| Maryland                                                       |   | 36-4678532                        |
|----------------------------------------------------------------|--------|-----------------------------------|
| (State or other jurisdiction of incorporation of organization) |   | (IRS Employer Identification No.) |

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

|          |                                                                                                                               | Page Number |
|---------------|------------------------------------------------------------------------------------------------------------------------------------|-------------|
| PART I        | FINANCIAL INFORMATION                                                                                                              |        |
|          |                                                                                                                               |        |
| Item 1.       | Financial Statements                                                                                                               |        |
|          |                                                                                                                               |        |
|          | Condensed Consolidated Balance Sheets as of June 30, 2012 (Unaudited) and December 31, 2011                                        | 2           |
|          |                                                                                                                               |        |
|          | Condensed Consolidated Statements of Operations for the Three-Month and Six-Month Periods Ended June 30, 2012 and 2011 (Unaudited) | 3           |
|          |                                                                                                                               |        |
|          | Condensed Consolidated Statements of Stockholders' Equity for the Six-Month Periods Ended June 30, 2012 and 2011 (Unaudited)       | 4           |
|          |                                                                                                                               |        |
|          | Condensed Consolidated Statements of Cash Flows For the Six-Month Periods Ended June 30, 2012 and 2011 (Unaudited)                 | 5           |
|          |                                                                                                                               |        |
|          | Notes to Condensed Consolidated Financial Statements                                                                               | 6-22        |
|          |                                                                                                                               |        |
| Item 2.       | Management's Discussion and Analysis of Financial Condition and Results of Operations                                              | 23-34       |
|          |                                                                                                                               |        |
| Item 3.       | Quantitative and Qualitative Disclosure About Market Risk                                                                          | 35          |
|          |                                                                                                                               |        |
| Item 4.       | Controls and Procedures                                                                                                            | 35          |
|          |                                                                                                                               |        |
| PART II       | OTHER INFORMATION                                                                                                                  |        |
|          |                                                                                                                               |        |
| Item 1.       | Legal Proceedings                                                                                                                  | 36          |
|          |                                                                                                                               |        |
| Item 1A.      | Risk Factors                                                                                                                       | 36          |
|          |                                                                                                                               |        |
| Item 2.       | Unregistered Sales of Equity Securities and Use of Proceeds                                                                        | 36          |
|          |                                                                                                                               |        |
| Item 3.       | Defaults Upon Senior Securities                                                                                                    | 36          |
|          |                                                                                                                               |        |
| Item 4.       | Mine Safety Disclosures                                                                                                            | 36          |
|          |                                                                                                                               |        |
| Item 5.       | Other Information                                                                                                                  | 36          |
|          |                                                                                                                               |        |
| Item 6.       | Exhibits                                                                                                                           | 36          |
|          |                                                                                                                               |
| SIGNATURES    | 37                                                                                                                                 |
|          |                                                                                                                               |
| EXHIBIT INDEX |                                                                                                                               |

|                                                                                                                                                                            |   | At June 30,2012 |      |   | At December 31,2011 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|-----------|--------|---------------------|--------|
|                                                                                                                                                                            |   | (Unaudited)     |      |   |                |   |
| Assets                                                                                                                                                                          |   |            |      |   |                |   |
|                                                                                                                                                                            |   |            |      |   |                |   |
| Cash and due from banks                                                                                                                                                         |   | $               | 875       |   |                |   | 2,053 |   |
| Interest-bearing deposits with banks                                                                                                                                            |   |            | 2,327     |   |                |   | 6,546 |   |
| Federal funds sold                                                                                                                                                              |   |            | 30,785    |   |                |   | 16,456 |   |
|                                                                                                                                                                            |   |            |      |   |                |   |   |   |
| Cash and cash equivalents                                                                                                                                                       |   |            | 33,987    |   |                |   | 25,055 |   |
|                                                                                                                                                                            |   |            |      |   |                |   |   |   |
| Securities held to maturity (fair value of $8,376 and $10,088)                                                                                                                  |   |            | 8,125     |   |                |   | 9,835 |   |
| Loans, net of allowance for loan losses of $1,467 and $1,329                                                                                                                    |   |            | 94,464    |   |                |   | 102,002 |   |
| Premises and equipment, net                                                                                                                                                     |   |            | 3,509     |   |                |   | 3,623 |   |
| Federal Home Loan Bank stock, at cost                                                                                                                                           |   |            | 225       |   |                |   | 247 |   |
| Deferred income taxes                                                                                                                                                           |   |            | 2,736     |   |                |   | 2,364 |   |
| Accrued interest receivable                                                                                                                                                     |   |            | 406       |   |                |   | 454 |   |
| Foreclosed real estate                                                                                                                                                          |   |            | 2,394     |   |                |   | 743 |   |
| Other assets                                                                                                                                                                    |   |            | 1,462     |   |                |   | 1,437 |   |
|                                                                                                                                                                            |   |            |      |   |                |   |   |   |
| Total assets                                                                                                                                                                    |   | $               | 147,308   |   |                |   | 145,760 |   |
|                                                                                                                                                                            |   |            |      |   |                |   |   |   |
| Liabilities and Stockholders’ Equity                                                                                                                                      |   |            |      |   |                |   |   |   |
|                                                                                                                                                                            |   |            |      |   |                |   |   |   |
| Liabilities:                                                                                                                                                                    |   |            |      |   |                |   |   |   |
| Noninterest-bearing deposit accounts                                                                                                                                            |   |            | 22,980    |   |                |   | 21,827 |   |
| Money-market deposit accounts                                                                                                                                                   |   |            | 29,089    |   |                |   | 27,028 |   |
| Savings accounts                                                                                                                                                                |   |            | 35,923    |   |                |   | 34,271 |   |
| Time deposits                                                                                                                                                                   |   |            | 33,435    |   |                |   | 36,290 |   |
|                                                                                                                                                                            |   |            |      |   |                |   |   |   |
| Total deposits                                                                                                                                                                  |   |            | 121,427   |   |                |   | 119,416 |   |
|                                                                                                                                                                            |   |            |      |   |                |   |   |   |
| Official checks                                                                                                                                                                 |   |            | 494       |   |                |   | 572 |   |
| Advances by borrowers for taxes and insurance                                                                                                                                   |   |            | 172       |   |                |   | 21 |   |
| Other liabilities                                                                                                                                                               |   |            | 416       |   |                |   | 366 |   |
|                                                                                                                                                                            |   |            |      |   |                |   |   |   |
| Total liabilities                                                                                                                                                               |   |            | 122,509   |   |                |   | 120,375 |   |
|                                                                                                                                                                            |   |            |      |   |                |   |   |   |
| Stockholders' equity:                                                                                                                                                           |   |            |      |   |                |   |   |   |
| Common stock, $.01 par value, 6,000,000 shares authorized,     1,234,454 shares issued and outstanding at June 30, 2012 and     December 31, 2011 |   |            |   12 |   |                |   |   12 |   |
| Additional paid in capital                                                                                                                                                      |   |            | 11,485    |   |                |   | 11,487 |   |
| Retained earnings                                                                                                                                                               |   |            | 14,187    |   |                |   | 14,813 |   |
| Unearned Employee Stock Ownership Plan shares                                                                                                                                   |   |            | (885      | )      |                |   | (927 | ) |
|                                                                                                                                                                            |   |            |      |   |                |   |   |   |
| Total stockholders' equity                                                                                                                                                      |   |            | 24,799    |   |                |   | 25,385 |   |
|                                                                                                                                                                            |   |            |      |   |                |   |   |   |
| Total liabilities and stockholders’ equity                                                                                                                                |   | $               | 147,308   |   |                |   | 145,760 |   |
|                                                                                                                                                                            |   |            |      |   |                |   |   |   |

|                                                |   | Three Months Ended  June 30, |   |   | Six Months Ended  June 30, |   |
|-----------------------------------------------------|--------|----------------------------------------|--------|--------|--------------------------------------|--------|
|                                                |   | 2012                                   |   |   | 2011                                 |   |   | 2012 |   |   | 2011 |   |
| Interest income:                                    |   |                                   |   |   |                                 |   |   |   |   |   |   |   |
| Loans                                               |   | $                                      | 1,403  |   |                                 |   | 1,686 |   |   |   | 2,864 |   |   |   | 3,393 |   |
| Securities, held to maturity                        |   |                                   | 53     |   |                                 |   | 72 |   |   |   | 115 |   |   |   | 109 |   |
| Other                                               |   |                                   | 18     |   |                                 |   | 12 |   |   |   | 30 |   |   |   | 22 |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Total interest income                               |   |                                   | 1,474  |   |                                 |   | 1,770 |   |   |   | 3,009 |   |   |   | 3,524 |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense-                                   |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Deposit accounts                                    |   |                                   | 147    |   |                                 |   | 252 |   |   |   | 312 |   |   |   | 555 |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                 |   |                                   | 1,327  |   |                                 |   | 1,518 |   |   |   | 2,697 |   |   |   | 2,969 |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses                           |   |                                   | 955    |   |                                 |   | 225 |   |   |   | 1,180 |   |   |   | 450 |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income after provision for loan losses |   |                                   | 372    |   |                                 |   | 1,293 |   |   |   | 1,517 |   |   |   | 2,519 |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest income:                                 |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Fees and service charges on deposit accounts        |   |                                   | 533    |   |                                 |   | 565 |   |   |   | 1,040 |   |   |   | 1,109 |   |
| Fees and charges on loans                           |   |                                   | 97     |   |                                 |   | 26 |   |   |   | 169 |   |   |   | 48 |   |
| Other                                               |   |                                   | (12    | )      |                                 |   | 6 |   |   |   | 6 |   |   |   | 22 |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Total noninterest income                            |   |                                   | 618    |   |                                 |   | 597 |   |   |   | 1,215 |   |   |   | 1,179 |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest expenses:                               |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                      |   |                                   | 882    |   |                                 |   | 866 |   |   |   | 1,783 |   |   |   | 1,758 |   |
| Occupancy and equipment                             |   |                                   | 287    |   |                                 |   | 271 |   |   |   | 556 |   |   |   | 540 |   |
| Data processing services                            |   |                                   | 195    |   |                                 |   | 181 |   |   |   | 377 |   |   |   | 360 |   |
| Professional fees                                   |   |                                   | 193    |   |                                 |   | 139 |   |   |   | 355 |   |   |   | 277 |   |
| FDIC insurance                                      |   |                                   | 29     |   |                                 |   | 36 |   |   |   | 58 |   |   |   | 83 |   |
| Advertising and promotion                           |   |                                   | 20     |   |                                 |   | 18 |   |   |   | 37 |   |   |   | 32 |   |
| Stationary and supplies                             |   |                                   | 27     |   |                                 |   | 11 |   |   |   | 46 |   |   |   | 28 |   |
| Other                                               |   |                                   | 279    |   |                                 |   | 259 |   |   |   | 518 |   |   |   | 498 |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Total noninterest expenses                          |   |                                   | 1,912  |   |                                 |   | 1,781 |   |   |   | 3,730 |   |   |   | 3,576 |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) before income taxes                 |   |                                   | (922   | )      |                                 |   | 109 |   |   |   | (998 | ) |   |   | 122 |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Income taxes (benefit)                              |   |                                   | (339   | )      |                                 |   | 39 |   |   |   | (372 | ) |   |   | 44 |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Net (loss) earnings                                 |   | $                                      | (583   | )      |                                 |   | 70 |   |   |   | (626 | ) |   |   | 78 |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Basic (loss) earnings per common share              |   | $                                      | (0.47  | )      |                                 |   | 0.06 |   |   |   | (0.51 | ) |   |   |  - |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Cash dividends per common share                     |   | $                                      | -      |   |                                 |   | - |   |   |   | - |   |   |   |  - |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
|                                                |   |                                   |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |

