UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2012

OR

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

For the transition period from ______________ to _____________

Commission file number: 0-54081

MADISON BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland	27-258073
(State or other jurisdiction of incorporation or	(I.R.S. Employer Identification No.)
organization)

8615 Ridgely’s Choice Drive, Suite 111, Baltimore, Maryland	21236
(Address of principal executive offices)	(Zip Code)

(410) 529-7400

(Registrant’s telephone number, including area code)

Not Applicable

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

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

Yes ¨ No x

As of August 10, 2012, there were 608,116 shares of the registrant’s common stock outstanding.

MADISON BANCORP, INC.

Table of Contents

		Page No.
Part I.   Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition as of June 30, 2012 (unaudited) and March 31, 2012 (audited)	3
	Consolidated Statements of Operations for the Three Months Ended June 30, 2012 and 2011 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three Months Ended June 30, 2012 and 2011 (unaudited)	5
	Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended June 30, 2012 and 2011 (unaudited)	6
	Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2012 and 2011 (unaudited)	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
Part II.   Other Information
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	30
Signatures		31

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MADISON BANCORP, INC AND SUBSIDIARIES

Consolidated Statements of Financial Condition

June 30, 2012 and March 31, 2012

	June 30, 2012			March 31, 2012
	(Unaudited)			(Audited)
Assets
Cash and cash equivalents	$	10,814,135		$	10,735,213
Certificates of deposit		493,773			737,975
Investment securities available-for-sale		57,412,219			53,389,337
Federal Home Loan Bank stock, at cost		229,800			234,500
Loans receivable, net		83,450,861			84,986,411
Premises and equipment, net		3,700,825			3,753,712
Ground rents, net		0			290,000
Accrued interest receivable		416,386			428,042
Prepaid expenses and other assets		670,758			689,937
Total Assets	$	157,188,757		$	155,245,127
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest bearing	$	5,778,064		$	6,582,554
Interest bearing		135,680,971			133,598,673
Total Deposits		141,459,035			140,181,227
Advances from borrowers for taxes and insurance		896,917			542,598
Deferred income taxes		175,226			105,065
Other liabilities		321,242			261,519
Total Liabilities		142,852,420			141,090,409
Shareholders’ Equity
Common Stock, $.01 par value, 10,000,000 shares authorized.  Issued: 608,116 shares at June 30, 2012 and March 31, 2012		6,081			6,081
Additional paid-in capital		5,348,816			5,345,251
Retained earnings		8,906,329			8,835,984
Unearned ESOP shares		(362,300	)		(362,300	)
Accumulated other comprehensive income		437,411			329,702
Total Shareholders’ Equity		14,336,337			14,154,718
Total Liabilities and Shareholders’ Equity	$	157,188,757		$	155,245,127

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

3

MADISON BANCORP, INC AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

Three Months Ended June 30, 2012 and 2011

	Three Months Ended
	June 30,
	2012		2011
Interest Revenue
Loans, including fees	$	1,142,204	$	1,207,179
Investment securities available-for-sale		229,745		265,244
Interest-bearing deposits		6,972		7,130
Other		2,993		7,399
Total Interest Revenue		1,381,914		1,486,952
Interest Expense
Interest on deposits:
Time		423,983		499,861
Savings		8,841		14,150
NOW and Money Market		6,139		8,740
Total Interest Expense		438,963		522,751
Net Interest Income		942,951		964,201
Provision for Loan Losses		104,000		46,000
Net Interest Income after Provision for Loan Losses		838,951		918,201
Noninterest Revenue
Gain on sale of investment securities		99,359		6,661
Other		48,332		38,053
Total Noninterest Revenue		147,691		44,714
Noninterest Expenses
Salaries and employee benefits		499,830		509,072
Occupancy and equipment expense		206,881		232,660
Advertising		1,529		3,592
Professional services		35,407		51,913
FDIC premiums and regulatory assessments		45,000		75,404
Data processing		56,361		54,234
Stationery and postage		15,231		25,311
Other operating expenses		56,058		49,956
Total Noninterest Expense		916,297		1,002,142
Income (Loss) Before Income Taxes		70,345		(39,227	)
Income Tax Expense		0		0
Net Income (Loss)	$	70,345	$	(39,227	)
Income (loss) per common share - basic	$	0.12	$	(0.07	)
Income (loss) per common share - diluted	$	0.12	$	(0.07	)

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

4

MADISON BANCORP, INC AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

Three Months Ended June, 2012 and 2011

	Three Months Ended
	June 30,
	2012			2011
Net income (loss)	$	70,342		$	(39,227	)
Other comprehensive income:
Securities available for sale:
Change in net unrealized gain / loss during the period		277,223			283,925
Reclassification adjustment for gains/ losses in net income (loss)		(99,359	)		(6,661	)
		177,864			277,264
Deferred tax expense (benefit):
Securities available for sale:
Change in net unrealized gain / loss during the period		109,347			111,994
Reclassification adjustment for gains/ losses in net income (loss)		(39,192	)		(2,627	)
		70,155			109,367
Other comprehensive income, net of tax		107,709			167,897
Comprehensive income	$	178,051		$	128,670

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

5

MADISON BANCORP, INC AND SUBSIDIARIES

Consolidated Statements of Change in Shareholders’ Equity (Unaudited)

Three Months Ended June 30, 2012 and 2011

											Accumulated
			Additional					Unearned			Other			Total
	Common		Paid-in		Retained			ESOP			Comprehensive			Shareholders’
	Stock		Capital		Earnings			Shares			Income			Equity
Balance March 31, 2011	$	6,081	$	5,335,052	$	8,846,531		$	(397,300	)	$	(151,333	)	$	13,639,031
Comprehensive Income:
Net Loss						(39,227	)								(39,227	)
Net unrealized gain on  available-for-sale securities, net of tax effect of $109,367												167,897			167,897
Balance June 30, 2011	$	6,081	$	5,335,052	$	8,807,304		$	(397,300	)	$	16,564		$	13,767,701
Balance March 31, 2012	$	6,081	$	5,345,251	$	8,835,984		$	(362,300	)	$	329,702		$	14,154,718
Comprehensive Income:
Net income						70,345									70,345
Net unrealized gain on  available-for-sale securities, net of tax effect of $70,162												107,709			107,709
Stock-based compensation				3,565											3,565
Balance June 30, 2012	$	6,081	$	5,348,816	$	8,906,329		$	(362,300	)	$	437,411		$	14,336,337

