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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549





FORM 10-Q





(Mark One)

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

For the quarter ended March 31, 2011

OR



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

For the transition period from              to

Commission file number: 0-54271





FRATERNITY COMMUNITY BANCORP, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 27-3683448                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|764 Washington Boulevard, Baltimore, Maryland                  |  | 21230                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Issuers telephone number, including area code: (410) 539-1313

Not applicable

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





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

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

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



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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

As of
May 11, 2011, the registrant had 1,587,000 shares of common stock issued and outstanding.









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INDEX



|           |  |                                                                                                                            |  |      |    | 
|---------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|           |  |                                                                                                                            |  | PAGE |   
|PART I.    |  | FINANCIAL INFORMATION                                                                                                      |  |      |    | 
|           |  |                                                                                                                           
|Item 1.    |  | Financial Statements (Unaudited)                                                                                           |  |      | 1  | 
|           |  |                                                                                                                           
|           |  | Consolidated Statements of Financial Condition as of March 31, 2011 (unaudited) and December 31,
2010                      |  |      | 1  | 
|           |  |                                                                                                                           
|           |  | Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010
(unaudited)                       |  |      | 2  | 
|           |  |                                                                                                                           
|           |  | Consolidated Statements of Changes in Stockholders Equity for the Three Months Ended March 31, 2011 and
 2010 (unaudited) |  |      | 3  | 
|           |  |                                                                                                                           
|           |  | Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010
(unaudited)                       |  |      | 4  | 
|           |  |                                                                                                                           
|           |  | Notes to Consolidated Financial Statements                                                                                 |  |      | 6  | 
|           |  |                                                                                                                           
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                                      |  |      | 24 | 
|           |  |                                                                                                                           
|Item 3.    |  | Quantitative and Qualitative Disclosures 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.    |  | [Removed and Reserved]                                                                                                     |  |      | 36 | 
|           |  |                                                                                                                           
|Item 5.    |  | Other Information                                                                                                          |  |      | 36 | 
|           |  |                                                                                                                           
|Item 6.    |  | Exhibits                                                                                                                   |  |      | 36 | 
|           | 
|SIGNATURES |  |                                                                                                                            |  |     



i



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

FRATERNITY COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION





|                                                                                                                |  |             |             |   |              |   |             |  
|--------------------------------------------------------------------------------------------------------------- |  | ----------- | ----------- | - | ------------ | - | ----------- | -
|                                                                                                                |  | March 31,   |             |   | December 31, |  
|                                                                                                                |  | 2011        |             |   | 2010         |  
|                                                                                                                |  | (unaudited) |             |   |              |  
|ASSETS                                                                                                          |  |             |             |   |              |   |             |  
|Cash and cash equivalents:                                                                                      |  |             |             |   |              |   |             |  
|Cash and due from banks                                                                                         |  | $           | 16,208,766  |   |              | $ | 4,489,851   |  
|Interest-bearing deposits in other banks                                                                        |  |             | 10,098,128  |   |              |   | 21,391,980  |  
|                                                                                                                |  |             |             |   |              |   |             |  
|Total cash and cash equivalents                                                                                 |  |             | 26,306,894  |   |              |   | 25,881,831  |  
|                                                                                                                |  |             |             |   |              |   |             |  
|Investment securities:                                                                                          |  |             |             |   |              |   |             |  
|Available-for-sale - at fair value                                                                              |  |             | 35,003,583  |   |              |   | 21,365,746  |  
|Loans - net of allowance for loan losses of $1,285,000 and $1,300,000 respectively                              |  |             | 108,365,524 |   |              |   | 110,492,054 |  
|Investment in bank-owned life insurance                                                                         |  |             | 4,218,179   |   |              |   | 4,174,397   |  
|Other real estate owned                                                                                         |  |             | 2,157,193   |   |              |   | 2,015,909   |  
|Property and equipment, net                                                                                     |  |             | 751,452     |   |              |   | 755,703     |  
|Federal Home Loan Bank stock - at cost - restricted                                                             |  |             | 1,395,700   |   |              |   | 1,395,700   |  
|Ground rents - net of valuation allowance                                                                       |  |             | 860,996     |   |              |   | 860,996     |  
|Accrued interest receivable                                                                                     |  |             | 633,991     |   |              |   | 585,056     |  
|Deferred income taxes                                                                                           |  |             | 670,595     |   |              |   | 692,606     |  
|Other assets                                                                                                    |  |             | 991,213     |   |              |   | 1,439,479   |  
|                                                                                                                |  |             |             |   |              |   |             |  
|TOTAL ASSETS                                                                                                    |  | $           | 181,355,320 |   |              | $ | 169,659,477 |  
|                                                                                                                |  |             |             |   |              |   |             |  
|LIABILITIES AND EQUITY                                                                                          |  |             |             |   |              |   |             |  
|Liabilities:                                                                                                    |  |             |             |   |              |   |             |  
|Deposits                                                                                                        |  | $           | 127,434,759 |   |              | $ | 129,994,645 |  
|Advances from the Federal Home Loan Bank                                                                        |  |             | 22,500,000  |   |              |   | 22,583,333  |  
|Advances by borrowers for taxes and insurance                                                                   |  |             | 1,180,013   |   |              |   | 663,346     |  
|Other liabilities                                                                                               |  |             | 603,803     |   |              |   | 431,578     |  
|                                                                                                                |  |             |             |   |              |   |             |  
|Total liabilities                                                                                               |  |             | 151,718,575 |   |              |   | 153,672,902 |  
|                                                                                                                |  |             |             |   |              |   |             |  
|Commitments and contingencies                                                                                   |  |             |            |   |              |   |            |  
|                                                                                                                |  |             |             |   |              |   |             |  
|Equity:                                                                                                         |  |             |             |   |              |   |             |  
|Preferred stock, $0.01 par value; authorized 1,000,000; none issued                                             |  |             |            |   |              |   |            |  
|Common stock $0.01 par value; authorized 15,000,000; issued and outstanding, 1,587,000 shares at March 31,
2011 |  |             | 15,870      |   |              |   |            |  
|Additional paid in capital                                                                                      |  |             | 14,949,545  |   |              |   |            |  
|Retained earnings - substantially restricted                                                                    |  |             | 16,066,157  |   |              |   | 16,146,785  |  
|Unearned ESOP shares                                                                                            |  |             | (1,269,600  | ) |              |   |            |  
|Accumulated other comprehensive loss                                                                            |  |             | (125,227    | ) |              |   | (160,210    | )
|                                                                                                                |  |             |             |   |              |   |             |  
|Total equity                                                                                                    |  |             | 29,636,745  |   |              |   | 15,986,575  |  
|                                                                                                                |  |             |             |   |              |   |             |  
|TOTAL LIABILITIES AND EQUITY                                                                                    |  | $           | 181,355,320 |   |              | $ | 169,659,477 |  
|                                                                                                                |  |             |             |   |              |   |             |  

See accompanying notes.



1



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FRATERNITY COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                          |  |                              |           |   |             |   |           | 
|--------------------------------------------------------- |  | ---------------------------- | --------- | - | ----------- | - | --------- | 
|                                                          |  | Three Months Ended March 31, |          
|                                                          |  | 2011                         |           |   | 2010        |  
|                                                          |  | (unaudited)                  |           |   | (unaudited) |  
|INTEREST INCOME:                                          |  |                              |           |   |             |   |           | 
|Interest and fees on loans:                               |  |                              |           |   |             |   |           | 
|Real estate loans                                         |  | $                            | 1,461,152 |   |             | $ | 1,710,242 | 
|Other loans                                               |  |                              | 1,256     |   |             |   | 1,463     | 
|Interest and dividends on investment securities           |  |                              | 198,217   |   |             |   | 250,518   | 
|Income from ground rents owned                            |  |                              | 12,132    |   |             |   | 10,155    | 
|                                                          |  |                              |           |   |             |   |           | 
|Total interest income                                     |  |                              | 1,672,757 |   |             |   | 1,972,378 | 
|                                                          |  |                              |           |   |             |   |           | 
|INTEREST EXPENSE:                                         |  |                              |           |   |             |   |           | 
|Interest on deposits                                      |  |                              | 668,291   |   |             |   | 772,473   | 
|Interest on borrowings                                    |  |                              | 220,876   |   |             |   | 223,255   | 
|                                                          |  |                              |           |   |             |   |           | 
|Total interest expense                                    |  |                              | 889,167   |   |             |   | 995,728   | 
|                                                          |  |                              |           |   |             |   |           | 
|NET INTEREST INCOME                                       |  |                              | 783,590   |   |             |   | 976,650   | 
|PROVISION FOR LOAN LOSSES                                 |  |                              | 60,058    |   |             |   |          | 
|                                                          |  |                              |           |   |             |   |           | 
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES       |  |                              | 723,532   |   |             |   | 976,650   | 
|                                                          |  |                              |           |   |             |   |           | 
|NON-INTEREST INCOME:                                      |  |                              |           |   |             |   |           | 
|Gain on sale of investments                               |  |                              |          |   |             |   | 115,918   | 
|Income on bank-owned life insurance                       |  |                              | 43,781    |   |             |   | 47,604    | 
|Gain on sale of loans                                     |  |                              |          |   |             |   | 10,848    | 
|Other income                                              |  |                              | 11,280    |   |             |   | 15,225    | 
|                                                          |  |                              |           |   |             |   |           | 
|Total non-interest income                                 |  |                              | 55,061    |   |             |   | 189,595   | 
|                                                          |  |                              |           |   |             |   |           | 
|NON-INTEREST EXPENSES:                                    |  |                              |           |   |             |   |           | 
|Salaries and employee benefits                            |  |                              | 506,539   |   |             |   | 565,211   | 
|Occupancy expenses                                        |  |                              | 129,661   |   |             |   | 138,283   | 
|Advertising                                               |  |                              | 8,233     |   |             |   | 10,936    | 
|Data processing expense                                   |  |                              | 99,301    |   |             |   | 93,076    | 
|Directors fees                                            |  |                              | 24,817    |   |             |   | 23,868    | 
|Other general and administrative expenses                 |  |                              | 171,570   |   |             |   | 160,046   | 
|                                                          |  |                              |           |   |             |   |           | 
|Total non-interest expenses                               |  |                              | 940,121   |   |             |   | 991,420   | 
|                                                          |  |                              |           |   |             |   |           | 
|(LOSS) INCOME BEFORE (BENEFIT) PROVISION FOR INCOME TAXES |  |                              | (161,528  | ) |             |   | 174,825   | 
|(BENEFIT) PROVISION FOR INCOME TAXES:                     |  |                              | (80,900   | ) |             |   | 39,500    | 
|                                                          |  |                              |           |   |             |   |           | 
|NET (LOSS) INCOME                                         |  | $                            | (80,628   | ) |             | $ | 135,325   | 
|                                                          |  |                              |           |   |             |   |           | 
|EARNINGS PER SHARE - BASIC                                |  | $                            |          |   |             |   | N/A       | 
|                                                          |  |                              |           |   |             |   |           | 
|EARNINGS PER SHARE - DILUTED                              |  | $                            |          |   |             |   | N/A       | 
|                                                          |  |                              |           |   |             |   |           | 

See accompanying notes.



