wealthier cross-section of residents. The median household net worth for 2009 is estimated at $124,993 in the Baltimore MSA, as compared to the United States median of $97,724. The median household income is estimated at $63,846 in the Baltimore MSA, as compared to the median United States household income of $54,719. The median age of residents in the Baltimore MSA was 38.1, as compared to the United States median age of 36.9. The number of owner occupied housing units is expected to increase by 2.3% in the Baltimore MSA over the next five years, as compared to 3.1% statewide and 6.1% nationally.

In recent year, the unemployment rates for Maryland, the Baltimore MSA, and Baltimore County have compared favorably to the national unemployment rate. However, the unemployment rate in Baltimore City has exceeded national and state averages. For October 2009, Maryland and the Baltimore MSA exhibited unemployment rates of 7.2% and 7.7%, respectively, compared to the national unemployment rate of 10.2%. The unemployment rate for Baltimore City was positioned higher at 10.8% for October 2009.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 8

Selected Demographic Data

	United States			State of Maryland			Baltimore MSA			Baltimore County			Baltimore City
Total Population
2009 - Current		309,731,508			5,733,229			2,701,909			797,934			627,565
2014 - Projected		324,062,684			5,913,034			2,767,110			814,278			620,489
% Change 2000-09		10.06	%		8.25	%		5.83	%		5.79	%		-3.62	%
% Change 2009-14		4.63	%		3.14	%		2.41	%		2.05	%		-1.13	%
Age Distribution, 2009
0 - 14 Age Group		20.17	%		19.81	%		19.53	%		17.65	%		19.08	%
15 -34 Age Group		27.29	%		25.95	%		25.90	%		26.15	%		29.43	%
35 -54 Age Group		28.36	%		30.02	%		29.79	%		28.70	%		26.97	%
55+ Age Group		24.18	%		24.22	%		24.78	%		27.50	%		24.52	%
Median Age (years)		36.9			38.1			38.4			39.9			36.2
Total Households
2009 - Current		116,523,156			2,146,767			1,031,455			317,469			246,023
2014 - Projected		122,109,448			2,219,100			1,058,547			324,728			243,385
% Change 2000-09		10.47	%		8.38	%		5.89	%		5.87	%		-4.64	%
% Change 2009-14		4.79	%		3.37	%		2.63	%		2.29	%		-1.07	%
Median Household Income
2009 - Current	$	54,719		$	67,267		$	63,846		$	63,608		$	36,540
2014 - Projected	$	56,938		$	70,086		$	66,484		$	67,248		$	39,813
% Change 2000-09		29.78	%		27.07	%		27.85	%		25.45	%		21.48	%
% Change 2009-14		4.06	%		4.19	%		4.13	%		5.72	%		8.96	%
Average Household Income
2009 - Current	$	71,437		$	85,716		$	80,576		$	78,400		$	49,513
2014 - Projected	$	74,464		$	88,037		$	83,078		$	79,642		$	50,668
% Change 2000-09		26.12	%		27.07	%		27.81	%		20.50	%		17.64	%
% Change 2009-14		4.24	%		2.71	%		3.11	%		1.58	%		2.33	%
Per Capita Income
2009 - Current	$	27,277		$	32,538		$	31,235		$	31,637		$	20,162
2014 - Projected	$	28,494		$	33,525		$	32,306		$	32,254		$	20,734
% Change 2000-07		26.36	%		27.03	%		28.02	%		20.90	%		18.75	%
% Change 2009-12		4.46	%		3.03	%		3.43	%		1.95	%		2.84	%

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FELDMAN FINANCIAL ADVISORS, INC.

Table 8 (continued)

Selected Demographic Data

	United States			State of Maryland			Baltimore MSA			Baltimore County			Baltimore City
Median Household Net Worth	$	97,724		$	140,453		$	124,993		$	124,556		$	18,853
Average Household Net Worth	$	448,965		$	540,888		$	496,084		$	466,454		$	211,181
Current Household Net Worth
$0 - $35,000		42.33	%		29.37	%		30.93	%		29.06	%		56.93	%
$35,000 - $100,000		16.10	%		14.51	%		14.83	%		16.39	%		15.38	%
$100,000 - $250,000		18.94	%		19.11	%		19.55	%		21.23	%		14.15	%
$250,000 - $500,000		13.27	%		14.90	%		14.70	%		15.01	%		6.58	%
$500,000 +		17.38	%		22.11	%		19.99	%		18.31	%		6.97	%
Total Number of Owner
Occupied Housing Units
2009 - Current		77,088,155			1,450,030			689,961			211,968			121,920
2014 - Projected		81,774,029			1,494,358			705,958			215,190			118,568
% Change 2000-09		10.42	%		8.07	%		5.85	%		4.63	%		-6.12	%
% Change 2009-14		6.08	%		3.06	%		2.32	%		1.52	%		-2.75	%
Current Value of Owner
Occupied Housing Units
$0 - $100,000		26.39	%		5.35	%		6.32	%		1.82	%		26.28	%
$100,000 - $200,000		34.07	%		19.91	%		22.79	%		26.34	%		51.33	%
$200,000 - $300,000		17.59	%		27.35	%		25.44	%		31.11	%		10.67	%
$300,000 - $500,000		13.00	%		29.02	%		27.58	%		24.21	%		6.96	%
$500,000 +		8.95	%		18.37	%		17.87	%		16.53	%		4.75	%
Unemployment Rates
October 2009		10.2	%		7.2	%		7.7	%		7.8	%		10.8	%
October 2008		6.6	%		4.8	%		5.1	%		5.1	%		7.5	%

Source: SNL Financial and ESRI.

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FELDMAN FINANCIAL ADVISORS, INC.

Market Share Analysis

Table 9 displays branch deposit data for the top 30 financial institutions in the Baltimore MSA as of June 30, 2009 (with deposit data adjusted for completed and pending mergers). Reflecting its small size, the Bank ranked 56^th in the Baltimore MSA out of 76 financial institutions with total deposits of $44.6 million as of June 30, 2009 and a market share of 0.08%. Previously, the Bank ranked 59^th in the Baltimore MSA with total deposits of $39.5 million as of June 30, 2008. The top five financial institutions (Bank of America, M&T Bank, PNC Bank, M&T Bank, Wells Fargo, and BB&T) held $36.8 billion or 68% of the deposit market in the Baltimore MSA. The deposit market in the area has been altered by the acquisition of its previously ranked fourth (Wachovia Bank) and fifth (Provident Bank) institutions. Wells Fargo acquired Wachovia in December 2008 and M&T Bank acquired Provident in May 2009. M&T Bank added to its local market share through the acquisition in August 2009 of the failed Bradford Bank.

Table 10 provides residential mortgage market share data for the top 30 lenders in the Baltimore MSA as ranked by loans funded in calendar 2008. Out-of-market lenders such as Wells Fargo, Bank of America, JPMorgan Chase, and PNC ranked among the leading residential lenders in the local market area. Fairmount ranked 124^th with a market share of 0.09% based on total residential mortgage loans funded of $16.1 million in 2008. Previously, the Bank ranked 184^th with a market share of 0.03% based on total residential mortgage loans funded of $8.3 million in 2007. Total residential mortgage originations in the Baltimore MSA declined 28.2% from $25.8 billion in 2007 to $18.6 billion in 2008. The average residential mortgage loan funded in the Baltimore MSA was approximately $233,000 in 2008 versus $214,000 in 2007

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FELDMAN FINANCIAL ADVISORS, INC.

Table 9

Deposit Market Share in the Baltimore MSA

Data as of June 30, 2009

Adjusted for Pending and Completed Mergers

Rank	Financial Institution	Type	Branch Count	Pct. of Total Inst. Deposits in Market (%)	Deposit Market Share (%)	Total Deposits ($000)
1	Bank of America Corporation (NC)	Bank HC	105	1.49	24.79	13,439,214
2	M&T Bank Corporation (NY)	Bank HC	146	23.09	19.85	10,761,639
3	PNC Fin’l Services Group, Inc. (PA)	Bank HC	94	2.73	9.26	5,020,933
4	Wells Fargo & Company (CA)	Bank HC	55	0.59	8.09	4,387,507
5	BB&T Corporation (NC)	Bank HC	60	2.80	5.83	3,158,828
6	SunTrust Banks, Inc. (GA)	Bank HC	52	1.61	3.52	1,910,531
7	Susquehanna Bancshares, Inc. (PA)	Bank HC	26	12.18	2.03	1,100,861
8	First Mariner Bancorp (MD)	Bank HC	24	97.27	1.97	1,066,755
9	Wilmington Trust Corporation (DE)	Bank HC	1	12.82	1.95	1,055,687
10	Fulton Financial Corporation (PA)	Bank HC	19	7.60	1.66	898,356
11	Eastern Savings Bank, FSB (MD)	Thrift	5	100.00	1.54	833,214
12	Severn Bancorp, Inc. (MD)	Thrift HC	4	100.00	1.33	722,722
13	Capital One Financial Corp. (VA)	Bank HC	25	0.77	1.24	670,614
14	Sandy Spring Bancorp, Inc. (MD)	Bank HC	12	20.00	0.98	530,382
15	BCSB Bancorp, Inc. (MD)	Thrift HC	18	100.00	0.94	507,659
16	K Capital Corporation (MD)	Bank HC	7	100.00	0.93	504,726
17	Rosedale Federal S&LA (MD)	Thrift	8	100.00	0.89	479,921
18	Arundel Federal Savings Bank (MD)	Thrift	6	100.00	0.75	409,048
19	Annapolis Bancorp, Inc. (MD)	Bank HC	8	100.00	0.67	362,347
20	Queenstown Bancorp (MD)	Bank HC	5	90.05	0.63	344,185
21	Carrollton Bancorp (MD)	Bank HC	14	100.00	0.58	313,254
22	Northwest Bancorp, Inc. (PA)	Thrift HC	5	5.62	0.57	307,760
23	Glen Burnie Bancorp (MD)	Bank HC	8	100.00	0.55	297,052
24	Hopkins Bancorp, Inc. (MD)	Thrift HC	2	100.00	0.50	273,177
25	Bay National Corporation (MD)	Bank HC	1	91.61	0.49	266,834
26	Hamilton Federal Bank (MD)	Thrift	5	100.00	0.49	264,644
27	Harbor Bankshares Corporation (MD)	Bank HC	6	92.71	0.44	236,099
28	Patapsco Bancorp, Inc. (MD)	Bank HC	6	100.00	0.39	209,757
29	Citigroup Inc. (NY)	Bank HC	4	0.08	0.38	204,712
30	Howard Bancorp, Inc. (MD)	Bank HC	5	100.00	0.37	201,987
56	Fairmount Bank (MD)	Thrift	1	100.00	0.08	44,569
	Total (76 financial institutions)		859	N.A.	100.00	54,219,841

Source: SNL Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 10

Residential Mortgage Lending Market Share in the Baltimore MSA

Data for 2008 as Adjusted for Pending and Completed Mergers

Rank	Company	Type	No. of Funded Loans	Total Market Share (%)	Total Funded Loans ($000)
1	Wells Fargo & Co. (CA)	Bank	9,083	11.83	2,196,362
2	Bank of America Corp. (NC)	Bank	8,578	10.53	1,955,592
3	JPMorgan Chase & Co. (NY)	Bank	3,705	4.74	879,931
4	PNC Financial Services Group (PA)	Bank	3,579	4.60	853,395
5	SunTrust Banks Inc. (GA)	Bank	2,467	3.58	665,332
6	First Horizon National Corp. (TN)	Bank	2,400	3.15	584,766
7	Citigroup Inc. (NY)	Bank	2,245	2.44	452,515
8	First Mariner Bancorp (MD)	Bank	1,556	2.06	381,651
9	Flagstar Bank FSB (MI)	Thrift	1,740	2.06	381,599
10	AmTrust Financial Corporation (OH)	Thrift	1,433	1.82	338,087
11	First Home Mortgage Corp. (MD)	Mortgage Bank	1,277	1.79	332,802
12	Taylor, Bean & Whitaker Mortg. (FL)	Mortgage Bank	1,441	1.79	332,444
13	BB&T Corp. (NC)	Bank	1,615	1.74	323,669
14	Tower Federal Credit Union (MD)	Credit Union	1,379	1.54	286,412
15	Sierra Pacific Mortgage Inc. (CA)	Mortgage Bank	1,083	1.37	253,500
16	NVR Mortgage Finance Inc. (VA)	Mortgage Bank	767	1.36	252,165
17	M&T Bank Corporation (NY)	Bank	1,028	1.34	248,886
18	PHH Home Loans LLC (NJ)	Mortgage Bank	922	1.30	241,680
19	Navy Federal Credit Union (VA)	Credit Union	931	1.23	228,345
20	Prosperity Mortgage Co. (VA)	Mortgage Bank	918	1.21	224,851
21	Quicken Loans Inc. (MI)	Mortgage Bank	931	1.18	219,871
22	MetLife Bank NA (NJ)	Bank	851	1.17	217,472
23	Liberty Mortgage Corp. (NC)	Mortgage Bank	753	1.06	196,038
24	ING Bank FSB (DE)	Thrift	395	0.99	184,650
25	Equitable Trust Mortgage Corp. (MD)	Mortgage Bank	800	0.97	179,143
26	Carrollton Bancorp (MD)	Bank	864	0.94	175,170
27	HSBC Holdings plc	Bank	935	0.93	173,230
28	GMAC Inc. (MI)	Specialty Lender	741	0.93	172,557
29	General Motors Corp. (MI)	NA	725	0.86	159,599
30	USAA FSB (TX)	Thrift	659	0.81	149,798
124	Fairmount Bank (MD)	Thrift	141	0.09	16,075
	Total		79,551	100.00	18,563,967

Source: SNL Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

Summary Outlook

Fairmount reported improved earnings in fiscal 2009 that resulted in net income of $445,000. Over the past three fiscal years, the Bank’s ROA has increased from 0.37% in fiscal 2007 to 0.48% in fiscal 2008 and 0.74% in fiscal 2009. The Bank has a long history of reporting moderate yet steady profitability, supported by a solid net interest margin, strong capital, limited credit losses, and low operating expenses. Fairmount’s recent earnings growth has been driven by the higher yields and additional fees earned from its non-owner occupied residential loan portfolio. The weighted average yield of the non-owner occupied residential portfolio was 7.59% at September 30, 2009, contributing to the Bank’s overall loan portfolio yield of 6.54% at such date. Cognizant of its rising portfolio concentration risk, the Bank has placed limitations on the amount of non-owner occupied loans held in portfolio and plans to continue participating out the majority of originations in this lending category.

The Bank’s earnings trends will continue to be dependent on interest rate movements and asset quality. The Bank’s net interest margin is very sensitive to interest rate risk exposure because of the overwhelming concentration of fixed-rate loans in its portfolio. As of September 30, 2009, approximately 96.3% or $46.1 million of the Bank’s loans that were contractually due in one or more years had fixed-rate terms. While asset quality has historically been satisfactory, the expansion and diversification of the Bank’s lending activity will have to be monitored diligently to assure that credit losses do not impair earnings in future periods. In addition, as the Bank assumes occupancy of new headquarters, adds additional staff for lending, and contemplates the possible opening of a branch office, operating expenses will become an important challenge to manage in maintaining steady profitability at the Bank.

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FELDMAN FINANCIAL ADVISORS, INC.

II. COMPARISONS WITH PUBLICLY TRADED THRIFTS

General Overview

The comparative market approach provides a sound basis for determining estimates of going-concern valuations where a regular and active market exists for the stocks of peer institutions. The comparative market approach was utilized in determining the estimated pro forma market value of the Bank because: (i) reliable market and financial data are readily available for comparable institutions; (ii) the comparative market method is required by the applicable regulatory guidelines; and (iii) other alternative valuation methods (such as income capitalization, liquidation analysis, or discounted cash flow) are unlikely to produce a valuation relevant to the future trading patterns of the related equity interest. The generally employed valuation method in initial public offerings, where possible, is the comparative market approach, which also can be relied upon to determine pro forma market value in a thrift stock conversion.

The comparative market approach derives valuation benchmarks from the trading patterns of selected peer institutions which, due to certain factors such as financial performance and operating strategies, enable the appraiser to estimate the potential value of the subject institution in a stock conversion offering. The pricing and trading history of recent initial public offerings of thrifts are also examined to provide evidence of the “new issue discount” that must be considered. In Chapter II, our valuation analysis focuses on the selection and comparison of the Bank with a comparable group of publicly traded thrift institutions (the “Comparative Group”). Chapter III will detail any additional discounts or premiums that we believe are appropriate to the Bank’s pro forma market value.

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FELDMAN FINANCIAL ADVISORS, INC.

Selection Criteria

Selected market price and financial performance data for all public thrifts listed on major stock exchanges are shown in Exhibit III. The list excludes companies that are subject to being acquired under a pending transaction and companies that have a majority ownership interest controlled by a mutual holding company (“MHC”). Several criteria, discussed below, were used to select the individual members of the Comparative Group from the overall universe of publicly traded thrifts.

• Operating characteristics – An institution’s operating characteristics are the most important factors because they affect investors’ expected rates of return on a company’s stock under various business/economic scenarios, and they influence the market’s general perception of the quality and attractiveness of a given company. Operating characteristics, which may vary in importance during the business cycle, include financial variables such as profitability, balance sheet growth, capitalization, asset quality, and other factors such as lines of business and management strategies.

• Degree of marketability and liquidity – Marketability of a stock reflects the relative ease and promptness with which a security may be sold when desired, at a representative current price, without material concession in price merely because of the necessity of sale. Marketability also connotes the existence of buying interest as well as selling interest and is usually indicated by trading volumes and the spread between the bid and asked price for a security. Liquidity of the stock issue refers to the organized market exchange process whereby the security can be converted into cash. We attempted to limit our selection to companies that have access to a regular trading market or price quotations, and therefore only considered companies listed on major stock exchanges. We eliminated from the Comparative Group companies with market prices that were materially influenced by announced acquisitions or other unusual circumstances. However, the expectation of continued industry consolidation is currently embedded in thrift equity valuations.

• Geographic Location – The region of the country where a company operates is also of importance in selecting the comparative group. The operating environment for thrift institutions varies from region to region with respect to business and economic environments, real estate market conditions, speculative takeover activity, and investment climates. Economic and investor climates can also vary greatly within a region, particularly due to takeover activity.

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FELDMAN FINANCIAL ADVISORS, INC.

The operations of the Bank fit the general profile of a small traditional thrift institution, concentrating primarily on residential mortgage lending in its local market and relying significantly on retail certificates of deposit as a funding source. One- to four-family residential loans remain the core product in the Bank’s loan portfolio, drawing upon its roots as a home lender. However, the Bank has attempted to diversify its loan mix through the origination of non-owner occupied residential loans and intends to place additional emphasis in the future on commercial real estate and commercial business loans.

In determining the Comparative Group composition, we focused on the Bank’s asset size, earnings fundamentals, and lending concentration. Attempting to concentrate on the Bank’s performance characteristics and to develop a meaningful number of comparables for valuation purposes, we expanded the geographic criterion for comparable thrifts beyond the Mid-Atlantic region. In addition, because of the scarcity of candidates meeting the criteria precisely, we expanded the asset size constraint to generate a meaningful number of comparables while maintaining non-size related characteristics. As with any composition of a group of comparable companies, the selection criteria were broadened sufficiently to assemble a meaningful number of members for inclusion. Specifically, we applied the following selection criteria:

• Publicly traded thrift – stock-form thrift whose shares are traded on the New York or NYSE Amex stock exchanges or listed on the NASDAQ market.

• Non-acquisition target – company is not subject to a pending acquisition.

• Excludes mutual holding companies – company’s majority ownership interest is not held by an MHC.

• Seasoned trading issue – company has been publicly traded for at least one year.