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

6

MADISON BANCORP, INC AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

Three Months Ended June 30, 2012 and 2011

	2012			2011
Cash flows from Operating Activities
Net income (loss)	$	70,345		$	(39,227	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net amortization of investment securities		71,595			23,573
Decrease in net deferred loan costs		(16,003	)		7,417
Provision for loan losses		104,000			46,000
Provision for ground rent losses		0			4,000
Gain on sale of investment securities		(99,359	)		(6,661	)
Loss on sale and write-down of other real estate owned		0			10,000
Depreciation and amortization		53,637			52,860
Stock based compensation		3,565			0
Changes in operating assets and liabilities:
Accrued interest receivable		11,656			21,920
Prepaid expenses and other assets		19,179			23,775
Other liabilities		59,723			17,557
Net Cash provided by operating activities		278,338			161,214
Cash flows from Investing Activities
Decrease in loans receivable, net		1,447,553			1,477,257
(Increase) decrease in investment certificates of deposit, net		244,202			(2,059	)
Activity in available-for-sale securities:
Sales		3,244,903			8,335,878
Maturities, repayments and calls		4,921,184			3,361,139
Purchases		(11,983,335	)		(7,893,674	)
Purchase of property and equipment		(750	)		(51,412	)
Proceeds from sale of property and equipment		0			448
Redemption of FHLB stock		4,700			4,000
Proceeds from sale of ground rents		290,000			3,100
Net cash provided (used in) by investing activities		(1,831,543	)		5,234,677
Cash flow from Financing Activities
Increase (decrease)  in deposits, net		1,277,808			(216,541	)
Increase (decrease) in advances from borrowers, net		354,319			334,252
Net cash provided by financing activities		1,632,127			117,711
Net Change in Cash and Cash Equivalents		78,922			5,513,602
Cash and Cash Equivalents, Beginning of Period		10,735,213			8,183,156
Cash and Cash Equivalents, End of Period	$	10,814,135		$	13,696,758
Supplemental disclosure:
Interest paid	$	443,469		$	521,294

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

7

MADISON BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2012

Note 1. Activities and Summary of Significant Accounting Policies

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

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

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

Summary of Significant Accounting Policies

The foregoing consolidated financial statements are unaudited; however, in the opinion of management, we have included all adjustments (comprising only normal recurring accruals) necessary for a fair presentation of the results of the interim period. We derived the balances as of March 31, 2012, from audited financial statements. These statements should be read in conjunction with Madison Bancorp’s financial statements and accompanying notes included in Madison Bancorp’s Form 10-K for the year ended March 31, 2012. We have made no significant changes to Madison Bancorp’s accounting policies as disclosed in the Form 10-K.

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

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

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

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

8

Subsequent Events. We evaluated subsequent events after June 30, 2012 through August 10, 2012, the date this report was available to be issued. No significant subsequent events were identified which would affect the presentation of the financial statements.

Recently Adopted Accounting Guidance

ASU No. 2011-03, “Transfers and Servicing (Topic 860) - Reconsideration of Effective Control for Repurchase Agreements.” ASU 2011-03 is intended to improve financial reporting of repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 removes from the assessment of effective control (i) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (ii) the collateral maintenance guidance related to that criterion. ASU 2011-03 became effective for the Bank on April 1, 2012 and is not expected to have a significant impact on our financial statements.

ASU 2011-04, “Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 amends Topic 820, “Fair Value Measurements and Disclosures,” to converge the fair value measurement guidance in U.S. generally accepted accounting principles and International Financial Reporting Standards. ASU 2011-04 clarifies the application of existing fair value measurement requirements, changes certain principles in Topic 820 and requires additional fair value disclosures. ASU 2011-04 became effective for the Bank on April 1, 2012 and is not expected to have a significant impact on our financial statements.

ASU 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income.” ASU 2011-05 amends Topic 220, “Comprehensive Income,” to require that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of net income and the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. ASU 2011-05 became effective for the Bank on April 1, 2012; however, certain provisions related to the presentation of reclassification adjustments have been deferred by ASU 2011-12 “Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” as further discussed below. In connection with the application of ASU 2011-05, our financial statements include separate statements of comprehensive income.

ASU 2011-08, “Intangibles – Goodwill and Other (Topic 350) - Testing Goodwill for Impairment.” ASU 2011-08 amends Topic 350, “Intangibles – Goodwill and Other,” to give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. ASU 2011-08 became effective for the Bank on April 1, 2012 and is not expected to have a significant impact on our financial statements.

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

9

ASU 2011-12 “Comprehensive Income (Topic 220) - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” ASU 2011-12 defers changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments to allow the FASB time to redeliberate whether to require presentation of such adjustments on the face of the financial statements to show the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. ASU 2011-12 allows entities to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12. ASU 2011-12 became effective for the Bank on April 1, 2012 and is not expected to have a significant impact on our financial statements.

10

Note 2. Earnings per Share

Basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Both the basic and diluted earnings per share for the three months June 30, 2012 and 2011 are summarized below:

	Three Months Ended June 30
	2012		2011
Net income (loss)	$	70,345	$	(39,227	)
Average common shares outstanding		571,886		568,386
Stock option adjustment		0		0
Average common shares outstanding - diluted		571,866		568,386
Earnings (loss) per common share - basic	$	0.12	$	(0.07	)
Earnings (loss) per common share - diluted	$	0.12	$	(0.07	)

Note 3. Cash and Cash Equivalents

Cash and cash equivalents consist of the following at June 30:

	2012		2011
Cash and due from banks	$	3,030,233	$	2,578,178
Federal funds sold		173,273		172,922
FHLB overnight deposits		1,084,125		1,108,535
Federal Reserve Bank balances		6,526,504		9,837,123
Total	$	10,814,135	$	13,696,758

As of June 30, 2012, the Company had $1,617,119 invested in a money market account at a brokerage that is not covered by deposit insurance.