|                                                                            |   |         |      |   |    |   |   |       |   |   |     |   |   |          |   |   |   |   |
|---------------------------------------------------------------------------------|--------|--------------|-----------|--------|---------|--------|--------|------------|--------|--------|----------|--------|--------|---------------|--------|--------|--------|--------|
|                                                                            |   |         |      |   |    |   |   |       |   |   |     |   |   | Unearned      |   |   |   |   |
|                                                                            |   |         |      |   |    |   |   |       |   |   |     |   |   | Employee      |   |   |   |   |
|                                                                            |   |         |      |   |    |   |   |       |   |   |     |   |   | Stock         |   |   |   |   |
|                                                                            |   |         |      |   |    |   |   | Additional |   |   |     |   |   | Ownership     |   |   | Total  |   |
|                                                                            |   | Common Stock |      |   | Paid In |   |   | Retained   |   |   | Plan     |   |   | Stockholders' |   |
|                                                                            |   | Shares       |      |   | Amount  |   |   | Capital    |   |   | Earnings |   |   | Shares        |   |   | Equity |   |
|                                                                            |   |         |      |   |    |   |   |       |   |   |     |   |   |          |   |   |   |   |
| Balance, December 31, 2010                                                      |   |         | -         |   |    | $      | -      |       |   |   | -        |   |   |          | 15,039 |   |   |   | - |   |   |   | 15,039 |   |
|                                                                            |   |         |      |   |    |   |   |       |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Net earnings (unaudited)                                                        |   |         | -         |   |    |   | -      |       |   |   | -        |   |   |          | 78     |   |   |   | - |   |   |   | 78 |   |
|                                                                            |   |         |      |   |    |   |   |       |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Proceeds from issuance ofcommon stock, net of offeringcosts of $847 (unaudited) |   |         | 1,135,698 |   |    |   | 11     |       |   |   | 10,498   |   |   |          | -      |   |   |   | - |   |   |   | 10,509 |   |
|                                                                            |   |         |      |   |    |   |   |       |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Issuance of common stock forESOP (unaudited)                                    |   |         | 98,756    |   |    |   | 1      |       |   |   | 987      |   |   |          | -      |   |   |   | (988 | ) |   |   | - |   |
|                                                                            |   |         |      |   |    |   |   |       |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Common stock allocated toESOP participants (unaudited)                          |   |         | -         |   |    |   | -      |       |   |   | 3        |   |   |          | -      |   |   |   | 25 |   |   |   | 28 |   |
|                                                                            |   |         |      |   |    |   |   |       |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2011(unaudited)                                               |   |         | 1,234,454 |   |    | $      | 12     |       |   |   | 11,488   |   |   |          | 15,117 |   |   |   | (963 | ) |   |   | 25,654 |   |
|                                                                            |   |         |      |   |    |   |   |       |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
|                                                                            |   |         |      |   |    |   |   |       |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2011                                                      |   |         | 1,234,454 |   |    |   | 12     |       |   |   | 11,487   |   |   |          | 14,813 |   |   |   | (927 | ) |   |   | 25,385 |   |
|                                                                            |   |         |      |   |    |   |   |       |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Net loss (unaudited)                                                            |   |         | -         |   |    |   | -      |       |   |   | -        |   |   |          | (626   | )      |   |   | - |   |   |   | (626 | ) |
|                                                                            |   |         |      |   |    |   |   |       |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Common stock allocated toESOP participants (unaudited)                          |   |         | -         |   |    |   | -      |       |   |   | (2       | )      |   |          | -      |   |   |   | 42 |   |   |   | 40 |   |
|                                                                            |   |         |      |   |    |   |   |       |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2012(unaudited)                                               |   |         | 1,234,454 |   |    | $      | 12     |       |   |   | 11,485   |   |   |          | 14,187 |   |   |   | (885 | ) |   |   | 24,799 |   |

|                                                                                |   |   |   |
|-------------------------------------------------------------------------------------|--------|--------|--------|
|                                                                                |   | 2012   |   |   | 2011 |   |
| Cash flows from operating activities:                                               |   |   |   |   |   |   |
| Net (loss) earnings                                                                 |   | $      | (626   | ) |   |   | 78 |   |
| Adjustments to reconcile net (loss) earnings to net cash from operating activities: |   |   |   |   |   |   |   |   |
| Depreciation                                                                        |   |   | 248    |   |   |   | 245 |   |
| Provision for loan losses                                                           |   |   | 1,180  |   |   |   | 450 |   |
| Deferred income taxes                                                               |   |   | (372   | ) |   |   | 44 |   |
| Net accretion of premiums/discounts on securities                                   |   |   | 39     |   |   |   | 1 |   |
| Net amortization of deferred loan fees and costs                                    |   |   | 5      |   |   |   | 4 |   |
| Loans originated for sale                                                           |   |   | (4,579 | ) |   |   | (792 | ) |
| Proceeds from loans sold                                                            |   |   | 4,695  |   |   |   | 806 |   |
| Gain on sale of loans                                                               |   |   | (116   | ) |   |   | (14 | ) |
| ESOP compensation expense                                                           |   |   | 40     |   |   |   | 28 |   |
| Decrease  in accrued interest receivable                                  |   |   | 48     |   |   |   | 44 |   |
| (Increase) decrease in other assets                                                 |   |   | (25    | ) |   |   | 340 |   |
| Loss on sale of foreclosed real estate                                              |   |   | 26     |   |   |   | - |   |
| Write-down of foreclosed real estate                                                |   |   | 68     |   |   |   | - |   |
| (Decrease) increase in official checks                                              |   |   | (78    | ) |   |   | 847 |   |
| Net increase in advances by borrowers for taxes and insurance                       |   |   | 151    |   |   |   | 125 |   |
| Increase (decrease) in other liabilities                                            |   |   | 50     |   |   |   | (128 | ) |
|                                                                                |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                                           |   |   | 754    |   |   |   | 2,078 |   |
|  Cash flows from investing activities:                                         |   |   |   |   |   |   |   |   |
| Net repayments (purchases) of securities held-to-maturity                           |   |   | 1,671  |   |   |   | (8,496 | ) |
| Net decrease in loans                                                               |   |   | 4,470  |   |   |   | 6,234 |   |
| Net purchases of premises and equipment                                             |   |   | (134   | ) |   |   | (34 | ) |
| Proceeds from sale of Federal Home Loan Bank stock                                  |   |   | 22     |   |   |   | 25 |   |
| Proceeds from sale of foreclosed real estate                                        |   |   | 138    |   |   |   | - |   |
| Capital expenditures for foreclosed real estate                                     |   |   | -      |   |   |   | (26 | ) |
|                                                                                |   |   |   |   |   |   |   |   |
| Net cash provided by (used in) investing activities                                 |   |   | 6,167  |   |   |   | (2,297 | ) |
|                                                                                |   |   |   |   |   |   |   |   |
| Cash flows from financing activities:                                               |   |   |   |   |   |   |   |   |
| Net increase (decrease) in deposits                                                 |   |   | 2,011  |   |   |   | (8,415 | ) |
| Net proceeds from stock issuance                                                    |   |   | -      |   |   |   | 11,497 |   |
| Issuance of common stock to ESOP                                                    |   |   | -      |   |   |   | (988 | ) |
|                                                                                |   |   |   |   |   |   |   |   |
| Net cash provided by financing activities                                           |   |   | 2,011  |   |   |   | 2,094 |   |
|                                                                                |   |   |   |   |   |   |   |   |
| Increase in cash and cash equivalents                                               |   |   | 8,932  |   |   |   | 1,875 |   |
|                                                                                |   |   |   |   |   |   |   |   |
| Cash and cash equivalents at beginning of period                                    |   |   | 25,055 |   |   |   | 19,324 |   |
|                                                                                |   |   |   |   |   |   |   |   |
| Cash and cash equivalents at end of period                                          |   | $      | 33,987 |   |   |   | 21,199 |   |
|                                                                                |   |   |   |   |   |   |   |   |
| Supplemental disclosure of cash flow information:                                   |   |   |   |   |   |   |   |   |
| Cash paid during the period for:                                                    |   |   |   |   |   |   |   |   |
| Income taxes                                                                        |   | $      | -      |   |   |   | - |   |
|                                                                                |   |   |   |   |   |   |   |   |
| Interest                                                                            |   | $      | 312    |   |   |   | 555 |   |
|                                                                                |   |   |   |   |   |   |   |   |
| Noncash transaction-                                                                |   |   |   |   |   |   |   |   |
| Transfer from loans to foreclosed real estate                                       |   | $      | 1,883  |   |   |   | 114 |   |
|                                                                                |   |   |   |   |   |   |   |   |
|                                                                                |   |   |   |   |   |   |   |   |