• Profitability – company has reported positive core earnings for the last twelve months (“LTM”).

• Capitalization – tangible equity to assets ratio greater than or equal to 8.0%.

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FELDMAN FINANCIAL ADVISORS, INC.

• Asset size – total assets of less than $600 million.

• Loan concentration – ratio of gross loans to total assets plus reserves is approximately 50% or higher.

• Geographic presence – preference for companies based in the Mid-Atlantic region of the country, but criterion considered secondary to above criteria.

As a result of applying the stated criteria, the screening process produced a reliable representation of public thrifts. A general operating summary of the ten companies included in the Comparative Group is presented in Table 11. All of the selected companies are traded on the NASDAQ market. The Comparative Group ranged in asset size from $160.2 million at Osage Bancshares to $569.4 million at BCSB Bancorp. The median asset size of the Comparative Group was $345.3 million.

Three of the comparables are located in Mid-Atlantic states (BCSB Bancorp in Maryland, Community Financial Corp. in Virginia, and Rome Bancorp in New York). Four are based in Central states (FFD Financial Corp. and Wayne Savings Bancshares in Ohio, LSB Financial Corp. in Indiana, and Osage Bancshares in Oklahoma), two in Southern states (First Advantage Bancorp in Tennessee and GS Financial Corp. in Louisiana), and one in New England (Mayflower Bancorp in Massachusetts).

In comparison to recent performance trends of the aggregate public thrift industry, the Comparative Group companies generally exhibited higher profitability returns, comparable capital levels, and more favorable asset quality ratios. While some differences inevitably may exist between the Bank and the individual companies, we believe that the chosen Comparative Group on the whole provides a meaningful basis of financial comparison for valuation purposes.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 11

Comparative Group Operating Summary

As of September 30, 2009

Company	City	State	No. of Offices	IPO Date	Total Assets ($mil.)		Total Equity/ Assets (%)
Fairmount Bank	Baltimore	MD	1	NA	$	64.0	10.60
Comparative Group
BCSB Bancorp, Inc.	Baltimore	MD	18	04/11/08		569.4	10.38
Community Financial Corp.	Staunton	VA	11	03/30/88		541.2	8.84
FFD Financial Corporation	Dover	OH	5	04/03/96		192.4	9.34
First Advantage Bancorp	Clarksville	TN	5	11/30/07		352.7	20.06
GS Financial Corp.	Metairie	LA	6	04/01/97		270.9	10.45
LSB Financial Corp.	Lafayette	IN	5	02/03/95		363.6	9.43
Mayflower Bancorp, Inc. (1)	Middleboro	MA	8	12/23/87		249.0	8.09
Osage Bancshares, Inc.	Pawhuska	OK	3	01/18/07		160.2	15.72
Rome Bancorp, Inc.	Rome	NY	5	03/30/05		338.0	17.81
Wayne Savings Bancshares, Inc.	Wooster	OH	11	01/09/03		400.3	9.12

(1) As of October 31, 2009.

Source: Fairmount Bank; SNL Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

Recent Financial Comparisons

Table 12 summarizes certain key financial comparisons between the Bank and the Comparative Group. Tables 13 through 18 contain the detailed financial comparisons of the Bank with the individual Comparative Group companies based on measures of profitability, income and expense components, yield-cost structure, capital levels, balance sheet composition, asset quality, and growth rates. Financial data for the Bank, the Comparative Group, and All Public Thrift aggregate were utilized for the latest available period as of for the twelve months ending September 30, 2009.

The Bank’s LTM ROA was 0.74%, reflecting a profitability measure above the Comparative Group median of 0.40% and All Public Thrift median of 0.23%. The Bank’s higher earnings level was attributable mainly to its stronger net interest margin and lower operating expense ratio. Two members of the Comparative Group (Community Financial Corp. at 1.07% and Rome Bancorp at 0.86%) reported LTM ROA results above that of the Bank. The Bank’s LTM ROE was 6.77% and positioned above the Comparative Group’s median LTM ROE of 3.87%.

Based on core earnings as adjusted for non-recurring income and expense items, the Bank’s core profitability ratios were essentially identical to its LTM earnings results. The Bank’s core ROA of 0.74% was above the Comparative Group median of 0.41% and All Public Thrift median of 0.26%. As compared to the Bank, Rome Bancorp reported a higher core ROA of 0.93%. Two members of the Comparative Group (BCSB Bancorp and Osage Bancshares) reported negative LTM earnings results, but exhibited positive core earnings.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 12

Key Financial Comparisons

Fairmount Bank and the Comparative Group

As of or For the Last Twelve Months Ended September 30, 2009

	Fairmount Bank		Comp. Group Median		All Public Thrift Median
Profitability
LTM Return on Average Assets (ROA)	0.74	%	0.40	%	0.23	%
LTM Return on Average Equity (ROE)	6.77		3.87		1.52
Core Return on Avg. Assets (Core ROA)	0.74		0.41		0.26
Core Return on Avg. Equity (Core ROE)	6.76		4.14		2.14
Income and Expense (% of avg. assets)
Total Interest Income	5.70		5.28		5.11
Total Interest Expense	2.42		2.10		2.23
Net Interest Income	3.28		3.12		2.94
Provision for Loan Losses	0.30		0.21		0.47
Other Operating Income	0.26		0.70		0.58
Net Gains and Non-recurring Income	0.04		(0.05	)	0.00
General and Administrative Expense	2.06		2.73		2.81
Intangibles Amortization Expense	0.00		0.00		0.01
Non-recurring Expense	0.00		0.04		0.05
Pre-tax Core Earnings	1.18		0.66		0.31
Efficiency Ratio	58.13		72.62		68.20
Yield-Cost Data
Yield on Interest-earning Assets	5.94		5.60		5.40
Cost of Interest-bearing Liabilities	2.85		2.48		2.56
Net Interest Spread	3.09		3.06		2.96
Net Interest Margin	3.34		3.31		3.15
Asset Utilization (% of avg. total assets)
Avg. Interest-earning Assets	96.02		95.23		93.28
Avg. Interest-bearing Liabilities	87.42		88.85		82.75
Avg. Net Interest-earning Assets	8.60		6.97		10.38

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FELDMAN FINANCIAL ADVISORS, INC.

Table 12 (continued)

Key Financial Comparisons

Fairmount Bank and the Comparative Group

As of or For the Last Twelve Months Ended September 30, 2009

	Fairmount Bank		Comp. Group Median		All Public Thrift Median
Balance Sheet Composition (% of total assets)
Cash and Securities	16.13	%	25.67	%	20.72	%
Loans Receivable, net	78.60		68.94		72.17
Real Estate	0.15		0.00		0.25
Intangible Assets	0.00		0.00		0.04
Other Assets	5.13		5.18		4.46
Total Deposits	71.58		73.66		71.52
Borrowed Funds	17.18		14.81		15.95
Other Liabilities	0.64		0.93		0.96
Total Equity	10.60		9.91		10.00
Loan Portfolio (% of total loans)
Residential Mortgage Loans	77.71		44.56		35.26
Other Real Estate Mortgage Loans	13.11		36.98		34.06
Non-mortgage Loans	9.18		13.84		29.58
Growth Rates
Total Assets	15.37		4.00		3.31
Total Loans	11.47		0.78		0.67
Total Deposits	17.87		8.68		8.27
Regulatory Capital Ratios
Tier 1 Leverage Ratio	10.52		9.61		8.90
Tier 1 Risk-based Capital	18.80		15.56		12.11
Total Risk-based Capital	19.27		16.56		13.30
Credit Risk Ratios
Non-performing Loans / Total Loans	0.82		1.12		2.47
Non-performing Assets / Total Assets	0.79		0.85		2.04
Reserves / Total Loans	0.44		1.03		1.29
Reserves / Non-performing Assets	43.22		80.33		46.75

Source: Fairmount Bank; SNL Financial; Feldman Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

As shown in Table 12, the Bank’s net interest margin of 3.34% surpassed the Comparative Group median of 3.31% and the All Public Thrift median of 3.15%. The Bank’s net interest margin has been strengthened by expansion of the loan portfolio, in particularly the higher-yielding segment of non-owner occupied residential loans. Many of the Comparative Group companies exhibited strong net interest margins, led by Rome Bancorp at 4.24% and Community Financial Corp. at 3.59%. Significantly, Rome Bancorp and Community Financial Corp. both have hefty concentrations of loans on the balance sheet versus investments and other interest-earning assets.

The Bank’s yield on interest-earning assets was 5.94% for the LTM period and exceeded the Comparative Group median of 5.60% and the All Public Thrift median of 5.40%. The Bank’s earning asset yield was bolstered by a loan portfolio yield of 6.52%. None of the members of the Comparative Group reported an earning asset yield higher than the Bank’s yield. However, the Bank’s cost of interest-bearing liabilities at 2.85% was also higher than the Comparative Group median of 2.58% and All Public Thrift median of 2.56%. The Bank’s reliance on certificates of deposit, which typically are higher costing than transaction accounts, and increased utilization of borrowings contributed to the Bank’s funding cost disadvantage. The Bank’s net interest spread of 3.09% was moderately higher than the Comparative Group median of 3.06% and the All Public Thrift median of 2.96%.

The Bank’s non-interest operating income totaled 0.26% of average assets, noticeably lagging behind the Comparative Group and All Public Thrift medians of 0.70% and 0.50%, respectively. While the Bank’s non-interest income production trailed the Comparative Group levels, Fairmount’s non-interest revenue has actually increased substantially in recent years as a

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FELDMAN FINANCIAL ADVISORS, INC.

result of increased loan-related fees. Similar to many other small financial institutions, the Bank has not developed a broad range of other banking-related services and products that are potential contributors to a larger stream of non-interest revenue. The Bank’s non-interest income ratio at 0.26% of average assets would have ranked last among the Comparative Group companies.

The Bank’s operating expense ratio at 2.06% of average assets was much lower than the Comparative Group median of 2.73% and All Public Thrift median of 2.81%. The Bank’s operating expense was lower than each of the corresponding ratios reported by the Comparative Group companies. Fairmount operates from a single office and the Bank’s staff complement consists of ten full-time employees and two part-time employees. Only until mid-September 2009 did the Bank relocate to its new main office location with enhancements such as a drive-through facility and an ATM. The Bank expects that annual operating expenses will increase approximately $140,000 due to costs associated with its new and larger facility. While the Bank’s expenses are expected to increase in the near term as a result of additional salary, employee stock benefit plan, and occupancy costs, Fairmount’s historical mode of operating efficiently should help the Bank to contain the expense ratio in future periods.

The Bank historically has made minimal provisions for loan losses based upon its satisfactory asset quality and credit loss experience. However, in fiscal 2009, the Bank increased its provision significantly to $182,000 to augment its loan loss reserves and reflect the recent growth of its loan portfolio as well as the increase in delinquent loans. The provision measured 0.30% of average assets and exceeded the Comparative Group median of 0.21%. The All Public Thrift median provision amounted to 0.47% of average assets.

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FELDMAN FINANCIAL ADVISORS, INC.

As reflected in Table 12, the balance sheet composition of the Bank reflected a higher level of loans in relation to total assets in contrast to the Comparative Group and All Public Thrift aggregate. The Bank’s total loans amounted to 78.6% of assets as of September 30, 2009, versus 68.9% and 72.2% for the Comparative Group and All Public Thrift medians, respectively. The Bank has increased its lending activity over the past three years, particularly as compared to the prior decade, by targeting the owner-occupied and non-owner occupied residential mortgage lending sector in its local market. As previously noted, several members of the Comparative Group (Community Financial Corp., LSB Financial Corp., and Rome Bancorp) have loan concentrations exceeding 80% of total assets. Because of the emphasis on lending, the Bank’s ratio of cash and securities has declined in recent years and amounted to 16.1% at September 30, 2009 versus the Comparative Group and All Public Thrift medians of 25.7% and 20.7%. The Bank had no goodwill or other intangible assets on its balance sheet. The Bank’s other assets have increased largely as result of the investment in fixed assets associated with the new main office. The Bank’s ratio of other assets measured 5.1%, close to the Comparative Group and All Public Thrift medians of 5.2% and 4.5%, respectively.

The Bank’s borrowings level at 17.2% of assets reflected its increased usage of FHLB advances as a supplemental funding source, and exceeded the Comparative Group’s median borrowings level of 14.8% and the All Public Thrift median of 16.0%. The Bank’s deposit level at 71.6% of total assets was in range of the Comparative Group and All Public Thrift medians of 73.7% and 71.5%, respectively. The Bank’s equity level before the Conversion was 10.60% relative to assets, which was slightly higher than the Comparative Group and All Public Thrift medians of 9.91% and 10.00%, respectively, but slightly lower than the Comparative Group and All Public Thrift averages of 11.92% and 10.90%, respectively. Included in the Comparative

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Group are several companies with very high equity levels, ranging from 15.72% at Osage Bancshares and 17.81% at Rome Bancorp to 20.06% at First Advantage Bancorp. These three companies also comprise the most recently converted thrifts within the Comparative Group.

While the Bank has begun to make strides toward diversifying its loan portfolio, its loan mix is not as varied as that of the Comparative Group. The Bank’s level of residential mortgage loans measured 77.7% of total loans based on regulatory financial data as of September 30, 2009, below the Comparative Group and All Public Thrift medians of 44.6% and 35.3%, respectively. However, as discussed previously, it bears noting that a large segment of the Bank’s residential mortgage loans consist of non-owner occupied loans. Similar to the Bank, a few companies had a majority of the loan portfolio invested in residential mortgage loans, including Osage Bancshares, Rome Bancorp, and BCSB Bancorp. The Bank’s concentration of other non-residential real estate mortgage loans measured 13.1% of total loans, compared to the Comparative Group median of 37.0% and the All Public Thrift median of 34.1%. The Bank’s concentration of non-mortgage loans at 9.2% of total loans also trailed the Comparative Group median of 13.8% and the All Public Thrift median of 29.6%.

The Bank’s recent emphasis on asset expansion is reflected in the comparative growth rates. The Bank’s asset growth rate measured 15.4% over the recent LTM period and surpassed the Comparative Group and All Public Thrift medians of 4.0% and 3.3%, respectively. The Bank’s growth rates of loans and deposits also exceeded the Comparative Group’s corresponding growth rates. Because of the Bank’s small size on a comparative scale basis, its growth rates are more easily impacted by absolute changes in the base amount as compared to larger companies within the Comparative Group. In addition, the sluggish economy has forced many financial institutions to emphasize capital preservation and credit remediation over growth objectives.

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FELDMAN FINANCIAL ADVISORS, INC.

The Bank’s 0.79% ratio of non-performing assets was positioned slightly below the Comparative Group median of 0.85% and notably below the All Public Thrift median of 2.04%. While the Bank’s asset quality ratios compared favorably to the peer groups, its level of reserves was lower. The Bank’s ratio of reserves to total loans was 0.44% versus the Comparative Group median of 1.03% and its 43.2% ratio of reserves to non-performing assets was below the Comparative Group median of 80.3%.

In summary, the Bank’s recent earnings performance surpassed the results attained by the Comparative Group and All Public Thrift segments. The Bank’s profitability is supported by a solid net interest margin and low operating expenses. The Bank’s net interest margin has been enhanced by the yield potential in its expanding loan portfolio and a strong level of capital, which affords additional interest-free funding. While the Bank exhibited a low level of non-interest income and higher level of loss loan provisions versus the overall Comparative Group, these factors did not disadvantage the Bank in the recent earnings cycle. The Bank’s earnings growth outlook will depend largely on the Bank’s ability to sustain satisfactory loan quality as its grows the portfolio, manage the net interest margin across movements in the interest rate environment, and control non-interest expenses as it expands its sphere of operation.

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Table 13

General Operating Characteristics

As of September 30, 2009

	City	State	Ticker	Exchange	No. of Offices	IPO Date	Total Assets ($000s)	Total Deposits ($000s)	Total Equity ($000s)	Tang. Common Equity ($000s)
Fairmount Bank	Baltimore	MD	NA	NA	1	NA	64,041	45,838	6,790	6,790
Comparative Group
BCSB Bancorp, Inc.	Baltimore	MD	BCSB	NASDAQ	18	04/11/08	569,438	487,989	59,133	48,691
Community Financial Corp.	Staunton	VA	CFFC	NASDAQ	11	03/30/88	541,172	388,965	47,862	35,728
FFD Financial Corporation	Dover	OH	FFDF	NASDAQ	5	04/03/96	192,379	158,740	17,968	17,968
First Advantage Bancorp	Clarksville	TN	FABK	NASDAQ	5	11/30/07	352,660	207,930	70,728	70,728
GS Financial Corp.	Metairie	LA	GSLA	NASDAQ	6	04/01/97	270,927	199,111	28,324	28,324
LSB Financial Corp.	Lafayette	IN	LSBI	NASDAQ	5	02/03/95	363,647	268,485	34,285	34,285
Mayflower Bancorp, Inc. (1)	Middleboro	MA	MFLR	NASDAQ	8	12/23/87	249,006	216,523	20,143	20,143
Osage Bancshares, Inc.	Pawhuska	OK	OSBK	NASDAQ	3	01/18/07	160,212	110,523	25,184	24,042
Rome Bancorp, Inc.	Rome	NY	ROME	NASDAQ	5	03/30/05	338,035	216,422	60,220	60,220
Wayne Savings Bancshares, Inc.	Wooster	OH	WAYN	NASDAQ	11	01/09/03	400,318	300,811	36,525	34,383

(1) As of October 31, 2009.

Source: Fairmount Bank; SNL Financial; Feldman Financial.

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Table 14

General Financial Performance Ratios

As of or For the Last Twelve Months Ended September 30, 2009

	Total Assets ($000s)	Total Deposits ($000s)	Total Equity/ Assets (%)	Tang. Equity/ Assets (%)	Net Interest Margin (%)	Effcy. Ratio (%)	LTM ROA (%)		LTM ROE (%)		Core ROA (%)		Core ROE (%)
Fairmount Bank	64,041	45,838	10.60	10.60	3.34	58.13	0.74		6.77		0.74		6.76
Comparative Group Average	343,779	255,550	11.92	11.81	3.34	74.59	0.36		3.59		0.43		3.89
Comparative Group Median	345,348	216,473	9.91	9.90	3.31	72.62	0.40		3.87		0.41		4.14
All Public Thrift Average	2,958,772	1,782,802	10.90	10.08	3.06	70.69	(0.41	)	(7.36	)	(0.34	)	(6.31	)
All Public Thrift Median	913,866	662,494	10.00	9.13	3.15	68.20	0.23		1.52		0.26		2.14
Comparative Group
BCSB Bancorp, Inc.	569,438	487,989	10.38	10.37	3.05	86.60	(0.34	)	(3.37	)	0.15		1.47
Community Financial Corporation	541,172	388,965	8.84	8.84	3.59	66.04	1.07		12.37		0.35		4.10
FFD Financial Corporation	192,379	158,740	9.34	9.34	3.36	72.78	0.48		5.01		0.51		5.32
First Advantage Bancorp	352,660	207,930	20.06	20.06	3.37	82.21	0.30		1.44		0.32		1.53
GS Financial Corp.	270,927	199,111	10.45	10.45	3.23	77.92	0.33		2.91		0.47		4.18
LSB Financial Corp.	363,647	268,485	9.43	9.43	2.81	72.45	0.25		2.78		0.28		3.10
Mayflower Bancorp, Inc. (1)	249,006	216,523	8.09	8.08	3.28	81.21	0.50		6.34		0.46		5.90
Osage Bancshares, Inc.	160,212	110,523	15.72	15.11	3.15	68.84	(0.32	)	(1.92	)	0.36		2.18
Rome Bancorp, Inc.	338,035	216,422	17.81	17.81	4.24	67.54	0.86		4.82		0.93		5.24
Wayne Savings Bancshares, Inc.	400,318	300,811	9.12	8.64	3.33	70.30	0.47		5.52		0.51		5.87

(1) As of or for the LTM period ended October 31, 2009.