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Fraternity Community Bancorp, Inc.

Consolidated Statements of Changes in Stockholders Equity

For the Three Months Ended March 31, 2011 and 2010

(Unaudited)



|                                                                                                            |  |             |        |  |                           |   |            |                  |  |   |                     |   |  |                                     |            |   |                          |   |          |   |  |   |            |  
|----------------------------------------------------------------------------------------------------------- |  | ----------- | ------ |  | ------------------------- | - | ---------- | ---------------- |  | - | ------------------- | - |  | ----------------------------------- | ---------- | - | ------------------------ | - | -------- | - |  | - | ---------- | -
|                                                                                                            |  | CommonStock |        |  | Additional Paid InCapital |   |            | RetainedEarnings |  |   | UnearnedESOP Shares |   |  | AccumulatedOtherComprehensiveIncome |            |   | TotalStockholdersEquity |  
|Balance, December 31, 2009                                                                                  |  | $           |       |  |                           | $ |           |                  |  | $ | 17,003,434          |   |  | $                                   |           |   |                          | $ | (11,668  | ) |  | $ | 16,991,766 |  
|Comprehensive Income:                                                                                       |  |             |        |  |                           |   |            |                  |  |   |                     |   |  |                                     |            |   |                          |   |          |   |  |   |            |  
|Net Income                                                                                                  |  |             |       |  |                           |   |           |                  |  |   | 135,325             |   |  |                                     |           |   |                          |   |         |   |  |   | 135,325    |  
|Unrealized gains arising during the period, net of taxes of $61,320                                         |  |             |       |  |                           |   |           |                  |  |   |                    |   |  |                                     |           |   |                          |   | 91,980   |   |  |   | 91,980     |  
|Reclassification adjustment for realized gains, net of taxes of $46,367                                     |  |             |       |  |                           |   |           |                  |  |   |                    |   |  |                                     |           |   |                          |   | (69,551  | ) |  |   | (69,551    | )
|                                                                                                            |  |             |        |  |                           |   |            |                  |  |   |                     |   |  |                                     |            |   |                          |   |          |   |  |   |            |  
|Total Comprehensive income                                                                                  |  |             |        |  |                           |   |            |                  |  |   |                     |   |  |                                     |            |   |                          |   |          |   |  |   | 157,754    |  
|                                                                                                            |  |             |        |  |                           |   |            |                  |  |   |                     |   |  |                                     |            |   |                          |   |          |   |  |   |            |  
|Balance, March 31, 2010                                                                                     |  | $           |       |  |                           | $ |           |                  |  | $ | 17,138,759          |   |  | $                                   |           |   |                          | $ | 10,761   |   |  | $ | 17,149,520 |  
|                                                                                                            |  |             |        |  |                           |   |            |                  |  |   |                     |   |  |                                     |            |   |                          |   |          |   |  |   |            |  
|                                                                                                            |  |             |        |  |                           |  
|Balance, December 31, 2010                                                                                  |  | $           |       |  |                           | $ |           |                  |  | $ | 16,146,785          |   |  | $                                   |           |   |                          | $ | (160,210 | ) |  | $ | 15,986,575 |  
|Comprehensive Income:                                                                                       |  |             |        |  |                           |   |            |                  |  |   |                     |   |  |                                     |            |   |                          |   |          |   |  |   |            |  
|Net Loss                                                                                                    |  |             |       |  |                           |   |           |                  |  |   | (80,628             | ) |  |                                     |           |   |                          |   |         |   |  |   | (80,628    | )
|Change in unrealized gain/(loss) on available for sale securities, net of tax effect of $23,322 (unaudited) |  |             |       |  |                           |   |           |                  |  |   |                    |   |  |                                     |           |   |                          |   | 34,983   |   |  |   | 34,983     |  
|                                                                                                            |  |             |        |  |                           |   |            |                  |  |   |                     |   |  |                                     |            |   |                          |   |          |   |  |   |            |  
|Total Comprehensive loss                                                                                    |  |             |        |  |                           |   |            |                  |  |   |                     |   |  |                                     |            |   |                          |   |          |   |  |   | (45,645    | )
|Acquisition of unearned ESOP shares                                                                         |  |             |       |  |                           |   |           |                  |  |   |                    |   |  |                                     | (1,269,600 | ) |                          |   |         |   |  |   | (1,269,600 | )
|Issuance of Common Stock                                                                                    |  |             | 15,870 |  |                           |   | 14,949,545 |                  |  |   |                    |   |  |                                     |           |   |                          |   |         |   |  |   | 14,965,415 |  
|                                                                                                            |  |             |        |  |                           |   |            |                  |  |   |                     |   |  |                                     |            |   |                          |   |          |   |  |   |            |  
|Balance, March 31, 2011                                                                                     |  | $           | 15,870 |  |                           | $ | 14,949,545 |                  |  | $ | 16,066,157          |   |  | $                                   | (1,269,600 | ) |                          | $ | (125,227 | ) |  | $ | 29,636,745 |  
|                                                                                                            |  |             |        |  |                           |   |            |                  |  |   |                     |   |  |                                     |            |   |                          |   |          |   |  |   |            |  

See accompanying notes.



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##### Table of Contents

FRATERNITY COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                             |  |                    |             |   |                    |   |            |  
|---------------------------------------------------------------------------- |  | ------------------ | ----------- | - | ------------------ | - | ---------- | -
|                                                                             |  | Three Months Ended |             |   | Three Months Ended |  
|                                                                             |  | March 31, 2011     |             |   | March 31, 2010     |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                        |  |                    |             |   |                    |   |            |  
|Net (loss) income                                                            |  | $                  | (80,628     | ) |                    | $ | 135,325    |  
|Adjustments to reconcile net income (loss) provided by operating activities: |  |                    |             |   |                    |   |            |  
|Depreciation                                                                 |  |                    | 21,740      |   |                    |   | 33,233     |  
|Gain on sale of available-for-sale securities                                |  |                    |            |   |                    |   | (115,918   | )
|Gain on sale of loans                                                        |  |                    |            |   |                    |   | (10,848    | )
|Origination of loans sold                                                    |  |                    |            |   |                    |   | (874,600   | )
|Proceeds from loans sold                                                     |  |                    |            |   |                    |   | 885,448    |  
|Amortization/accretion of premium/discount                                   |  |                    | 42,468      |   |                    |   | 48,021     |  
|Increase in value of bank-owned life insurance                               |  |                    | (43,782     | ) |                    |   | (47,604    | )
|Provision for loan losses                                                    |  |                    | 60,058      |   |                    |   |           |  
|Changes in operating assets and liabilities:                                 |  |                    |             |   |                    |   |            |  
|Accrued interest receivable and other assets                                 |  |                    | 258,047     |   |                    |   | 119,767    |  
|Other liabilities                                                            |  |                    | 172,225     |   |                    |   | 1,430,183  |  
|                                                                             |  |                    |             |   |                    |   |            |  
|Net cash provided by operating activities                                    |  |                    | 430,128     |   |                    |   | 1,603,007  |  
|                                                                             |  |                    |             |   |                    |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                         |  |                    |             |   |                    |   |            |  
|Net decrease in loans                                                        |  |                    | 2,066,472   |   |                    |   | 539,346    |  
|Acquisition of property and equipment                                        |  |                    | (17,489     | ) |                    |   | (34,697    | )
|Purchase of:                                                                 |  |                    |             |   |                    |   |            |  
|Investment securities available-for-sale                                     |  |                    | (14,765,090 | ) |                    |   | (7,496,500 | )
|Federal Home Loan Bank stock                                                 |  |                    |            |   |                    |   | (208,700   | )
|Loan to ESOP                                                                 |  |                    | (1,269,600  | ) |                    |   |           |  
|Proceeds from:                                                               |  |                    |             |   |                    |   |            |  
|Sales and maturities investment securities available-for-sale                |  |                    |            |   |                    |   | 5,469,773  |  
|Principal paydowns on investment securities available-for-sale               |  |                    | 1,141,779   |   |                    |   | 768,643    |  
|                                                                             |  |                    |             |   |                    |   |            |  
|Net cash used in investing activities                                        |  |                    | (12,843,928 | ) |                    |   | (962,135   | )
|                                                                             |  |                    |             |   |                    |   |            |  



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##### Table of Contents

Fraternity Community Bancorp, Inc.