|   | Sunshine Financial, Inc. ("Sunshine Financial" or the "Holding Company"), a Maryland corporation, is the holding company for Sunshine Savings Bank (the "Bank") and owns all the outstanding common stock of the Bank.  The Bank completed its reorganization from the mutual to stock holding company form of organization on April 5, 2011. A total of 1,234,454 shares of common stock were sold in the subscription and community offerings at a price of $10.00 per share.  In accordance with the Plan of Conversion and Reorganization (the "Plan"), the Holding Company has succeeded to all rights and obligations of Sunshine Savings MHC and the old Sunshine Financial, Inc. ("Old Sunshine").  See Note 14 for details of the conversion.  The transaction was accounted as a reorganization of entities under common control at historical cost and, the financial data for periods presented include the results of the Bank.  The unaudited, condensed consolidated financial statements include the consolidated results of operations of Old Sunshine and its subsidiary, the Bank. |
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|   |   | The Holding Company's only business is the operation of the Bank.  The Bank through its four banking offices provides a variety of retail community banking services to individuals and businesses primarily in Leon County, Florida. The Bank's deposits are insured up to the applicable limits by the Federal Deposit Insurance Corporation. The Bank's subsidiary is Sunshine Member Insurance Services, Inc. ("SMSI"), which was established to sell automobile warranty and credit life and disability insurance products associated with loan products. Collectively the entities are referred to as the "Company." |
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|   |   | These condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and Article 8-03 of Regulation S-X and do not include all disclosures required by generally accepted accounting principles for a complete presentation of the Company's financial condition and results of operations. |
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|   |   | In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements not misleading and for a fair representation of the results of operations for such periods.  The results for the three and six-month periods ended June 30, 2012 should not be considered as indicative of results for a full year. |
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|   | (continued) |
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|   | In January 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ("ASU") No. 2011-01, Receivables (Topic 310) Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in ASU No. 2011-20. The amendments in this ASU delay the effective date of the disclosures about troubled debt restructurings in ASU 2011-20 for public entities. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring is effective as outlined in ASU No. 2011-02. The adoption of the ASU did not have a material impact on the Company's consolidated financial statements. |
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|   | In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310) A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This amends the guidance for troubled debt restructurings.  The guidance clarifies the guidance on a creditor's evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. For public entities, the amendments are effective for first interim or annual period beginning on or after September 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption. The adoption of the ASU did not have a material impact on the Company's consolidated financial statements. |
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|   | In April 2011, the FASB issued ASU 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreement, which applies to all public entities. It affects all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The amendments do not affect other transfers of financial assets. ASU 2011-03 removes the assessment of effective control the criterion relating to the transferor's ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. Consequently, it also eliminates the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. Eliminating the transferor's ability criterion and related implementation guidance from an entity's assessment of effective control should improve the accounting for repos and other similar transactions. ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011 and is to be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of ASU 2011-03 did not have a material impact on the Company's consolidated financial statements. |
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|   | (continued) |
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|   | In May 2011, the FASB issued ASU No. 2011-04 ("ASU 2011-04"), Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.  The objective of ASU 2011-04 is to provide clarification of Topic 820 and, also, to ensure that fair value has the same meaning in U.S. generally accepted accounting principles ("GAAP") and in international financial reporting standards ("IFRSs") and that their respective fair value measurement and disclosure requirements are generally the same.  Thus, this ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. The amendment is effective for interim and annual periods beginning after December 15, 2011 and is to be applied prospectively.  Early application is not permitted. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements. |
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|   | In June 2011, the FASB issued ASU No. 2011-05 ("ASU 2011-05"), Comprehensive Income (Topic 220), Presentation of Comprehensive Income. The objective of ASU 2011-05 is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income.  To achieve this goal and to facilitate convergence of U.S. GAAP and IFRS, the FASB decided to eliminate the option to present components of other comprehensive income as part of the consolidated statement of changes in stockholders' equity. The amendments in ASU 2011-05 require that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in ASU 2011-05 should be applied retrospectively.  For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  Early adoption is permitted, because compliance with the amendments is already permitted.  The amendments do not require any transition disclosures.  The adoption of this guidance had no effect on the Company's consolidated financial statements. |
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|   | (continued) |
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|   | In December 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-12 ("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 2011-05"). Stakeholders raised concerns that the new presentation requirements about reclassifications of items out of accumulated other comprehensive income would be difficult for preparers and may add unnecessary complexity to financial statements.  In addition, it is difficult for some stakeholders to change systems in time to gather the information for the new presentation requirements by the effective date of ASU 2011-05.  All other requirements in ASU 2011-05 are not affected by this update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. The amendments in ASU 2011-12 are effective on a retrospective basis for public entities for annual periods beginning after December 15, 2011, and interim periods within those years.  An entity should provide the disclosures required by ASU 2011-12 retrospectively for all comparative periods presented.  The adoption of this guidance had no effect on the Company's consolidated financial statements. |
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|   | In December 2011, the FASB issued ASU No. 2011-11 ("ASU 2011-11"), Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities. The objective of ASU 2011-11 is to enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 815-10-45.  This information will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position.  The amendments in ASU 2011-11 are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by ASU 2011-11 retrospectively for all comparative periods presented. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements. |
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|   | Earnings per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period, which was 1,234,454 shares during the three and six-month periods ended June 30, 2012.  The Company has no dilutive securities. |
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|   | For the period ended June 30, 2011, earnings per share have been computed since April 1, 2011, as if conversion from a mutual holding company to a capital stock holding company occurred on that date.  Basic earnings per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period, which was 1,135,698 shares during the three-month period ended June 30, 2011. |
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|   | (continued) |
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|   | Securities have been classified as held to maturity according to management intent.  The carrying amount of securities and their fair values are as follows (in thousands): |
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|                       |   |      |   |   | Gross      |   |   | Gross      |   |   |   |   |
|----------------------------|--------|-----------|--------|--------|------------|--------|--------|------------|--------|--------|--------|--------|
|                       |   | Amortized |   |   | Unrealized |   |   | Unrealized |   |   | Fair   |   |
|                       |   | Cost      |   |   | Gains      |   |   | Losses     |   |   | Value  |   |
| At June 30, 2012-          |   |      |   |   |       |   |   |       |   |   |   |   |
| Mortgage-backed securities |   | $         | 8,125  |   |       |   | 251    |       |   |   | -      |   |   |   | 8,376 |   |
|                       |   |      |   |   |       |   |   |       |   |   |   |   |   |   |   |   |
| At December 31, 2011-      |   |      |   |   |       |   |   |       |   |   |   |   |   |   |   |   |
| Mortgage-backed securities |   | $         | 9,835  |   |       |   | 255    |       |   |   | (2     | )      |   |   | 10,088 |   |
|                       |   |      |   |   |       |   |   |       |   |   |   |   |   |   |   |   |

|   | There were no sales of securities during the six months ended June 30, 2012 or 2011. There were no securities pledged at June 30, 2012 or December 31, 2011. |
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|                        |   | June 30, |   |   | December 31, |   |
|-----------------------------|--------|----------|--------|--------|--------------|--------|
|                        |   | 2012     |   |   | 2011         |   |
| Real estate mortgage loans: |   |     |   |   |         |   |
| One-to-four-family          |   | $        | 64,370 |   |         |   | 70,144 |   |
| Lot loans                   |   |     | 6,809  |   |         |   | 7,363 |   |
| Construction                |   |     | 462    |   |         |   | 74 |   |
|                        |   |     |   |   |         |   |   |   |
| Total real estate loans     |   |     | 71,641 |   |         |   | 77,581 |   |
|                        |   |     |   |   |         |   |   |   |
| Consumer loans:             |   |     |   |   |         |   |   |   |
| Home equity                 |   |     | 11,435 |   |         |   | 12,731 |   |
| Automobile                  |   |     | 2,433  |   |         |   | 2,483 |   |
| Credit cards and unsecured  |   |     | 7,591  |   |         |   | 8,184 |   |
| Deposit account             |   |     | 646    |   |         |   | 791 |   |
| Other                       |   |     | 1,568  |   |         |   | 1,818 |   |
|                        |   |     |   |   |         |   |   |   |
| Total consumer loans        |   |     | 23,673 |   |         |   | 26,007 |   |
|                        |   |     |   |   |         |   |   |   |
| Total loans                 |   |     | 95,314 |   |         |   | 103,588 |   |
|                        |   |     |   |   |         |   |   |   |
| Less (plus):                |   |     |   |   |         |   |   |   |
| Loans in process            |   |     | (672   | )      |         |   | 207 |   |
| Deferred fees and discounts |   |     | 55     |   |         |   | 50 |   |
| Allowance for losses        |   |     | 1,467  |   |         |   | 1,329 |   |
|                        |   |     |   |   |         |   |   |   |
| Total loans, net            |   | $        | 94,464 |   |         |   | 102,002 |   |
|                        |   |     |   |   |         |   |   |   |

|   | (continued) |
|--------|-------------|

|   | The Company grants real estate and consumer loans to customers primarily in the State of Florida with the majority of such loans in the Tallahassee, Florida metropolitan area.  Therefore, the Company's exposure to credit risk could be significantly affected by changes in the economy and real estate market in the Tallahassee, Florida metropolitan area. |
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|   | The Company has divided the loan portfolio into two portfolio segments, each with different risk characteristics and methodologies for assessing risk. All loans are underwritten in accordance with policies set forth and approved by the Board, including repayment capacity and source, value of the underlying property, credit history and stability.  The portfolio segments identified by the Company are as follows: |
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|   | (continued) |
|--------|-------------|