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

11

Note 4. Investment Securities

The amortized cost and estimated fair value of investment securities at June 30, 2012 and March 31, 2012, are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2012
Investment securities available-for-sale:
U.S. government agencies	$	3,749,483	$	5,150	$	306	$	3,754,327
Brokered certificates of deposit		6,812,000		26,090		3,057		6,835,033
Mortgage-backed securities (Agency)		32,066,689		638,518		2,391		32,702,816
Collateralized mortgage obligations (Agency)		14,061,717		70,200		11,874		14,120,043
	$	56,689,889	$	739,958	$	17,628	$	57,412,219

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2012
Investment securities available-for-sale:
U.S. government agencies	$	2,000,282	$	6,888	$	5,405	$	2,001,765
Brokered certificates of deposit		6,886,898		6,883		13,752		6,880,029
Mortgage-backed securities (Agency)		31,800,333		530,374		10,230		32,320,477
Collateralized mortgage obligations (Agency)		12,157,358		41,346		11,638		12,187,066
	$	52,844,871	$	585,491	$	41,025	$	53,389,337

The bank has arranged for two lines of credit for liquidity to meet expected and unexpected cash needs with large financial institutions. One line of credit is unsecured and the other is collateralized by brokered certificates of deposit if any advances are disbursed. As of June 30, 2012 and March 31, 2012, there were no borrowings or securities pledged under this line of credit.

12

The following is a summary of contractual maturities of securities available-for-sale as of June 30, 2012:

	Available-for-Sale
	Amortized Cost		Estimated Fair Value
Amounts maturing in:
One year or less	$	1,714,000	$	1,714,940
After one year through five years		7,198,000		7,223,093
After five years through ten years		1,399,483		1,401,308
After ten years		250,000		250,019
		10,561,483		10,589,360
Mortgage-backed securities (Agency)		32,066,689		32,702,816
Collateralized mortgage obligations (Agency)		14,061,717		14,120,043
	$	56,689,889	$	57,412,219

Proceeds from sales of investment securities were $3.3 million and $8.3 million during the three months ended June 30, 2012 and 2011, respectively, with gains of $99,000 and no losses for the three months ended June 30, 2012 and gains of $164,000 and losses of $157,000 for the three months ended June 30, 2011.

The following table presents Madison’s investments’ gross unrealized losses and the corresponding fair values by investment category and length of time that the securities have been in a continuous unrealized loss position at June 30, 2012.

	Less than 12 Months				12 Months or More				Total
June 30, 2012	Estimated  Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Investment securities available-for-sale:
U.S. Government agencies	$	749,694	$	306	$	0	$	0	$	749,694	$	306
Brokered certificates of deposit		1,983,943		3,057		0		0		1,983,943		3,057
Mortgage-backed securities (Agency)		1,495,735		2,391		0		0		1,495,735		2,391
Collateralized mortgage obligations (Agency)		1,716,833		8,078		1,001,971		3,796		2,718,804		11,873
	$	5,946,205	$	13,832	$	1,001,971	$	3,796	$	6,948,176	$	17,628

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

13

Note 5. Loans Receivable and Allowance for Loan Losses

Loans receivable consist of the following at June 30, 2012 and March 31, 2012:

	June 30, 2012			March 31, 2012
Loans secured by mortgages:
Residential:
1-4 Single family	$	52,053,910		$	53,002,752
Multifamily		1,573,621			1,593,173
Lines of credit		2,380,111			2,247,787
Commercial		13,834,075			14,885,346
Land		6,622,620			6,568,154
Residential Construction		1,503,520			1,203,508
		77,967,857			79,500,720
Consumer		578,481			612,326
Commercial		5,727,663			5,624,473
Total loans receivable		84,274,001			85,737,519
Net deferred costs		101,958			85,955
Allowance for loan losses		(925,098	)		(837,063	)
Loans receivable, net	$	83,450,861		$	84,986,411

Credit Quality Indicators

Management considers the total picture: among other things, the overall risk involved; the nature of the collateral; the character, capacity, financial responsibility and record of the borrower; and the probability of repayment or orderly liquidation in accordance with the loan terms.

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

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

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

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

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

Other loans designated as special mention will require analysis to determine if the value of the loan is equal to or greater than the Bank’s recorded investment. If necessary, additional GVA’s may be allocated to a specific loan category that has special mention loans that have a deficiency in the value of the collateral as compared to the Bank’s recorded investment.

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

14

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

· Collateral has deteriorated.

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

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

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

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

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

· Slow payment history.

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

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

Real Estate Owned will be treated as a classifiable asset. Generally, Real Estate Owned will be classified as substandard, except if the property is subject to an agreement of sale or if the asset is generating sufficient income. An appraisal may be performed on the asset to estimate its value. When the property is transferred to Real Estate Owned, a sufficient amount will be charged-off against the general valuation allowance in order to account for the property at its fair value.

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

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

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

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

The following presents by class and by credit quality indicator, the recorded investment in the Company’s loans as of June 30, 2012 and March 31, 2012.