Consolidated Statements of Cash Flows (Continued)



|                                                          |  |                    |            |   |                    |   |            |  
|--------------------------------------------------------- |  | ------------------ | ---------- | - | ------------------ | - | ---------- | -
|                                                          |  | Three Months Ended |            |   | Three Months Ended |  
|                                                          |  | March 31, 2011     |            |   | March 31, 2010     |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                     |  |                    |            |   |                    |   |            |  
|Net decrease in deposits                                  |  | $                  | (2,559,886 | ) |                    | $ | (356,490   | )
|Borrowings from the Federal Home Loan Bank                |  |                    |           |   |                    |   | 5,000,000  |  
|Repayments of Federal Home Loan Bank borrowings           |  |                    | (83,333    | ) |                    |   | (5,083,334 | )
|Issuance of Common Stock                                  |  |                    | 14,965,415 |   |                    |   |           |  
|Increase in advances by borrowers for taxes and insurance |  |                    | 516,667    |   |                    |   | 595,013    |  
|                                                          |  |                    |            |   |                    |   |            |  
|Net cash provided by financing activities                 |  |                    | 12,838,863 |   |                    |   | 155,189    |  
|                                                          |  |                    |            |   |                    |   |            |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                 |  |                    | 425,063    |   |                    |   | 796,061    |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR            |  |                    | 25,881,831 |   |                    |   | 13,907,553 |  
|                                                          |  |                    |            |   |                    |   |            |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                |  | $                  | 26,306,894 |   |                    | $ | 14,703,614 |  
|                                                          |  |                    |            |   |                    |   |            |  
|Cash paid for interest                                    |  | $                  | 896,175    |   |                    | $ | 1,002,537  |  
|                                                          |  |                    |            |   |                    |   |            |  
|Cash paid for taxes                                       |  | $                  |           |   |                    | $ |           |  
|                                                          |  |                    |            |   |                    |   |            |  

See accompanying notes.



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##### Table of Contents

FRATERNITY COMMUNITY BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



|1. | NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | -------------------------------------------------------------------

Basis of Presentation

Fraternity Community Bancorp, Inc. (the
Company) was incorporated on October 12, 2010 to serve as the holding company for Fraternity Federal Savings & Loan Association (the Bank), a federally chartered savings bank. On March 31, 2011, in accordance with a
Plan of Conversion adopted by its Board of Directors and approved by its members, the Bank converted from a federal mutual savings bank to a federal stock savings bank and became the wholly owned subsidiary of the Company. The conversion was
accomplished through the sale and issuance of 1,587,000 shares of common stock at a price of $10.00 per share, through which the Company received proceeds of approximately $14,965,400, net of offering expenses of approximately $904,600. In
connection with the conversion, the Banks Board of Directors adopted an employee stock ownership plan (the ESOP) which subscribed for 8% of the sum of the number of shares, or 126,960 shares of common stock sold in the offering.
Accordingly, the reported results for the three months ended March 31, 2011, related solely to the operations of the Bank. All material intercompany accounts and transactions have been eliminated in consolidation.

In accordance with the Office of Thrift Supervision (the OTS) 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.

The accompanying
unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q
and Article 8 of Regulation S-X as promulgated by the Securities and Exchange Commission (the SEC). Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods
presented have been included. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011, or any other period. For further
information, refer to the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010. Certain amounts from prior period financial statements have been
reclassified to conform to the current periods presentation.



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Nature of Operations

Fraternity Federal Savings and Loan (the Association) provides a full range of banking services to individuals and businesses
through its main office and three branches in the Baltimore metropolitan area. Its primary deposit products are certificates of deposit and demand, savings, NOW, and money market accounts. Its primary lending products are consumer loans and real
estate mortgages.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



|2. | INVESTMENT SECURITIES
|-- | ---------------------

The
amortized cost and fair values of investment securities are as follows:



|                                        |  |                   |            |  |                      |   |         |                       |  |   |            |  |  |   |            | 
|--------------------------------------- |  | ----------------- | ---------- |  | -------------------- | - | ------- | --------------------- |  | - | ---------- |  |  | - | ---------- | 
|                                        |  | March 31, 2011    |           
|                                        |  | Amortized Cost    |            |  | GrossUnrealizedGains |   |         | GrossUnrealizedLosses |  |   | Fair Value | 
|Available-for-sale:                     |  |                   |            |  |                      |   |         |                       |  |   |            |  |  |   |            | 
|Bank notes                              |  | $                 | 993,158    |  |                      | $ | 23,122  |                       |  | $ |           |  |  | $ | 1,016,280  | 
|Obligations of U.S. Government agencies |  |                   | 14,096,256 |  |                      |   | 5,542   |                       |  |   | 199,964    |  |  |   | 13,901,834 | 
|Mortgage-backed securities:             |  |                   |            |  |                      |   |         |                       |  |   |            |  |  |   |            | 
|FNMA                                    |  |                   | 13,401,936 |  |                      |   | 48,138  |                       |  |   | 43,422     |  |  |   | 13,406,652 | 
|GNMA                                    |  |                   | 2,161,263  |  |                      |   | 24,657  |                       |  |   |           |  |  |   | 2,185,920  | 
|FHLMC                                   |  |                   | 3,846,814  |  |                      |   | 14,087  |                       |  |   | 49,812     |  |  |   | 3,811,089  | 
|Private Label CMO                       |  |                   | 708,175    |  |                      |   | 6,274   |                       |  |   | 32,641     |  |  |   | 681,808    | 
|                                        |  |                   |            |  |                      |   |         |                       |  |   |            |  |  |   |            | 
|                                        |  | $                 | 35,207,602 |  |                      | $ | 121,820 |                       |  | $ | 325,839    |  |  | $ | 35,003,583 | 
|                                        |  |                   |            |  |                      |   |         |                       |  |   |            |  |  |   |            | 
|                                        | 
|                                        |  | December 31, 2010 |           
|                                        |  | Amortized Cost    |            |  | GrossUnrealizedGains |   |         | GrossUnrealizedLosses |  |   | Fair Value | 
|Available-for-sale:                     |  |                   |            |  |                      |   |         |                       |  |   |            |  |  |   |            | 
|Bank notes                              |  | $                 | 992,368    |  |                      | $ | 13,912  |                       |  | $ |           |  |  | $ | 1,006,280  | 
|Obligations of U.S. Government agencies |  |                   | 8,491,391  |  |                      |   |        |                       |  |   | 206,391    |  |  |   | 8,285,000  | 
|Mortgage-backed securities:             |  |                   |            |  |                      |   |         |                       |  |   |            |  |  |   |            | 
|FNMA                                    |  |                   | 6,764,443  |  |                      |   | 27,512  |                       |  |   | 48,847     |  |  |   | 6,743,108  | 
|GNMA                                    |  |                   | 92,706     |  |                      |   | 9,565   |                       |  |   |           |  |  |   | 102,271    | 
|FHLMC                                   |  |                   | 4,430,851  |  |                      |   | 10,008  |                       |  |   | 37,817     |  |  |   | 4,403,042  | 
|Private Label CMO                       |  |                   | 855,001    |  |                      |   | 12,096  |                       |  |   | 41,052     |  |  |   | 826,045    | 
|                                        |  |                   |            |  |                      |   |         |                       |  |   |            |  |  |   |            | 
|                                        |  | $                 | 21,626,760 |  |                      | $ | 73,093  |                       |  | $ | 334,107    |  |  | $ | 21,365,746 | 
|                                        |  |                   |            |  |                      |   |         |                       |  |   |            |  |  |   |            | 



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The amortized cost and fair value of debt securities at March 31, 2011 and
December 31, 2010 by contractual maturities are shown below. Expected maturities may differ from contractual maturities because borrowers may have to call or repay obligations with or without call or prepayment penalties.



|                                    |  |                                  |            |  |            |   |            | 
|----------------------------------- |  | -------------------------------- | ---------- |  | ---------- | - | ---------- | 
|                                    |  | March 31, 2011Available-for-Sale |           
|                                    |  | Amortized Cost                   |            |  | Fair Value |  
|Due in one year through five years  |  | $                                | 3,000,705  |  |            | $ | 2,993,748  | 
|Due in five years through ten years |  |                                  | 5,224,724  |  |            |   | 5,160,859  | 
|Due after ten years                 |  |                                  | 26,982,173 |  |            |   | 26,848,976 | 
|                                    |  |                                  |            |  |            |   |            | 
|                                    |  | $                                | 35,207,602 |  |            | $ | 35,003,583 | 
|                                    |  |                                  |            |  |            |   |            | 



|                                    |  |                                     |            |  |            |   |            | 
|----------------------------------- |  | ----------------------------------- | ---------- |  | ---------- | - | ---------- | 
|                                    |  | December 31,
2010Available-for-Sale |           
|                                    |  | Amortized Cost                      |            |  | Fair Value |  
|Due in one year through five years  |  | $                                   | 3,001,712  |  |            | $ | 2,969,140  | 
|Due in five years through ten years |  |                                     | 5,313,088  |  |            |   | 5,249,294  | 
|Due after ten years                 |  |                                     | 13,311,960 |  |            |   | 13,147,312 | 
|                                    |  |                                     |            |  |            |   |            | 
|                                    |  | $                                   | 21,626,760 |  |            | $ | 21,365,746 | 
|                                    |  |                                     |            |  |            |   |            | 

The Association recognized gains on sales of available-for-sale securities of $0 and $115,918 for the three
months ended March 31, 2011 and 2010, respectively.