Source: Fairmount Bank; SNL Financial; Feldman Financial.

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Table 15

Income and Expense Analysis

For the Last Twelve Months Ended September 30, 2009

	As a Percent of Average Assets
	Interest Income	Interest Expense	Net Interest Income	Other Oper. Income	Gains & Non-rec. Income		Loan Loss Prov.	Gen. & Admin. Expense	Amort. of Intang,	Non-rec. Expense	Pretax Core Earnings
Fairmount Bank	5.70	2.42	3.28	0.26	0.00		0.30	2.06	0.00	0.00	1.18
Comparative Group Average	5.27	2.11	3.16	0.63	(0.14	)	0.27	2.83	0.00	0.07	0.69
Comparative Group Median	5.28	2.10	3.12	0.70	(0.05	)	0.21	2.73	0.00	0.04	0.66
All Public Thrift Average	5.08	2.21	2.88	0.80	(0.19	)	1.00	2.98	0.02	0.28	(0.24	)
All Public Thrift Median	5.11	2.23	2.94	0.58	0.00		0.47	2.81	0.00	0.05	0.31
Comparative Group
BCSB Bancorp, Inc.	5.15	2.34	2.81	0.41	(0.09	)	0.23	2.78	0.01	0.45	0.20
Community Financial Corporation	5.40	1.96	3.44	0.71	(0.09	)	0.86	2.74	0.00	0.05	0.55
FFD Financial Corporation	5.52	2.21	3.31	0.42	0.00		0.23	2.71	0.00	0.05	0.79
First Advantage Bancorp	5.11	1.97	3.14	0.77	(0.03	)	0.19	3.22	0.00	0.00	0.50
GS Financial Corp.	5.60	2.51	3.09	0.41	(0.22	)	0.08	2.73	0.00	0.00	0.69
LSB Financial Corp.	5.38	2.71	2.67	1.00	0.00		0.55	2.72	0.00	0.05	0.40
Mayflower Bancorp, Inc. (1)	4.81	1.81	3.01	0.73	0.05		0.00	3.07	0.01	0.00	0.67
Osage Bancshares, Inc.	5.32	2.28	3.04	0.74	(0.99	)	0.04	2.62	0.00	0.04	1.12
Rome Bancorp, Inc.	5.23	1.33	3.90	0.69	(0.07	)	0.12	3.11	0.00	0.04	1.36
Wayne Savings Bancshares, Inc.	5.16	1.98	3.18	0.46	0.00		0.36	2.64	0.00	0.05	0.65

(1) For the LTM period ended October 31, 2009.

Source: Fairmount Bank; SNL Financial; Feldman Financial.

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Table 16

Yield-Cost Structure and Growth Rates

For the Last Twelve Months Ended September 30, 2009

	Avg. Int. Earn. Assets/ Assets	Avg. Int.-Bear. Liabs./ Assets	Avg. Net Earning Assets/ Assets	Avg. Equity/ Assets	Yield on Int.-Earn. Assets	Cost of Int-Bear. Liabs.	Net Interest Spread	Asset Growth Rate		Loan Growth Rate		Deposit Growth Rate
Fairmount Bank	96.02	87.42	8.60	10.91	5.94	2.85	3.09	15.37		11.47		17.87
Comparative Group Average	94.85	85.63	9.22	12.02	5.56	2.46	3.09	6.10		4.06		12.30
Comparative Group Median	95.23	88.85	6.97	9.80	5.60	2.48	3.06	4.00		0.78		8.68
All Public Thrift Average	93.22	81.82	11.40	11.41	5.43	2.43	3.00	5.92		2.04		12.62
All Public Thrift Median	93.28	82.75	10.38	10.20	5.40	2.56	2.96	3.31		0.67		8.27
Comparative Group
BCSB Bancorp, Inc.	92.08	88.64	3.44	9.97	5.59	2.64	2.95	0.42		0.14		0.66
Community Financial Corporation	95.96	90.93	5.03	8.66	5.63	2.16	3.47	10.23		9.22		10.63
FFD Financial Corporation	98.49	89.07	9.42	9.62	5.60	2.48	3.12	9.12		4.42		16.72
First Advantage Bancorp	93.52	79.72	13.80	20.56	5.47	2.47	3.00	7.75		20.39		20.55
GS Financial Corp.	95.56	87.20	8.36	11.34	5.86	2.88	2.98	24.86		22.38		44.12
LSB Financial Corp.	94.91	89.75	5.16	9.13	5.67	3.02	2.65	(1.01	)	(0.91	)	5.60
Mayflower Bancorp, Inc. (1)	93.81	91.51	2.30	7.85	5.14	1.98	3.16	3.77		(4.16	)	6.60
Osage Bancshares, Inc.	96.27	77.77	18.50	16.62	5.52	2.94	2.58	4.23		(9.14	)	8.68
Rome Bancorp, Inc.	92.24	71.62	20.62	17.78	5.68	1.85	3.83	0.64		(3.18	)	4.19
Wayne Savings Bancshares, Inc.	95.71	90.13	5.58	8.61	5.40	2.20	3.20	1.01		1.42		(2.87	)

(1) For the LTM period ended October 31, 2009.

Source: Fairmount Bank; SNL Financial; Feldman Financial.

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Table 17

Balance Sheet Composition

As of the Last Twelve Months Ended September 30, 2009

	As a Percent of Total Assets
	Cash & Securities	Total Loans	Real Estate	Intang. Assets	Other Assets	Total Deposits	Borrowed Funds	Other Liabs.	Total Liabs.	Total Equity
Fairmount Bank	16.13	78.60	0.15	0.00	5.13	71.58	17.18	0.64	89.40	10.60
Comparative Group Average	23.00	71.90	0.12	0.00	4.98	74.15	12.84	1.09	88.08	11.92
Comparative Group Median	25.67	68.94	0.00	0.00	5.18	73.66	14.81	0.93	90.10	9.91
All Public Thrift Average	23.90	69.79	0.54	0.87	4.75	69.79	18.16	1.17	89.09	10.90
All Public Thrift Median	20.72	72.17	0.25	0.04	4.46	71.52	15.95	0.96	90.19	10.00
Comparative Group
BCSB Bancorp, Inc.	23.24	70.42	0.11	0.02	6.21	85.70	2.99	0.93	89.62	10.38
Community Financial Corporation	2.29	92.47	0.00	0.00	5.24	71.87	18.77	0.52	91.16	8.84
FFD Financial Corporation	12.09	85.14	0.01	0.00	2.75	82.51	7.21	0.94	90.66	9.34
First Advantage Bancorp	38.08	56.62	0.00	0.00	5.30	58.96	20.14	0.84	79.94	20.06
GS Financial Corp.	28.10	67.46	0.84	0.00	3.61	73.49	15.00	1.06	89.55	10.45
LSB Financial Corp.	6.87	88.01	0.00	0.00	5.12	73.83	15.95	0.79	90.57	9.43
Mayflower Bancorp, Inc. (1)	44.79	48.95	0.28	0.01	5.98	86.95	4.37	0.59	91.91	8.09
Osage Bancshares, Inc.	33.92	61.76	0.00	0.00	4.32	68.99	12.92	2.37	84.28	15.72
Rome Bancorp, Inc.	9.28	84.46	0.00	0.00	6.26	64.02	16.46	1.71	82.19	17.81
Wayne Savings Bancshares, Inc.	31.32	63.68	0.00	0.00	5.00	75.14	14.62	1.12	90.88	9.12

(1) For the LTM period ended October 31, 2009.

Source: Fairmount Bank; SNL Financial; Feldman Financial.

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Table 18

Regulatory Capital, Credit Risk, and Loan Composition

As of or For the Last Twelve Months Ended September 30, 2009

	Tier 1 Leverage Capital Ratio	Tier 1 Risk- based Capital	Total Risk- based Capital	NPLs/ Loans	Total NPAs/ Assets	Resrvs./ NPAs	Resrvs./ Loans	Resid. First Mtgs./ Loans	Other Real Est. Mtgs./ Loans	Non-mtg. Loans/ Loans
Fairmount Bank	10.52	18.80	19.27	0.82	0.79	43.22	0.44	77.71	13.11	9.18
Comparative Group Average	10.36	14.92	15.73	1.43	1.34	96.24	1.04	44.94	38.47	16.59
Comparative Group Median	9.61	15.56	16.56	1.12	0.85	80.33	1.03	44.56	36.98	13.84
All Public Thrift Average	9.84	14.02	15.58	3.51	3.13	63.94	1.66	37.68	35.13	28.68
All Public Thrift Median	8.90	12.11	13.30	2.47	2.04	46.75	1.29	35.26	34.06	29.58
Comparative Group
BCSB Bancorp, Inc.	11.56	16.88	17.67	0.71	0.62	111.25	0.97	55.16	39.67	5.17
Community Financial Corporation	8.26	9.67	10.56	2.54	2.87	41.76	1.28	28.27	32.52	39.21
FFD Financial Corporation	9.13	11.26	12.08	0.79	0.69	130.58	1.04	38.05	46.62	15.33
First Advantage Bancorp	12.05	16.75	17.53	0.49	0.29	255.92	1.30	30.06	57.59	12.35
GS Financial Corp.	9.87	16.45	17.38	2.24	2.21	45.11	1.46	48.63	47.69	3.68
LSB Financial Corp.	9.35	11.92	12.83	3.70	3.60	28.08	1.14	40.97	54.56	4.47
Mayflower Bancorp, Inc. (1)	7.70	14.66	15.73	1.44	1.00	49.40	1.00	39.25	34.28	26.47
Osage Bancshares, Inc.	12.14	17.82	18.27	0.02	0.23	130.54	0.49	66.12	23.10	10.78
Rome Bancorp, Inc.	15.58	21.79	22.51	0.59	0.50	122.11	0.72	54.78	18.00	27.22
Wayne Savings Bancshares, Inc.	8.00	11.98	12.70	1.77	1.37	47.67	1.01	48.15	30.68	21.17

(1) As of or for the LTM period ended October 31, 2009.

Source: Fairmount Bank; SNL Financial; Feldman Financial.

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III. MARKET VALUE ADJUSTMENTS

General Overview

This concluding chapter of the Appraisal identifies certain additional adjustments to the Bank’s estimated pro forma market value relative to the Comparative Group selected in Chapter II. The adjustments discussed in this chapter are made from the viewpoints of potential investors, which would include depositors holding subscription rights and unrelated parties who may purchase stock in a community offering. It is assumed that these potential investors are aware of all relevant and necessary facts as they would pertain to the value of the Bank relative to other publicly traded thrift institutions and relative to alternative investments.

Our appraised value is predicated on a continuation of the current operating environment for the Bank and thrift institutions in general. Changes in the Bank’s operating performance along with changes in the local and national economy, the stock market, interest rates, the regulatory environment, and other external factors may occur from time to time, often with great unpredictability, which could impact materially the pro forma market value of the Bank or thrift stocks in general. Therefore, the Valuation Range provided herein is subject to a more current re-evaluation prior to the actual completion of the Conversion.

In addition to the comparative operating fundamentals discussed in Chapter II, it is important to address additional market value adjustments based on certain financial and other criteria, which include, among other factors:

(1) Earnings Prospects

(2) Financial Condition

(3) Market Area

(4) Management

(5) Dividend Policy

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(6) Liquidity of the Issue

(7) Subscription Interest

(8) Recent Acquisition Activity

(9) Effect of Government Regulations and Regulatory Reform

(10) Stock Market Conditions

(11) New Issue Discount

Earnings Prospects

Earnings prospects are dependent upon the sensitivity of asset yields and liability costs to changes in market interest rates, the credit quality of assets, the stability of non-interest components of income and expense, and the ability to leverage the balance sheet. Each of the foregoing is an important factor for investors in assessing earnings prospects. The Bank’s profitability in recent years had trended upward due to an increasing net interest margin and significant expansion of the loan portfolio.

The Bank’s reported net income and core earnings compared favorably to the Comparative Group for the recent LTM period. The Bank’s slightly higher net interest margin and substantially lower operating expense ratio were the chief fundamentals contributing to the Bank’s earnings advantage. As discussed earlier, the Bank’s historical operating strategy has focused on increasing its net interest income and net income, emphasizing residential mortgage lending, maintaining strong capital levels, and operating efficiently. The Bank has developed a lending niche in the non-owner occupied residential mortgage sector and plans to diversify the portfolio further by increasing its volume of commercial real estate, construction, and commercial business lending. Following the Conversion, the Bank’s objectives will continue to focus on these strategies as it seeks to leverage the capital proceeds received from the stock offering. Portfolio risk concentration constraints and declining market interest in participation activity may have the impact of limiting the Bank’s future investor-owned lending volumes.

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However, after the Conversion, the Bank’s operating expenses are anticipated to increase. The stock-based employee benefit plans that are expected to be implemented will bring further expense charges. Additionally, in an effort to expand its lending activity and market penetration, the Bank plans to hire additional lending personnel. At an appropriate time, the Bank may also expand beyond its single office location and open a branch office. As the Bank attempts to broaden its reach and attract different types of non-residential loans and core deposits, it is likely to encounter increased competition which will place additional pressure on operating margins.

As its net interest margin is likely to encounter added pressure due to increased competition and possible adverse changes in interest rates, the Bank has not yet developed significant sources of non-interest revenue to sustain earnings growth from other business channels. The Bank’s large concentration of fixed-rate loans heightens its exposure to interest rate risk. The Bank’s increased capital position following the Conversion will help to buttress its net interest margin across changing interest rate and business cycles and provide additional leverage capacity to grow the balance sheet. Additionally, relative to the Comparative Group, the Bank’s operating efficiency provides extra cushion to stabilize earnings trends. Therefore, based on the Bank’s current earnings fundamentals and recent operating results, we believe that a slight upward adjustment is warranted to the Bank’s pro forma market value for fundamental earnings prospects relative to the Comparative Group.

Financial Condition

As discussed and summarized in Chapter I, the Bank’s overall loan composition reflects a large concentration of owner-occupied and non-owner occupied residential mortgage loans. The non-owner occupied residential portfolio represents a relatively new niche for the Bank as such

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lending has increased considerably over the past two years. While the portfolio has generated enhanced yields and increased fees for the Bank, the portfolio does not reflect a seasoned history of performance and a slight increase in delinquencies has been noted in recent months. The Bank has portfolio limitations in place to constrain the amount of non-owner occupied loans held in portfolio and continues to participate out much of the new origination activity.

The Bank’s overall balance sheet structure reflects a concentration of loans funded by deposits and borrowings. The Bank’s deposits primarily consist of certificate accounts, which increased from 68.4% of total deposits at September 30, 2008 to 71.7% at September 30, 2009. We note that the Bank’s balance sheet structure is very similar to that of the Comparative Group on the whole. Before the infusion of net capital proceeds, the Bank’s equity ratio at 10.60% of assets was in range of the Comparative Group’s average and median and 11.92% and 9.91%, respectively. The Bank has a slightly lower level of non-performing assets than exhibited by the Comparative Group, but it also maintained a lower level of loan loss reserves in relation to total loans and total non-performing assets. While the asset quality of the Bank is slightly more favorable than the Comparative Group, the Comparative Group exhibits satisfactory asset quality ratios on a more diversified loan mix.

Until the Bank achieves its planned diversification into non-residential mortgage lending segments, it is uncertain if such diversification can be accomplished by building a reliable book of business and without experiencing a material increase in non-performing assets. The selection criteria for the Comparative Group ensured a collection of companies with solid capital positions and satisfactory asset quality, similar to the Bank. We believe that the balance sheet, asset quality, and funding structure fundamentals of the Bank are largely similar to that of the Comparative Group, with the Bank commanding a slight advantage of stronger, enhanced capital ratios on a pro forma basis after the Conversion. Therefore, based on this consideration, we believe a slight upward adjustment is warranted for financial condition relative to the Comparative Group.

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Market Area

The members of the Comparative Group were drawn from the Mid-Atlantic, Central, and Southern regions of the country. The selection criteria parameters produced one public thrift (BCSB Bancorp) operating in the Bank’s primary market area and two others operating in the Mid-Atlantic region (Community Financial Corp. in Virginia and Rome Bancorp in New York). The market areas encompassing the Comparative Group companies include metropolitan areas such as Baltimore, Boston, Kansas City, and Tulsa, along with smaller metropolitan and micropolitan areas. The Comparative Group companies are characterized by a cross-section of market areas that encompass smaller to mid-sized metropolitan areas with relatively stable economies and moderate population growth prospects, very similar to that experienced by the Bank’s market area. In recognition of these factors, we believe that no adjustment is warranted for market area.

Management

Management’s principal challenges are to generate profitable results, monitor credit risks, and control operating costs while the Bank competes in an increasingly challenging financial services environment. The normal challenges facing the Bank in attempting to deliver earnings growth and enhance its competitiveness remain paramount as it attempts to leverage the stock offering proceeds. Over the past three years, the Bank has assembled a senior management team that is experienced and very familiar with the local market area. As reflected by its improved

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financial results, we believe that investors will take into account that the Bank is professionally and capably managed by an experienced management team. Investors will likely rely upon actual earnings results as the means of evaluating the future performance of Fairmount’s management as the Bank pursues its growth objectives. Therefore, based on these considerations, we believe no adjustment is warranted relative to the Comparative Group for this factor.

Dividend Policy

The Bank’s Board intends to consider a policy of paying cash dividends on the common stock; however, it has not yet made any decision on the timing or the possible amount of any dividend payments. The rate of such dividends and the initial or continued payment thereof will depend upon a number of factors, including the amount of net proceeds retained by the Company in the Conversion, available investment opportunities, capital requirements, the Company’s financial condition and operating results, tax considerations, statutory and regulatory limitations, and general economic conditions. No assurances are given by the Bank that any dividends will be paid or that, if paid, will not be reduced or eliminated in future periods.

Payment of cash dividends has become commonplace among publicly traded thrifts with relatively high capital levels. Of the ten members of the Comparative Group, eight currently pay cash dividends. The average dividend yield of the Comparative Group was 2.94% as of November 30, 2009, and slightly exceeded the average All Public Thrift dividend yield of 2.38%. Although the Company has yet to establish a formal dividend policy, we believe that investors will take note of its solid dividend-paying capacity as evidenced by strong pro forma capital ratios and recent earnings results. Therefore, we have concluded that no adjustment was warranted for purposes of dividend policy.

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Liquidity of the Issue

With the increased number of market makers and institutional investors following thrift stocks, the overwhelming majority of thrift stock conversions are able to develop a public market for their new stock issues. Most publicly traded thrift stocks continue to be traded on the NASDAQ Global Market. All ten members of the Comparative Group are listed on the NASDAQ Global Market.

In conjunction with the Conversion, the Bank will not apply to have its common stock listed for quotation on the NASDAQ Global Market. Instead, Fairmount expects that its common stock will be quoted on the Over-the-Counter Bulletin Board (“OTCBB”) following completion of the Conversion. The OTCBB is an electronic quotation system that displays real-time quotes, last-sale prices, and volume information for many over-the-counter securities that are not listed on the NASDAQ or a national stock exchange. The Bank will seek to attract one or more market makers in shares of its common stock, but there is no guarantee that this will occur or continue to do so once it begins.

The development and maintenance of a public market, having the desirable characteristics of depth, liquidity and orderliness, depends on the existence of willing buyers and sellers. The number of active buyers and sellers of shares of common stock at any particular time may be more limited on the OTCBB versus a national market such as NASDAQ, which may have an adverse effect on the price at which shares of common stock can be sold. Because of the Bank’s comparatively smaller capital amount and asset size, its resulting market capitalization will also be much smaller than the average $25.3 million and median $18.9 million market value of the Comparative Group. Of the ten companies in the Comparative Group, all are traded on

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NASDAQ and indicated an overall average daily trading volume of approximately 2,000 shares per company during the past year. The Bank’s smaller stock issue and OTCBB listing do not offer the relative depth of liquidity afforded by the Comparative Group’s larger market values and NASDAQ trading history. Therefore, we have concluded that a downward adjustment to the Bank’s pro forma market value is warranted to address the lesser anticipated stock liquidity.