Commercial Credit Exposure	Commercial, Not Real Estate Secured				Commercial Real Estate
	June 30, 2012		March 31, 2012		June 30, 2012		March 31, 2012
Grade:
Pass	$	5,032,821	$	4,925,036	$	12,255,794	$	13,298,287
Special Mention		694,842		699,437		1,195,641		1,587,059
Substandard		0		0		382,640		0
Doubtful		0		0		0		0
Loss		0		0		0		0
	$	5,727,663	$	5,624,473	$	13,834,075	$	14,885,346

15

Other Credit Exposure	Residential Real Estate Construction and Land				Residential Real Estate Other (1)				Consumer
	June 30,  2012		March 31, 2012		June 30,  2012		March 31, 2012		June 30,  2012		March 31, 2012
Grade:
Pass	$	5,098,925	$	5,592,390	$	54,156,253	$	54,941,070	$	578,481	$	612,326
Special Mention		2,795,313		1,946,770		1,209,510		736,182		0		0
Substandard		231,902		232,502		641,879		1,166,460		0		0
Doubtful		0		0		0		0		0		0
Loss		0		0		0		0		0		0
	$	8,126,140	$	7,771,662	$	56,007,642	$	56,843,712	$	578,481	$	612,326

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

Age Analysis of Past Due Loans as of June 30, 2012

June 30, 2012	30-59 Days Past Due		60-89 Days Past Due		90 Days or  More Past  Due		Total Past Due		Current		Total Loans
Loans secured by mortgages:
Residential:
1-4 Single family	$	0	$	565,809	$	262,597	$	828,406	$	51,225,504	$	52,053,910
Multifamily		0		0		0		0		1,573,621		1,573,621
Lines of credit		0		0		0		0		2,380,111		2,380,111
Commercial		0		382,640		0		382,640		13,451,435		13,834,075
Land		0		0		0		0		6,622,620		6,622,620
Residential Construction		198,800		0		0		198,800		1,304,720		1,503,520
		198,800		948,449		262,597		1,409,846		76,558,011		77,967,857
Consumer		0		756		50		806		577,675		578,481
Commercial		325,655		0		0		325,655		5,402,008		5,727,663
	$	524,455	$	949,205	$	262,647	$	1,736,307	$	82,537,694	$	84,274,001

Age Analysis of Past Due Loans as of March 31, 2012

March 31, 2012	30-59 Days Past Due		60-89 Days Past Due		90 Days or  More Past  Due		Total Past Due		Current		Total Loans
Loans secured by mortgages:
Residential:
1-4 Single family	$	1,403,581	$	0	$	816,600	$	2,220,181	$	50,782,571	$	53,002,752
Multifamily		0		0		0		0		1,593,173		1,593,173
Lines of credit		0		0		0		0		2,247,787		2,247,787
Commercial		384,887		0		0		384,887		14,500,459		14,885,346
Land		0		0		0		0		6,568,154		6,568,154
Residential Construction		0		0		0		0		1,203,508		1,203,508
		1,788,468		0		816,600		2,605,068		76,895,652		79,500,720
Consumer		0		50		0		50		612,276		612,326
Commercial		31,194		0		0		31,194		5,593,279		5,624,473
	$	1,819,662	$	50	$	816,600	$	2,636,312	$	83,101,207	$	85,737,519

As of June 30, 2012 there were nine nonaccrual 1-4 single family loans totaling $262,597 with forgone interest of $13,276. As of June 30, 2012 there was one consumer loan in the amount of $50 that was 90 days or more past due and accruing interest which has subsequently been paid off.

As of March 31, 2012, there were six nonaccrual 1-4 single family loans totaling $287,603, with forgone interest of $12,701. As of March 31, 2012, 1-4 single family loans totaling $606,624 were 90 days or more past due and accruing interest.

16

Impaired Loans as of and for the Three Months Ended June 30, 2012

	Unpaid Contractual  Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment		Interest Recognized		Nonaccrual Interest Not Accrued
Loans secured by mortgages:
Residential:
1-4 Single family	$	735,454	$	262,597	$	379,282	$	641,879	$	50,000	$	742,712	$	3,346	$	13,276
Multifamily		0		0		0		0		0		0		0		0
Lines of credit		0		0		0		0		0		0		0		0
Commercial		382,640		382,640		0		382,640		0		384,176		8,497		0
Land		231,902		0		231,902		231,902		89,500		232,179		2,494		0
Residential construction		0		0		0		0		0		0		0		0
		1,349,996		645,237		611,184		1,256,421		139,500		1,359,067		14,337		13,276
Consumer		0		0		0		0		0		0		0		0
Commercial		0		0		0		0		0		0		0		0
Total impaired loans	$	1,349,996	$	645,237	$	611,184	$	1,256,421	$	139,500	$	1,359,067	$	14,337	$	13,276

Impaired Loans as of and for the Year Ended March 31, 2012

	Unpaid Contractual  Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment		Interest Recognized		Nonaccrual Interest Not Accrued
Loans secured by mortgages:
Residential:
1-4 Single family	$	1,252,549	$	778,480	$	387,980	$	1,166,460	$	53,000	$	1,228,377	$	58,003	$	12,701
Multifamily		0		0		0		0		0		0		0		0
Lines of credit		0		0		0		0		0		0		0		0
Commercial		0		0		0		0		0		0		0		0
Land		232,502		0		232,502		232,502		69,500		233,502		10,687		0
Residential construction		0		0		0		0		0		0		0		0
		1,485,051		778,480		620,482		1,398,962		122,500		1,461,879		68,690		12,701
Consumer		0		0		0		0		0		0		0		0
Commercial		0		0		0		0		0		0		0		0
Total impaired loans	$	1,485,051	$	778,480	$	620,482	$	1,398,962	$	122,500	$	1,461,879	$	68,690	$	12,701

We occasionally modify loans to extend the term to help borrowers stay current on their loan and to avoid foreclosure. At June 30, 2012, we had six 1-4 single family mortgage loans totaling approximately $846,000 that we had modified the terms either by extending the term or increasing the payments to allow the customer to become current. We did not forgive any principal or interest, or modify the interest rates on the loans. Five of these six modified loans with balances totaling $663,000 were current and one of these six with a balance of $183,000 was 30-59 days delinquent at June 30, 2012. We also had one 1-4 single family mortgage loan in the amount of approximately $379,000 which received a rate modification to current market rates and was considered a troubled debt restructuring at June 30, 2012; however, this loan has remained current for the quarter ended June 30, 2012.