Securities with unrealized losses, segregated by length of
impairment, as of March 31, 2011 and December 31, 2010 were as follows:



|                                       |  |                      |            |  |                     |   |         |                     |  |   |                  |  |  |                     |        |  |                  |   |            |  |  |   |         | 
|-------------------------------------- |  | -------------------- | ---------- |  | ------------------- | - | ------- | ------------------- |  | - | ---------------- |  |  | ------------------- | ------ |  | ---------------- | - | ---------- |  |  | - | ------- | 
|                                       |  | Less than 12 Months  |            |  | More than 12 Months |   |         | Total               | 
|                                       |  | Estimated Fair Value |            |  | UnrealizedLosses    |   |         | EstimatedFair Value |  |   | UnrealizedLosses |  |  | Estimated FairValue |        |  | UnrealizedLosses |  
|March 31, 2011                         |  |                      |            |  |                     |   |         |                     |  |   |                  |  |  |                     |        |  |                  |   |            |  |  |   |         | 
|Available-for-sale:                    |  |                      |            |  |                     |   |         |                     |  |   |                  |  |  |                     |        |  |                  |   |            |  |  |   |         | 
|Bank Notes                             |  | $                    |           |  |                     | $ |        |                     |  | $ |                 |  |  | $                   |       |  |                  | $ |           |  |  | $ |        | 
|Obligation of U.S. Government Agencies |  |                      | 10,772,095 |  |                     |   | 199,964 |                     |  |   |                 |  |  |                     |       |  |                  |   | 10,772,095 |  |  |   | 199,964 | 
|Mortgage-backed securities:            |  |                      |            |  |                     |   |         |                     |  |   |                  |  |  |                     |        |  |                  |   |            |  |  |   |         | 
|FNMA                                   |  |                      | 4,948,667  |  |                     |   | 38,861  |                     |  |   | 8,054            |  |  |                     | 4,561  |  |                  |   | 4,956,721  |  |  |   | 43,422  | 
|GNMA                                   |  |                      |           |  |                     |   |        |                     |  |   |                 |  |  |                     |       |  |                  |   |           |  |  |   |        | 
|FHLMC                                  |  |                      | 3,006,912  |  |                     |   | 49,812  |                     |  |   |                 |  |  |                     |       |  |                  |   | 3,006,912  |  |  |   | 49,812  | 
|Private Label CMO                      |  |                      |           |  |                     |   |        |                     |  |   | 343,496          |  |  |                     | 32,641 |  |                  |   | 343,496    |  |  |   | 32,641  | 
|                                       |  |                      |            |  |                     |   |         |                     |  |   |                  |  |  |                     |        |  |                  |   |            |  |  |   |         | 
|                                       |  | $                    | 18,727,674 |  |                     | $ | 288,637 |                     |  | $ | 351,550          |  |  | $                   | 37,202 |  |                  | $ | 19,079,224 |  |  | $ | 325,839 | 
|                                       |  |                      |            |  |                     |   |         |                     |  |   |                  |  |  |                     |        |  |                  |   |            |  |  |   |         | 



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##### Table of Contents

|                                       |  |                     |            |  |                     |   |         |                     |  |   |                  |  |  |                     |        |  |                  |   |            |  |  |   |         | 
|-------------------------------------- |  | ------------------- | ---------- |  | ------------------- | - | ------- | ------------------- |  | - | ---------------- |  |  | ------------------- | ------ |  | ---------------- | - | ---------- |  |  | - | ------- | 
|                                       |  | Less than 12 Months |            |  | More than 12 Months |   |         | Total               | 
|                                       |  | EstimatedFair Value |            |  | UnrealizedLosses    |   |         | EstimatedFair Value |  |   | UnrealizedLosses |  |  | EstimatedFair Value |        |  | UnrealizedLosses |  
|December 31, 2010                      |  |                     |            |  |                     |   |         |                     |  |   |                  |  |  |                     |        |  |                  |   |            |  |  |   |         | 
|Available-for-sale:                    |  |                     |            |  |                     |   |         |                     |  |   |                  |  |  |                     |        |  |                  |   |            |  |  |   |         | 
|Bank Notes                             |  | $                   |           |  |                     | $ |        |                     |  | $ |                 |  |  | $                   |       |  |                  | $ |           |  |  | $ |        | 
|Obligation of U.S. Government Agencies |  |                     | 8,285,000  |  |                     |   | 206,391 |                     |  |   |                 |  |  |                     |       |  |                  |   | 8,285,000  |  |  |   | 206,391 | 
|Mortgage-backed securities:            |  |                     |            |  |                     |   |         |                     |  |   |                  |  |  |                     |        |  |                  |   |            |  |  |   |         | 
|FNMA                                   |  |                     | 5,284,956  |  |                     |   | 45,823  |                     |  |   | 11,092           |  |  |                     | 3,024  |  |                  |   | 5,296,048  |  |  |   | 48,847  | 
|GNMA                                   |  |                     |           |  |                     |   |        |                     |  |   |                 |  |  |                     |       |  |                  |   |           |  |  |   |        | 
|FHLMC                                  |  |                     | 3,534,420  |  |                     |   | 37,817  |                     |  |   |                 |  |  |                     |       |  |                  |   | 3,534,420  |  |  |   | 37,817  | 
|Private Label CMO                      |  |                     |           |  |                     |   |        |                     |  |   | 388,721          |  |  |                     | 41,052 |  |                  |   | 388,721    |  |  |   | 41,052  | 
|                                       |  |                     |            |  |                     |   |         |                     |  |   |                  |  |  |                     |        |  |                  |   |            |  |  |   |         | 
|                                       |  | $                   | 17,104,376 |  |                     | $ | 290,031 |                     |  | $ | 399,813          |  |  | $                   | 44,076 |  |                  | $ | 17,504,189 |  |  | $ | 334,107 | 
|                                       |  |                     |            |  |                     |   |         |                     |  |   |                  |  |  |                     |        |  |                  |   |            |  |  |   |         | 

Declines in the fair value of investment securities below their cost that are deemed to be other than
temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other-than-temporary
impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the
intent and ability of the Association to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost.

Furthermore, as of March 31, 2011, management does not have the intent to sell any of the securities classified as available-for-sale in the table above and believes that it is more likely than not
that the Association will not have to sell any such securities before a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The
fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality.
Accordingly, as of March 31, 2011, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in the Associations consolidated income statement.



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##### Table of Contents

|3. | LOANS AND ALLOWANCE FOR LOAN LOSSES
|-- | -----------------------------------

Loans and allowance for loan losses consisted of the following:



|                                          |  |               |             |   |                  |   |             |  
|----------------------------------------- |  | ------------- | ----------- | - | ---------------- | - | ----------- | -
|                                          |  | March 31,2011 |             |   | December 31,2010 |  
|Real Estate Loans:                        |  |               |             |   |                  |   |             |  
|One-to-four family                        |  | $             | 84,386,853  |   |                  | $ | 86,112,695  |  
|Lines of Credit                           |  |               | 12,136,854  |   |                  |   | 12,729,750  |  
|Commercial                                |  |               | 3,954,055   |   |                  |   | 3,969,015   |  
|Residential Construction                  |  |               | 6,453,534   |   |                  |   | 5,828,645   |  
|Land                                      |  |               | 2,650,353   |   |                  |   | 3,085,127   |  
|                                          |  |               |             |   |                  |   |             |  
|Total Real Estate Loans                   |  |               | 109,581,649 |   |                  |   | 111,725,232 |  
|Consumer Loans                            |  |               | 50,262      |   |                  |   | 44,177      |  
|Commercial Loans                          |  |               | 18,613      |   |                  |   | 22,645      |  
|                                          |  |               |             |   |                  |   |             |  
|Total Loans                               |  |               | 109,650,524 |   |                  |   | 111,792,054 |  
|Less:                                     |  |               |             |   |                  |   |             |  
|Allowance for loan losses                 |  |               | (1,285,000  | ) |                  |   | (1,300,000  | )
|                                          |  |               |             |   |                  |   |             |  
|Total loans and allowance for loan losses |  | $             | 108,365,524 |   |                  | $ | 110,492,054 |  
|                                          |  |               |             |   |                  |   |             |  

Transactions in the allowance for loan losses are as follows:



|                             |  |                    |           |   |              |   |           |  
|---------------------------- |  | ------------------ | --------- | - | ------------ | - | --------- | -
|                             |  | Three Months Ended |           |   | Year Ended   |  
|                             |  | March 31,          |           |   | December 31, |  
|                             |  | 2011               |           |   | 2010         |  
|Beginning of year            |  | $                  | 1,300,000 |   |              | $ | 276,621   |  
|Charge-offs                  |  |                    | (75,718   | ) |              |   | (478,790  | )
|Recoveries                   |  |                    | 660       |   |              |   | 1,531     |  
|Provision charged to expense |  |                    | 60,058    |   |              |   | 1,500,638 |  
|                             |  |                    |           |   |              |   |           |  
|End of year                  |  | $                  | 1,285,000 |   |              | $ | 1,300,000 |  
|                             |  |                    |           |   |              |   |           |  

The balance of impaired loans is $3,599,959 and $2,754,120 as of March 31, 2011 and December 31,
2010, respectively.

Non-Performing/Past Due Loans - Loans are placed on non-accrual status when, in managements
opinion, the borrower may be unable to meet payment obligations, which typically occurs when principal or interest payments are more than 90 days past due. Non-accrual loans totalled $3,331,206 at March 31, 2011 and $662,585 at
December 31, 2010. Accruing loans past due more than 90 days totalled $ -0- at March 31, 2011 and December 31, 2010.

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the
allowance for loan losses, we have segmented our loan portfolio by product type. Our loan segments are construction, 1-4 family residential, land, commercial real estate, home equity lines of credit (HELOC), consumer and commercial.



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##### Table of Contents

To establish the allowance for loan losses, loans are pooled by portfolio class and an
historical loss percentage is applied to each class. The historical loss percentage is based upon a rolling 12 month history. That calculation determines the required allowance for loan loss level. We then apply additional loss multipliers to the
different classes of loans to reflect various environmental factors. This amount is considered our unallocated reserve. These loss estimates are performed under multiple economic scenarios to establish a range of potential outcomes for each
criterion. Management applies judgment to develop its own view of loss probability within that range, using external and internal parameters with the objective of establishing an allowance for loss inherent within these portfolios as of the
reporting date.

The Companys policies, consistent with regulatory guidelines, provide for the classification of loans
and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the net worth and paying capacity of the obligor or of the collateral
pledged, if any. Substandard assets include those assets characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those
classified as substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets (or portions of
assets) classified as loss are those considered uncollectible and of such little value that there continuance as assets is not warranted. Assets that do not expose us to risk sufficient enough to warrant classification in one of the aforementioned
categories, but which possess potential weaknesses that deserve close attention, are required to be designated as special mention.