Subscription Interest

The Bank has retained the services of Stifel, Nicolaus & Company, Incorporated to assist in the marketing and sale of the stock offering. The Bank also plans to form an employee stock ownership plan (“ESOP”) that will purchase common stock in the subscription offering. The Bank’s Board members and executive officers anticipate purchasing an aggregate amount of approximately $650,000 of common stock. The maximum purchase in the stock offering for an individual or group of persons acting in concert will be limited to an aggregate of $150,000.

As thrift conversion activity diminished in response to the weakening stock market, subscription interest in thrift IPOs has been mixed. While a few have experienced robust interest and received orders above the maximum offering amount, other converting thrifts have struggled to close transactions successfully and moderately exceeded the minimum of offering ranges. As shown in Table 21, the after-market performance of recently converted thrifts has also been mixed with the OTCBB issues notably experiencing no material price change in the short-term aftermath of the IPO. Also, the Bank’s small franchise base and the lackluster performance of the most recent thrift IPOs in the Baltimore area may restrain interest. However, absent actual results of the Bank’s subscription offering (as well as actual market conditions prevailing during the subscription offering), we do not believe any adjustment is warranted at this time.

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Recent Acquisition Activity

Acquisition speculation is one factor underpinning the prices of newly converted thrifts in after-market trading. Table 19 summarizes recent acquisition activity involving banks and thrifts based in Maryland. Since January 1, 2006, there have been 13 acquisitions involving Maryland banks and thrifts. The largest recent acquisition of a Maryland bank or thrift involved the purchase of privately held Chevy Chase Bank, F.S.B. by Capital One Financial Corporation. This acquisition closed in February 2009 and was followed by the acquisition of Provident Bankshares in May 2009 by M&T Bank Corporation. These acquisitions along with the purchase of AmericasBank Corporation in August 2009 were characterized by sellers experiencing financial difficulties and being acquired at prices below book value. However, this profile of the merger and acquisition environment is occurring nationwide as premiums in bank and thrift acquisitions have been pushed downward to historically low levels. Given that there are significant regulatory restrictions on the ability to acquire control of the Company for a period of three years following the Conversion, we do not believe that acquisition premiums are a significant factor to consider in determining the Company’s pro forma market value.

Effect of Government Regulations and Regulatory Reform

As a fully converted stock thrift regulated by the OTS and FDIC, the Bank will continue to operate in the same regulatory environment that is substantially similar to that faced by the Comparative Group companies. As of September 30, 2009, the Bank was considered a well capitalized institution as were all the members of the Comparative Group. Therefore, given these factors, we believe that no adjustment is necessary for the effect of government regulations ad regulatory reform.

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Table 19

Summary of Recent Maryland Acquisition Activity

Transactions Announced Since January 1, 2006

				Seller’s Prior Financial Data									Offer Value to
Buyer	State	Seller	B/T (1)	Total Assets ($Mil.)	Equity/ Assets (%)	YTD ROA (%)		YTD ROE (%)		Date Anncd.	Status (2)	Offer Value ($Mil.)	Book Value (%)	Tang. Book (%)	LTM EPS (x)	Total Assets (%)
Median: 2006 -2009				143.7	8.01	0.03		0.52		NA	NA	44.2	184.0	184.0	30.1	15.72
Median: 2007 -2009				299.0	6.50	(0.95	)	(12.50	)	NA	NA	225.4	65.2	101.6	NM	4.81
Median: 2006				96.7	10.08	0.91		7.26		NA	NA	22.6	209.7	209.7	30.1	23.14
Capital Funding Bancorp	MD	AmericasBank Corp.	B	145.9	5.25	(3.94	)	(54.40	)	04/03/09	C	0.3	3.5	3.5	NM	0.19
M&T Bank Corporation	NY	Provident Bankshares	B	6,410.5	8.46	(0.26	)	(2.64	)	12/18/08	C	402.0	71.5	150.3	NM	6.27
Capital One Financial Corp.	VA	Chevy Chase Bank, F.S.B.	T	15,499.5	5.69	0.03		0.52		12/03/08	C	520.0	58.9	66.0	NM	3.35
Eagle Bancorp, Inc.	MD	Fidelity & Trust Financial	B	452.0	6.61	(1.64	)	(22.35	)	12/02/07	C	48.8	137.3	137.3	NM	10.80
Affinity Financial Corp.	CA	American Partners Bank, FSB	T	140.2	6.39	(3.96	)	(40.69	)	03/06/07	C	NA	NA	NA	NA	NA
Bradford Bank	MD	Senator Bank (3)	T	19.1	7.78	(0.10	)	(1.33	)	01/25/07	C	NA	NA	NA	NA	NA
Bradford Bank	MD	Golden Prague FS&LA (3)	T	29.3	9.27	0.23		2.73		12/28/06	C	NA	NA	NA	NA	NA
Sandy Spring Bancorp, Inc.	MD	CN Bancorp, Inc.	B	151.3	13.58	0.96		7.26		12/13/06	C	44.2	209.7	209.7	30.1	29.23
E*TRADE Financial Corp.	NY	United Medical Bank, FSB	T	29.7	10.12	(10.72	)	(95.20	)	11/15/06	C	NA	NA	NA	NA	NA
PNC Financial Services	PA	Mercantile Bankshares	B	17,002.7	13.32	1.73		12.59		10/08/06	C	6,027.1	257.6	377.7	20.3	35.45
Community Banks, Inc.	PA	BUCS Financial Corp	T	143.7	8.01	0.30		3.72		09/05/06	C	22.6	184.0	184.0	41.4	15.72
Bradford Bancorp, Inc.	MD	Valley Bancorp, Inc.	T	49.9	10.08	0.91		8.92		07/28/06	C	9.6	190.4	190.4	31.6	19.20
Sterling Financial Corp.	PA	Bay Net Financial, Inc.	T	96.7	7.37	1.10		13.62		03/30/06	C	22.3	337.8	337.8	24.5	23.14

(1) B=bank; T=thrift.

(2) P=pending; C=completed.

(3) Mutual to mutual merger.

Source: SNL Financial.

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Stock Market Conditions

Table 20 displays the performance of the SNL All Public Thrift, SNL All Mid-Atlantic Thrift, and SNL <$500 Million-Asset Thrift indexes, as compared to the Standard & Poor’s 500-Stock Index (“S&P 500”) over various periods. The public thrift indexes generally tracked the cyclical trends of the broader stock index in calendar 2008, but were outperformed by the S&P 500 during the year-to-date period in 2009. The All Public Thrift Index declined by 38.2% in calendar 2008, parallel with the 38.5% decline in the S&P 500.

The market for bank and thrift stocks turned sour in the middle of 2008 and plummeted further in the fall of 2008 through the spring of 2009. Rising concerns over the health of the banking system and the viability of several large financial concerns placed increased pressure on financial stock issues. Market prices of banks and thrift stocks were particularly hard hit by the mortgage crisis and dismal real estate market conditions. Financial stocks rebounded starting in March 2009 as Federal Reserve Board and U.S. Treasury stimulus initiatives began to stabilize some of the long-term concerns overhanging the credit and capital markets. While the broader market has staged a strong rally in 2009, the financial sector continues to suffer due to intensifying credit losses and mounting failures of distressed institutions. The SNL All Public Thrift index declined 15.3% from December 31, 2008 to November 30, 2009, while the S&P 500 actually increased by 21.3% over the same period. Since December 31, 2007, the SNL All Public Thrift index is down 47.7% compared to the S&P 500 being down 25.4%.

The OTS recently reported that the thrift industry reported essentially breakeven profits for the second consecutive quarter in the quarter ending September 30, 2009. Earnings results were sustained by improving net interest margins, but continue to be dampened by loan loss

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provisions. Industry loan loss provisions, which remain at near-record levels, reflected increases in delinquent loans and other problem assets as a direct result of the continued housing market downturn and rising unemployment. For the past six months, stock prices in the overall market moved upward on the heels of the rally, but financial stocks have largely moved sideways with no appreciable change. Additionally, the market for financial issues remains very volatile and subject to broad sell-offs due to negative economic news or distressed sector or company announcements. We believe the uncertain market environment, the absence of unequivocal signs of industry recovery, and the volatile swings in the market for bank and thrift stock warrant a downward adjustment.

Table 20

Comparative Stock Index Performance

Index	12/31/07- 12/31/08		12/31/08- 11/30/09		12/31/07- 11/30/09
SNL All Public Thrift	-38.2	%	-15.3	%	-47.7	%
SNL Mid-Atlantic Thrift	-19.4	%	-15.7	%	-32.0	%
SNL Thrift <$500 Million	-24.9	%	3.2	%	-22.5	%
S&P 500	-38.5	%	21.3	%	-25.4	%

Source: SNL Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

New Issue Discount

A “new issue” discount that reflects investor concerns and investment risks inherent in all IPOs is a factor to be considered for purposes of valuing converting thrifts. The magnitude of the new issue discount typically expands during periods of declining thrift stock prices as investors require larger inducements, and narrows during strong market conditions. The thrift conversion market continues to respond to the after-market performance of recent offerings. Table 21 presents a summary of standard full conversion offerings since January 1, 2008.

As noted earlier, thrift stock conversion activity has diminished considerably in the wake of the sharp marked downturn in market conditions. There were only four standard conversion offerings in 2008, followed by three thus far in 2009. The after-market price performance of standard thrift conversion IPOs has been mixed. Of the seven standard conversion offerings completed since January 1, 2007, the average and median one-week price changes were 7.1% and 0.1%, respectively. Through November 30, 2009, the cumulative price changes reflected an average of 20.0% and median of 23.3%.

In the after-market, thrift conversions had been trading upward to a range approaching the fully converted book value, but found resistance at this level until a discernible trend in earnings improvement was evident. To price a new offering at a high ratio in relation to pro forma book value, because of the mathematics of the calculation, would require very large increases in valuations along with the resulting price-to-earnings ratios and produce very marginal returns on equity.

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FELDMAN FINANCIAL ADVISORS, INC.

Accordingly, thrift conversions continue to be priced at discounts to publicly traded companies. This is due to the relatively high pro forma equity ratios, expected low returns on equity, and the uncertainty regarding the prospects of an institution to leverage the balance sheet prudently and effectively in the currently low interest rate environment and uncertain housing market conditions. Moreover, the uneven after-market price performance of thrift IPOs provides added reason to continue to factor in a new issue discount for valuation of current thrift IPOs.

Investors are aware that at initial pro forma price-to-book ratios approaching the current trading range of a majority of public thrifts, price-to-earnings ratios of converting thrifts would be excessive, returns on equity very low, and capital levels very high. Based upon the price-to-book valuation metric, thrift conversions recently completed have been discounted in an approximate range of 25% to 35% relative to the overall thrift trading market on a fully converted basis.

Adjustments Conclusion

It is our opinion that the Bank’s pro forma valuation should be discounted relative to the Comparative Group because of factors associated with liquidity of the issue, stock market conditions, and the new issue discount. The magnitude of these discounts is offset modestly by the slight upward adjustments accorded to the Bank for its earnings prospects and financial condition fundamentals relative to the Comparative Group. Individual discounts and premiums are not necessarily additive and may, to some extent, offset or overlay each other. Currently, converting thrifts are often valued at substantial discounts to peer institutions relative to price-to-book and price-to-earnings ratios. It is the judgment of the appraiser to balance the relative dynamics of price-to-book and price-to-earnings discounts or premiums.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 21

Summary of Recent Standard Conversion Stock Offerings

Transactions Completed Since January 1, 2008

						Pro Forma Ratios					After-Market Trading Price Change
Company	State	Stock Exchange	IPO Conv. Date	Total Assets ($Mil.)	Gross Offering Proceeds ($Mil.)	Price/ Book Value (%)	Price/ Tang. Book (%)	Price/ LTM EPS (x)	IPO Price ($)	11/30/09 Price ($)	One Day (%)		One Week (%)		One Month (%)		Change Thru 11/30/09 (%)
Average	NA	NA	NA	559.3	71.6	61.7	66.4	28.6	NA	NA	8.8		7.1		7.0		20.0
Median	NA	NA	NA	448.1	78.2	60.1	60.2	24.3	NA	NA	0.0		0.1		2.6		23.3
Average - OTCBB listed	NA	NA	NA	34.8	7.5	47.2	47.2	NM	NA	NA	0.0		2.5		2.5		18.8
Median - OTCBB listed	NA	NA	NA	34.8	7.5	47.2	47.2	NM	NA	NA	0.0		2.5		2.5		18.8
Average - NASDAQ listed	NA	NA	NA	769.1	97.2	67.6	74.1	28.6	NA	NA	12.3		8.9		8.7		20.5
Median - NASDAQ listed	NA	NA	NA	633.8	89.3	69.7	69.7	24.3	NA	NA	0.5		0.1		2.6		23.3
Territorial Bancorp Inc.	HI	NASDAQ	07/13/09	1,223.8	122.3	60.1	60.2	15.9	10.00	16.98	49.9		47.2		48.0		69.8
St. Joseph Bancorp, Inc.	MO	OTCBB	02/02/09	19.4	3.8	46.3	46.3	NM	10.00	10.00	0.0		0.0		0.0		0.0
Hibernia Homestead Bancorp	LA	OTCBB	01/28/09	50.2	11.1	48.1	48.1	NM	10.00	13.75	0.0		5.0		5.0		37.5
First Savings Fin’l Group, Inc.	IN	NASDAQ	10/07/08	215.4	24.3	51.1	51.1	NM	10.00	10.35	(1.0	)	(4.0	)	(8.0	)	3.5
Home Bancorp, Inc.	LA	NASDAQ	10/03/08	448.1	89.3	69.7	69.7	19.2	10.00	12.33	14.9		3.5		3.1		23.3
Cape Bancorp, Inc. (1)	NJ	NASDAQ	02/01/08	633.8	78.2	73.2	105.8	50.0	10.00	7.08	0.5		0.1		(2.0	)	(29.2	)
Danvers Bancorp, Inc.	MA	NASDAQ	01/10/08	1,324.1	171.9	83.7	83.9	29.4	10.00	13.51	(2.6	)	(2.2	)	2.6		35.1

(1) Conversion stock offering was completed in conjunction with a simultaneous acquisition.

Source: SNL Financial.

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FELDMAN FINANCIAL ADVISORS, INC.

Valuation Approach

In determining the estimated pro forma market value of the Company, we have employed the comparative company approach and considered the following pricing ratios: price-to-earnings per share (“P/E”), price-to-book value per share (“P/B”), price-to-tangible book value per share (“P/TB”), and price-to-assets (“P/A”). Table 22 presents the trading market valuation ratios of the Comparative Group and All Public Thrift averages and medians as of November 30, 2009. As shown in Table 22, the average P/B ratio for the Comparative Group was 67.1%, the average P/TB ratio was 67.8%, and the average P/E ratio was 18.5x. On a core earnings basis, the average core P/E of the Comparative Group was 19.8x.

Investors continue to make decisions to purchase thrift conversion stocks and more seasoned thrift issues based upon consideration of core earnings profitability and P/B comparisons. The P/E ratio is an important valuation ratio in the current thrift stock environment and was a key focus in developing our estimate of the Company’s pro forma market value. The Bank’s LTM earnings for the period ended September 30, 2009 amounted to $445,000. The Bank recognized a nominal level of non-recurring gains on sale of securities in fiscal 2009; therefore its core earnings were equal to reported LTM earnings.

In consideration of the foregoing factors along with the additional adjustments discussed in this chapter, we have determined a pro forma price-to-book ratio and price-to-tangible book ratio of 47.7% for the Company, which reflect an aggregate midpoint value of $5.0 million based on the assumptions summarized in Exhibit IV. Employing a range of 15% above and below the midpoint, the resulting minimum value of $4.3 million reflects a 43.2% P/B ratio and the resulting maximum value of $5.8 million reflects a 51.6% P/B ratio. The adjusted maximum, an additional 15.0% above the maximum, is positioned at approximately $6.6 million and a P/B ratio of 55.5%.

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FELDMAN FINANCIAL ADVISORS, INC.

The Bank’s range of pro forma P/B ratios reflected larger discounts to the more strongly capitalized and solidly profitable members of the Comparative Group such as Rome Bancorp and Osage Bancshares, which reflected P/B trading valuation ratios of 95.9% and 86.1%, respectively. The Bank’s range of pro forma P/B ratios indicated lower discounts and parallel ratios to the lesser capitalized and lower profitable Mid-Atlantic companies within the Comparative Group as characterized by BCSB Bancorp at 57.6% and Community Financial Corporation at 50.7%.

The Bank’s pro forma midpoint P/B ratio of 47.7% reflects a 28.9% discount to the Comparative Group average P/B ratio of 67.1% and a 31.8% discount to the All Public Thrift average of 69.9%. The Bank’s pro forma maximum P/B ratio of 51.6% reflects a 23.1% discount to the Comparative Group average P/B ratio of 67.1% and a 26.2% discount to the All Public Thrift average of 69.9%. At the adjusted maximum, the Bank’s pro forma P/B ratio of 55.5% reflects a 17.2% discount to the Comparative Group average and a 20.6% discount to the All Public Thrift average.

Based on the Valuation Range as indicated above, the Bank’s pro forma P/E ratios ranged from a minimum of 9.9x to 16.4x at the adjusted maximum based on LTM earnings and based on core earnings. As shown in Exhibit IV, the calculation of pro forma earnings includes the historical earnings results plus the re-investment of net investable proceeds from the stock offering, less adjustments for expenses associated with the stock-based benefit plans.

79

FELDMAN FINANCIAL ADVISORS, INC.

The Bank’s pro forma midpoint P/E LTM ratio of 11.9x reflects a 35.6% discount to the Comparative Group average P/E ratio of 18.5x and 28.6% discount to the median of 16.7x. On a core earnings basis, the Bank’s pro forma midpoint P/E ratio of 11.9x was discounted 40.0% to the Comparative Group average of 19.8x and 27.5% to the Comparative Group median of 16.4x. The Bank’s pro forma adjusted maximum P/E LTM ratio of 16.4x reflects a 11.4% discount to the Comparative Group’s average P/E ratio of 18.5x and a 17.4% discount to the Comparative Group’s average core P/E ratio of 19.8x. The lower earnings results of the Comparative Group companies versus the Bank have the impact of skewing their P/E ratios higher.

Based on the price-to-assets valuation metric, the Bank’s pro forma midpoint of $5.0 million reflects a corresponding P/A valuation ratio of 7.38%, ranging from 6.34% at the pro forma valuation minimum to 8.41% and 9.56% at the maximum and adjusted maximum, respectively. The Bank’s strong capitalization level resulted in P/A ratio premiums at the upper end of the range in contrast to the Comparative Group average P/A ratio of 8.16% and median P/A ratio of 6.43%. However, we note that the Bank’s higher pro forma P/A valuation ratios are also indicative of the challenge facing the Bank in generating a competitive ROE and advancing the other valuation metrics to trading market levels.

Valuation Conclusion

It is our opinion that, as of November 30, 2009, the aggregate estimated pro forma market value of the Bank on a fully converted basis was within the Valuation Range of $4,250,000 to $5,750, 000 with a midpoint of $5,000,000. The Valuation Range was based upon a 15% decrease from the midpoint to determine the minimum and a 15% increase to establish the maximum. An additional 15% increase above the maximum results in an adjusted maximum of $6,612,500.