|                             |   | For the Three Months Ended June 30, 2012 |   |
|----------------------------------|--------|------------------------------------------|--------|
|                             |   | One-toFour-Family                        |   |   | LotLoans |   |   | Construction |   |   | HomeEquity |   |   | Automobile |   |   | CreditCards andUnsecured |   |   | DepositAccount |   |   | Other |   |   | Total |   |
|                             |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beginning balance                |   | $                                        | 564    |   |   |   | 101 |   |   |   | - |   |   |   | 258 |   |   |   | 28 |   |   |   | 244 |   |   |   | - |   |   |   | 109 |   |   |   | 1,304 |   |
| Provision (credit) for loan loss |   |                                     | 546    |   |   |   | 54 |   |   |   | - |   |   |   | 224 |   |   |   | (22 | ) |   |   | 65 |   |   |   | - |   |   |   | 88 |   |   |   | 955 |   |
| Charge-offs                      |   |                                     | (440   | ) |   |   | (43 | ) |   |   | - |   |   |   | (156 | ) |   |   | (2 | ) |   |   | (94 | ) |   |   | - |   |   |   | (74 | ) |   |   | (809 | ) |
| Recoveries                       |   |                                     | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 4 |   |   |   | 12 |   |   |   | - |   |   |   | 1 |   |   |   | 17 |   |
|                             |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance                   |   | $                                        | 670    |   |   |   | 112 |   |   |   | - |   |   |   | 326 |   |   |   | 8 |   |   |   | 227 |   |   |   | - |   |   |   | 124 |   |   |   | 1,467 |   |
|                             |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                   |   | For the Six Months Ended June 30, 2012 |      |
|----------------------------------------|--------|----------------------------------------|-----------|
|                                   |   | One-toFour-Family                      |      |   | LotLoans |   |   | Construction |   |   | HomeEquity |   |   | Automobile |   |   | CreditCards andUnsecured |   |   | DepositAccount |   |   | Other |   |   | Total |   |
|                                   |   |                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beginning balance                      |   | $                                      | 475       |   |   |   | 144 |   |   |   | - |   |   |   | 235 |   |   |   | 39 |   |   |   | 337 |   |   |   | - |   |   |   | 99 |   |   |   | 1,329 |   |
| Provision (credit) for loan loss       |   |                                   | 676       |   |   |   | 91 |   |   |   | - |   |   |   | 317 |   |   |   | (22 | ) |   |   | 1 |   |   |   | - |   |   |   | 117 |   |   |   | 1,180 |   |
| Charge-offs                            |   |                                   | (481      | ) |   |   | (128 | ) |   |   | - |   |   |   | (226 | ) |   |   | (17 | ) |   |   | (133 | ) |   |   | - |   |   |   | (93 | ) |   |   | (1,078 | ) |
| Recoveries                             |   |                                   | -         |   |   |   | 5 |   |   |   | - |   |   |   | - |   |   |   | 8 |   |   |   | 22 |   |   |   | - |   |   |   | 1 |   |   |   | 36 |   |
|                                   |   |                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance                         |   | $                                      | 670       |   |   |   | 112 |   |   |   |   |   |   |   | 326 |   |   |   | 8 |   |   |   | 227 |   |   |   | - |   |   |   | 124 |   |   |   | 1,467 |   |
|                                   |   |                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment: |   |                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Recorded investment                    |   | $                                      | 2,719     |   |   |   |  59 |   |   |   |  - |   |   |   |  265 |   |   |   |  - |   |   |   |  41 |   |   |   |  - |   |   |   |  - |   |   |   |  3,084 |   |
| Balance in allowance for loan losses   |   | $                                      |  -   |   |   |   |    - |   |   |   |    - |   |   |   |    - |   |   |   |    - |   |   |   |    - |   |   |   |    - |   |   |   |    - |   |   |   |    - |   |
|                                   |   |                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Collectively evaluated for impairment: |   |                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Recorded investment                    |   | $                                      | 61,651    |   |   |   | 6,750 |   |   |   | 462 |   |   |   | 11,170 |   |   |   | 2,433 |   |   |   | 7,550 |   |   |   | 646 |   |   |   | 1,568 |   |   |   | 92,230 |   |
| Balance in allowance for loan losses   |   | $                                      |  670 |   |   |   |    112 |   |   |   |    - |   |   |   |    326 |   |   |   |    8 |   |   |   |    227 |   |   |   |    - |   |   |   |    124 |   |   |   |    1,467 |   |
|                                   |   |                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|   | (continued) |
|--------|-------------|

|                    |   | For the Three Months Ended June 30, |   |
|-------------------------|--------|-------------------------------------|--------|
|                    |   | 2011                                |   |
|                    |   | One-toFour-Family                   |   |   | LotLoans |   |   | Construction |   |   | HomeEquity |   |   | Automobile |   |   | CreditCards andUnsecured |   |   | DepositAccounts |   |   | Other |   |   | Total |   |
|                    |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beginning balance       |   | $                                   | 741    |   |   |   | 59 |   |   |   | 2 |   |   |   | 318 |   |   |   | 42 |   |   |   | 398 |   |   |   | - |   |   |   | 145 |   |   |   | 1,705 |   |
| Provision for loan loss |   |                                | 175    |   |   |   | 78 |   |   |   | 4 |   |   |   | (16 | ) |   |   | 1 |   |   |   | (27 | ) |   |   | - |   |   |   | 10 |   |   |   | 225 |   |
| Charge-offs             |   |                                | (61    | ) |   |   | - |   |   |   | - |   |   |   | (193 | ) |   |   | (4 | ) |   |   | (72 | ) |   |   | - |   |   |   | (16 | ) |   |   | (346 | ) |
| Recoveries              |   |                                | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 4 |   |   |   | 16 |   |   |   | - |   |   |   | - |   |   |   | 20 |   |
|                    |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance          |   | $                                   | 855    |   |   |   | 137 |   |   |   | 6 |   |   |   | 109 |   |   |   | 43 |   |   |   | 315 |   |   |   | - |   |   |   | 139 |   |   |   | 1,604 |   |
|                    |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                                                                            |   | For the Six Months Ended June 30, |   |
|-------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                            |   | 2011                              |   |
|                                                                                            |   | One-toFour-Family                 |   |   | LotLoans |   |   | Construction |   |   | HomeEquity |   |   | Automobile |   |   | CreditCards andUnsecured |   |   | DepositAccounts |   |   | Other |   |   | Total |   |
|                                                                                            |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beginning balance                                                                               |   | $                                 | 623    |   |   |   | 59 |   |   |   | 2 |   |   |   | 252 |   |   |   | 39 |   |   |   | 503 |   |   |   | - |   |   |   | 143 |   |   |   | 1,621 |   |
| Provision for loan loss                                                                         |   |                              | 293    |   |   |   | 78 |   |   |   | 4 |   |   |   | 88 |   |   |   | 2 |   |   |   | (41 | ) |   |   | - |   |   |   | 26 |   |   |   | 450 |   |
| Charge-offs                                                                                     |   |                              | (61    | ) |   |   | - |   |   |   | - |   |   |   | (231 | ) |   |   | (6 | ) |   |   | (181 | ) |   |   | - |   |   |   | (32 | ) |   |   | (511 | ) |
| Recoveries                                                                                      |   |                              | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 8 |   |   |   | 34 |   |   |   | - |   |   |   | 2 |   |   |   | 44 |   |
|                                                                                            |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance                                                                                  |   | $                                 | 855    |   |   |   | 137 |   |   |   | 6 |   |   |   | 109 |   |   |   | 43 |   |   |   | 315 |   |   |   | - |   |   |   | 139 |   |   |   | 1,604 |   |
|  Individually evaluated for impairment:                                                    |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Recorded investment                                                                 |   | $                                 | 2,814  |   |   |   | 24 |   |   |   | - |   |   |   | 302 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 3,140 |   |
|   Balance in allowance        for loan losses |   | $                                 | 617    |   |   |   |  118 |   |   |   |  - |   |   |   |  - |   |   |   |  18 |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  753 |   |
|                                                                                            |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Collectively evaluated for impairment:                                                          |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Recorded investment                                                                 |   | $                                 | 72,983 |   |   |   | 8,980 |   |   |   | - |   |   |   | 13,698 |   |   |   | 2,177 |   |   |   | 8,254 |   |   |   | 787 |   |   |   | 2,016 |   |   |   | 108,895 |   |
|   Balance in allowance        for loan losses |   | $                                 | 238    |   |   |   |  19 |   |   |   |  6 |   |   |   |  109 |   |   |   |  25 |   |   |   |  315 |   |   |   |  - |   |   |   |  139 |   |   |   |  851 |   |
|                                                                                            |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| Credit Risk                             |   | One-to |   |   |   |   |   |         |   |   |   |   |   |       |   |   | Credit    |   |   |     |   |   |   |   |   |   |   |
|-----------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------------|--------|--------|--------|--------|--------|------------|--------|--------|-----------|--------|--------|----------|--------|--------|--------|--------|--------|--------|--------|
| Profile by Internally                   |   | Four-  |   |   | Lot    |   |   |         |   |   | Home   |   |   |       |   |   | Cards and |   |   | Deposit  |   |   |   |   |   |   |   |
| Assigned Grade:                         |   | Family |   |   | Loans  |   |   | Construction |   |   | Equity |   |   | Automobile |   |   | Unsecured |   |   | Accounts |   |   | Other  |   |   | Total  |   |
| At June 30, 2012:                       |   |   |   |   |   |   |   |         |   |   |   |   |   |       |   |   |      |   |   |     |   |   |   |   |   |   |   |
|   Grade:                      |   |   |   |   |   |   |   |         |   |   |   |   |   |       |   |   |      |   |   |     |   |   |   |   |   |   |   |
|     Pass            |   | $      | 60,076 |   |   |   | 6,750  |         |   |   | 462    |   |   |       | 11,002 |   |      |   | 2,414  |     |   |   | 7,493  |   |   |   | 646    |   |   |   | 1,494 |   |   |   | 90,337 |   |
|     Special mention |   |   | 1,248  |   |   |   | -      |         |   |   | -      |   |   |       | 79     |   |      |   | 7      |     |   |   | 26     |   |   |   | -      |   |   |   | - |   |   |   | 1,360 |   |
|     Substandard     |   |   | 3,046  |   |   |   | 27     |         |   |   | -      |   |   |       | 354    |   |      |   | 12     |     |   |   | 64     |   |   |   | -      |   |   |   | - |   |   |   | 3,503 |   |
|     Doubtful        |   |   | -      |   |   |   | 32     |         |   |   | -      |   |   |       | -      |   |      |   | -      |     |   |   | 8      |   |   |   | -      |   |   |   | 74 |   |   |   | 114 |   |
|     Loss            |   |   | -      |   |   |   | -      |         |   |   | -      |   |   |       | -      |   |      |   | -      |     |   |   | -      |   |   |   | -      |   |   |   | - |   |   |   | - |   |
|                                    |   |   |   |   |   |   |   |         |   |   |   |   |   |       |   |   |      |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Total                       |   | $      | 64,370 |   |   |   | 6,809  |         |   |   | 462    |   |   |       | 11,435 |   |      |   | 2,433  |     |   |   | 7,591  |   |   |   | 646    |   |   |   | 1,568 |   |   |   | 95,314 |   |
|                                    |   |   |   |   |   |   |   |         |   |   |   |   |   |       |   |   |      |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| At December 31, 2011:                   |   |   |   |   |   |   |   |         |   |   |   |   |   |       |   |   |      |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Grade:                      |   |   |   |   |   |   |   |         |   |   |   |   |   |       |   |   |      |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Pass            |   |   | 64,888 |   |   |   | 7,151  |         |   |   | 74     |   |   |       | 12,218 |   |      |   | 2,449  |     |   |   | 8,166  |   |   |   | 791    |   |   |   | 1,743 |   |   |   | 97,480 |   |
|     Special mention |   |   | 1,528  |   |   |   | -      |         |   |   | -      |   |   |       | 91     |   |      |   | 1      |     |   |   | 10     |   |   |   | -      |   |   |   | - |   |   |   | 1,630 |   |
|     Substandard     |   |   | 3,728  |   |   |   | 212    |         |   |   | -      |   |   |       | 422    |   |      |   | 3      |     |   |   | 7      |   |   |   | -      |   |   |   | 13 |   |   |   | 4,385 |   |
|     Doubtful        |   |   | -      |   |   |   | -      |         |   |   | -      |   |   |       | -      |   |      |   | 12     |     |   |   | 1      |   |   |   | -      |   |   |   | 62 |   |   |   | 75 |   |
|     Loss            |   |   | -      |   |   |   | -      |         |   |   | -      |   |   |       | -      |   |      |   | 18     |     |   |   | -      |   |   |   | -      |   |   |   | - |   |   |   | 18 |   |
|                                    |   |   |   |   |   |   |   |         |   |   |   |   |   |       |   |   |      |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Total                       |   | $      | 70,144 |   |   |   | 7,363  |         |   |   | 74     |   |   |       | 12,731 |   |      |   | 2,483  |     |   |   | 8,184  |   |   |   | 791    |   |   |   | 1,818 |   |   |   | 103,588 |   |
|                                    |   |   |   |   |   |   |   |         |   |   |   |   |   |       |   |   |      |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|   | Internally assigned loan grades are defined as follows: |
|--------|---------------------------------------------------------|