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Credit Risk Analysis of Loans Receivable

As of March 31, 2011



|                                               |  |              |           |  |             |   |            |      |  |   |             |  |  |       |           |  |          |   |            |            |  |   |        |  |  |   |        |  |  |   |             | 
|---------------------------------------------- |  | ------------ | --------- |  | ----------- | - | ---------- | ---- |  | - | ----------- |  |  | ----- | --------- |  | -------- | - | ---------- | ---------- |  | - | ------ |  |  | - | ------ |  |  | - | ----------- | 
|                                               |  |              |           |  | 1-4 Family  |   |            |      |  |   | Commercial  |  |  |       |           |  |          |   |            |            |  |   |        | 
|                                               |  | Construction |           |  | Residential |   |            | Land |  |   | Real Estate |  |  | HELOC |           |  | Consumer |   |            | Commercial |  |   | Total  | 
|Pass                                           |  | $            | 4,888,335 |  |             | $ | 81,402,242 |      |  | $ | 2,339,331   |  |  | $     | 2,986,259 |  |          | $ | 11,902,799 |            |  | $ | 50,262 |  |  | $ | 18,613 |  |  | $ | 103,587,841 | 
|Special Mention                                |  |              |          |  |             |   | 1,355,255  |      |  |   |            |  |  |       | 967,796   |  |          |   | 139,673    |            |  |   |       |  |  |   |       |  |  | $ | 2,462,724   | 
|Substandard                                    |  |              | 1,565,199 |  |             |   | 1,629,356  |      |  |   | 311,022     |  |  |       |          |  |          |   | 94,382     |            |  |   |       |  |  |   |       |  |  | $ | 3,599,959   | 
|                                               |  |              |           |  |             |   |            |      |  |   |             |  |  |       |           |  |          |   |            |            |  |   |        |  |  |   |        |  |  |   |             | 
|Total                                          |  | $            | 6,453,534 |  |             | $ | 84,386,853 |      |  | $ | 2,650,353   |  |  | $     | 3,954,055 |  |          | $ | 12,136,854 |            |  | $ | 50,262 |  |  | $ | 18,613 |  |  | $ | 109,650,524 | 
|                                               |  |              |           |  |             |   |            |      |  |   |             |  |  |       |           |  |          |   |            |            |  |   |        |  |  |   |        |  |  |   |             | 
|Credit risk profile based on payment activity: |  |              |           |  |             |   |            |      |  |   |             |  |  |       |           |  |          |   |            |            |  |   |        |  |  |   |        |  |  |   |             | 
|Performing                                     |  | $            | 4,888,335 |  |             | $ | 83,026,250 |      |  | $ | 2,339,331   |  |  | $     | 3,954,055 |  |          | $ | 12,042,472 |            |  | $ | 50,262 |  |  | $ | 18,613 |  |  | $ | 106,319,318 | 
|Nonperforming                                  |  |              | 1,565,199 |  |             |   | 1,360,603  |      |  |   | 311,022     |  |  |       |          |  |          |   | 94,382     |            |  |   |       |  |  |   |       |  |  |   | 3,331,206   | 
|                                               |  |              |           |  |             |   |            |      |  |   |             |  |  |       |           |  |          |   |            |            |  |   |        |  |  |   |        |  |  |   |             | 
|Total                                          |  | $            | 6,453,534 |  |             | $ | 84,386,853 |      |  | $ | 2,650,353   |  |  | $     | 3,954,055 |  |          | $ | 12,136,854 |            |  | $ | 50,262 |  |  | $ | 18,613 |  |  | $ | 109,650,524 | 
|                                               |  |              |           |  |             |   |            |      |  |   |             |  |  |       |           |  |          |   |            |            |  |   |        |  |  |   |        |  |  |   |             | 

Credit Risk Analysis of Loans Receivable

As of December 31, 2010



|                                               |  |              |           |  |             |   |            |      |  |   |             |  |  |       |           |  |          |   |            |            |  |   |        |  |  |   |        |  |  |   |             | 
|---------------------------------------------- |  | ------------ | --------- |  | ----------- | - | ---------- | ---- |  | - | ----------- |  |  | ----- | --------- |  | -------- | - | ---------- | ---------- |  | - | ------ |  |  | - | ------ |  |  | - | ----------- | 
|                                               |  |              |           |  | 1-4 Family  |   |            |      |  |   | Commercial  |  |  |       |           |  |          |   |            |            |  |   |        | 
|                                               |  | Construction |           |  | Residential |   |            | Land |  |   | Real Estate |  |  | HELOC |           |  | Consumer |   |            | Commercial |  |   | Total  | 
|Pass                                           |  | $            | 3,590,645 |  |             | $ | 85,801,235 |      |  | $ | 2,530,748   |  |  | $     | 3,498,269 |  |          | $ | 12,729,750 |            |  | $ | 44,177 |  |  | $ | 22,645 |  |  | $ | 108,217,469 | 
|Special Mention                                |  |              | 577,000   |  |             |   | 250,000    |      |  |   |            |  |  |       | 474,000   |  |          |   |           |            |  |   |       |  |  |   |       |  |  | $ | 1,301,000   | 
|Substandard                                    |  |              | 1,611,000 |  |             |   | 117,101    |      |  |   | 545,484     |  |  |       |          |  |          |   |           |            |  |   |       |  |  |   |       |  |  | $ | 2,273,585   | 
|                                               |  |              |           |  |             |   |            |      |  |   |             |  |  |       |           |  |          |   |            |            |  |   |        |  |  |   |        |  |  |   |             | 
|Total                                          |  | $            | 5,778,645 |  |             | $ | 86,168,336 |      |  | $ | 3,076,232   |  |  | $     | 3,972,269 |  |          | $ | 12,729,750 |            |  | $ | 44,177 |  |  | $ | 22,645 |  |  | $ | 111,792,054 | 
|                                               |  |              |           |  |             |   |            |      |  |   |             |  |  |       |           |  |          |   |            |            |  |   |        |  |  |   |        |  |  |   |             | 
|Credit risk profile based on payment activity: |  |              |           |  |             |   |            |      |  |   |             |  |  |       |           |  |          |   |            |            |  |   |        |  |  |   |        |  |  |   |             | 
|Performing                                     |  | $            | 5,778,645 |  |             | $ | 86,051,235 |      |  | $ | 2,530,748   |  |  | $     | 3,972,269 |  |          | $ | 12,729,750 |            |  | $ | 44,177 |  |  | $ | 22,645 |  |  | $ | 111,129,469 | 
|Nonperforming                                  |  |              |          |  |             |   | 117,101    |      |  |   | 545,484     |  |  |       |          |  |          |   |           |            |  |   |       |  |  |   |       |  |  |   | 662,585     | 
|                                               |  |              |           |  |             |   |            |      |  |   |             |  |  |       |           |  |          |   |            |            |  |   |        |  |  |   |        |  |  |   |             | 
|Total                                          |  | $            | 5,778,645 |  |             | $ | 86,168,336 |      |  | $ | 3,076,232   |  |  | $     | 3,972,269 |  |          | $ | 12,729,750 |            |  | $ | 44,177 |  |  | $ | 22,645 |  |  | $ | 111,792,054 | 
|                                               |  |              |           |  |             |   |            |      |  |   |             |  |  |       |           |  |          |   |            |            |  |   |        |  |  |   |        |  |  |   |             | 



12



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##### Table of Contents

Aged Analysis of Past Due Loans Receivable

As of March 31, 2011



|                                           |  |              |           |  |             |   |            |          |  |   |            |  |  |             |           |  |            |   |           |          |  |   |        |  |  |   |        |  |  |   |             | 
|------------------------------------------ |  | ------------ | --------- |  | ----------- | - | ---------- | -------- |  | - | ---------- |  |  | ----------- | --------- |  | ---------- | - | --------- | -------- |  | - | ------ |  |  | - | ------ |  |  | - | ----------- | 
|                                           |  |              |           |  | 1-4 Family  |   |            | Lines of |  |   |            |  |  | Commercial  |           |  |            |   |           |          |  |   |        | 
|                                           |  | Construction |           |  | Residential |   |            | Credit   |  |   | Land       |  |  | Real Estate |           |  | Commercial |   |           | Consumer |  |   | Total  | 
|30-59 Days Past Due                        |  | $            |          |  |             | $ | 128,955    |          |  | $ |           |  |  | $           |          |  |            | $ |          |          |  | $ |       |  |  | $ |       |  |  | $ | 128,955     | 
|60-89 Days Past Due                        |  |              |          |  |             |   |           |          |  |   | 90,192     |  |  |             |          |  |            |   |          |          |  |   |       |  |  |   |       |  |  |   | 90,192      | 
|Greater Than 90 Days Past Due              |  |              | 1,565,199 |  |             |   | 1,360,603  |          |  |   | 94,382     |  |  |             | 311,022   |  |            |   |          |          |  |   |       |  |  |   |       |  |  |   | 3,331,206   | 
|                                           |  |              |           |  |             |   |            |          |  |   |            |  |  |             |           |  |            |   |           |          |  |   |        |  |  |   |        |  |  |   |             | 
|Total Past Due                             |  |              | 1,565,199 |  |             |   | 1,489,558  |          |  |   | 184,574    |  |  |             | 311,022   |  |            |   |          |          |  |   |       |  |  |   |       |  |  |   | 3,550,353   | 
|                                           |  |              |           |  |             |   |            |          |  |   |            |  |  |             |           |  |            |   |           |          |  |   |        |  |  |   |        |  |  |   |             | 
|Current                                    |  |              | 4,888,335 |  |             |   | 82,897,295 |          |  |   | 11,952,280 |  |  |             | 2,339,331 |  |            |   | 3,954,055 |          |  |   | 18,613 |  |  |   | 50,262 |  |  |   | 106,100,171 | 
|                                           |  |              |           |  |             |   |            |          |  |   |            |  |  |             |           |  |            |   |           |          |  |   |        |  |  |   |        |  |  |   |             | 
|Total Loans Receivable                     |  | $            | 6,453,534 |  |             | $ | 84,386,853 |          |  | $ | 12,136,854 |  |  | $           | 2,650,353 |  |            | $ | 3,954,055 |          |  | $ | 18,613 |  |  | $ | 50,262 |  |  | $ | 109,650,524 | 
|                                           |  |              |           |  |             |   |            |          |  |   |            |  |  |             |           |  |            |   |           |          |  |   |        |  |  |   |        |  |  |   |             | 
|Recorded Investment > 90 Days and Accruing |  | $            |          |  |             | $ |           |          |  | $ |           |  |  | $           |          |  |            | $ |          |          |  | $ |       |  |  | $ |       |  |  | $ |            | 
|                                           |  |              |           |  |             |   |            |          |  |   |            |  |  |             |           |  |            |   |           |          |  |   |        |  |  |   |        |  |  |   |             | 