80

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit IV-1 displays the assumptions utilized in calculating the pro forma financial consequences of the stock offering. Exhibit IV-2 displays the pro forma financial data at each level of the Valuation Range. Exhibit IV-3 provides more detailed data at the maximum valuation. Exhibit IV-4 compares the Bank’s pro forma valuation ratios with the averages and medians reported by the Comparative Group and All Public Thrifts.

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FELDMAN FINANCIAL ADVISORS, INC.

Table 22

Comparative Pro Forma Market Valuation Analysis

Fairmount Bank and the Comparative Group

Computed from Market Price Data as of November 30, 2009

Company	Current Stock Price ($)	Total Market Value ($Mil.)	Price/ LTM EPS (x)	Price/ Core EPS (x)	Price/ Book Value (%)	Price/ Tang. Book (%)	Price/ Total Assets (%)	Total Equity/ Assets (%)	Tang. Equity/ Assets (%)	Current Dividend Yield (%)
Fairmount Bank(1)
Pro Forma Minimum	10.00	4.3	9.9	9.9	43.2	43.2	6.34	14.65	14.65	0.00
Pro Forma Midpoint	10.00	5.0	11.9	11.9	47.7	47.7	7.38	15.49	15.49	0.00
Pro Forma Maximum	10.00	5.8	13.9	13.9	51.6	51.6	8.41	16.30	16.30	0.00
Pro Forma Adj. Maximum	10.00	6.6	16.4	16.4	55.5	55.5	9.56	17.22	17.22	0.00
Comparative Group Average	NA	25.3	18.5	19.8	67.1	67.8	8.16	11.92	11.81	2.94
Comparative Group Median	NA	18.9	16.7	16.4	66.7	66.8	6.43	9.91	9.90	3.56
All Public Thrift Average(2)	NA	313.0	18.1	21.2	69.9	75.9	7.48	10.90	10.08	2.38
All Public Thrift Median(2)	NA	49.1	14.6	14.8	68.3	74.7	5.99	10.00	9.13	2.38
Comparative Group
BCSB Bancorp, Inc.	9.00	28.1	NM	31.0	57.6	57.7	5.19	10.38	10.37	0.00
Community Financial Corporation	4.15	18.1	3.7	3.4	50.7	50.7	3.42	8.84	8.84	0.00
FFD Financial Corporation	14.80	15.0	16.8	15.8	83.2	83.2	7.77	9.34	9.34	4.59
First Advantage Bancorp	10.50	46.1	47.7	45.7	65.2	65.2	13.08	20.06	20.06	1.90
GS Financial Corp.	15.80	19.8	24.3	17.0	70.1	70.1	7.33	10.45	10.45	2.53
LSB Financial Corp.	10.25	15.9	16.5	14.8	46.4	46.4	4.38	9.43	9.43	4.88
Mayflower Bancorp, Inc.	6.60	13.8	11.0	11.6	68.3	68.3	5.52	8.09	8.08	3.64
Osage Bancshares, Inc.	7.79	21.5	NM	33.3	86.1	90.2	13.53	15.72	15.11	4.36
Rome Bancorp, Inc.	8.39	57.7	19.1	17.6	95.9	95.9	17.08	17.81	17.81	4.05
Wayne Savings Bancshares, Inc.	5.74	17.2	8.7	8.2	47.2	50.1	4.31	9.12	8.64	3.48

⁽¹⁾ Pro forma ratios assume sale of 100% of the to-be-outstanding common stock, reflecting gross proceeds of $4.3 million at the minimum, $5.0 million at the midpoint, $5.8 million at the maximum, and $6.6 million at the adjusted maximum of the valuation range.

⁽²⁾ Excludes mutual holding companies and companies being acquired in announced merger transactions.

Source: Fairmount Bank; SNL Financial; Feldman Financial.

82

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit I

Background of Feldman Financial Advisors, Inc.

Overview of Firm

Feldman Financial Advisors provides consulting and advisory services to financial institutions and mortgage companies in the areas of corporate valuations, mergers and acquisitions, strategic planning, branch sales and purchases, developing and implementing regulatory business and capital plans, and expert witness testimony and analysis. Our senior staff members have been involved in the stock conversion process since 1982 and have valued more than 350 converting institutions.

Feldman Financial Advisors was incorporated in February 1996 by a group of consultants who were previously associated with Credit Suisse First Boston and Kaplan Associates. Each of the principals at Feldman Financial Advisors has more than 10 years experience in consulting and all were officers of their prior firm. Our senior staff collectively has worked with more than 1,000 banks, thrifts and mortgage companies nationwide. The firm’s office is located in Washington, D.C.

Background of Senior Professional Staff

Trent Feldman - President. Trent is a nationally recognized expert in providing strategic advice to and valuing service companies, and advising on mergers and acquisitions. Trent was with Kaplan Associates for 14 years and was one of three founding principals at that firm. Trent also has worked at the Federal Home Loan Bank Board and with the California legislature. Trent holds Bachelors and Masters Degrees from the University of California at Los Angeles.

Peter Williams - Principal. Peter specializes in merger and acquisition analysis, stock and other corporate valuations, strategic business plans and retail delivery analysis. Peter was with Kaplan Associates for 13 years. Peter also served as a Corporate Planning Analyst with the Wilmington Trust Company in Delaware. Peter holds a BA in Economics from Yale University and an MBA in Finance and Investments from George Washington University.

Michael Green - Principal. Mike is an expert in mergers and acquisition analysis, financial institution and corporate valuations, and strategic and business plans. During Mike’s 10 years at Kaplan Associates, his experience also included business restructurings, litigation support, mark-to-market analysis, and goodwill valuations. Mike holds a BA in Finance and Economics from Rutgers College.

Greg Izydorczyk - Senior Vice President. Greg specializes in merger and acquisition analysis and corporate valuations and also has experience in mark-to-market analysis and business plans. Greg was with Kaplan Associates for three years. Previous, Greg worked as a Senior Auditor for First Virginia Bank and Integra Financial and as a Financial Analyst with Airbus Industrie of N.A. Greg holds a BS in Finance from Pennsylvania State University and an MBA in Finance from the Katz Graduate School, University of Pittsburgh.

I-1

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-1

Fairmount Bank

Consolidated Balance Sheets

As of September 30, 2008 and 2009

(Dollars in Thousands)

	September 30,
	2009		2008
ASSETS
Cash and due from banks	$	328	$	367
Interest-bearing deposits in other banks		93		154
Federal funds sold		4,213		891
Securities available-for-sale, at fair value		3,328		7,019
Securities held-to-maturity, at amortized cost		1,766		—
Federal Home Loan Bank stock		601		539
Loans receivable, net		50,334		45,155
Accrued interest receivable		234		230
Premises and equipment, net		2,889		1,048
Foreclosed real estate		95		—
Other assets		161		109
TOTAL ASSETS	$	64,041	$	55,512
LIABILITIES AND EQUITY
Deposits:
Non-interest-bearing	$	447	$	490
Interest-bearing demand deposits		3,376		2,626
Savings deposits		9,165		9,189
Time certificates		32,850		26,586
Total deposits		45,838		38,891
Federal Home Loan Bank advances		11,000		10,000
Other liabilities		413		429
Total liabilities		57,251		49,320
Retained earnings		6,727		6,282
Accumulated other comprehensive income (loss)		63		(90	)
Total equity		6,790		6,192
TOTAL LIABILITIES AND EQUITY	$	64,041	$	55,512

Source: Fairmount Bank, audited financial statements.

II-1

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-2

Fairmount Bank

Consolidated Income Statements

For the Years Ended September 30, 2007 to 2009

(Dollars in Thousands)

	Year Ended September 30,
	2009		2008		2007
Total interest income	$	3,437	$	2,950	$	2,417
Total interest expense		1,458		1,619		1,354
Net interest income		1,979		1,331		1,063
Provision (recovery) for loan losses		182		50		35
Net interest income after provision		1,797		1,281		1,028
Service charges and fees		147		122		32
Gain on sale of securities		1		22		—
Other income		10		7		—
Total non-interest income		157		151		32
Salaries, fees and employment expenses		739		650		423
Occupancy and equipment expense		72		70		50
Professional fees		105		90		84
Other operating expenses		325		227		298
Total non-interest expense		1,241		1,037		810
Income before income tax expense		714		395		250
Income tax expense		269		149		89
Net income	$	445	$	246	$	161

Source: Fairmount Bank, audited financial statements.

II-2

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-3

Loan Portfolio Composition

As of September 30, 2008 and 2009

(Dollars in Thousands)

	September 30,
	2009					2008
	Amount			Percent		Amount			Percent
Real estate loans:
1-to-4 family owner occupied	$	22,162		43.99	%	$	21,922		48.89	%
1-to-4 family non-owner occupied		17,484		34.70			11,963		26.68
Home equity (1)		1,845		3.66			1,933		4.31
Mobile home		3,073		6.10			3,360		7.49
Secured by other properties		2,032		4.03			1,362		3.04
Construction and land development		2,747		5.45			3,264		7.28
Total real estate loans		49,343		97.93			43,804		97.69
Commercial and consumer loans:
Secured commercial		848		1.69			667		1.49
Commercial leases		133		0.26			311		0.69
Savings account		60		0.12			57		0.13
Total commercial and consumer		1,041		2.07			1,035		2.31
Total loans		50,384		100.00	%		44,839		100.00	%
Unamortized premiums and loan fees		548					643
Unearned income on loans		(378	)				(224	)
Allowance for loan losses		(220	)				(103	)
Total loans, net	$	50,334				$	45,155

(1) Includes home equity loans secured by second mortgages and home equity lines of credit secured by second mortgages.

Source: Fairmount Bank, preliminary prospectus.

II-3

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-4

Net Loan Activity

For the Years Ended September 30, 2008 and 2009

(Dollars in Thousands)

	Years Ended September 30,
	2009		2008
Total loans at beginning of period	$	44,839	$	31,598
Loans originated
Real estate:
1-to-4 family owner occupied		1,932		4,375
1-to-4 family non-owner occupied		13,994		11,410
Home equity (1)		318		313
Secured by other properties		550		560
Construction and land development		1,560		2,992
Commercial and consumer loans:
Secured commercial		995		—
Savings		105		2
Total loans originated		19,454		19,652
Loans purchased		1,110		—
Deduct:
Participation of originated loans		7,023		3,156
Principal repayments		7,996		3,255
Total deductions		15,019		6,411
Net loan activity		5,545		13,241
Total loans at end of period	$	50,384	$	44,839

(1) Includes home equity loans secured by second mortgages and home equity lines of credit secured by second mortgages.

Source: Fairmount Bank, preliminary prospectus.

II-4

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-5

Investment Portfolio Composition

As of September 30, 2008 and 2009

(Dollars in Thousands)

	September 30,
	2009				2008
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities held to maturity
U.S. Government and federal agency obligations	$	993	$	998	$	—	$	—
State and municipal		773		799		—		—
Total secs. held to maturity		1,766		1,797		—		—
Securities available for sale
U.S. Government and federal agency obligations		—		—		2,998		2,860
State and municipal		—		—		3,693		3,701
Mortgage-backed		3,215		3,328		474		458
Total secs. available for sale		3,215		3,328		7,165		7,019
Total investment securities	$	4,981	$	5,125	$	7,165	$	7,019

Source: Fairmount Bank, preliminary prospectus.

II-5

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-6

Deposit Account Distribution

As of September 30, 2008 and 2009

(Dollars in Thousands)

	September 30,
	2009				2008
	Amount		Pct. of Total		Amount		Pct. of Total
Certificates of deposit:
Less than 2.00%	$	4,493	9.80	%		41	0.11	%
2.00% - 2.99%		12,040	26.27			5,863	15.08
3.00% - 3.99%		6,832	14.91			6,322	16.25
4.00% - 4.99%		9,232	20.14			12,760	32.81
5.00% - 5.99%		253	0.55			1,600	4.11
Total certificate accounts		32,850	71.67			26,586	68.36
Non-interest bearing deposits (1)		447	0.98			490	1.26
Interest-bearing demand deposits		3,376	7.36			2,626	6.75
Savings deposit accounts		9,165	19.99			9,189	23.63
Total transaction accounts		12,988	28.33			12,305	31.64
Total deposits	$	45,838	100.00	%	$	38,891	100.00	%

(1) Includes non-demand escrows.

Source: Fairmount Bank, preliminary prospectus.

II-6

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-7

Borrowed Funds Distribution

As of or For the Years Ended September 30, 2008 and 2009

(Dollars in Thousands)

	As of or For the Year Ended September 30,
	2009			2008
FHLB Advances
Average balance outstanding	$	10,751		$	5,947
Maximum outstanding at any month-end		11,000			10,000
Balance outstanding at period-end		11,000			10,000
Weighted average rate during period		2.66	%		3.77	%
Weighted average rate at end of period		2.50	%		3.27	%

Source: Fairmount Bank, preliminary prospectus.

II-7

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit II-8

Real Estate Properties

As of September 30, 2009

(Dollars in Thousands)

Description/Address	Leased/ Owned	Date of Lease Expiration	Net Book Value of Property(1)		Amount of Deposits
Main Office and Headquarters
8216 Philadelphia Road	Owned	NA	$	2,562	$	45,838
Baltimore, Maryland 21237
Land (contiguous to Main Office)
8216 Philadelphia Road	Owned	NA		242		NA
Baltimore, Maryland 21237
Previous Headquarters
8201 Philadelphia Road(2)	Owned	NA		85		NA
Baltimore, Maryland 21237
Total			$	2,889	$	45,838

⁽¹⁾ Includes premises, land and equipment.

⁽²⁾ Current market value of property is estimated at approximately $400,000.

Source: Fairmount Bank, preliminary prospectus.

II-8

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit III

Financial and Market Data for All Public Thrifts

Company	Ticker	State	Total Assets ($Mil.)	Total Equity/ Assets (%)	Tang. Equity/ Assets (%)	LTM ROA (%)		LTM ROE (%)		Closing Price 11/30/09 ($)	Total Market Value ($Mil.)	Price/ LTM EPS (x)	Price/ Core EPS (x)	Price/ Book Value (%)	Price/ Tang. Book (%)	Price/ Total Assets (%)	Div. Yield (%)
All Public Thrifts(1)
Abington Bancorp, Inc.	ABBC	PA	1,227	18.05	18.05	(0.76	)	(3.91	)	6.83	146.8	NM	NM	66.8	66.8	12.06	2.93
Anchor BanCorp Wisconsin	ABCW	WI	4,638	1.75	1.65	(6.82	)	(175.97	)	0.53	11.4	NM	NM	360.4	NM	0.25	0.00
Astoria Financial Corp.	AF	NY	20,673	5.83	4.98	0.23		4.10		10.38	1,007.4	18.9	16.7	79.6	94.0	4.64	5.01
Bank Mutual Corp.	BKMU	WI	3,561	11.46	10.09	0.53		4.57		7.01	325.4	18.0	24.3	80.6	93.0	9.17	3.99
BankAtlantic Bancorp, Inc.	BBX	FL	4,941	3.83	3.52	(5.16	)	(111.50	)	1.33	64.2	NM	NM	34.6	36.5	1.32	0.00
BankFinancial Corp.	BFIN	IL	1,574	16.91	15.45	0.57		3.28		9.39	201.1	20.9	19.4	75.5	84.1	12.78	2.98
BCSB Bancorp, Inc.	BCSB	MD	569	10.38	10.37	(0.34	)	(3.37	)	9.00	28.1	NM	31.0	57.6	57.7	5.19	0.00
Beacon Federal Bancorp, Inc.	BFED	NY	1,070	9.42	9.42	0.60		6.26		9.24	61.8	10.0	8.3	61.3	61.3	5.77	2.16
Berkshire Hills Bancorp, Inc.	BHLB	MA	2,681	15.31	9.32	0.50		3.31		18.86	262.8	24.5	23.4	64.0	112.5	9.80	3.39
BofI Holding, Inc.	BOFI	CA	1,324	7.03	7.03	1.01		14.73		8.75	71.5	6.1	5.9	85.9	85.9	5.44	0.00
Broadway Financial Corp.	BYFC	CA	520	6.40	6.40	0.31		4.38		5.15	9.0	11.7	8.9	40.1	40.1	1.76	3.88
Brookline Bancorp, Inc.	BRKL	MA	2,639	18.55	17.08	0.70		3.77		9.51	561.4	30.7	30.3	115.1	127.3	21.29	3.58
Cape Bancorp, Inc.	CBNJ	NJ	1,067	11.68	9.72	(5.56	)	(41.69	)	7.08	94.3	NM	NM	75.6	92.9	8.83	0.00
Carver Bancorp, Inc.	CARV	NY	809	8.08	8.05	(0.85	)	(11.31	)	8.01	19.8	NM	NM	42.8	43.0	2.51	4.99
Central Bancorp, Inc.	CEBK	MA	541	7.98	7.60	0.68		9.52		8.25	13.5	3.6	3.3	40.3	43.1	2.55	2.42
Central Federal Corp.	CFBK	OH	280	9.06	9.06	(2.66	)	(24.61	)	1.42	5.8	NM	NM	31.6	31.6	2.13	0.00
CFS Bancorp, Inc.	CITZ	IN	1,078	10.15	10.15	(1.11	)	(10.68	)	4.38	47.1	NM	NM	43.1	43.1	4.37	0.91
Chicopee Bancorp, Inc.	CBNK	MA	548	17.14	17.14	(0.30	)	(1.69	)	12.51	79.9	NM	NM	85.1	85.1	14.58	0.00
Citizens Community Bancorp	CZWI	WI	575	NA	NA	(0.58	)	NA		3.21	17.6	NA	NA	NA	NA	NA	6.23
Citizens First Bancorp, Inc.	CTZN	MI	1,933	3.08	2.99	(4.30	)	(71.65	)	0.58	4.8	NM	NM	7.5	7.7	0.23	0.00
Citizens South Banking Corp.	CSBC	NC	821	12.67	9.33	0.09		0.75		5.72	43.1	NM	NM	51.6	81.0	5.39	2.80
CMS Bancorp, Inc.	CMSB	NY	243	8.60	8.60	(0.20	)	(2.06	)	7.50	14.0	NM	NM	NA	NA	NA	0.00
Community Financial Corp.	CFFC	VA	541	8.84	8.84	1.07		12.37		4.15	18.1	3.7	3.4	50.7	50.7	3.42	0.00
Danvers Bancorp, Inc.	DNBK	MA	1,893	11.95	11.93	0.15		1.17		13.51	295.8	NM	67.9	104.4	104.7	12.47	0.59
Dime Community Bancshares	DCOM	NY	3,908	7.41	6.07	0.59		8.34		11.24	386.6	15.8	12.1	133.5	161.3	9.89	4.98
Elmira Savings Bank, FSB	ESBK	NY	506	10.73	8.35	0.91		8.84		15.98	30.6	9.8	14.1	85.3	134.4	6.28	5.01
ESB Financial Corp.	ESBF	PA	1,979	8.48	6.45	0.60		8.04		11.94	144.0	12.4	11.4	86.1	115.9	7.28	3.35
ESSA Bancorp, Inc.	ESSA	PA	1,042	17.80	17.80	0.64		3.42		12.66	182.4	26.9	26.1	101.5	101.5	18.08	1.58

III-1

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit III (continued)