|   | Pass – A Pass loan's primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

|   | Special Mention – A Special Mention loan has potential weaknesses that deserve management's close attention.  If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company's credit position at some future date.  Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Substandard – A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Doubtful – A loan classified Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Loss – A loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted.  This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Age analysis of past-due loans is as follows (in thousands): |
|--------|--------------------------------------------------------------|

|                                                                       |   | Accruing Loans |   |   |     |   |   |     |   |
|----------------------------------------------------------------------------|--------|----------------|--------|--------|----------|--------|--------|----------|--------|
|                                                                       |   |           |   |   |     |   |   | Greater  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                       |   |           | 30-59  |   |     |   | 60-89  |     |   | Than 90 |   |   | Total |   |   |   |   |   |   |   |   |   |   |
|                                                                       |   | Days           |   |   | Days     |   |   | Days     |   |   | Past |   |   |   |   |   | Nonaccrual |   |   | Total |   |
|                                                                       |   | Past Due       |   |   | Past Due |   |   | Past Due |   |   | Due |   |   | Current |   |   | Loans |   |   | Loans |   |
| At June 30, 2012:                                                          |   |           |   |   |     |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Real estate loans:                                 |   |           |   |   |     |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         One-to four-family         |   | $              | 315    |   |     |   | 92     |     |   |   | - |   |   |   | 407 |   |   |   | 61,628 |   |   |   | 2,335 |   |   |   | 64,370 |   |
|         Lot loans                  |   |           | -      |   |     |   | -      |     |   |   | - |   |   |   | - |   |   |   | 6,750 |   |   |   | 59 |   |   |   | 6,809 |   |
|         Construction               |   |           | -      |   |     |   | -      |     |   |   | - |   |   |   | - |   |   |   | 462 |   |   |   | - |   |   |   | 462 |   |
|     Consumer loans:                                    |   |           |   |   |     |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Home equity                |   |           | 298    |   |     |   | 39     |     |   |   | - |   |   |   | 337 |   |   |   | 10,886 |   |   |   | 212 |   |   |   | 11,435 |   |
|         Automobile                 |   |           | 11     |   |     |   | -      |     |   |   | - |   |   |   | 11 |   |   |   | 2,403 |   |   |   | 19 |   |   |   | 2,433 |   |
|         Credit cards and unsecured |   |           | 74     |   |     |   | 20     |     |   |   | - |   |   |   | 94 |   |   |   | 7,460 |   |   |   | 37 |   |   |   | 7,591 |   |
|         Deposit account            |   |           | -      |   |     |   | -      |     |   |   | - |   |   |   | - |   |   |   | 646 |   |   |   | - |   |   |   | 646 |   |
|         Other                      |   |           | -      |   |     |   | -      |     |   |   | - |   |   |   | - |   |   |   | 1,493 |   |   |   | 75 |   |   |   | 1,568 |   |
|                                                                       |   |           |   |   |     |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Total                                              |   | $              | 698    |   |     |   | 151    |     |   |   | - |   |   |   | 849 |   |   |   | 91,728 |   |   |   | 2,737 |   |   |   | 95,314 |   |
|                                                                       |   |           |   |   |     |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| At December 31, 2011:                                                      |   |           |   |   |     |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Real estate loans:                                 |   |           |   |   |     |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         One-to four-family         |   |           | 1,894  |   |     |   | 146    |     |   |   | - |   |   |   | 2,040 |   |   |   | 64,148 |   |   |   | 3,956 |   |   |   | 70,144 |   |
|         Lot loans                  |   |           | -      |   |     |   | -      |     |   |   | - |   |   |   | - |   |   |   | 7,152 |   |   |   | 211 |   |   |   | 7,363 |   |
|         Construction               |   |           | -      |   |     |   | -      |     |   |   | - |   |   |   | - |   |   |   | 74 |   |   |   | - |   |   |   | 74 |   |
|     Consumer loans:                                    |   |           |   |   |     |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Home equity                |   |           | 465    |   |     |   | 91     |     |   |   | - |   |   |   | 556 |   |   |   | 11,815 |   |   |   | 360 |   |   |   | 12,731 |   |
|         Automobile                 |   |           | -      |   |     |   | 1      |     |   |   | - |   |   |   | 1 |   |   |   | 2,458 |   |   |   | 24 |   |   |   | 2,483 |   |
|         Credit cards and unsecured |   |           | 107    |   |     |   | 25     |     |   |   | - |   |   |   | 132 |   |   |   | 8,040 |   |   |   | 12 |   |   |   | 8,184 |   |
|         Deposit account            |   |           | -      |   |     |   | -      |     |   |   | - |   |   |   | - |   |   |   | 791 |   |   |   | - |   |   |   | 791 |   |
|         Other                      |   |           | -      |   |     |   | -      |     |   |   | - |   |   |   | - |   |   |   | 1,743 |   |   |   | 75 |   |   |   | 1,818 |   |
|                                                                       |   |           |   |   |     |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Total                                              |   | $              | 2,466  |   |     |   | 263    |     |   |   | - |   |   |   | 2,729 |   |   |   | 96,221 |   |   |   | 4,638 |   |   |   | 103,588 |   |
|                                                                       |   |           |   |   |     |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|   | At June 30, 2012 and December 31, 2011, there were no loans past due ninety days or more but still accruing. |
|--------|--------------------------------------------------------------------------------------------------------------|

|   | (continued) |
|--------|-------------|

|   | A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis 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. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The following summarizes the amount of impaired loans (in thousands): |
|--------|-----------------------------------------------------------------------|