Aged Analysis of Past Due Loans Receivable

As of December 31, 2010



|                                           |  |              |           |  |             |   |            |          |  |   |            |  |  |             |           |  |            |   |           |          |  |   |        |  |  |   |        |  |  |   |             | 
|------------------------------------------ |  | ------------ | --------- |  | ----------- | - | ---------- | -------- |  | - | ---------- |  |  | ----------- | --------- |  | ---------- | - | --------- | -------- |  | - | ------ |  |  | - | ------ |  |  | - | ----------- | 
|                                           |  |              |           |  | 1-4 Family  |   |            | Lines of |  |   |            |  |  | Commercial  |           |  |            |   |           |          |  |   |        | 
|                                           |  | Construction |           |  | Residential |   |            | Credit   |  |   | Land       |  |  | Real Estate |           |  | Commercial |   |           | Consumer |  |   | Total  | 
|30-59 Days Past Due                        |  | $            |          |  |             | $ | 178,711    |          |  | $ | 465,930    |  |  | $           |          |  |            | $ |          |          |  | $ |       |  |  | $ | 642    |  |  | $ | 645,283     | 
|60-89 Days Past Due                        |  |              |          |  |             |   | 249,556    |          |  |   |           |  |  |             |          |  |            |   |          |          |  |   |       |  |  |   |       |  |  |   | 249,556     | 
|Greater Than 90 Days Past Due              |  |              |          |  |             |   | 117,101    |          |  |   |           |  |  |             | 545,484   |  |            |   |          |          |  |   |       |  |  |   |       |  |  |   | 662,585     | 
|                                           |  |              |           |  |             |   |            |          |  |   |            |  |  |             |           |  |            |   |           |          |  |   |        |  |  |   |        |  |  |   |             | 
|Total Past Due                             |  |              |          |  |             |   | 545,368    |          |  |   | 465,930    |  |  |             | 545,484   |  |            |   |          |          |  |   |       |  |  |   | 642    |  |  |   | 1,557,424   | 
|Current                                    |  |              | 5,778,645 |  |             |   | 85,622,968 |          |  |   | 12,263,820 |  |  |             | 2,530,748 |  |            |   | 3,972,269 |          |  |   | 22,645 |  |  |   | 43,535 |  |  |   | 110,234,630 | 
|                                           |  |              |           |  |             |   |            |          |  |   |            |  |  |             |           |  |            |   |           |          |  |   |        |  |  |   |        |  |  |   |             | 
|Total Loans Receivable                     |  | $            | 5,778,645 |  |             | $ | 86,168,336 |          |  | $ | 12,729,750 |  |  | $           | 3,076,232 |  |            | $ | 3,972,269 |          |  | $ | 22,645 |  |  | $ | 44,177 |  |  | $ | 111,792,054 | 
|                                           |  |              |           |  |             |   |            |          |  |   |            |  |  |             |           |  |            |   |           |          |  |   |        |  |  |   |        |  |  |   |             | 
|Recorded Investment > 90 Days and Accruing |  | $            |          |  |             | $ |           |          |  | $ |           |  |  | $           |          |  |            | $ |          |          |  | $ |       |  |  | $ |       |  |  | $ |            | 
|                                           |  |              |           |  |             |   |            |          |  |   |            |  |  |             |           |  |            |   |           |          |  |   |        |  |  |   |        |  |  |   |             | 



13



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##### Table of Contents

Allowance for Loan Losses and Recorded Investment in Loans Receivable

For the Three Months Ended March 31, 2011



|                                                     |  |              |           |  |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |  |  |       |        |   |  |   |         |   |  |   |             |  
|---------------------------------------------------- |  | ------------ | --------- |  | ----------- | - | ---------- | -------- |  | - | ---------- | - |  | ----------- | --------- | - | ---------- | - | --------- | -------- |  | - | ----------- |  |  | ----- | ------ | - |  | - | ------- | - |  | - | ----------- | -
|                                                     |  |              |           |  | 1-4 Family  |   |            | Lines of |  |   |            |   |  | Commercial  |           |   |            |   |           |          |  |   |             |  |  |       |       
|                                                     |  | Construction |           |  | Residential |   |            | Credit   |  |   | Land       |   |  | Real Estate |           |   | Commercial |   |           | Consumer |  |   | Unallocated |  |  | Total |       
|Allowance for loan losses:                           |  |              |           |  |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |  |  |       |        |   |  |   |         |   |  |   |             |  
|Beginning Balance                                    |  | $            | 80,789    |  |             | $ | 536,549    |          |  | $ | 407,352    |   |  | $           | 173,024   |   |            | $ | 70,473    |          |  | $ |            |  |  | $     | 8,259  |   |  | $ | 23,554  |   |  | $ | 1,300,000   |  
|Charge-offs                                          |  |              |          |  |             |   |           |          |  |   |           |   |  |             | (75,718   | ) |            |   |          |          |  |   |            |  |  |       |       |   |  |   |        |   |  |   | (75,718     | )
|Recoveries                                           |  |              |          |  |             |   |           |          |  |   | 660        |   |  |             |          |   |            |   |          |          |  |   |            |  |  |       |       |   |  |   |        |   |  |   | 660         |  
|Provision                                            |  |              | 11,652    |  |             |   | (14,918    | )        |  |   | (22,060    | ) |  |             | 106,397   |   |            |   | 4,711     |          |  |   |            |  |  |       | (4,896 | ) |  |   | (20,828 | ) |  |   | 60,058      |  
|                                                     |  |              |           |  |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |  |  |       |        |   |  |   |         |   |  |   |             |  
|Ending Balance                                       |  | $            | 92,441    |  |             | $ | 521,631    |          |  | $ | 385,952    |   |  | $           | 203,703   |   |            | $ | 75,184    |          |  | $ |            |  |  | $     | 3,363  |   |  | $ | 2,726   |   |  | $ | 1,285,000   |  
|                                                     |  |              |           |  |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |  |  |       |        |   |  |   |         |   |  |   |             |  
|Ending Balance Individually evaluated for impairment |  | $            |          |  |             | $ |           |          |  | $ |           |   |  | $           |          |   |            | $ |          |          |  | $ |            |  |  | $     |       |   |  | $ |        |   |  | $ |            |  
|                                                     |  |              |           |  |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |  |  |       |        |   |  |   |         |   |  |   |             |  
|Ending Balance Collectively evaluated for impairment |  | $            | 92,441    |  |             | $ | 521,631    |          |  | $ | 385,952    |   |  | $           | 203,703   |   |            | $ | 75,184    |          |  | $ |            |  |  | $     | 3,363  |   |  | $ | 2,726   |   |  | $ | 1,285,000   |  
|                                                     |  |              |           |  |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |  |  |       |        |   |  |   |         |   |  |   |             |  
|Loans Receivable:                                    |  |              |           |  |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |  |  |       |        |   |  |   |         |   |  |   |             |  
|Ending Balance                                       |  | $            | 6,453,534 |  |             | $ | 84,386,853 |          |  | $ | 12,136,854 |   |  | $           | 2,650,353 |   |            | $ | 3,954,055 |          |  | $ | 18,613      |  |  | $     | 50,262 |   |  | $ |        |   |  | $ | 109,650,524 |  
|                                                     |  |              |           |  |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |  |  |       |        |   |  |   |         |   |  |   |             |  
|Ending Balance Individually evaluated for impairment |  | $            | 2,666,709 |  |             | $ | 3,816,151  |          |  | $ | 13,945     |   |  | $           | 311,022   |   |            | $ | 3,153,593 |          |  | $ |            |  |  | $     |       |   |  | $ |        |   |  | $ | 9,961,420   |  
|                                                     |  |              |           |  |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |  |  |       |        |   |  |   |         |   |  |   |             |  
|Ending Balance Collectively evaluated for impairment |  | $            | 3,786,825 |  |             | $ | 80,570,702 |          |  | $ | 12,122,909 |   |  | $           | 2,339,331 |   |            | $ | 800,462   |          |  | $ | 18,613      |  |  | $     | 50,262 |   |  | $ |        |   |  | $ | 99,689,104  |  
|                                                     |  |              |           |  |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |  |  |       |        |   |  |   |         |   |  |   |             |  