Financial and Market Data for All Public Thrifts

Company	Ticker	State	Total Assets ($Mil.)	Total Equity/ Assets (%)	Tang. Equity/ Assets (%)	LTM ROA (%)		LTM ROE (%)		Closing Price 11/30/09 ($)	Total Market Value ($Mil.)	Price/ LTM EPS (x)	Price/ Core EPS (x)	Price/ Book Value (%)	Price/ Tang. Book (%)	Price/ Total Assets (%)	Div. Yield (%)
FFD Financial Corp.	FFDF	OH	192	9.34	9.34	0.48		5.01		14.80	15.0	16.8	15.8	83.2	83.2	7.77	4.59
Fidelity Bancorp, Inc.	FSBI	PA	730	6.45	6.11	(0.24	)	(3.62	)	5.24	16.0	NM	12.7	39.5	42.3	2.21	1.53
First Advantage Bancorp	FABK	TN	353	20.06	20.06	0.30		1.44		10.50	46.1	47.7	45.7	65.2	65.2	13.08	1.90
First Bancshares, Inc.	FBSI	MO	220	10.97	10.90	(1.73	)	(16.42	)	8.50	13.2	NM	NA	54.5	54.9	5.98	0.00
First Capital, Inc.	FCAP	IN	457	10.23	9.12	0.31		2.96		15.21	41.9	31.0	28.3	89.9	102.2	9.18	4.74
First Clover Leaf Financial Corp.	FCLF	IL	603	13.20	11.29	(1.07	)	(7.50	)	7.00	56.1	NM	NM	71.0	84.9	9.38	3.43
First Community Bank Corp.	FCFL	FL	561	7.46	7.46	(1.33	)	(16.29	)	2.86	11.9	NM	NA	38.1	38.1	2.16	0.00
First Defiance Financial Corp.	FDEF	OH	2,019	11.62	8.73	0.38		3.35		10.86	88.2	15.1	10.7	44.5	65.6	4.45	1.47
First Federal Bancshs. of Arkansas	FFBH	AR	739	8.58	8.58	(3.23	)	(31.18	)	2.90	14.1	NM	NM	29.8	29.8	1.95	1.38
First Federal of No. Mich. Bancorp	FFNM	MI	239	10.84	10.47	(2.44	)	(20.48	)	1.42	4.1	NM	NM	15.8	16.5	1.72	0.00
First Financial Holdings, Inc.	FFCH	SC	3,510	10.02	9.03	0.88		11.18		13.39	221.2	6.0	NM	74.3	85.6	6.18	1.49
First Financial Northwest, Inc.	FFNW	WA	1,319	19.01	19.01	(2.48	)	(11.38	)	6.86	133.4	NM	NM	54.8	54.8	10.42	4.96
First Franklin Corp.	FFHS	OH	304	7.65	7.65	(0.39	)	(5.18	)	8.00	13.5	NM	NM	57.8	57.8	4.42	0.00
First Keystone Financial, Inc.(2)	FKFS	PA	525	6.22	6.22	(0.58	)	(8.87	)	11.75	28.6	NM	NM	87.4	87.4	5.44	0.00
First Niagara Financial Group, Inc.	FNFG	NY	14,138	16.86	10.95	0.71		4.03		13.19	2,482.4	27.5	NA	102.3	168.7	NA	4.25
First PacTrust Bancorp, Inc.	FPTB	CA	894	10.85	10.85	(0.20	)	(1.84	)	6.25	26.6	NM	NM	34.1	34.1	3.03	3.20
First Place Financial Corp.	FPFC	OH	3,245	8.57	8.27	(3.32	)	(39.81	)	2.86	48.5	NM	NM	23.2	24.5	1.53	0.00
First Savings Financial Group, Inc.	FSFG	IN	481	11.00	9.37	0.01		0.07		10.35	26.3	NM	NM	NA	NA	NA	0.00
Flagstar Bancorp, Inc.	FBC	MI	14,821	4.50	4.50	(4.14	)	(77.51	)	0.70	328.0	NM	NM	81.4	81.4	2.24	0.00
Flushing Financial Corp.	FFIC	NY	4,177	9.98	9.58	0.66		8.93		10.91	339.6	9.9	9.1	94.4	99.6	8.00	4.77
GS Financial Corp.	GSLA	LA	271	10.45	10.45	0.33		2.91		15.80	19.8	24.3	17.0	70.1	70.1	7.33	2.53
Hampden Bancorp, Inc.	HBNK	MA	566	17.00	17.00	0.01		0.08		10.97	80.2	NM	145.2	83.6	83.6	14.20	1.09
Harleysville Savings Fin’l Corp.	HARL	PA	830	6.04	6.04	0.57		9.67		13.73	49.8	10.5	9.4	99.4	99.4	6.00	5.53
Harrington West Fin’l Group, Inc.	HWFG	CA	1,058	2.49	1.94	(2.25	)	(60.84	)	0.49	3.6	NM	NM	14.4	18.9	0.34	0.00
HF Financial Corp.	HFFC	SD	1,168	6.03	5.63	0.58		8.31		9.85	68.1	7.4	6.3	56.5	60.8	3.41	4.57
Hingham Institution for Savings	HIFS	MA	914	7.03	7.03	0.90		12.33		30.25	64.3	8.5	8.2	100.0	100.0	7.03	2.91
HMN Financial, Inc.	HMNF	MN	1,033	9.73	9.73	(1.22	)	(13.24	)	3.75	15.9	NM	NM	20.7	20.7	1.58	0.00
Home Bancorp, Inc.	HBCP	LA	533	24.86	24.86	0.74		3.11		12.33	108.5	26.8	17.5	83.0	83.0	20.63	0.00
Home Federal Bancorp, Inc.	HOME	ID	828	25.32	25.32	1.14		3.99		12.19	203.6	23.4	NA	97.1	97.1	24.58	1.80

III-2

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit III (continued)

Financial and Market Data for All Public Thrifts

Company	Ticker	State	Total Assets ($Mil.)	Total Equity/ Assets (%)	Tang. Equity/ Assets (%)	LTM ROA (%)		LTM ROE (%)		Closing Price 11/30/09 ($)	Total Market Value ($Mil.)	Price/ LTM EPS (x)	Price/ Core EPS (x)	Price/ Book Value (%)	Price/ Tang. Book (%)	Price/ Total Assets (%)	Div. Yield (%)
HopFed Bancorp, Inc.	HFBC	KY	1,022	7.89	7.78	0.05		0.61		9.87	35.5	NM	NM	56.5	57.7	3.53	4.86
Hudson City Bancorp, Inc.	HCBK	NJ	58,885	8.95	8.70	0.93		10.19		13.29	6,981.4	12.8	12.8	123.6	127.4	11.06	4.51
Independence Federal Svgs. Bank	IFSB	DC	167	5.96	5.96	(0.06	)	(1.17	)	1.95	3.0	NM	NM	30.3	30.3	1.81	0.00
Jefferson Bancshares, Inc.	JFBI	TN	654	12.33	8.89	0.42		3.29		5.00	33.5	11.9	11.6	41.5	59.7	5.11	2.40
Legacy Bancorp, Inc.	LEGC	MA	954	13.04	11.92	(0.47	)	(3.53	)	9.55	83.4	NM	50.1	67.2	74.7	8.76	2.09
Liberty Bancorp, Inc.	LBCP	MO	384	11.26	10.77	0.57		4.73		8.09	29.3	15.3	14.7	67.7	71.2	7.63	1.24
Louisiana Bancorp, Inc.	LABC	LA	332	23.82	23.82	0.82		3.16		14.65	74.1	27.6	27.4	96.3	96.3	22.93	0.00
LSB Corp.	LSBX	MA	807	9.46	9.46	0.94		10.54		11.53	51.9	7.7	7.7	83.9	83.9	6.55	1.73
LSB Financial Corp.	LSBI	IN	364	9.43	9.43	0.25		2.78		10.25	15.9	16.5	14.8	46.4	46.4	4.38	4.88
Mayflower Bancorp, Inc.	MFLR	MA	249	8.09	8.08	0.50		6.34		6.60	13.8	11.0	11.6	68.3	68.3	5.52	3.64
Meta Financial Group, Inc.	CASH	IA	820	5.38	5.09	(0.31	)	(5.45	)	21.78	56.8	NM	NM	128.7	136.5	6.93	2.39
MutualFirst Financial, Inc.	MFSF	IN	1,397	9.37	8.97	(1.46	)	(15.81	)	6.57	45.9	NM	NM	46.2	49.3	3.36	3.65
NASB Financial, Inc.	NASB	MO	1,615	10.03	9.88	0.88		8.78		24.15	190.0	14.0	13.8	117.4	119.3	11.77	3.73
New Hampshire Thrift Bancshs.	NHTB	NH	903	9.81	6.77	0.76		8.15		9.50	54.8	8.7	11.2	69.9	111.7	6.15	5.47
New York Community Bancorp	NYB	NY	32,884	13.20	6.03	1.07		8.26		11.69	4,188.0	11.7	10.2	95.7	226.6	12.64	8.55
NewAlliance Bancshares, Inc.	NAL	CT	8,541	16.71	10.82	0.52		3.14		11.78	1,249.3	26.2	27.2	88.0	145.6	14.70	2.38
Newport Bancorp, Inc.	NFSB	RI	452	11.63	11.63	(0.07	)	(0.56	)	12.10	48.1	NM	NM	90.7	90.7	10.55	0.00
North Central Bancshares, Inc.	FFFD	IA	453	10.61	10.61	(0.15	)	(1.58	)	15.30	20.6	NM	NM	54.2	54.2	4.65	0.26
OceanFirst Financial Corp.	OCFC	NJ	1,873	8.87	8.87	0.83		10.52		10.13	190.7	8.4	8.0	97.8	97.8	6.86	7.90
Osage Bancshares, Inc.	OSBK	OK	160	15.72	15.11	(0.32	)	(1.90	)	7.79	21.5	NM	33.3	86.1	90.2	13.53	4.36
Pamrapo Bancorp, Inc.(2)	PBCI	NJ	572	8.83	8.83	(0.56	)	(6.16	)	7.50	37.0	NM	NM	73.3	73.3	6.47	0.00
Park Bancorp, Inc.	PFED	IL	222	11.55	11.55	(1.26	)	(10.68	)	3.75	4.5	NM	NM	17.5	17.5	2.02	0.00
Parkvale Financial Corp.	PVSA	PA	1,903	7.94	6.51	(0.52	)	(6.47	)	8.47	46.0	NM	7.1	38.5	51.0	2.46	2.36
People’s United Financial, Inc.	PBCT	CT	20,810	24.58	18.64	0.54		2.13		16.29	5,674.0	49.4	53.8	106.9	152.1	26.27	3.74
Provident Financial Holdings, Inc.	PROV	CA	1,480	7.36	7.36	(0.82	)	(10.89	)	4.01	24.9	NM	NM	22.9	22.9	1.69	1.00
Provident Financial Services, Inc.	PFS	NJ	6,816	12.95	NA	(1.84	)	(12.80	)	10.58	633.0	NM	NM	71.7	120.9	9.29	4.16
Provident New York Bancorp	PBNY	NY	3,022	14.15	9.14	0.89		6.22		8.35	330.2	12.5	22.7	77.2	126.5	10.93	2.87
Pulaski Financial Corp.	PULB	MO	1,406	8.32	8.04	0.36		4.64		7.00	72.6	18.9	17.7	NA	NA	NA	5.43
PVF Capital Corp.	PVFC	OH	887	6.19	6.19	(1.67	)	(25.75	)	1.85	14.8	NM	NM	26.9	26.9	1.66	0.00

III-3

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit III (continued)

Financial and Market Data for All Public Thrifts

Company	Ticker	State	Total Assets ($Mil.)	Total Equity/ Assets (%)	Tang. Equity/ Assets (%)	LTM ROA (%)		LTM ROE (%)		Closing Price 11/30/09 ($)	Total Market Value ($Mil.)	Price/ LTM EPS (x)	Price/ Core EPS (x)	Price/ Book Value (%)	Price/ Tang. Book (%)	Price/ Total Assets (%)	Div. Yield (%)
Rainier Pacific Fin’l Group, Inc.	RPFG	WA	764	1.68	1.31	(6.86	)	(142.64	)	0.27	1.7	NM	NM	12.7	16.2	0.21	0.00
River Valley Bancorp	RIVR	IN	385	6.62	6.61	0.41		6.36		13.01	19.6	12.6	12.2	76.8	76.9	5.08	6.46
Riverview Bancorp, Inc.	RVSB	WA	864	10.42	7.64	0.14		1.43		2.70	29.5	22.5	15.8	32.9	46.7	3.42	0.00
Rome Bancorp, Inc.	ROME	NY	338	17.81	17.81	0.86		4.82		8.39	57.7	19.1	17.6	95.9	95.9	17.08	4.05
Severn Bancorp, Inc.	SVBI	MD	996	10.97	10.94	(1.30	)	(11.05	)	2.61	26.3	NM	NM	31.8	31.9	2.71	4.60
Superior Bancorp	SUPR	AL	3,227	7.58	7.07	(5.32	)	(61.08	)	1.83	21.3	NM	NM	11.8	13.0	0.67	0.00
Teche Holding Company	TSH	LA	765	9.34	8.90	0.91		9.98		31.70	66.5	9.5	8.4	93.0	98.1	8.69	4.48
Territorial Bancorp Inc.	TBNK	HI	1,357	15.91	15.91	0.49		4.97		16.98	207.7	NA	NA	96.3	96.3	15.31	0.00
TF Financial Corp.	THRD	PA	712	10.05	9.47	0.53		5.60		18.44	49.1	12.1	12.0	65.1	69.3	6.54	4.34
TierOne Corp.	TONE	NE	3,161	7.73	7.61	(0.84	)	(10.18	)	0.84	15.2	NM	NM	6.2	6.3	0.48	0.00
Timberland Bancorp, Inc.	TSBK	WA	703	12.54	11.73	0.01		0.08		4.50	31.7	NM	23.2	43.7	48.0	4.62	2.67
TrustCo Bank Corp NY	TRST	NY	3,650	6.70	6.69	0.76		11.25		6.16	472.2	18.1	17.8	192.7	193.1	12.92	4.06
United Community Fin’l Corp.	UCFC	OH	2,462	9.58	9.56	(0.16	)	(1.64	)	1.59	49.1	NM	NM	20.8	20.9	1.99	0.00
United Financial Bancorp, Inc.	UBNK	MA	1,247	17.35	17.34	0.45		2.53		12.84	206.4	34.7	25.9	95.9	96.0	16.64	2.18
United Western Bancorp, Inc.	UWBK	CO	2,628	7.43	7.43	0.03		0.53		3.05	89.4	9.2	NM	42.7	42.7	3.17	0.00
Washington Federal, Inc.	WFSL	WA	12,582	13.87	12.10	0.39		3.40		19.05	2,138.8	41.4	38.7	122.5	143.7	16.99	1.05
Wayne Savings Bancshares, Inc.	WAYN	OH	400	9.12	8.64	0.47		5.52		5.74	17.2	8.7	8.2	47.2	50.1	4.31	3.48
Westfield Financial, Inc.	WFD	MA	1,262	20.38	20.38	0.37		1.60		8.27	252.2	55.1	46.6	98.5	98.5	20.07	2.42
WSB Holdings, Inc.	WSB	MD	447	11.90	11.90	(1.23	)	(10.33	)	2.55	20.0	NM	NM	37.6	37.6	4.48	3.14
WSFS Financial Corp.	WSFS	DE	3,574	8.48	NA	(0.08	)	(1.03	)	26.67	188.7	NM	NM	75.2	NA	5.36	1.80
WVS Financial Corp.	WVFC	PA	370	8.37	8.37	0.54		7.33		15.25	31.6	14.1	13.5	101.9	101.9	8.53	4.20
Average(2)	NA	NA	2,959	10.90	10.08	(0.41	)	(7.36	)	NA	313.0	18.1	21.2	69.9	75.9	7.48	2.38
Median(2)	NA	NA	914	10.00	9.13	0.23		1.52		NA	49.1	14.6	14.8	68.3	74.7	5.99	2.38

⁽¹⁾ Includes public thrifts listed on NYSE, NYSE Amex, and NASDAQ; excludes thrifts subject to mutual holding company ownership.

⁽²⁾ Average and mean data exclude companies subject to pending acquisition.

Source: SNL Financial; Feldman Financial.

III-4

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit IV-1

Pro Forma Assumptions for Conversion Stock Offering

1. The total amount of the net offering proceeds was fully invested at the beginning of the applicable period.

2. The net offering proceeds are invested to yield a return of 1.45%, which represented the yield on three-year U.S. Treasury securities at September 30, 2009. The effective corporate income tax rate was assumed to be 34.0%, resulting in a net after-tax yield of 0.96%.

3. It is assumed that 8.0% of the total shares of common stock to be sold in the offering will be acquired by the Bank’s employee stock ownership plan (“ESOP”). Pro forma adjustments have been made to earnings and equity to reflect the impact of the ESOP. The annual expense is estimated based on a 10-year loan to the ESOP from the Company. No re-investment is assumed on proceeds used to fund the ESOP.

4. It is assumed that the Bank’s recognition and retention plan (“RRP”) will purchase in the open market a number of shares equal to 4.0% of the total shares sold in the offering. Also, it is assumed that these shares are acquired at the initial public offering price of $10.00 per share. Pro forma adjustments have been made to earnings and equity to reflect the impact of the RRP. The annual expense is estimated based on a five-year vesting period. No re-investment is assumed on proceeds used to fund the RRP.

5. It is assumed that an additional 10.0% of the total shares sold in the offering will be reserved for issuance by the Bank’s stock option plan. The pro forma net income has been adjusted to reflect the expense associated with the granting of options at an assumed options value of $4.02 per share. It is further assumed that options for all shares reserved under the plan were granted to plan participants at the beginning of the period, 25% of the options granted were non-qualified options for income tax purposes, the options would vest at a rate of 20% per year, and compensation expense will be recognized on a straight-line basis over the five-year vesting period

6. The fair value of stock options has been estimated at $4.02 per option using the Black-Scholes option pricing model with the following assumptions: a grant-date share price and option exercise price of $10.00; dividend yield of 0.00%; an expected option life of 10 years; a risk-free interest rate of 3.31%; and a volatility rate of 22.35% based on an index of publicly traded thrift institutions.

7. Total offering expenses are estimated at $700,000.

8. No effect has been given to withdrawals from deposit accounts for the purpose of purchasing common stock in the offering.