17

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

For the three months ended June 30, 2012:

	Allowance 3/31/12		Charge- offs		Recoveries		Provision			Allowance 6/30/2012
Loans secured by mortgages:
Residential:
1-4 Single family	$	372,404	$	16,200	$	0	$	1,146		$	357,350
Multifamily		18,705		0		0		269			18,974
Lines of credit		13,817		0		0		2,676			16,493
Commercial		188,199		0		0		(1,765	)		186,434
Land		152,621		0		0		36,642			189,263
Residential construction		16,417		0		0		6,431			22,848
		762,163		16,200		0		45,399			791,362
Consumer		3,103		0		0		123			3,226
Commercial		71,149		0		235		7,997			79,381
Unallocated		648		0		0		50,481			51,129
Total	$	837,063	$	16,200	$	235	$	104,000		$	925,098

	Allowance				Loan Balance
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Ending Loan Balance
Loans secured by mortgages:
Residential:
1-4 Single family	$	50,000	$	307,350	$	641,879	$	51,412,031	$	52,053,910
Multifamily		0		18,974		0		1,573,621		1,573,621
Lines of credit		0		16,493		0		2,380,111		2,380,111
Commercial		0		186,434		382,640		13,451,435		13,834,075
Land		89,500		99,763		231,902		6,390,718		6,622,620
Residential construction		0		22,848		0		1,503,520		1,503,520
		139,500		651,862		1,256,421		76,711,436		77,967,857
Consumer		0		3,226		0		578,481		578,481
Commercial		0		79,381		0		5,727,663		5,727,663
Unallocated		0		51,129		0		0		0
Total	$	139,500	$	785,598	$	1,256,421	$	83,017,580	$	84,274,001

18

For the year ended March 31, 2012:

	Allowance 3/31/11		Charge- offs		Recoveries		Provision			Allowance 3/31/2012
Loans secured by mortgages:
Residential:
1-4 Single family	$	185,114	$	80,800	$	3,366	$	264,724		$	372,404
Multifamily		17,417		0		0		1,288			18,705
Lines of credit		8,441		0		0		5,376			13,817
Commercial		141,331		0		0		46,868			188,199
Land		73,355		0		0		79,266			152,621
Residential construction		95,779		0		0		(79,362	)		16,417
		521,437		80,800		3,366		318,160			762,163
Consumer		5,848		0		0		(2,745	)		3,103
Commercial		63,745		0		65		20,541			71,149
Unallocated		44,505		13,202		0		(43,857	)		648
Total	$	635,535	$	94,002	$	3,431	$	292,099		$	837,063

	Allowance				Loan Balance
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Ending Loan Balance
Loans secured by mortgages:
Residential:
1-4 Single family	$	53,000	$	319,404	$	1,166,460	$	51,836,292	$	53,002,752
Multifamily		0		18,705		0		1,593,173		1,593,173
Lines of credit		0		13,817		0		2,247,787		2,247,787
Commercial		0		188,199		0		14,885,346		14,885,346
Land		69,500		83,121		232,502		6,335,652		6,568,154
Residential construction		0		16,417		0		1,203,508		1,203,508
		122,500		639,663		1,398,962		78,101,758		79,500,720
Consumer		0		3,103		0		612,326		612,326
Commercial		0		71,149		0		5,624,473		5,624,473
Unallocated		0		648		0		0		0
Total	$	122,500	$	714,563	$	1,398,962	$	84,338,557	$	85,737,519

Madison recorded a partial charge-off on six residential 1-4 single family mortgage loans, writing them down to their net realizable value for the three months ended June 30, 2012.

Note 7. Borrowings

At June 30, 2012, the Bank had the ability to borrow a total of approximately $30.0 million from the Federal Home Loan Bank of Atlanta, and the Bank has lines of credit totaling $5.7 million with two large financial institutions. The FHLB borrowing requires us to pledge mortgage loans as collateral, and the line of credit requires us to pledge brokered CD’s or US Government Agency securities. At June 30, 2012, we had no Federal Home Loan Bank advances outstanding or borrowings on the lines of credit. The rates on the borrowing lines will be determined at the time of an advance.

19

Note 8. Commitments and Financial Instruments with Off-Balance-Sheet Credit Risk

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

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

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

	June 30, 2012		March 31, 2012
Mortgage loans commitments – fixed rate	$	350,000	$	1,077,534
Mortgage loans commitments – variable rate		6,797		3,546
Unused equity lines of credit (variable rate)		2,329,487		2,331,748
Commercial and consumer lines of credit		340,656		456,995
Standby letters of credit		675,023		675,023
Total	$	3,701,963	$	4,544,846

Note 9. Fair Value Measurements

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

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

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

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

20

Investment securities available-for-sale are the only financial assets measured at fair value on a recurring basis. As of June 30, 2012 and March 31, 2012, the fair values were measured using the following methodologies:

	June 30, 2012
	Level 1		Level 2		Level 3		Total
Investment securities available-for-sale:
U.S. Government agencies	$	1,350,000	$	2,404,327	$	0	$	3,754,327
Brokered certificates of deposit		6,835,033		0		0		6,835,033
Mortgage-backed securities (Agency)		0		32,702,816		0		32,702,816
Collateralized mortgage obligations (Agency)		2,073,186		12,046,857		0		14,120,043
	$	10,258,219	$	47,154,000	$	0	$	57,412,219

	March 31, 2012
	Level 1		Level 2		Level 3		Total
Investment securities available-for-sale:
U.S. Government agencies	$	0	$	2,001,765	$	0	$	2,001,765
Brokered certificates of deposit		6,880,029		0		0		6,880,029
Mortgage-backed securities (Agency)		2,606,719		29,713,758		0		32,320,477
Collateralized mortgage obligations (Agency)		1,258,351		9,939,807		988,908		12,187,066
	$	10,745,099	$	41,655,330	$	988,908	$	53,389,337

The following table summarized activity in securities valued using Level 3 inputs during the three months ended June 30, 2012:

	June 30, 2012
Balance at beginning of the period	$	988,908
Purchases		0
Sales		0
Paydowns		0
Transfers in and/or out of Level 3		(988,908	)
Balance at the end of the period	$	0

The two securities included in the table above as transferred out of Level 3 were newly issued for the quarter ended March 31, 2012, and were therefore not yet valued by the third party valuation service. The securities were seasoned enough for the third party valuation service to provide fair values for the quarter ended June 30, 2012, and were transferred out of Level 3.