14



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##### Table of Contents

Allowance for Loan Losses and Recorded Investment in Loans Receivable

For the Year Ended December 31, 2010



|                                                     |  |              |           |   |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |   |  |       |        |  |  |   |        |  |  |   |             |  
|---------------------------------------------------- |  | ------------ | --------- | - | ----------- | - | ---------- | -------- |  | - | ---------- | - |  | ----------- | --------- | - | ---------- | - | --------- | -------- |  | - | ----------- | - |  | ----- | ------ |  |  | - | ------ |  |  | - | ----------- | -
|                                                     |  |              |           |   | 1-4 Family  |   |            | Lines of |  |   |            |   |  | Commercial  |           |   |            |   |           |          |  |   |             |   |  |       |       
|                                                     |  | Construction |           |   | Residential |   |            | Credit   |  |   | Land       |   |  | Real Estate |           |   | Commercial |   |           | Consumer |  |   | Unallocated |   |  | Total |       
|Allowance for loan losses:                           |  |              |           |   |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |   |  |       |        |  |  |   |        |  |  |   |             |  
|Beginning Balance                                    |  | $            | 18,795    |   |             | $ | 91,335     |          |  | $ | 132,257    |   |  | $           | 7,879     |   |            | $ | 20,986    |          |  | $ |            |   |  | $     | 1,166  |  |  | $ | 4,203  |  |  | $ | 276,621     |  
|Charge-offs                                          |  |              | (112,500  | ) |             |   | (6,784     | )        |  |   | (207,126   | ) |  |             | (146,250  | ) |            |   |          |          |  |   | (6,130      | ) |  |       |       |  |  |   |       |  |  |   | (478,790    | )
|Recoveries                                           |  |              |          |   |             |   | 820        |          |  |   | 712        |   |  |             |          |   |            |   |          |          |  |   |            |   |  |       |       |  |  |   |       |  |  |   | 1,532       |  
|Provision                                            |  |              | 174,494   |   |             |   | 451,178    |          |  |   | 481,509    |   |  |             | 311,395   |   |            |   | 49,487    |          |  |   | 6,130       |   |  |       | 7,093  |  |  |   | 19,351 |  |  |   | 1,500,637   |  
|                                                     |  |              |           |   |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |   |  |       |        |  |  |   |        |  |  |   |             |  
|Ending Balance                                       |  | $            | 80,789    |   |             | $ | 536,549    |          |  | $ | 407,352    |   |  | $           | 173,024   |   |            | $ | 70,473    |          |  | $ |            |   |  | $     | 8,259  |  |  | $ | 23,554 |  |  | $ | 1,300,000   |  
|                                                     |  |              |           |   |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |   |  |       |        |  |  |   |        |  |  |   |             |  
|Ending Balance Individually evaluated for impairment |  | $            |          |   |             | $ |           |          |  | $ |           |   |  | $           |          |   |            | $ |          |          |  | $ |            |   |  | $     |       |  |  | $ |       |  |  | $ |            |  
|                                                     |  |              |           |   |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |   |  |       |        |  |  |   |        |  |  |   |             |  
|Ending Balance Collectively evaluated for impairment |  | $            | 80,789    |   |             | $ | 536,549    |          |  | $ | 407,352    |   |  | $           | 173,024   |   |            | $ | 70,473    |          |  | $ |            |   |  | $     | 8,259  |  |  | $ | 23,554 |  |  | $ | 1,300,000   |  
|                                                     |  |              |           |   |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |   |  |       |        |  |  |   |        |  |  |   |             |  
|Loans Receivable:                                    |  |              |           |   |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |   |  |       |        |  |  |   |        |  |  |   |             |  
|Ending Balance                                       |  | $            | 5,778,645 |   |             | $ | 86,168,336 |          |  | $ | 12,729,750 |   |  | $           | 3,076,232 |   |            | $ | 3,972,269 |          |  | $ | 22,645      |   |  | $     | 44,177 |  |  | $ |       |  |  | $ | 111,792,054 |  
|                                                     |  |              |           |   |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |   |  |       |        |  |  |   |        |  |  |   |             |  
|Ending Balance Individually evaluated for impairment |  | $            | 3,278,057 |   |             | $ | 4,527,466  |          |  | $ | 17,756     |   |  | $           | 545,856   |   |            | $ | 1,989,575 |          |  | $ |            |   |  | $     |       |  |  | $ |       |  |  | $ | 10,358,710  |  
|                                                     |  |              |           |   |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |   |  |       |        |  |  |   |        |  |  |   |             |  
|Ending Balance Collectively evaluated for impairment |  | $            | 2,500,588 |   |             | $ | 81,640,870 |          |  | $ | 12,711,994 |   |  | $           | 2,530,376 |   |            | $ | 1,982,694 |          |  | $ | 22,645      |   |  | $     | 44,177 |  |  | $ |       |  |  | $ | 101,433,344 |  
|                                                     |  |              |           |   |             |   |            |          |  |   |            |   |  |             |           |   |            |   |           |          |  |   |             |   |  |       |        |  |  |   |        |  |  |   |             |  



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Management reviews and identifies loans and investments that require designation as
nonperforming assets and troubled debt restructurings. Nonperforming assets include loans accounted for on a non-accrual basis, loans past due by 90 days or more but still accruing, and other real estate owned. Troubled debt restructurings include
loans in which the borrower was having financial difficulty, and we agreed to modify the loan. No principal or interest was forgiven and no change in the interest rate was made. Information with respect to nonperforming assets and troubled debt
restructurings at March 31, 2011 and December 31, 2010 is as follows:



|                                                           |  |               |            |   |                  |   |           | 
|---------------------------------------------------------- |  | ------------- | ---------- | - | ---------------- | - | --------- | 
|                                                           |  | March 31,2011 |            |   | December 31,2010 |  
|Non-Accrual Loans                                          |  | $             | 3,331,206  |   |                  | $ | 662,585   | 
|Other Real Estate Owned, net                               |  |               | 2,157,193  |   |                  |   | 2,015,909 | 
|Loans 90 days or more past due and still accruing          |  |               |           |   |                  |   |          | 
|                                                           |  |               |            |   |                  |   |           | 
|Total Nonperforming Assets                                 |  | $             | 5,488,399  |   |                  | $ | 2,678,494 | 
|                                                           |  |               |            |   |                  |   |           | 
|Troubled Debt Restructurings                               |  | $             | 1,512,255  |   |                  | $ | 2,091,535 | 
|                                                           |  |               |            |   |                  |   |           | 
|Troubled Debt Restructurings included In Non-Accrual Loans |  | $             | (1,243,502 | ) |                  |   |          | 
|                                                           |  |               |            |   |                  |   |           | 
|Troubled Debt Restructurings and                           |  | $             | 5,757,152  |   |                  | $ | 4,770,029 | 
|                                                           |  |               |            |   |                  |   |           | 
|Total Nonperforming Assets                                 |  |               |            |   |                  |   |           | 

Loans Receivable on Nonaccrual Status

As of March 31, 2011



|                         |  |              |           |  |             |   |           |          |  |   |        |  |  |             |         |  |            |   |   |          |  |   |       |  |  |   |   |  |  |   |           | 
|------------------------ |  | ------------ | --------- |  | ----------- | - | --------- | -------- |  | - | ------ |  |  | ----------- | ------- |  | ---------- | - | - | -------- |  | - | ----- |  |  | - | - |  |  | - | --------- | 
|                         |  |              |           |  | 1-4 Family  |   |           | Lines of |  |   |        |  |  | Commercial  |         |  |            |   |   |          |  |   |       | 
|                         |  | Construction |           |  | Residential |   |           | Credit   |  |   | Land   |  |  | Real Estate |         |  | Commercial |   |   | Consumer |  |   | Total | 
|Unpaid Principal Balance |  | $            | 1,565,199 |  |             | $ | 1,360,603 |          |  | $ | 94,382 |  |  | $           | 311,022 |  |            | $ |  |          |  | $ |      |  |  | $ |  |  |  | $ | 3,331,206 | 
|                         |  |              |           |  |             |   |           |          |  |   |        |  |  |             |         |  |            |   |   |          |  |   |       |  |  |   |   |  |  |   |           | 

Loans Receivable on Nonaccrual Status

As of December 31, 2010



|                         |  |              |   |  |             |   |         |          |  |   |      |  |  |             |         |  |            |   |   |          |  |   |       |  |  |   |   |  |  |   |         | 
|------------------------ |  | ------------ | - |  | ----------- | - | ------- | -------- |  | - | ---- |  |  | ----------- | ------- |  | ---------- | - | - | -------- |  | - | ----- |  |  | - | - |  |  | - | ------- | 
|                         |  |              |   |  | 1-4 Family  |   |         | Lines of |  |   |      |  |  | Commercial  |         |  |            |   |   |          |  |   |       | 
|                         |  | Construction |   |  | Residential |   |         | Credit   |  |   | Land |  |  | Real Estate |         |  | Commercial |   |   | Consumer |  |   | Total | 
|Unpaid Principal Balance |  | $            |  |  |             | $ | 117,101 |          |  | $ |     |  |  | $           | 545,484 |  |            | $ |  |          |  | $ |      |  |  | $ |  |  |  | $ | 662,585 | 
|                         |  |              |   |  |             |   |         |          |  |   |      |  |  |             |         |  |            |   |   |          |  |   |       |  |  |   |   |  |  |   |         | 



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Impaired Loans

As of and for the Year Ended March 31, 2011



|                                     |  |              |           |  |             |   |           |          |  |   |        |  |  |             |         |  |            |   |   |          |  |   |       |  |  |   |   |  |  |   |           | 
|------------------------------------ |  | ------------ | --------- |  | ----------- | - | --------- | -------- |  | - | ------ |  |  | ----------- | ------- |  | ---------- | - | - | -------- |  | - | ----- |  |  | - | - |  |  | - | --------- | 
|                                     |  |              |           |  | 1-4 Family  |   |           | Lines of |  |   |        |  |  | Commercial  |         |  |            |   |   |          |  |   |       | 
|                                     |  | Construction |           |  | Residential |   |           | Credit   |  |   | Land   |  |  | Real Estate |         |  | Commercial |   |   | Consumer |  |   | Total | 
|Loans With A Valuation Allowance:    |  |              |           |  |             |   |           |          |  |   |        |  |  |             |         |  |            |   |   |          |  |   |       |  |  |   |   |  |  |   |           | 
|Unpaid Principal Balance             |  | $            |          |  |             | $ |          |          |  | $ |       |  |  | $           |        |  |            | $ |  |          |  | $ |      |  |  | $ |  |  |  | $ |          | 
|Related Allowance for Loan Losses    |  |              |          |  |             |   |          |          |  |   |       |  |  |             |        |  |            |   |  |          |  |   |      |  |  |   |  |  |  |   |          | 
|Average Recorded Investment          |  |              |          |  |             |   |          |          |  |   |       |  |  |             |        |  |            |   |  |          |  |   |      |  |  |   |  |  |  |   |          | 
|Interest Income recognized           |  |              |          |  |             |   |          |          |  |   |       |  |  |             |        |  |            |   |  |          |  |   |      |  |  |   |  |  |  |   |          | 
|Loans Without a Valuation Allowance: |  |              |           |  |             |   |           |          |  |   |        |  |  |             |         |  |            |   |   |          |  |   |       |  |  |   |   |  |  |   |           | 
|Unpaid Principal Balance             |  | $            | 1,565,199 |  |             | $ | 1,629,356 |          |  | $ | 94,382 |  |  | $           | 311,022 |  |            | $ |  |          |  | $ |      |  |  | $ |  |  |  | $ | 3,599,959 | 
|Related Allowance for Loan Losses    |  |              |          |  |             |   |          |          |  |   |       |  |  |             |        |  |            |   |  |          |  |   |      |  |  |   |  |  |  | $ |          | 
|Average Recorded Investment          |  |              | 1,565,199 |  |             | $ | 1,630,171 |          |  |   | 94,382 |  |  |             | 311,022 |  |            |   |  |          |  |   |      |  |  |   |  |  |  | $ | 3,600,774 | 
|Interest Income recognized           |  |              |          |  |             |   | 3,684     |          |  |   |       |  |  |             |        |  |            |   |  |          |  |   |      |  |  |   |  |  |  | $ | 3,684     | 
|Totals:                              |  |              |           |  |             |   |           |          |  |   |        |  |  |             |         |  |            |   |   |          |  |   |       |  |  |   |   |  |  |   |           | 
|Unpaid Principal Balance             |  | $            | 1,565,199 |  |             | $ | 1,629,356 |          |  | $ | 94,382 |  |  | $           | 311,022 |  |            | $ |  |          |  | $ |      |  |  | $ |  |  |  | $ | 3,599,959 | 
|Related Allowance for Loan Losses    |  |              |          |  |             |   |          |          |  |   |       |  |  |             |        |  |            |   |  |          |  |   |      |  |  |   |  |  |  | $ |          | 
|Average Recorded Investment          |  |              | 1,565,199 |  |             |   | 1,630,171 |          |  |   | 94,382 |  |  |             | 311,022 |  |            |   |  |          |  |   |      |  |  |   |  |  |  | $ | 3,600,774 | 
|Interest Income recognized           |  |              |          |  |             |   | 3,684     |          |  |   |       |  |  |             |        |  |            |   |   |          |  |   |      |  |  |   |  |  |  | $ | 3,684     | 