9. No effect has been given in the pro forma equity calculation for the assumed earnings on the net proceeds.

IV-1

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit IV-2

Pro Forma Conversion Valuation Range

Fairmount Bank

Historical Financial Data as of September 30, 2009

(Dollars in Thousands, Except Per Share Data)

	Minimum			Midpoint			Maximum			Adj. Max.
Shares sold		425,000			500,000			575,000			661,250
Offering price	$	10.00		$	10.00		$	10.00		$	10.00
Gross proceeds	$	4,250		$	5,000		$	5,750		$	6,613
Less: estimated offering expenses		(700	)		(700	)		(700	)		(700	)
Net offering proceeds		3,550			4,300			5,050			5,913
Less: ESOP purchase		(340	)		(400	)		(460	)		(529	)
Less: RRP purchase		(170	)		(200	)		(230	)		(265	)
Net investable proceeds	$	3,040		$	3,700		$	4,360		$	5,119
Net Income:
Historical LTM ended 9/30/09	$	445		$	445		$	445		$	445
Pro forma income on net proceeds		29			36			42			49
Pro forma ESOP adjustment		(22	)		(26	)		(30	)		(35	)
Pro forma RRP adjustment		(22	)		(26	)		(30	)		(35	)
Pro forma option adjustment		(31	)		(37	)		(42	)		(49	)
Pro forma net income	$	399		$	392		$	385		$	375
Pro forma earnings per share	$	1.01		$	0.84		$	0.72		$	0.61
Core Earnings:
Historical LTM ended 9/30/09	$	445		$	445		$	445		$	445
Pro forma income on net proceeds		29			36			42			49
Pro forma ESOP adjustment		(22	)		(26	)		(30	)		(35	)
Pro forma RRP adjustment		(22	)		(26	)		(30	)		(35	)
Pro forma option adjustment		(31	)		(37	)		(42	)		(49	)
Pro forma core earnings	$	399		$	392		$	385		$	375
Pro forma core earnings per share	$	1.01		$	0.84		$	0.72		$	0.61
Total Equity	$	6,790		$	6,790		$	6,790		$	6,790
Net offering proceeds		3,550			4,300			5,050			5,913
Less: ESOP purchase		(340	)		(400	)		(460	)		(529	)
Less: RRP purchase		(170	)		(200	)		(230	)		(265	)
Pro forma total equity	$	9,830		$	10,490		$	11,150		$	11,909
Pro forma book value	$	23.13		$	20.98		$	19.39		$	18.01
Tangible Equity	$	6,790		$	6,790		$	6,790		$	6,790
Net offering proceeds		3,550			4,300			5,050			5,913
Less: ESOP purchase		(340	)		(400	)		(460	)		(529	)
Less: RRP purchase		(170	)		(200	)		(230	)		(265	)
Pro forma tangible equity	$	9,830		$	10,490		$	11,150		$	11,909
Pro forma tangible book value	$	23.13		$	20.98		$	19.39		$	18.01
Total Assets	$	64,041		$	64,041		$	64,041		$	64,041
Net offering proceeds		3,550			4,300			5,050			5,913
Less: ESOP purchase		(340	)		(400	)		(460	)		(529	)
Less: RRP purchase		(170	)		(200	)		(230	)		(265	)
Pro forma total assets	$	67,081		$	67,741		$	68,401		$	69,160
Pro Forma Ratios:
Price / LTM EPS		9.9			11.9			13.9			16.4
Price / Core EPS		9.9			11.9			13.9			16.4
Price / Book Value		43.2	%		47.7	%		51.6	%		55.5	%
Price / Tangible Book Value		43.2	%		47.7	%		51.6	%		55.5	%
Price / Total Assets		6.34	%		7.38	%		8.41	%		9.56	%
Total Equity / Assets		14.65	%		15.49	%		16.30	%		17.22	%
Tangible Equity / Assets		14.65	%		15.49	%		16.30	%		17.22	%

IV-2

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit IV-3

Pro Forma Conversion Analysis at the Maximum Valuation

Fairmount Bank

Historical Financial Data as of September 30, 2009

Valuation Parameters	Symbol	Data
Net income — LTM	Y	$	445,000
Core earnings — LTM	Y		445,000
Net worth	B		6,790,000
Tangible net worth	B		6,790,000
Total assets	A		64,041,000
Expenses in conversion	X		700,000
Other proceeds not reinvested	O		690,000
ESOP purchase	E		460,000
ESOP expense (pre-tax)	F		45,455
RSP purchase	M		230,000
RSP expense (pre-tax)	N		45,455
Stock option expense (pre-tax)	Q		46,230
Option expense tax-deductible	D		25.00	%
Re-investment rate (after-tax)	R		0.96	%
Tax rate	T		34.00	%
Shares for EPS	S		92.80	%
Pro Forma Valuation Ratios at Maximum Value
Price / LTM EPS	P/E		13.89	x
Price / Core EPS	P/E		13.89	x
Price / Book Valuex	P/B		51.57	%
Price / Tangible Book	P/TB		51.57	%
Price / Assets	P/A		8.41	%

Pro Forma Calculation at Maximum Value						Based on
V	=	(P/E / S)*((Y-R*(O+X)-(F+N)*(1-T)-(Q-Q*D*T)))	=	$	5,750,000	[LTM earnings]
		1 - (P/E / S) * R
V	=	(P/E / S)*((Y-R*(O+X)-(F+N)*(1-T)-(Q-Q*D*T))	=	$	5,750,000	[Core earings]
		1 - (P/E / S) * R
V	=	P/B * (B - X - E - M)	=	$	5,750,000	[Book value]
		1 - P/B
V	=	P/TB * (B - X - E - M)	=	$	5,750,000	[Tangible book]
		1 - P/TB
V	=	P/A * (B - X - E - M)	=	$	5,750,000	[Total assets]
		1 - P/A

Pro Forma Valuation Range
Minimum =	$	5,000,000	x	0.85	=	$	4,250,000
Midpoint =	$	5,000,000	x	1.00	=	$	5,000,000
Maximum =	$	5,000,000	x	1.15	=	$	5,750,000
Adj. Max. =	$	5,750,000	x	1.15	=	$	6,612,500

IV-3

FELDMAN FINANCIAL ADVISORS, INC.

Exhibit IV-4

Comparative Valuation Ratio Differential

Pro Forma Conversion Valuation

Computed from Market Price Data as of November 30, 2009

			Comparative Group				All Public Thrifts (1)
Valuation Ratio	Symbol	Fairmount Bank
			Average		Median		Average		Median
Price / LTM EPS	P/E		18.5		16.7		18.1		14.6
Minimum	(x)	9.9	-46.5	%	-40.6	%	-45.3	%	-32.2	%
Midpoint		11.9	-35.6	%	-28.6	%	-34.2	%	-18.5	%
Maximum		13.9	-24.9	%	-16.6	%	-23.2	%	-4.8	%
Adj. Maximum		16.4	-11.4	%	-1.7	%	-9.4	%	12.3	%
Price / Core EPS	P/E		19.8		16.4		21.2		14.8
Minimum	(x)	9.9	-50.1	%	-39.7	%	-53.3	%	-33.1	%
Midpoint		11.9	-40.0	%	-27.5	%	-43.8	%	-19.6	%
Maximum		13.9	-30.0	%	-15.4	%	-34.5	%	-6.2	%
Adj. Maximum		16.4	-17.4	%	-0.1	%	-22.7	%	10.8	%
Price / Book Value	P/B		67.1		66.7		69.9		68.3
Minimum	(%)	43.2	-35.5	%	-35.2	%	-38.1	%	-36.7	%
Midpoint		47.7	-28.9	%	-28.6	%	-31.8	%	-30.2	%
Maximum		51.6	-23.1	%	-22.7	%	-26.2	%	-24.5	%
Adj. Maximum		55.5	-17.2	%	-16.8	%	-20.6	%	-18.7	%
Price / Tangible Book	P/TB		67.8		66.8		75.9		74.7
Minimum	(%)	43.2	-36.2	%	-35.2	%	-43.0	%	-42.1	%
Midpoint		47.7	-29.7	%	-28.6	%	-37.2	%	-36.2	%
Maximum		51.6	-23.9	%	-22.7	%	-32.1	%	-31.0	%
Adj. Maximum		55.5	-18.1	%	-16.8	%	-26.8	%	-25.7	%
Price / Total Assets	P/A		8.16		6.43		7.48		5.99
Minimum	(%)	6.34	-22.4	%	-1.4	%	-15.3	%	5.8	%
Midpoint		7.38	-9.6	%	14.9	%	-1.3	%	23.2	%
Maximum		8.41	3.0	%	30.8	%	12.4	%	40.3	%
Adj. Maximum		9.56	17.2	%	48.8	%	27.8	%	59.6	%

⁽¹⁾ Excludes companies subject to MHC ownership or pending acquisition.

IV-4

EX-99.6

Exhibit 99.6

RP® FINANCIAL, LC.
Serving the Financial Services Industry Since 1988

August 26, 2009

Mr. Joseph Solomon

President

Fairmount Bank

8201 Philadelphia Road

Baltimore, Maryland 21237

Dear Mr. Solomon:

This letter sets forth the agreement between Fairmount Bank, Baltimore, Maryland (the “Bank”), and RP^® Financial, LC. (“RP Financial”), whereby the Bank has engaged RP Financial to prepare the regulatory business plan and financial projections to be adopted by the Bank’s Board of Directors in conjunction with the mutual-to-stock conversion transaction, whereby the Bank will become a wholly-owned subsidiary of the newly-formed stock holding company. These services are described in greater detail below.

Description of Proposed Services

RP Financial’s business planning services will include the following areas:

(1) Evaluating the Bank’s current financial and operating condition, business strategies and anticipated strategies in the future;

(2) Analyzing and quantifying the impact of business strategies, incorporating the use of net offering proceeds both in the short and long term;

(3) Preparing detailed financial projections on a quarterly basis for a period of at least three fiscal years to reflect the impact of Board approved business strategies and use of proceeds;

(4) Preparing the written business plan document which conforms with applicable regulatory guidelines including a description of the use of proceeds and how the convenience and needs of the community will be addressed; and

(5) Preparing the detailed schedules of the capitalization of the Bank and holding company and related cash flows.

Washington Headquarters	Direct: (703) 647-6543
Rosslyn Center	Telephone: (703) 528-1700
1700 North Moore Street, Suite 2210	Fax No.: (703) 528-1788
Arlington, VA 22209	Toll-Free No.: (866) 723-0594
www.rpfinancial.com	E-Mail: rriggins@rpfinancial.com

Mr. Joseph Solomon

August 26, 2009

Page 2

Contents of the business plan will include: Executive Summary; Description of Business; Marketing Plan; Management Plan; Records, Systems and Controls; Financial Management Plan; Monitoring and Revising the Plan; and Alternative Business Strategy.

RP Financial agrees to prepare the business plan and accompanying financial projections in writing such that the business plan conforming to regulatory guidelines can be filed with the appropriate federal and state regulatory agencies in conjunction with the filing of the regulatory applications. It is anticipated that the Board of Directors will approve the business plan and financial projections prior to the filing.

Fee Structure and Payment Schedule

The Bank agrees to compensate RP Financial for preparation of the business plan on a fixed fee basis of $25,000. Payment of the professional fees shall be made as follows:

• $5,000 upon execution of this letter of agreement engaging RP Financial’s services;

• $5,000 upon delivery of the draft summary business plan; and,

• $15,000 upon delivery of and filing of the business plan.

The Bank also agrees to reimburse RP Financial for those direct out-of-pocket expenses necessary and incidental to providing the business planning services. Reimbursable expenses will likely include travel, shipping, telephone/facsimile printing, computer and data services, and shall be paid to RP Financial as incurred and billed. RP Financial will agree to limit reimbursable expenses to $1,750, subject to written authorization from the Bank to exceed such level. If an update to the business plan is required, the Bank will compensate RP Financial with a fixed fee of $5,000 payable upon delivery of each update.

In the event the Bank shall, for any reason, discontinue this planning engagement prior to delivery of the completed business plan and payment of the progress payment fees, the Bank agrees to compensate RP Financial according to RP Financial’s standard billing rates for consulting services based on accumulated and verifiable time expenses, not to exceed the fixed fee described above, plus reimbursable expenses incurred. RP Financial’s standard billing rates range from $400 per hour for managing directors to $75 per hour for research associates.

If during the course of the planning engagement, unforeseen events occur so as to materially change the nature or the work content of the business planning services described in this contract, the terms of said contract shall be subject to renegotiation by the Bank and RP Financial. Such unforeseen events may include changes in regulatory requirements as it specifically relates to the Bank or potential transactions that will dramatically impact the Bank such as a pending acquisition or branch transaction.

*  *  *  *  *  *  *  *  *  *  *

Mr. Joseph Solomon

August 26, 2009

Page 3

Please acknowledge your agreement to the foregoing by signing as indicated below and returning to RP Financial a signed copy of this letter and the initial retainer.

Sincerely,

/s/ William E. Pommerening

William E. Pommerening

CEO and Managing Director

Agreed To and Accepted By:	Joseph Solomon
	President
Upon Authorization by the Board of Directors for:		Fairmount Bank
		Baltimore, Maryland
Date Executed:        _____________________________________

EX-99.7

Exhibit 99.7

CONFIDENTIAL

December 4, 2009

Mr. Joseph M. Solomon

President and Chief Executive Officer

Fairmount Bank

8216 Philadelphia Road

Baltimore, MD 21237

Re: Proposed Conversion – Records Processing Services

Dear Mr. Solomon:

Stifel, Nicolaus & Company, Incorporated (“Stifel Nicolaus”) is pleased to submit this letter agreement setting forth the terms of the proposed engagement of Stifel Nicolaus as data processing records management agent (the “Records Agent”) for Fairmount Bank (the “Bank”) in connection with the proposed mutual-to-stock conversion of the Bank and the concurrent sale of common stock of a new stock holding company (the “Stock Company”) to be formed in connection with the Conversion.

1. CONVERSION AND OFFERING

The Bank will effect the Conversion by undergoing a series of transactions and forming the Stock Company (the Bank and the Company are together referred to herein as “the Company”). The common stock of the Company (the “Common Stock”) will be offered for sale on a first priority basis in a subscription offering with any remaining shares expected to be sold in a community offering and, if necessary, a syndicated community offering or pubic underwritten offering (collectively, the “Offering”). In connection therewith, the Bank’s Board of Directors has adopted a plan of conversion (the “Plan”). Stifel Nicolaus will act as Records Agent to the Company with respect to the subscription and community offerings. Specific terms of services shall be set forth in the Data Processing Records Management Engagement Terms (the “Terms”), which is an integral part of this letter and is incorporated herein. In the event of any conflict between this letter and the Terms, the Terms shall control.

Pursuant to a separate engagement letter by and between Stifel Nicolaus and the Bank, Stifel Nicolaus will serve as conversion advisor and marketing agent for the Company in connection with the Conversion and Offering.

2. SERVICES TO BE PROVIDED BY STIFEL NICOLAUS

In connection with the subscription and community offerings, Stifel Nicolaus will serve as Records Agent. A stock offering requires accurate and timely record keeping, processing and reporting. We will coordinate with the Bank’s data processing contacts and applicable members of the Conversion

STIFEL, NICOLAUS & COMPANY, INCORPORATED

237 PARK AVENUE, 8TH FLOOR | NEW YORK, NEW YORK 10017 | (212) 847-6500 | (212) 682-3778 FAX | WWW.STIFEL.COM

MEMBER SIPC AND NYSE

working group. We will also interface with and support the Stock Information Center, which will serve as the “command center” during a stock offering. Specifically, we will provide the records processing, proxy and stock order services described below, each as needed or reasonably requested by the Bank and the Company.

Preparation

• Provide the Bank with an account record layout format and consult with the Bank’s data processing contacts.

• Read, edit, balance and convert the Bank’s customer account records (the “Account Records”) that are provided to Stifel Nicolaus.

• Provide customer account totals based on the Account Records, for the Bank to balance to its internal records.

• Identify accounts coded as “Bad Address” and “No Mail” and provide to the Bank.

• Identify accounts that are eligible according to the Plan and consolidate like accounts in order to reduce printing costs.

• Allocate votes according to the Plan.

• “Household” consolidated accounts, where possible, in order to reduce printing/postage costs.

• If the Account Records do not contain a high percentage of phone numbers, contact Telematch service bureau to locate customer phone numbers, with the Bank’s authorization.

• Provide counsel with a list of aggregate accounts by state.

• Provide the Stock Information Center with “Folio Views” computer record of customer account, household and vote information.

• Provide financial printer with electronic information to imprint order forms/proxycards with name, address and codes.

• Provide phone records for Stock Information Center personnel to use for customer proxy solicitation.

Processing and Reporting

• Tabulate proxy votes.

• Record stock order information and, in the event of oversubscription, allocate shares in accordance with the Plan.

• Produce information for “unvoted” follow-up proxy calls/mailings, in selected vote range.

• Provide the Company with up-to-date subscriber order totals.

• Produce subscriber stock order acknowledgement letters, to be mailed.

• Assign an individual to serve as the Inspector of Elections for the Special Meeting of Members.

• Calculate interest/refund amounts and provide the Bank with records, for check imprinting.

• Supply deposit account withdrawal records to the Bank.

• Send transfer agent the new investor files for certificate preparation.

• If requested, produce year end subscriber 1099-INT forms and electronically submit information to IRS.

3. RELIANCE ON INFORMATION PROVIDED

In order to provide services effectively and efficiently, Stifel Nicolaus must be provided complete, accurate and timely record date customer account files as well as other information and responses to our inquiries. We must be notified promptly of Plan changes or other facts that impact our duties hereunder. Stifel Nicolaus will rely on the information provided without independently verifying same and will not assume responsibility for the completeness or accuracy of that information.

2

4. COMPENSATION

For its services hereunder, the Company will pay to Stifel Nicolaus a fee of $15,000. Additional fees may be negotiated if significant additional work is required due to unexpected circumstances such as:

a.) customer account records provided to us in a format substantially different than our requested format;

b.) necessity to produce more than four accountholder files (three depositor eligibility dates plus a depositor “test date”), whether due to eligibility date changes, timetable changes or other circumstances requiring duplicate or additional processing;

c.) untimely communication by the Company or its agents of material information, or untimely delivery of customer records, resulting in additional time or resources expended by Stifel Nicolaus;

d.) processing of stock orders resulting from a resolicitation of subscribers by the Company; or

e.) non-standard services requested by the Company.

The above compensation shall be paid as follows: an advance payment of $5,000 upon executing this letter and the balance upon the closing of the Offering. Year-end 1099 files related to interest earned by subscribers can be prepared for an additional fee.

If the Offering is not consummated for any reason, Stifel Nicolaus shall be entitled to retain the advance payment described above and any additional fees earned hereunder through the termination date. Additionally, Stifel Nicolaus shall be reimbursed for its reasonable out-of-pocket expenses as set forth below, incurred through the termination date.

5. EXPENSES AND REIMBURSEMENT

The Company will bear all of its expenses in connection with the Conversion and the Offering. The Company shall reimburse Stifel Nicolaus for its reasonable out-of-pocket expenses incurred in connection with the services contemplated hereunder, regardless of whether the Offering is consummated, provided that such out-of-pocket expenses shall not exceed $5,000. Typical expenses include, but are not limited to, postage, overnight delivery, telephone and travel. Not later than two days before the Offering closing, Stifel Nicolaus will provide the Company with a detailed accounting of all reimbursable expenses of Stifel Nicolaus, to be paid at closing.

6. ENTIRE AGREEMENT

This letter and the incorporated Terms reflect the entire agreement between us related to the services described herein. This agreement may be amended by a written document signed by both parties.

3

Please acknowledge your agreement to the foregoing by signing in the place provided below and returning one copy of this letter to our office together with the retainer payment in the amount of $5,000. We look forward to working with you.

STIFEL, NICOLAUS & COMPANY, INCORPORATED

BY:	/s/ David P. Lazar
	David P. Lazar
	Managing Director

Accepted and Agreed to This          Day of                     , 2009

FAIRMOUNT BANK

BY:
	Joseph M. Solomon
	President and Chief Executive Officer

cc: Edward B. Crosland, Jr.

4

STIFEL NICOLAUS

DATA PROCESSING RECORDS MANAGEMENT ENGAGEMENT TERMS

This document, which is integral to the Records Processing Services letter of the same date (together, the “Agreement”), applies to all records processing services (the “Services” performed, unless a specific engagement letter is entered into for certain services. The Services are to be provided by Stifel Nicolaus (the “Agent”) to Fairmount Bank and a new stock holding company to be formed (together, the “Company”) in connection with a mutual-to-stock conversion and related stock offering (the “Stock Offering”) to be conducted pursuant to a Plan of Conversion (the “Plan”).