The Bank measures its other real estate owned on a nonrecurring basis at fair value less estimated cost to sell. Cost to sell the real estate is based on standard market factors. The Bank would categorize its foreclosed real estate as Level 3. During the first quarter, the bank had no other real estate owned.

The bank measures its impaired assets on a nonrecurring basis at fair value and has categorized them at Level 3.

21

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

	June 30, 2012				March 31, 2012
	Book		Estimated		Book		Estimated
	Value		Fair Value		Value		Fair Value
Financial assets
Level 2 inputs:
Cash and cash equivalents	$	10,814	$	10,814	$	10,735	$	10,735
Certificates of deposit		494		494		738		738
Accrued interest receivable		416		416		428		428
Level 3 inputs:
Federal Home Loan Bank stock		230		230		235		235
Loans, net		83,451		83,455		84,986		85,079
Financial liabilities
Level 2 inputs:
Noninterest-bearing deposits	$	5,778	$	5,778	$	6,583	$	6,583
Interest-bearing deposits		135,681		137,186		133,599		134,886
Advances from borrowers for taxes and insurance		897		897		543		543

Note 10. Regulatory Capital Ratios for Madison Square Federal Savings Bank

As of June 30, 2012, the most recent date of filing of the Consolidated Reports of Condition and Income with the Board of Governors of the Federal Reserve System, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action as disclosed in the table below. Management knows of no events or conditions that would change this classification:

						Minimum					To Be Well
	Actual					Requirements					Capitalized
(dollars in thousands)	Amount		%			Amount		%			Amount		%
As of June 30, 2012:
Total risk-based capital (to risk-weighted assets)	$	13,129		17.8	%	$	5,902		8.0	%	$	7,378		10.0	%
Tier I capital (to risk-weighted assets)		12,204		16.5			N/A		N/A			4,427		6.0
Tier I capital (to adjusted total assets)		12,204		7.8			6,278		4.0			7,848		5.0
As of March 31, 2012:
Total risk-based capital (to risk-weighted assets)	$	12,922		17.2	%	$	6,005		8.0	%	$	7,506		10.0	%
Tier I capital (to risk-weighted assets)		12,085		16.1			N/A		N/A			4,503		6.0
Tier I capital (to adjusted total assets)		12,085		7.8			6,200		4.0			7,750		5.0

22

Note 11. Stock Option Plans

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

During the year ended March 31, 2012, the Company granted stock options for 24,170 shares, with an exercise price of $8.00 per share. The options are exercisable up to 10 years from the grant date. The options vest over a two year period with one third vesting immediately and one third of the options vesting on the first and second anniversary date. Option expense recognized during the quarter ended June 30, 2012 was $3,565. There was no option expense during the quarter ended June 30, 2011. At June 30, 2012, there was $23,767 of total unrecognized compensation expense related to non-vested stock options to be recognized from through February 28, 2014. The weighted average grant date fair value of the options granted during the year ended March 31, 2012 was $1.77.

There were no stock options granted during the quarter ended June 30, 2012 or 2011.

A summary of information regarding stock options outstanding as of June 30, 2012, is as follows:

Weighted Average Exercise Price		Outstanding Shares		Average Remaining Life (Years)		Exercisable Shares
$	8.00		24,170		9.67		8,057
	Intrinsic value	$	33,838			$	11,280

There are 36,641 options available for future grant.

23

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

Safe Harbor Statement for Forward-Looking Statements

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

Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to the Company’s actual results, performance, and achievements being materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government, legislative and regulatory changes, the quality and composition of the loan and investment securities portfolio, loan demand, deposit flows, competition, and changes in accounting principles and guidelines. Additional factors that may affect our results are discussed in item 1A of the Company’s Annual Report on Form 10-K filed on June 27, 2012 under the section titled “Risk Factors.” These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.

Critical Accounting Policies

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

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

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

24

Comparison of Financial Condition at June 30, 2012 and March 31, 2012

Assets. Total assets increased $2.0 million from $155.2 million at March 31, 2012, to $157.2 million at June 30, 2012 with a $4.0 million or 7.5% increase in investment securities available for sale, partially offset by a $1.5 million, or 1.8%, decrease in net loans receivable.

Loans. Net loans receivable decreased by $1.5 million, or 1.8%, from $85.0 million at March 31, 2012 to $83.5 million at June 30, 2012, primarily as a result of the net effect of a $950,000 decrease in residential mortgage loans and a $1.0 million decrease in commercial loans, offset by a $300,000 increase in residential construction, a $132,000 increase in lines of credit, and a $103,000 increase commercial loans. The decrease in residential mortgage loans was primarily a result of borrowers refinancing loans elsewhere and normal principal reductions.

Cash and Cash Equivalents. Cash and cash equivalents increased by $79,000 from $10.7 million at March 31, 2012 to $10.8 million at June 30, 2012. The reinvestment of excess liquidity and the repayments of loans throughout the period into investment securities maintained our level of cash and cash equivalents.

Securities. Our available-for-sale securities increased by $4.0 million, or 7.5%, from $53.4 million at March 31, 2012 to $57.4 million at June 30, 2012. The net increase in available-for-sale securities is the result of the purchase of $10.8 million of U.S. Government Agency bonds, mortgage backed securities, collateralized mortgage obligations, and $1.2 million of Brokered Investment CD’s. These purchases were offset by the sale of three mortgage backed securities with proceeds of $3.3 million with $99,000 in gains and no losses on the sale. The additional offset to the increase in available-for-sale securities was also caused by $5.4 million of securities being called, having matured, or repayments. At June 30, 2012, we also held a $230,000 investment in the common stock of the Federal Home Loan Bank of Atlanta.