|                                                                                                     |   | With No RelatedAllowance Recorded |     |   | With an Allowance Recorded |   |     | Total            |   |
|----------------------------------------------------------------------------------------------------------|--------|-----------------------------------|----------|--------|----------------------------|--------|----------|------------------|--------|
|                                                                                                     |   | RecordedInvestment                |     |   | UnpaidPrincipalBalance     |   |     | RelatedAllowance |   |   | RecordedInvestment |   |   | UnpaidPrincipalBalance |   |   | RelatedAllowance |   |   | RecordedInvestment |   |   | UnpaidPrincipalBalance |   |   | RelatedAllowance |   |
| At June 30, 2012:                                                                                        |   |                              |     |   |                       |   |     |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Real estate loans:                                                                           |   |                              |     |   |                       |   |     |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     One-to four-family                                                               |   | $                                 | 2,719    |   |                       |   | 3,098    |             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,719 |   |   |   | 3,098 |   |   |   | - |   |
|     Lot loans                                                                        |   |                              | 59       |   |                       |   | 304      |             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 59 |   |   |   | 304 |   |   |   | - |   |
|   Consumer loans:                                                                              |   |                              |     |   |                       |   |     |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Home equity                                                                                  |   |                              | 265      |   |                       |   | 442      |             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 265 |   |   |   | 442 |   |   |   | - |   |
|      Credit cards and         unsecured |   |                              |  41 |   |                       |   |  48 |             |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  41 |   |   |   |  48 |   |   |   |  - |   |
|                                                                                                     |   |                              |     |   |                       |   |     |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                     |   | $                                 | 3,084    |   |                       |   | 3,892    |             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 3,084 |   |   |   | 3,892 |   |   |   | - |   |
|                                                                                                     |   |                              |     |   |                       |   |     |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| At December 31, 2011:                                                                                    |   |                              |     |   |                       |   |     |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Real estate loans:                                                                           |   |                              |     |   |                       |   |     |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     One-to four-family                                                               |   |                              | 2,786    |   |                       |   | 3,328    |             |   |   | - |   |   |   | 301 |   |   |   | 301 |   |   |   | 36 |   |   |   | 3,087 |   |   |   | 3,629 |   |   |   | 36 |   |
|     Lot loans                                                                        |   |                              | 47       |   |                       |   | 182      |             |   |   | - |   |   |   | 108 |   |   |   | 108 |   |   |   | 85 |   |   |   | 155 |   |   |   | 290 |   |   |   | 85 |   |
|   Consumer loans:                                                                              |   |                              |     |   |                       |   |     |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Home equity                                                                      |   |                              | 574      |   |                       |   | 660      |             |   |   | - |   |   |   | 16 |   |   |   | 16 |   |   |   | 3 |   |   |   | 590 |   |   |   | 676 |   |   |   | 3 |   |
|     Automobile                                                                       |   |                              | -        |   |                       |   | -        |             |   |   | - |   |   |   | 18 |   |   |   | 18 |   |   |   | 18 |   |   |   | 18 |   |   |   | 18 |   |   |   | 18 |   |
|                                                                                                     |   |                              |     |   |                       |   |     |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                     |   | $                                 | 3,407    |   |                       |   | 4,170    |             |   |   | - |   |   |   | 443 |   |   |   | 443 |   |   |   | 142 |   |   |   | 3,850 |   |   |   | 4,613 |   |   |   | 142 |   |
|                                                                                                     |   |                              |     |   |                       |   |     |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|   | At June 30, 2012 and December 31, 2011, the Company's loan portfolio included primarily large groups of smaller balance homogeneous loans.  The Company considers individual loans which are in the process of foreclosure for impairment. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (continued) |
|--------|-------------|

|   | The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands): |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------|

|                                    |   | Average    |   |   | Interest   |   |   | Interest |   |
|-----------------------------------------|--------|------------|--------|--------|------------|--------|--------|----------|--------|
|                                    |   | Recorded   |   |   | Income     |   |   | Income   |   |
|                                    |   | Investment |   |   | Recognized |   |   | Received |   |
| For the Six Months Ended June 30, 2012: |   |       |   |   |       |   |   |     |   |
| Real estate loans:                      |   |       |   |   |       |   |   |     |   |
| One-to four-family                      |   | $          | 4,113  |   |       |   | 14     |     |   |   | 17 |   |
| Lot loans                               |   |       | 84     |   |       |   | 3      |     |   |   | 3 |   |
| Consumer loans:                         |   |       |   |   |       |   |   |     |   |   |   |   |
| Home equity                             |   |       | 419    |   |       |   | 2      |     |   |   | 2 |   |
| Credit cards and unsecured              |   |       | 20     |   |       |   | 7      |     |   |   | 8 |   |
|                                    |   |       |   |   |       |   |   |     |   |   |   |   |
| Total                                   |   | $          | 4,636  |   |       |   | 26     |     |   |   | 30 |   |
|                                    |   |       |   |   |       |   |   |     |   |   |   |   |
| For the Six Months Ended June 30, 2011: |   |       |   |   |       |   |   |     |   |   |   |   |
| Real estate loans:                      |   |       |   |   |       |   |   |     |   |   |   |   |
| One-to four-family                      |   |       | 2,941  |   |       |   | 7      |     |   |   | 7 |   |
| Lot loans                               |   |       | 24     |   |       |   | -      |     |   |   | - |   |
| Consumer loans-                         |   |       |   |   |       |   |   |     |   |   |   |   |
| Home equity                             |   |       | 192    |   |       |   | -      |     |   |   | - |   |
|                                    |   |       |   |   |       |   |   |     |   |   |   |   |
| Total                                   |   | $          | 3,157  |   |       |   | 7      |     |   |   | 7 |   |

|   | A troubled debt restructuring is a loan to a borrower that is experiencing financial difficulty that has been modified from its original terms and conditions in such a way that the Company is granting the borrower a concession of some kind.  The Company has granted a variety of concessions to borrowers in the form of loan modifications. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company had troubled debt restructurings totaling $230,000 entered into during the six months ended June 30, 2012 and totaling $176,000 for the six months ended June 30, 2011.  Impairment losses totaled $16,000 for both periods.  The Company has not had any troubled debt restructurings which were restructured during the last twelve months that subsequently defaulted during the period ended June 30, 2012. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Expenses applicable to foreclosed assets are included in other noninterest expense and include operating expenses of $53,000 and $32,000 for the six months ended June 30, 2012 and 2011, respectively.  There were write-downs of $68,000 and two sales of foreclosed real estate during the six months ended June 30, 2012 and no sales or write-downs for the six months ended June 30, 2011. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company has an unsecured federal funds line of credit for $4.5 million with a correspondent bank and a $14.8 million line with the Federal Home Loan Bank of Atlanta collateralized by a blanket lien on qualifying loans. At June 30, 2012 and December 31, 2011 the Company had no outstanding balances on these lines. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company is a 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 are unused lines of credit and commitments to extend credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the balance sheets.  The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unused lines of credit and commitments to extend credit is represented by the contractual amount of those instruments.  The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed-expiration dates or other termination clauses and may require payment of a fee.  Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Company evaluates each customer's credit worthiness on a case-by-case basis.  The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management's credit evaluation of the counterparty. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Unused lines of credit and commitments to extend credit typically result in loans with a market interest rate when funded.  A summary of the amounts of the Company's financial instruments, with off-balance-sheet risk follows at June 30, 2012 (in thousands): |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                  |   | Contract |   |
|-------------------------------------------------------|--------|----------|--------|
|                                                  |   | Amount   |   |
| Unused lines of credit (rates range from              |   |     |   |
|     3.25% to 18.00%)              |   | $        | 17,384 |   |
|                                                  |   |     |   |   |
| Commitments to extend credit (all fixed rates         |   |     |   |   |
|     ranging from 2.49% to 13.90%) |   | $        | 2,053  |   |
|                                                  |   |     |   |   |

|   | (continued) |
|--------|-------------|

|   | The carrying amounts and estimated fair values of the Company's financial instruments are as follows (in thousands): |
|--------|----------------------------------------------------------------------------------------------------------------------|

|                                                     |   | At June 30, 2012 |    |   | At December 31, 2011 |   |
|----------------------------------------------------------|--------|------------------|---------|--------|----------------------|--------|
|                                                     |   | Carrying         |    |   | Fair                 |   |   | Carrying |   |   | Fair |   |
|                                                     |   | Amount           |    |   | Value                |   |   | Amount |   |   | Value |   |
| Financial assets:                                        |   |             |    |   |                 |   |   |   |   |   |   |   |
|     Cash and cash equivalents (1)    |   | $                | 33,987  |   |                 |   | 33,987 |   |   |   | 25,055 |   |   |   | 25,055 |   |
|     Securities held to maturity (2)  |   |             | 8,125   |   |                 |   | 8,376 |   |   |   | 9,835 |   |   |   | 10,088 |   |
|     Loans (3)                        |   |             | 94,464  |   |                 |   | 94,105 |   |   |   | 102,002 |   |   |   | 101,736 |   |
|     Federal Home Loan Bank stock (3) |   |             | 225     |   |                 |   | 225 |   |   |   | 247 |   |   |   | 247 |   |
|     Accrued interest receivable (3)  |   |             | 406     |   |                 |   | 406 |   |   |   | 454 |   |   |   | 454 |   |
|                                                     |   |             |    |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:                                   |   |             |    |   |                 |   |   |   |   |   |   |   |   |   |   |   |
|     Deposits (3)                     |   |             | 121,427 |   |                 |   | 119,351 |   |   |   | 119,416 |   |   |   | 117,135 |   |
| Off-balance-sheet financial instruments (3)              |   |             | -       |   |                 |   | - |   |   |   | - |   |   |   | - |   |
|                                                     |   |             |    |   |                 |   |   |   |   |   |   |   |   |   |   |   |