Section 1 - DUTIES OF STIFEL NICOLAUS

a.) The Agent hereby agrees to perform the Services set forth in this Agreement in a commercially reasonable manner, to comply with all timely, appropriate and lawful instructions received from previously identified duly authorized representatives of the Company. The Agent makes no warranties regarding the rendering of the Services (including, without limitation, warranties of merchantability, security, accuracy, noninfringement, and fitness for a particular purpose), and no additional warranties may be implied from the terms of this Agreement. The Company will: (i) inform all of its authorized representatives, which may include attorneys, agents and advisors, that the Agent shall act as the exclusive data processing records management agent and that they are authorized and directed to communicate with the Agent and to promptly provide the Agent with all information that is reasonably requested; (ii) cause the Agent to have adequate notice of, and permit the Agent to attend, meetings (whether in person or otherwise) where the Agent’s attendance is, in the discretion of the Agent, relevant, advisable or necessary; (iii) cause the Agent to receive, as they become available, copies of the documents relating to the Plan, the mutual-to-stock conversion and the Stock Offering, to the extent the Agent believes that such documents are necessary or appropriate for the Agent to perform the Services and (iv) cause the Agent to have adequate advance notice of any proposed changes to the Plan, the proposed Services or the Stock Offering timetable. Failure by the Company to keep the Agent timely and adequately informed or to provide the Agent with complete and accurate necessary information on a timely basis shall excuse the Agent’s delay in the performance of its Services and may be grounds for the Agent to terminate this Agreement pursuant to Section 2 hereof.

b.) The actions to be taken by the Agent hereunder are deemed by the parties to be ministerial only and not discretionary. The Agent, in its capacity as such, shall not be called upon at any time to give any advice regarding implementing the Plan. The Company shall have the sole responsibility to make any and all decisions with respect to implementing the Plan, including but not limited to decisions regarding which customer bank accounts are to be included in accountholder records provided to the Agent. The Agent may rely on records and information received and is not responsible for ensuring the completeness and accuracy of the accountholder records provided or processed.

1

c.) The Agent may rely upon the instructions and representations (whether oral or in writing) of the Company’s duly authorized representatives, without inquiry or investigation. The Agent shall not be responsible for any action taken in reliance upon any signature, endorsement, assignment, certificate, order, request, notice or instruction (whether written or oral), or other instrument or document reasonably believed by it to be valid, genuine and sufficient in carrying out its duties hereunder. The Agent shall not be liable or responsible, and shall be fully authorized and protected for, acting or failing to act in accordance with any oral instructions or requests.

d.) The Agent may consult with legal counsel chosen in good faith at the expense of the Company as to any matter relating to this Agreement, and the Agent shall not incur any liability in acting in good faith in accordance with any advice from such counsel or in relying in good faith upon the Agent’s determinations as to questions of fact.

e.) The Agent may subcontract for the Services with any one or more of its affiliates or with any other party without the prior written consent of the Company. The fees and expenses of such subcontractor shall not be billed to the Company, unless otherwise agreed to by the parties hereto in writing. Such subcontractor shall agree to comply with the provisions of this Agreement relating to Confidentiality (Section 3), Consumer Privacy (Section 4) and Process (Section 5).

f.) Neither Stifel Nicolaus nor any of its directors, managers, officers, employees, affiliates, subsidiaries or agents nor any of their respective controlling persons, heirs, representatives, estates, successors and assigns shall be liable, directly or indirectly, for any losses, claims, judgments, damages or expenses suffered or incurred by the Company, or any person claiming through it, arising out of or relating to the Services provided, other than for, subject to Section 1 g.) below, direct damages or expenses directly related solely to the gross negligence or willful misconduct of the Agent as finally and specifically determined by a court of competent jurisdiction. Moreover, Stifel Nicolaus shall not be responsible nor liable for delays, errors or omissions arising from, relating to or made in connection with circumstances beyond its reasonable control, including but not limited to, acts or omissions of the Company or any of its advisors or agents, acts of governmental authorities, acts of civil commotion or riot, insurrection, acts of military authority, war or acts of war or terrorism, national emergencies, labor difficulties, fire, flood, weather-related problems, acts of God or nature, mechanical or electrical breakdown, computer problems, failure or unavailability of communications or power supply or any change in law or regulation materially affecting the Agent or the Company.

g.) The Agent shall not be liable for any action taken, suffered, or omitted by it or for any error or judgment made by it in the performance of its duties under this Agreement, except for acts or omissions directly relating solely to the Agent’s gross negligence or willful misconduct as finally and specifically determined by a court of competent jurisdiction. In no event shall the Agent be liable for: (i) acting in accordance with or relying upon any instruction, request, notice, demand, certificate, order or document from the Company or any authorized representative acting on its behalf or (ii) for any consequential, indirect, incidental, punitive, exemplary or special damages of any kind whatsoever (including but not limited to lost profits) even if the Agent has been advised of the possibility of such damages. Any liability of the Agent shall be limited to the amount of fees paid to the Agent for the Services performed by the Agent pursuant to this Agreement, in accordance with Section 7 hereof.

h.) The duties, responsibilities and obligations of the Agent shall be limited to those expressly set forth herein, and no duties, responsibilities or obligations shall be inferred or implied. The Agent, in its capacity as such, shall not be subject to, nor required to comply with, any other agreement between or among any or all of the parties hereto and/or any other person or entity, even though

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reference thereto may be made herein or therein, or to comply with any direction or instruction (other than those contained herein or delivered in accordance with this Agreement) from any person or entity other than the Company. Except as may otherwise be set forth herein, the Agent shall not be required to, and shall not, expend or risk any of its own funds or otherwise incur any financial liability in the performance of its duties hereunder.

i.) The parties hereto acknowledge that there are no third party beneficiaries to this Agreement, which is for the exclusive benefit of the parties hereto. No other person or entity or their respective heirs, successors and assigns shall be deemed to have any legal or equitable right, remedy or claim hereto.

j.) In the event of any ambiguity or uncertainty hereunder or in any notice, instruction or other communication received by the Agent hereunder, the Agent may, in its sole discretion, take any action it deems appropriate or refrain from taking any action unless and until the Agent receives written instructions from the Company clarifying the ambiguity or uncertainty, and the Agent shall not be liable for acting or the failure to take any action during this period. In the event of any disagreement between the Company and any other person or entity resulting in adverse claims and demands being made herein or affected hereby, the Agent shall be entitled to refuse to comply with any such claims or demands as long as such disagreement may continue, and in so refusing, shall make no delivery or other disposition under this Agreement, and in so doing shall be entitled to continue to refrain from acting until: (i) the right of adverse claimants shall have been finally settled by binding arbitration or finally adjudicated in a court of competent jurisdiction or (ii) all differences shall have been settled by agreement among the adverse claimants and the Company or other persons or entities and the Agent shall have been notified in writing of such agreement signed by the Company and the adverse person(s) or entity(ies). In the event of such disagreement, the Agent may, but need not, tender into the registry or custody of any court of competent jurisdiction all property in the Agent’s possession pursuant to the terms of this Agreement, together with such legal proceedings as the Agent deems appropriate, and thereupon the Agent shall be discharged from all further duties under this Agreement. The filing of any such legal proceeding shall not deprive the Agent of compensation or expenses paid or payable hereunder for Services, and the Agent shall not be liable with respect to any suspension of performance, delay or otherwise as a result of the tendering of such property. The Agent shall have no obligation to take any legal action in connection with this Agreement or towards its enforcement, or to appear in, prosecute or defend any action or legal proceeding which would or might involve the Agent in any cost, expense, loss or liability unless indemnification, satisfactory to the Agent, in its sole discretion, shall be furnished by the Company. The Agent shall be indemnified for all reasonable costs (including employee time at the employee’s hourly rate determined by his annual salary) and attorneys’ fees and expenses in connection with any such action.

Section 2 - COMMENCEMENT AND TERMINATION OF AGREEMENT

This Agreement shall commence immediately upon execution hereof by all parties and shall continue in force until the consummation or termination of the Stock Offering and mutual-to-stock conversion or the termination of this Agreement. This Agreement may only be terminated by the Company for cause due to action by the Agent constituting a material violation of applicable law or a material breach of this Agreement, which breach remains uncured for ten (10) business days after written notice of such breach is delivered by the Company to the Agent. This Agreement may only be terminated by the Agent in the event of: one or more of the following: (i) termination of the

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separate agreement designating the Agent as conversion advisor and marketing agent related to the mutual-to-stock conversion and related Stock Offering; (ii) circumstances described in Section 1 j.) hereof; (iii) action by the Company constituting a material violation of applicable law or a material breach of this Agreement (including as described in Section 1 a.) hereof) or failure to pay the fees and expenses of the Agent) which breach remains uncured for ten (10) business days after written notice of breach is delivered by Stifel Nicolaus to the Company or (iv) any proceeding in bankruptcy, reorganization, rehabilitation, guaranty fund action, receivership or insolvency is commenced by or against the Company, the Company shall become insolvent, or cease paying its obligations as they become due.

Section 3 - CONFIDENTIALITY

a.) The parties hereto will: (a) hold, and will cause their respective employees, officers, directors and authorized representatives (including attorneys, advisors and agents) to hold, in strict confidence, unless compelled to disclose by judicial, regulatory or administrative process and then (i) only with written notice prior to disclosure to the disclosing party and (ii) still maintaining the confidential status of any such documents and information, all documents and information, in any medium (the “Information”), concerning the disclosing party, whether the Information is furnished to the receiving party by the disclosing party or its representatives in connection with this Agreement or the Information is received, transmitted, created, generated or otherwise processed by the receiving party based, in whole or in part, upon the Information of the disclosing party, except to the extent that such Information can be shown to have been (iii) previously known by the receiving party other than through a breach of a confidentiality agreement by a third party; (iv) in the public domain through no fault of the receiving party or (v) later lawfully acquired by the receiving party from other sources) (the “Confidential Information”), and (b) not use such Confidential Information except for the purposes set forth herein and (c) unless prior written consent is obtained, release Confidential Information only to persons described in this Section 3 (a). It is understood by the parties hereto that the receiving party shall be deemed to have satisfied its obligation to hold the Confidential Information confidential if it exercises the same care as it takes to preserve the confidentiality of its own similar information.

b.) The parties hereto agree to the use of facsimile, email and voicemail as means to communicate both sensitive and non-sensitive information related to the Services.

Section 4 - CONSUMER PRIVACY

a.) In connection with this Agreement, the Company will cause the Agent to be provided Information, which will include nonpublic personal data regarding customers and bank account records. Unless required by law or unless prior written consent is obtained from the Company, the Agent will not knowingly disclose any such nonpublic personal data except to persons described in Section 3 a.), in connection with performing the Services.

b.) The Agent (or its agents) has implemented and will maintain physical, electronic and procedural safeguards reasonably designed to protect the security, confidentiality and integrity of, to prevent unauthorized access to or use of, and to ensure the proper disposal, of nonpublic personal data regarding customers and bank accounts records. Notwithstanding the foregoing, given the nature of electronic communications and the Internet, the Agent makes no absolute guarantees regarding the safety and security of any data transmitted over or accessible via the Internet or any other public networks.

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c.) Upon consummation of the Stock Offering, termination of this Agreement or other reasonable time, at the written request of the Company, and at its sole expense, the Agent shall use its reasonable efforts to transfer to the Company or destroy all physical or electronic Confidential Information, including nonpublic personal data regarding customers and bank account records (excluding data, software and documentation proprietary to the Agent (or its agents)) and shall not retain copies of such data and documentation; provided however, that the Agent (and its agents) may retain copies to the extent necessary, but only for as long as necessary, to comply with legal, regulatory and archival requirements.

Section 5 - PROCESS

If at any time the Agent is served with any judicial or administrative order, judgment, decree, motion, writ, or other form of judicial or administrative process which in any way affects any property of the Company, the Agent is authorized to comply therewith in any reasonable manner as it or its legal counsel of its own choosing deems appropriate; provided that the Agent shall endeavor to give notice thereof to the Company. If the Agent complies with any such judicial or administrative order, judgment, decree, writ or other form of judicial or administrative process, the Agent shall not be liable to any of the parties, or to any other person or entity, even though such order, judgment, decree, writ or process may be subsequently modified or vacated or otherwise determined to have been without legal force or effect.

Section 6 - INDEMNIFICATION

The Company hereby agrees to indemnify and hold harmless the Agent, its directors, officers, employees, affiliates, subsidiaries, agents, and each of their controlling persons, if any (within the meaning of Section 15 or Section 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), and their respective heirs, representatives, successors and assigns (together, the “Agent Group”) against any loss, liability, claim or expense (“Loss”), joint or several, to which the Agent Group may become subject, under any federal or state law or regulation, at common law, in equity or otherwise, insofar as such Loss (or actions in respect thereof) arises out of or is based on or is in connection with or is related to this Agreement and the Services, except to the extent the Agent is finally found, by a court of competent jurisdiction, to have engaged in willful misconduct or gross negligence. The Company agrees to advance or reimburse the Agent Group (or any one or more of them) within fifteen (15) business days of a written request therefor in connection with investigating, preparing or defending against any such loss, claim, damage, liability or action by the Agent Group (or any one or more of them). The indemnification obligations of the Company as provided above are in addition to any liabilities that the Company may have under other agreements, under common law or otherwise. It is understood and agreed that, although the Agent may have consented to descriptions regarding its duties in the Company’s disclosure materials related to the Plan, mutual-to stock conversion and Stock Offering, all such documents (including without limitation, all registration statements, change of control applications, prospectuses, sales literature, advertisements and other such documents, as amended or supplemented) shall be the documents of the Company, and the Agent shall not be responsible for the disclosure or lack of disclosure or the statements or omissions contained therein. This indemnity shall expressly include, but not be limited to, all liabilities under the Securities Act of 1933, as amended, the Exchange Act and any similar state insurance or securities laws and regulations.

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Section 7 - LIMIT OF LIABILITY

The Agent will provide the Services with due care, in a timely manner, so the provisions of this section establishing a limit of liability will not apply if, as determined in a judicial proceeding, we performed our services with gross negligence or willful misconduct. However, our engagement with you is not intended to shift risks normally borne by you to us. With respect to any services or work product or this engagement in general, the liability of the Agent and its personnel shall not exceed the fees we receive for the portion of the work giving rise to liability nor include any special, consequential, incidental, or exemplary damages or loss nor any lost profits, savings, or business opportunity. A claim by Company for a return of fees paid to the Agent by the Company for the Services performed by the Agent pursuant to this Agreement shall be the sole and exclusive remedy for any damages. This limitation of liability is intended to apply to the full extent allowed by law, regardless of the grounds or nature of any claim asserted.

Section 8 - SURVIVAL OF OBLIGATIONS

The covenants and agreements of the parties hereto, including Sections 6 and 7 above, will remain in full force and effect and will survive the consummation of the Stock Offering and mutual-to-stock conversion or the termination of this Agreement, and the Agent Group shall be entitled to the benefit of the covenants and agreements thereafter.

Section 9 - AGREEMENT

a.) This Agreement contains the entire agreement of the parties with respect to the subject matter hereof. This Agreement supersedes any other agreements, either oral or written, among the parties hereto with respect to the specific subject matter hereof, but not any engagement, underwriting, agency or other agreements among the parties pursuant to which Stifel Nicolaus is acting as the Company’s financial advisor, underwriter, placement agent, investment banker or in any similar capacity. Except for Section 1 e) of this Agreement, each party hereto acknowledges that no representation, inducement, promise or agreement, written, oral or otherwise, has been made by any party, or anyone acting on behalf of any party, which is not embodied or expressly stated herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding in relation to the Services. The Company hereby acknowledges and agrees that: (i) Stifel Nicolaus has made full and complete disclosure to the Company of the possibility or existence of any conflict of interest resulting from Stifel Nicolaus serving as both data processing records management agent pursuant to this Agreement and as financial advisor, underwriter, placement agent, investment banker or in any similar capacity pursuant to a separate agreement and (ii) having received full disclosure thereof, the Company hereby waives any such conflict of interest and consents to Stifel Nicolaus serving in such dual capacity.

b.) This Agreement may be enforced only by the parties hereto and shall be interpreted, construed, enforced and administered in accordance with the internal substantive laws (and not the choice of law rules) of the State of New York. Each of the parties hereto hereby submits to the personal jurisdiction of, and each agrees that all proceedings relating hereto shall be brought in, courts located within the State of New York. Each of the parties waives the right to a trial by a jury. To the extent that in any jurisdiction any party hereto may be entitled to claim, for itself or its assets, immunity from suit, execution, attachment (whether before or after judgment) or other legal process, each hereby irrevocably agrees not to claim, and hereby waives, such immunity. Each party hereto waives personal service of process and consents to service of process by certified or registered mail, return receipt requested, directed to it at the address last specified for notices hereunder.

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c.) This Agreement may be executed in several counterparts, which taken together, shall constitute one and the same document. All section headings used herein are for convenience and ease of reference only and do not constitute part of this Agreement and shall not be referred to for the purpose of defining, interpreting, construing or enforcing any of the provisions of this Agreement. All pronouns and variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the party or parties to this Agreement may require.

d.) This Agreement may not be assigned by any party without the prior written consent of the other parties hereto and any purported assignment made in violation of the foregoing shall be void and have no legal effect; except that consent is not required for an assignment to a Stifel Nicolaus affiliate or successor in interest. This Agreement may be modified only by a written amendment signed by all of the parties hereto and no waiver of any provision hereof shall be effective unless expressed in a writing signed by the party to be charged. No waiver of the breach of any provision or term of this Agreement shall be deemed or construed to be a waiver of any other or subsequent breach.

e.) No implied duties or obligations shall be read into this Agreement against the Agent, and the Agent, in its capacity as such, shall not be bound by any provision of any agreement between the Company and any other person or entity other than this Agreement, and the Agent shall have no duty to inquire into, or to take into account its knowledge of, the terms and conditions of any agreement made or entered into in connection with this Agreement.

f.) Should any term or provision, or portion of such provision, of this Agreement be invalid or unenforceable, the scope thereof or the period covered thereby or otherwise, such term, provision, or portion of such provision, shall be deemed to be reduced and limited to enable Stifel Nicolaus or the Company, as applicable, to enforce it to the maximum extent permissible under the laws and public policies applied under the jurisdiction in which enforcement is sought. If any term or provision of this Agreement is held or deemed to be invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, such term or provision shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement which shall be construed to preserve, to the maximum extent permissible, the intent and purposes of this Agreement. Any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such terms or provisions in any other jurisdiction.

g.) The Agent, in furnishing services to the Company under this Agreement, is acting only as an independent contractor and is not a fiduciary of, nor will its entering into this Agreement give rise to fiduciary duties to, the Company. The Agent does not undertake by this Agreement or otherwise to perform any obligation of the Company, whether regulatory, contractual, or otherwise. The Agent has the sole right and obligation to supervise, manage, contract, direct, procure, perform or cause to be performed, all work to be performed by the Agent under this Agreement unless otherwise provided in this Agreement. The Company understands and agrees that the Agent may perform services substantially similar to those to be performed hereunder for others, and nothing herein is intended to restrict or prohibit the Agent from performing such services for others.

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h.) All media releases, public announcements and public disclosures by either party or its agents relating to this Agreement or the subject matter of this Agreement, but not including any announcement intended solely for internal distribution at such party or any disclosure required by legal, accounting or regulatory requirements beyond the reasonable control of such party, shall be coordinated with and approved by the other party prior to the release thereof, which approval shall not be unreasonably withheld.

Section 10 - NOTICES

Except as otherwise contemplated by this Agreement, all notices, demands, requests or other communications which may be or are required to be given, served or sent by any party to any other party pursuant to this Agreement, other than in the normal course of conducting the Services, can be by certified or registered mail, personal delivery or transmitted by any standard form of telecommunication with proof of delivery addressed as follows:

(a) If to the Agent:

Stifel, Nicolaus & Company, Incorporated

1600 Market Street, Suite 1210

Philadelphia, PA 19103

Attn: Michelle Darcey

Telephone: (215) 861-7158

Fax: (215) 861-7149

With a copy to:

Stifel, Nicolaus & Company, Incorporated

1600 Market Street, Suite 1210

Philadelphia, PA 19103

Attn: David Lazar

Telephone: (215) 861-7179

Fax: (215) 861-7149

If to the Company:

Fairmount Bank

8216 Philadelphia Road

Baltimore, MD 21237

Attn: Joseph M. Solomon

Telephone: (410) 866-4500

Fax: (410) 866-1856

Each party may designate by notice in writing a new address/addressee to which any notice, demand, request or communication may thereafter be provided.

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