Ground Rents. Our ground rent portfolio decreased by $290,000 to zero at June 30, 2012. The entire ground rent portfolio was sold as of May 1, 2012 at the value recorded at March 31, 2012.

Deposits. Total deposits increased by $1.3 million to $141.5 million at June 30, 2012, from $140.2 million at March 31, 2012. Balances of noninterest-bearing deposits decreased to $5.8 million at June 30, 2012, from $6.6 million at March 31, 2012. NOW and Money Market deposit accounts decreased by $295 thousand to $7.6 million at June 30, 2012. Savings deposits increased $1.9 million from $22.8 million at March 31, 2012, to $24.7 million at June 30, 2012, and certificates of deposits increased by $400 thousand from $102.9 million at March 31, 2012, to $103.3 million at June 30, 2012.

Borrowings. We had no borrowings at June 30, 2012, or March 31, 2012.

Results of Operations for the Three Months Ended June 30, 2012, and 2011

Overview. Our net income was $70,345 for the three months ended June 30, 2012, compared to a net loss of $39,227 for the three months ended June 30, 2011. The increase in net income for the current quarter was primarily the result of increases in noninterest revenue resulting from the gain on the sale of investment securities and continued decreases in noninterest expense that resulted from a decrease in occupancy expense from the move of our administrative offices and a decrease in FDIC premiums due to a change in calculation methodology. These increases to income were only partially offset by a decrease in net interest income, and an increase in the provision for loan losses.

Net Interest Income. Net interest income decreased by $21,250 to $942,951 for the three months ended June 30, 2012, as compared to $964,201 for the three months ended June 30, 2011, due to a decrease in the yield on earning assets, partially offset by a decrease in the cost of funds for deposits. Our interest rate spread was 2.37% for the three months ended June 30, 2012, compared to 2.48% for the three months ended June 30, 2011, and our net interest margin decreased to 2.50% for the three months ended June 30, 2012, from 2.62% for the three months ended June 30, 2011.

Interest on loans decreased by $65,000 for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011. The average balance of loans decreased by $691,000 to $84.8 million for the three months ended June 30, 2012, from $85.5 million for the three months ended June 30, 2011. The average yield on loans decreased from 5.66% for the three months ended June 30, 2011, to 5.39% for the three months ended June 30, 2012.

25

Interest on securities available-for-sale decreased by $35,000 for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011, due to a 47 basis point decrease in the average yield. The decrease was offset by an increase in average balances of $5.6 million from the investment of excess liquidity.

Interest income on interest-bearing deposits was $6,972 for the three months ended June 30, 2012, as compared to $7,130 for the three months ended June 30, 2011, as a result of a $1.4 million decrease in average balances and offset by a three basis point increase in the average yield.

Interest expense on total deposits decreased $84,000 for the three months ended June 30, 2012, from $523,000 for the three months ended June 30, 2011, to $439,000 for the three months ended June 30, 2012, due to a 26 basis point decrease in the average cost of interest-bearing deposits offset by a $1.4 million increase in the average balance of interest-bearing deposits. Interest on certificates of deposits decreased $76,000 to $424,000 for the three months ended June 30, 2012, as a result of the 31 basis point decrease in average cost of time deposits offset by an increase in average balances of $634,000. Interest on savings deposits decreased by $5,000 to $9,000 for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011, due to a decrease in the yield of 10 basis points offset by an increase in average balances of $967,000. Interest on NOW and money market deposit accounts decreased by $2,000 for the three months ended June 30, 2012, due to a decrease in balances of $195,000 and a decrease in the yield of 12 basis points.

26

Average Balance and Yields. The following table for the three months ended June 30, 2012 and 2011 presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing the annualized income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Amortization of net deferred loan fees is included in interest income on loans and is insignificant. Nonaccruing loans have been included in the table as loans carrying a zero yield. No tax-equivalent adjustments were made.

	Three Months Ended June 30,
	2012							2011
	Average Balance		Interest		Yield/ Cost			Average Balance		Interest		Yield/ Cost
Assets:
Interest-bearing deposits	$	9,665,515	$	6,972		0.29	%	$	11,023,615	$	7,130		0.26	%
Investment securities available-for-sale		56,280,389		229,745		1.63			50,634,374		265,244		2.10
Loans receivable, net		84,822,886		1,142,204		5.39			85,513,551		1,207,179		5.66
Other interest-earning assets		328,868		2,993		3.64			690,668		7,399		4.30
Total interest-earning assets		151,097,658		1,381,914		3.66	%		147,862,208		1,486,952		4.03	%
Noninterest-earning assets		5,938,018							6,800,651
Total assets	$	157,035,676						$	154,662,859
Liabilities and Shareholders’ Equity:
Time deposits	$	103,790,247		423,983		1.63	%	$	103,155,909		499,861		1.94	%
Savings		23,708,243		8,841		0.15			22,741,275		14,150		0.25
NOW and money market accounts		8,083,898		6,139		0.30			8,278,406		8,740		0.42
Total interest-bearing deposits		135,582,388		438,963		1.30			134,175,590		522,751		1.56
Other interest-bearing liabilities		735,579		0		0.00			741,493		0		0.00
Total interest-bearing liabilities		136,317,967		438,963		1.29	%		134,917,083		522,751		1.55	%
Noninterest-bearing deposits		6,113,395							5,573,320
Other noninterest-bearing liabilities		441,675							377,932
Total liabilities		142,873,037							140,868,335
Total shareholders’ equity		14,162,639							13,794,524
Total liabilities and shareholders’ equity	$	157,035,676						$	154,662,859
Net interest income			$	942,951						$	964,201
Interest rate spread						2.37	%						2.48	%
Net interest margin						2.50	%						2.62	%
Average interest-earning assets to average interest-bearing liabilities						110.84	%						109.59	%

· Average loan balances include nonaccrual loans.