|   | The Company has a 401(k) plan for its employees who meet certain age and length-of-service requirements. Eligible employees can contribute up to $16,500 of their compensation to the plan on a pre-tax basis. Employer matching contributions are made at 100 percent of employee contribution up to five percent. Employer contributions made to the 401(k) plan were $53,000 and $56,000 for the six-months ended June 30, 2012 and 2011, respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Effective April 5, 2011, upon closing of the stock offering, the Holding Company established an Employee Stock Ownership Plan which acquired 8% of the total number of shares of common stock sold during the public offering.  A total of 98,756 shares were acquired in exchange for a $988,000 note payable to the Holding Company.  The note bears interest at the prime plus one percent rate and is payable in annual installments and is due in 2021.  The employer expense was $29,000 and $60,000 for the three- and six-month periods ended June 30, 2012, respectively. The employer expense was $28,000 for the three- and six-month periods ended June 30, 2011, respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Impaired collateral-dependent loans are carried at fair value when the current collateral value is lower than the carrying value of the loan.  Those impaired collateral-dependent loans which are measured at fair value on a nonrecurring basis are as follows (in thousands): |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                       |   | FairValue |   |   | Level 1 |   |    | Level 2 |   |   | Level 3 |   |   | TotalLosses |   |   | LossesRecordedDuring thePeriod |   |
|----------------------------|--------|-----------|--------|--------|---------|--------|---------|---------|--------|--------|---------|--------|--------|-------------|--------|--------|--------------------------------|--------|
| At June 30, 2012:          |   |      |   |   |    |   |    |    |   |   |    |   |   |        |   |   |                           |   |
| One-to four-family         |   | $         | 1,924  |   |    |   | -       |    |   |   | -       |   |   |        | 1,924  |   |                           |   | 378 |   |   |   | 186 |   |
| Lot loans                  |   |      | 59     |   |    |   | -       |    |   |   | -       |   |   |        | 59     |   |                           |   | 246 |   |   |   | 43 |   |
| Home equity                |   |      | 265    |   |    |   | -       |    |   |   | -       |   |   |        | 265    |   |                           |   | 177 |   |   |   | 129 |   |
| Credit cards and unsecured |   |      | 41     |   |    |   |  - |    |   |   | -       |   |   |        | 41     |   |                           |   | 6 |   |   |   | 6 |   |
|                       |   |      |   |   |    |   |    |    |   |   |    |   |   |        |   |   |                           |   |   |   |   |   |   |   |
| Total                      |   | $         | 2,289  |   |    |   | -       |    |   |   | -       |   |   |        | 2,289  |   |                           |   | 807 |   |   |   | 364 |   |
|                       |   |      |   |   |    |   |    |    |   |   |    |   |   |        |   |   |                           |   |   |   |   |   |   |   |
| At December 31, 2011:      |   |      |   |   |    |   |    |    |   |   |    |   |   |        |   |   |                           |   |   |   |   |   |   |   |
| One-to four-family         |   |      | 1,667  |   |    |   | -       |    |   |   | -       |   |   |        | 1,667  |   |                           |   | 592 |   |   |   | 378 |   |
| Lot loans                  |   |      | 70     |   |    |   | -       |    |   |   | -       |   |   |        | 70     |   |                           |   | 220 |   |   |   | 129 |   |
| Home equity                |   |      | 501    |   |    |   | -       |    |   |   | -       |   |   |        | 501    |   |                           |   | 89 |   |   |   | 89 |   |
| Automobile                 |   |      | -      |   |    |   | -       |    |   |   | -       |   |   |        | -      |   |                           |   | 18 |   |   |   | 18 |   |
|                       |   |      |   |   |    |   |    |    |   |   |    |   |   |        |   |   |                           |   |   |   |   |   |   |   |
| Total                      |   | $         | 2,238  |   |    |   | -       |    |   |   | -       |   |   |        | 2,238  |   |                           |   | 919 |   |   |   | 614 |   |
|                       |   |      |   |   |    |   |    |    |   |   |    |   |   |        |   |   |                           |   |   |   |   |   |   |   |

|   | Foreclosed real estate is recorded at fair value less estimated costs to sell.  Foreclosed real estate which is measured at fair value on a nonrecurring basis is summarized below (in thousands): |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                           |   |   |   |   | Quoted Prices |   |   |        |   |   |         |   |   |   |   |   |       |   |
|------------------------------------------------|--------|--------|--------|--------|---------------|--------|--------|-------------|--------|--------|--------------|--------|--------|--------|--------|--------|------------|--------|
|                                           |   |   |   |   | In Active     |   |   | Significant |   |   |         |   |   |   |   |   |       |   |
|                                           |   |   |   |   | Markets for   |   |   | Other       |   |   | Significant  |   |   |   |   |   | Losses     |   |
|                                           |   |   |   |   | Identical     |   |   | Observable  |   |   | Unobservable |   |   |   |   |   | Recorded   |   |
|                                           |   | Fair   |   |   | Assets        |   |   | Inputs      |   |   | Inputs       |   |   | Total  |   |   | During the |   |
|                                           |   | Value  |   |   | (Level 1)     |   |   | (Level 2)   |   |   | (Level 3)    |   |   | Losses |   |   | Period     |   |
| At June 30, 2012-                              |   |   |   |   |          |   |   |        |   |   |         |   |   |   |   |   |       |   |
|     Foreclosed real estate |   | $      | 2,394  |   |          |   | -      |        |   |   | -            |   |   |   | 2,394  |   |       |   | 122 |   |   |   | 68 |   |
|                                           |   |   |   |   |          |   |   |        |   |   |         |   |   |   |   |   |       |   |   |   |   |   |   |   |
| At December 31, 2011-                          |   |   |   |   |          |   |   |        |   |   |         |   |   |   |   |   |       |   |   |   |   |   |   |   |
|     Foreclosed real estate |   | $      | 743    |   |          |   | -      |        |   |   | -            |   |   |   | 743    |   |       |   | 83 |   |   |   | 68 |   |
|                                           |   |   |   |   |          |   |   |        |   |   |         |   |   |   |   |   |       |   |   |   |   |   |   |   |

|   | The Bank is subject to various regulatory capital requirements administered by the 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 Company's and the Bank's financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital 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 (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined).  Management believes, as of June 30, 2012, that the Bank meets all capital adequacy requirements to which it was subject. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | At June 30, 2012, the Bank was categorized 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, Tier I risk-based, and Tier I leverage ratios as set forth in the table.  There are no conditions or events since that notification that management believes have changed the institution's category. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Bank's actual regulatory capital amounts and percentages are presented in the table ($ in thousands). |
|--------|-----------------------------------------------------------------------------------------------------------|

|                                                            |   | Actual |   |   | MinimumFor Capital AdequacyPurposes |   |   | MinimumTo Be WellCapitalized UnderPrompt and CorrectiveAction Provisions |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|-------------------------------------|--------|--------|--------------------------------------------------------------------------|--------|
|                                                            |   | Amount |   |   | %                                   |   |   | Amount                                                                   |   |   | % |   |   | Amount |   |   | % |   |
| At June 30, 2012:                                               |   |   |   |   |                                |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
|     Total Capital to Risk-                  |   |   |   |   |                                |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
|         Weighted Assets |   | $      | 18,195 |   |                                |   | 21.65  | %                                                                        |   | $ | 6,724 |   |   |   | 8.00 | % |   | $ | 8,405 |   |   |   | 10.00 | % |
|     Tier I Capital to Risk-                 |   |   |   |   |                                |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Weighted Assets |   |   | 17,140 |   |                                |   | 20.39  |                                                                     |   |   | 3,362 |   |   |   | 4.00 |   |   |   | 5,043 |   |   |   | 6.00 |   |
|     Tier I Capital                          |   |   |   |   |                                |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         to Total Assets |   |   | 17,140 |   |                                |   | 11.86  |                                                                     |   |   | 4,335 |   |   |   | 3.00 |   |   |   | 7,225 |   |   |   | 5.00 |   |
|                                                            |   |   |   |   |                                |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| At December 31, 2011:                                           |   |   |   |   |                                |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Total Capital to Risk-                  |   |   |   |   |                                |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Weighted Assets |   |   | 19,431 |   |                                |   | 22.35  |                                                                     |   |   | 6,955 |   |   |   | 8.00 |   |   |   | 8,694 |   |   |   | 10.00 |   |
|     Tier I Capital to Risk-                 |   |   |   |   |                                |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Weighted Assets |   |   | 18,102 |   |                                |   | 20.82  |                                                                     |   |   | 3,478 |   |   |   | 4.00 |   |   |   | 5,216 |   |   |   | 6.00 |   |
|     Tier I Capital                          |   |   |   |   |                                |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         to Total Assets |   |   | 18,102 |   |                                |   | 12.69  |                                                                     |   |   | 4,279 |   |   |   | 3.00 |   |   |   | 7,132 |   |   |   | 5.00 |   |
|                                                            |   |   |   |   |                                |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|   | On April 5, 2011, in accordance with a Plan of Conversion and Reorganization (the “Plan”) adopted by its Board of Directors and approved by its members, the Bank converted from a mutual holding company to a stock holding company form of organization, with the Bank becoming a wholly owned subsidiary of the Holding Company.  The conversion and reorganization was accomplished through the sale and issuance of 1,234,454 shares of common stock at a price of $10.00 per share, through which the Holding Company received proceeds of approximately $10.5 million, net of offering expenses of approximately $847,000. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In accordance with Office of the Comptroller of the Currency ("OCC") regulations, 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. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item 2. | Management's Discussion and Analysis of |
|---------|-----------------------------------------|

|   | Financial Condition and Results of Operations |
|--------|-----------------------------------------------|

|   | · | statements of our goals, intentions and expectations; |
|--------|--------|-------------------------------------------------------|

|   | · | statements regarding our business plans, prospects, growth and operating strategies; |
|--------|--------|--------------------------------------------------------------------------------------|

|   | · | statements regarding the asset quality of our loan and investment portfolios; and |
|--------|--------|-----------------------------------------------------------------------------------|

|   | · | estimates of our risks and future costs and benefits. |
|--------|--------|-------------------------------------------------------|

|   | · | the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | changes in general economic conditions, either nationally or in our market area; |
|--------|--------|----------------------------------------------------------------------------------|

|   | · | changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market area; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | results of examinations of us by the Federal Reserve Board, OCC or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | legislative or regulatory changes that adversely affect our business including the effect of the Dodd-Frank Act, Basel III, changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | our ability to attract and retain deposits; |
|--------|--------|---------------------------------------------|

|   | · | further increases in premiums for deposit insurance; |
|--------|--------|------------------------------------------------------|

|   | · | our ability to control operating costs and expenses; |
|--------|--------|------------------------------------------------------|

|   | · | the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | difficulties in reducing risks associated with the loans on our balance sheet; |
|--------|--------|--------------------------------------------------------------------------------|

|   | · | staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | computer systems on which we depend could fail or experience a security breach; |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | our ability to retain key members of our senior management team; |
|--------|--------|------------------------------------------------------------------|

|   | · | costs and effects of litigation, including settlements and judgments; |
|--------|--------|-----------------------------------------------------------------------|

|   | · | our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and out ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | increased competitive pressures among financial services companies; |
|--------|--------|---------------------------------------------------------------------|

|   | · | changes in consumer spending, borrowing and savings habits; |
|--------|--------|-------------------------------------------------------------|

|   | · | the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------|

|   | · | our ability to pay dividends on our common stock; |
|--------|--------|---------------------------------------------------|

|   | · | adverse changes in the securities markets; |
|--------|--------|--------------------------------------------|

|   | · | inability of key third-party providers to perform their obligations to us; |
|--------|--------|----------------------------------------------------------------------------|