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

Provision and Allowance for Loan Losses. We maintain an allowance at a level necessary to absorb management’s best estimate of probable loan losses in the portfolio. Management considers, among other factors, historical loss experience, type and amount of loans, borrower concentrations, and current conditions of the economy. In addition, the allowance considers the level of loans which management monitors as a result of inconsistent repayment patterns. Management has identified commercial real estate loans as an area for expected increased lending. Such loans carry a higher degree of credit risk than our historical single-family lending.

27

Our provision for loan losses increased $58,000 to $104,000 for the three months ended June 30 2012. At June 30, 2012, the allowance for loan losses was $925,000, or 1.1% of the total end of period loan portfolio, compared to $837,063 or 0.98% of the total end of period loan portfolio at March 31, 2012, and $684,901, or 0.80% of the total end of period loan portfolio at June 30, 2011. We had balances of $263,000 in 1-4 single family residential mortgage nonaccrual loans, compared to $287,603 of nonaccrual 1-4 single family residential mortgages at March 31, 2012, and no nonaccrual loans at June 30, 2011.

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

We had $235 in commercial loan recoveries and $16,200 1-4 single family mortgage charge-offs during the three months ended June 30, 2012, compared to $3,366 in recoveries and no charge-offs during the three months ended June 30, 2011.

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

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

	At or for the Three
	Months Ended June 30,
	2012			2011
Allowance for loan losses at beginning of period	$	837,063		$	635,535
Provision for loan losses		104,000			46,000
Recoveries:
Loans secured by mortgages:
1-4 single family residential		0			3,366
Commercial		235			0
Charge-offs:
Loans secured by mortgages:
1-4 single family residential		16,200			0
Commercial		0			0
Total charge-offs		16,200			0
Net charge-offs		15,965			(3,366	)
Allowance for loan losses at end of period	$	925,098		$	684,901
Allowance for loan losses to non-performing loans		352.22	%		N/A
Allowance for loan losses to total loans outstanding at the end of the period		1.10	%		0.80	%
Net charge-offs to average loans outstanding during the period		0.02	%		0.00	%

At June 30, 2012, Madison had one troubled debt restructuring (TDR) in the amount of $379,000. The loan is in accrual status and in compliance with its modified terms, and therefore, not included in the nonperforming ratio above. Madison has taken a $50,000 specific reserve against the loan.

Noninterest Revenue. Noninterest revenue increased for the three months ended June 30, 2012, to $148,000 as compared to $45,000 for the three months ended June 30, 2011. The increase during the period was primarily due to an increase of $93,000 in gains on the sale of investment securities.

Noninterest Expenses. Noninterest expense decreased by $86,000 or 8.6% to $917,000 for the three months ended June 30, 2012 as compared to noninterest expense for the three months ended June 30, 2011, primarily due to a decreases in occupancy and equipment expenses, professional services, salaries and employee benefits and FDIC and regulatory assessments.

28

Income Tax Expense. For the three months ended June 30, 2012 and 2011, we incurred no income tax expense. At March 31, 2012, we had a net operating loss carry-forward totaling $ 90,954, which expires in 2030 and 2031. We also had a capital loss carry-forward of $566,000, which expires in 2014. We have established a valuation allowance to reflect uncertainty as to our ability to realize our deferred tax asset. See Note 12 of the notes to consolidated financial statements for March 31, 2012, filed in our Annual Report on Form 10-K.

Liquidity and Capital Resources

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

Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The level of these assets depends on our operating, financing, lending, and investing activities during any given period. At June 30, 2012, cash and cash equivalents totaled $10.8 million. Securities classified as available-for-sale amounted to $57.4 million. Our liquidity has increased as customers have sought the safety of FDIC insured deposits. In addition, at June 30, 2012, the Bank had the ability to borrow a total of approximately $30 million from the Federal Home Loan Bank of Atlanta, and the Bank has lines of credit totaling $5.7 million with two large financial institutions. At June 30, 2012, we had no Federal Home Loan Bank advances outstanding or borrowings on the lines of credit.

At June 30, 2012, we had $3.7 million in commitments to extend credit outstanding. Certificates of deposit due within one year of June 30, 2012, totaled $56.3 million, or 54.5% of certificates of deposit. We believe the large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for longer periods due to the current low interest rate environment and local competitive pressures. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before June 30, 2013. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Not applicable as the Company is a smaller reporting company.

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes to Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the three months ended June 30, 2012, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

29

Part II – Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There have been no material changes in the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

N/A

Item 5. Other Information

None

Item 6. Exhibits

3.1	Articles of Incorporation of Madison Bancorp, Inc. (1)
3.2	Bylaws of Madison Bancorp, Inc. (2)
4.0	Form of Common Stock Certificate of Madison Bancorp, Inc. (3)
10.0	Madison Bancorp Inc. 2011 Equity Incentive Plan (4)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer and Chief Financial Officer
32.0	Section 1350 Certifications
101.0*	The following materials from the Company’s Quarterly Report on form 10-Q for the quarter ended June 30, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated statements of Financial Condition; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Changes in shareholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements, tagged as blocks of text

	*Furnished, not filed.
(1)	Incorporated herein by reference to exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-167455), as amended, initially filed with the Securities and Exchange Commission on June 11, 2010.
(2)	Incorporated herein by reference to exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No. 333-167455), as amended, initially filed with the Securities and Exchange Commission on June 11, 2010.
(3)	Incorporated herein by reference to exhibit 4.0 to the Company’s Registration Statement on Form S-1 (File No. 333-167455), as amended, initially filed with the Securities and Exchange Commission on June 11, 2010.
(4)	Incorporated herein by reference to appendix D to the Company’s Definitive Proxy Materials for its 2011 Annual Meeting of Stockholders’ filed with the Securities and Exchange Commission on October 11, 2011.

30

SIGNATURES

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

		MADISON BANCORP, INC.
Dated: August 10, 2012	By:	/s/ Michael P. Gavin
		Michael P. Gavin
		President, Chief Executive Officer and Chief
		Financial Officer
		(duly authorized officer & principal financial
		officer)

31