|   | · | changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods including relating to fair value accounting and loan loss reserve requirements; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described elsewhere in this report. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                               |   | Three Months Ended June 30, |    |
|------------------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                               |   | 2012                        |    |   | 2011 |   |
|                                                                               |   | AverageBalance              |    |   | InterestandDividends |   |   | AverageYield/Rate |   |   | AverageBalance |   |   | InterestandDividend |   |   | AverageYield/Rate |   |
| Interest-earning assets:                                                           |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Loans receivable (1)                                       |   | $                           | 96,736  |   |   | $ | 1,403 |   |   |   | 5.80 | % |   | $ | 112,626 |   |   | $ | 1,686 |   |   |   | 5.99 | % |
|     Investments held to maturity                               |   |                        | 8,535   |   |   |   | 53 |   |   |   | 2.48 |   |   |   | 8,388 |   |   |   | 72 |   |   |   | 3.43 |   |
|     Other interest-earning assets (2)                          |   |                        | 31,313  |   |   |   | 18 |   |   |   | 0.23 |   |   |   | 24,194 |   |   |   | 12 |   |   |   | 0.20 |   |
|                                                                               |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Total interest-earning assets      |   |                        | 136,584 |   |   |   | 1,474 |   |   |   | 4.32 |   |   |   | 145,208 |   |   |   | 1,770 |   |   |   | 4.88 |   |
|                                                                               |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-earning assets                                                         |   |                        | 10,729  |   |   |   |   |   |   |   |   |   |   |   | 10,634 |   |   |   |   |   |   |   |   |   |
|                                                                               |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Total assets                       |   | $                           | 147,313 |   |   |   |   |   |   |   |   |   |   | $ | 155,842 |   |   |   |   |   |   |   |   |   |
|                                                                               |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                                      |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     MMDA and statement savings                                 |   |                        | 64,638  |   |   |   | 85 |   |   |   | 0.53 |   |   |   | 60,647 |   |   |   | 105 |   |   |   | 0.69 |   |
|     Time deposits                                              |   |                        | 33,793  |   |   |   | 62 |   |   |   | 0.73 |   |   |   | 48,371 |   |   |   | 147 |   |   |   | 1.22 |   |
|                                                                               |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Total interest-bearing liabilities |   |                        | 98,431  |   |   |   | 147 |   |   |   | 0.60 |   |   |   | 109,018 |   |   |   | 252 |   |   |   | 0.92 |   |
|                                                                               |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing liabilities                                                    |   |                        | 23,684  |   |   |   |   |   |   |   |   |   |   |   | 23,852 |   |   |   |   |   |   |   |   |   |
| Equity                                                                             |   |                        | 25,198  |   |   |   |   |   |   |   |   |   |   |   | 22,972 |   |   |   |   |   |   |   |   |   |
|                                                                               |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Total liabilities and equity       |   | $                           | 147,313 |   |   |   |   |   |   |   |   |   |   | $ | 155,842 |   |   |   |   |   |   |   |   |   |
|                                                                               |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                                |   |                        |    |   |   | $ | 1,327 |   |   |   |   |   |   |   |   |   |   | $ | 1,518 |   |   |   |   |   |
|                                                                               |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest rate spread (3)                                                       |   |                        |    |   |   |   |   |   |   |   | 3.72 | % |   |   |   |   |   |   |   |   |   |   | 3.96 | % |
|                                                                               |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest margin (4)                                                            |   |                        |    |   |   |   |   |   |   |   | 3.89 | % |   |   |   |   |   |   |   |   |   |   | 4.18 | % |
|                                                                               |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio of average interest-earning assets                                           |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     to average interest-bearing liabilities                    |   |                        | 1.39    | x |   |   |   |   |   |   |   |   |   |   | 1.33 | x |   |   |   |   |   |   |   |   |
|                                                                               |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (1) | Includes nonaccrual loans.                                                                                                                                |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Other interest-earnings assets including federal funds sold, Federal Home Loan Bank stock and interest-bearing deposits.                                  |
| (3) | Interest-rate spread represents the difference between the average yield on interest-earning assets and the average rate of interest-bearing liabilities. |
| (4) | Net interest margin is net interest income divided by average interest-earning assets (annualized).                                                       |

|                                                                               |   | Six Months Ended June 30, |    |
|------------------------------------------------------------------------------------|--------|---------------------------|---------|
|                                                                               |   | 2012                      |    |   | 2011 |   |
|                                                                               |   | AverageBalance            |    |   | InterestandDividends |   |   | AverageYield/Rate |   |   | AverageBalance |   |   | InterestandDividend |   |   | AverageYield/Rate |   |
| Interest-earning assets:                                                           |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Loans receivable (1)                                       |   | $                         | 97,915  |   |   | $ | 2,864 |   |   |   | 5.85 | % |   | $ | 113,838 |   |   | $ | 3,393 |   |   |   | 5.96 | % |
|     Investments held to maturity                               |   |                      | 8,824   |   |   |   | 115 |   |   |   | 2.61 |   |   |   | 6,540 |   |   |   | 109 |   |   |   | 3.33 |   |
|     Other interest-earning assets (2)                          |   |                      | 29,674  |   |   |   | 30 |   |   |   | 0.20 |   |   |   | 22,631 |   |   |   | 22 |   |   |   | 0.19 |   |
|                                                                               |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Total interest-earning assets      |   |                      | 136,413 |   |   |   | 3,009 |   |   |   | 4.41 |   |   |   | 143,009 |   |   |   | 3,524 |   |   |   | 4.92 |   |
|                                                                               |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-earning assets                                                         |   |                      | 10,408  |   |   |   |   |   |   |   |   |   |   |   | 10,677 |   |   |   |   |   |   |   |   |   |
|                                                                               |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Total assets                       |   | $                         | 146,821 |   |   |   |   |   |   |   |   |   |   | $ | 153,976 |   |   |   |   |   |   |   |   |   |
|                                                                               |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                                      |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     MMDA and statement savings                                 |   |                      | 63,886  |   |   |   | 181 |   |   |   | 0.57 |   |   |   | 59,594 |   |   |   | 215 |   |   |   | 0.72 |   |
|     Time deposits                                              |   |                      | 34,346  |   |   |   | 131 |   |   |   | 0.76 |   |   |   | 50,701 |   |   |   | 340 |   |   |   | 1.34 |   |
|                                                                               |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Total interest-bearing liabilities |   |                      | 98,232  |   |   |   | 312 |   |   |   | 0.64 |   |   |   | 110,295 |   |   |   | 555 |   |   |   | 1.01 |   |
|                                                                               |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing liabilities                                                    |   |                      | 23,326  |   |   |   |   |   |   |   |   |   |   |   | 23,343 |   |   |   |   |   |   |   |   |   |
| Equity                                                                             |   |                      | 25,263  |   |   |   |   |   |   |   |   |   |   |   | 20,338 |   |   |   |   |   |   |   |   |   |
|                                                                               |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Total liabilities and equity       |   | $                         | 146,821 |   |   |   |   |   |   |   |   |   |   | $ | 153,976 |   |   |   |   |   |   |   |   |   |
|                                                                               |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                                |   |                      |    |   |   | $ | 2,697 |   |   |   |   |   |   |   |   |   |   | $ | 2,969 |   |   |   |   |   |
|                                                                               |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest rate spread (3)                                                       |   |                      |    |   |   |   |   |   |   |   | 3.77 | % |   |   |   |   |   |   |   |   |   |   | 3.91 | % |
|                                                                               |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest margin (4)                                                            |   |                      |    |   |   |   |   |   |   |   | 3.95 | % |   |   |   |   |   |   |   |   |   |   | 4.14 | % |
|                                                                               |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio of average interest-earning assets                                           |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     to average interest-bearing liabilities                    |   |                      | 1.39    | x |   |   |   |   |   |   |   |   |   |   | 1.30 | x |   |   |   |   |   |   |   |   |
|                                                                               |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (1) | Includes nonaccrual loans.                                                                                                                                |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Other interest-earnings assets including federal funds sold, Federal Home Loan Bank stock and interest-bearing deposits.                                  |
| (3) | Interest-rate spread represents the difference between the average yield on interest-earning assets and the average rate of interest-bearing liabilities. |
| (4) | Net interest margin is net interest income divided by average interest-earning assets (annualized).                                                       |

|   | PART II.  OTHER INFORMATION |
|--------|---------------------------------------|

|                             | SUNSHINE FINANICAL, INC. |
|----------------------------------|--------------------------|
|                             |                     |   |
|                             |                     |   |
| Date:  August 14, 2012 | By:                      | /s/ Louis O. Davis, Jr. |
|                             |                     | Louis O. Davis, Jr. |
|                             |                     | President and Chief Executive Officer |
|                             |                     | (Duly Authorized Officer) |
|                             |                     |   |
| Date:  August 14, 2012 | By:                      | /s/ Scott A. Swain |
|                             |                     | Scott A, Swain |
|                             |                     | Senior Vice President, Treasurer and |
|                             |                     | Chief Financial Officer |
|                             |                     | (Principal Financial Officer) |

|  Exhibits: |
|-----------------|
| 2.0             | Plan of Conversion and Reorganization (incorporated herein by reference to Exhibit 2.0 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555)) |
| 3.1             | Articles of Incorporation of Sunshine Financial, Inc. (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555)) |
| 3.2             | Bylaws of Sunshine Financial, Inc. (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555)) |
| 4.0             | Form of Common Stock Certificate of Sunshine Financial, Inc. (incorporated herein by reference to Exhibit 4.0 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555)) |
| 10.1            | Employment Agreement by and between Sunshine Savings Bank and Louis O Davis, Jr. (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555)) |
| 10.2            | Form of Change of Control Agreement by and between Sunshine Financial, Inc. and Louis O. Davis Jr. (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555)) |
| 10.3            | Form of Change of Control Agreement by and between Sunshine Financial, Inc. and each of Brian P. Baggett and Scott A. Swain (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555)) |
| 10.4            | Employee Severance Policy (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555)) |
| 10.5            | Director Fee Arrangements |
| 31.1            | Rule 13a-14(a) Certification of the Chief Executive Officer |
| 31.2            | Rule 13a-14(a) Certification of the Chief Financial Officer |
| 32.0            | Section 1350 Certification |
| 101             | Interactive Data Files* |
|            |   |