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Impaired Loans

As of and for the Year Ended December 31, 2010



|                                     |  |              |         |  |             |   |           |          |  |   |      |  |  |             |         |  |            |   |   |          |  |   |       |  |  |   |   |  |  |   |           | 
|------------------------------------ |  | ------------ | ------- |  | ----------- | - | --------- | -------- |  | - | ---- |  |  | ----------- | ------- |  | ---------- | - | - | -------- |  | - | ----- |  |  | - | - |  |  | - | --------- | 
|                                     |  |              |         |  | 1-4 Family  |   |           | Lines of |  |   |      |  |  | Commercial  |         |  |            |   |   |          |  |   |       | 
|                                     |  | Construction |         |  | Residential |   |           | Credit   |  |   | Land |  |  | Real Estate |         |  | Commercial |   |   | Consumer |  |   | Total | 
|Loans With A Valuation Allowance:    |  |              |         |  |             |   |           |          |  |   |      |  |  |             |         |  |            |   |   |          |  |   |       |  |  |   |   |  |  |   |           | 
|Unpaid Principal Balance             |  | $            |        |  |             | $ |          |          |  | $ |     |  |  | $           |        |  |            | $ |  |          |  | $ |      |  |  | $ |  |  |  | $ |          | 
|Related Allowance for Loan Losses    |  |              |        |  |             |   |          |          |  |   |     |  |  |             |        |  |            |   |  |          |  |   |      |  |  |   |  |  |  |   |          | 
|Average Recorded Investment          |  |              |        |  |             |   |          |          |  |   |     |  |  |             |        |  |            |   |  |          |  |   |      |  |  |   |  |  |  |   |          | 
|Interest Income recognized           |  |              |        |  |             |   |          |          |  |   |     |  |  |             |        |  |            |   |  |          |  |   |      |  |  |   |  |  |  |   |          | 
|Loans Without a Valuation Allowance: |  |              |         |  |             |   |           |          |  |   |      |  |  |             |         |  |            |   |   |          |  |   |       |  |  |   |   |  |  |   |           | 
|Unpaid Principal Balance             |  | $            | 577,650 |  |             | $ | 1,630,986 |          |  | $ |     |  |  | $           | 545,484 |  |            | $ |  |          |  | $ |      |  |  | $ |  |  |  | $ | 2,754,120 | 
|Related Allowance for Loan Losses    |  | $            |        |  |             | $ |          |          |  | $ |     |  |  | $           |        |  |            | $ |  |          |  | $ |      |  |  | $ |  |  |  | $ |          | 
|Average Recorded Investment          |  | $            | 577,650 |  |             | $ | 1,641,905 |          |  | $ |     |  |  | $           | 678,302 |  |            | $ |  |          |  | $ |      |  |  | $ |  |  |  | $ | 2,897,857 | 
|Interest Income recognized           |  | $            | 37,547  |  |             | $ | 102,774   |          |  | $ |     |  |  | $           | 14,708  |  |            | $ |  |          |  | $ |      |  |  | $ |  |  |  | $ | 155,029   | 
|Totals:                              |  |              |         |  |             |   |           |          |  |   |      |  |  |             |         |  |            |   |   |          |  |   |       |  |  |   |   |  |  |   |           | 
|Unpaid Principal Balance             |  | $            | 577,650 |  |             | $ | 1,630,986 |          |  | $ |     |  |  | $           | 545,484 |  |            | $ |  |          |  | $ |      |  |  | $ |  |  |  | $ | 2,754,120 | 
|Related Allowance for Loan Losses    |  | $            |        |  |             | $ |          |          |  | $ |     |  |  | $           |        |  |            | $ |  |          |  | $ |      |  |  | $ |  |  |  | $ |          | 
|Average Recorded Investment          |  | $            | 577,650 |  |             | $ | 1,641,905 |          |  | $ |     |  |  | $           | 678,302 |  |            | $ |  |          |  | $ |      |  |  | $ |  |  |  | $ | 2,897,857 | 
|Interest Income recognized           |  | $            | 37,547  |  |             | $ | 102,774   |          |  | $ |     |  |  | $           | 14,708  |  |            | $ |  |          |  | $ |      |  |  | $ |  |  |  | $ | 155,029   | 



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|4. | EMPLOYEE STOCK OWNERSHIP PLAN
|-- | -----------------------------

In connection with the conversion to stock form, the Bank established an Employee Stock Ownership Plan (ESOP) for the exclusive benefit of
eligible employees. The ESOP borrowed funds from the Company in an amount sufficient to purchase 126,960 shares or 8% of the Common Stock issued in the offering. The shares were acquired at a price of $10.00 per share.

The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Bank and dividends
received by the ESOP, with funds from any contributions on ESOP assets. Contributions will be applied to repay interest on the loan first and the remainder will be applied to principal. The loan is expected to be repaid over a period of 12 years.

Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is
repaid. Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation, of all active participants. Participants will vest their accrued
benefits under the employee stock ownership plan at the rate of 33.33% per year beginning in year two. Vesting is accelerated upon retirement, death or disability of the participant, or a change in control of the Bank. Forfeitures will be
reallocated to remaining plan participants. Benefits may be payable upon retirement, death, disability, separation of service, or termination of the ESOP.

The debt of the ESOP, in accordance with generally accepted accounting principles, is eliminated in consolidation and the shares pledged as collateral are reported as unearned ESOP shares in the
consolidated balance sheet. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from collateral, the Company reports compensation expense equal to
the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations. Dividends on allocated ESOP shares are recorded as a reduction of debt and accrued interest. There was no ESOP
compensation expense for the three months ended March 31, 2011 and 2010.

A summary of ESOP shares at March 31, 2011
is as follows:



|                              |  |  |           | 
|----------------------------- |  |  | --------- | 
|Shares committed for release  |  |  |          | 
|Unearned shares               |  |  | 126,960   | 
|Total ESOP shares             |  |  | 126,960   | 
|Fair Value of unearned shares |  |  | 1,269,600 | 



|5. | REGULATORY MATTERS
|-- | ------------------

The Bank is
subject to various regulatory capital requirements administered by its primary federal regulator, the Office of Thrift Supervision (OTS). Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible
additional discretionary actions by regulators that if undertaken, could have a direct material effect on the Association and the consolidated financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Association must meet specific capital guidelines involving quantitative measures of the Associations assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.
The Associations capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.



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Quantitative measures established by regulation to ensure capital adequacy require the
Association to maintain minimum amounts and ratios of: total risk-based capital and Tier I capital and Tier I capital to risk-weighted assets (as defined in the regulations), Tier I capital to adjusted total assets (as defined), and tangible capital
to adjusted total assets (as defined).

As of March 31, 2011 and December 31, 2010 (the most recent notification
from the OTS), the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. Nothing has come to managements attention since the institutions most recent notification of being classified as
well capitalized that would cause such classification to change. The following table details the Associations capital position:



|                                                   |  |                        |        |  |                                                                                                           |  |       |                        |  |   |       |  |  |  |     |  
|-------------------------------------------------- |  | ---------------------- | ------ |  | --------------------------------------------------------------------------------------------------------- |  | ----- | ---------------------- |  | - | ----- |  |  |  | --- | -
|                                                   |  | Actual                 |        |  | For Capital Adequacy Purposesand to be AdequatelyCapitalized Under the
PromptCorrective Action Provisions | 
|                                                   |  | Amount                 |        |  | Ratio                                                                                                     |  |       | Amount                 |  |   | Ratio | 
|                                                   |  | (dollars in thousands) |        |  |                                                                                                           |  |       | (dollars in thousands) |  |   |       | 
|As of March 31, 2011                               |  |                        |        |  |                                                                                                           |  |       |                        |  |   |       |  |  |  |     |  
|Total Risk-Based Capital (to Risk-Weighted Assets) |  | $                      | 24,745 |  |                                                                                                           |  | 26.24 | %                      |  | $ | 7,544 |  |  |  | 8.0 | %
|Tier I Capital (to Risk-Weighted Assets)           |  | $                      | 23,566 |  |                                                                                                           |  | 24.99 | %                      |  | $ | 3,772 |  |  |  | 4.0 | %
|Tier I Capital (to Adjusted Total Assets)          |  | $                      | 23,566 |  |                                                                                                           |  | 12.93 | %                      |  | $ | 5,468 |  |  |  | 3.0 | %
|Tangible Capital (to Adjusted Total Assets)        |  | $                      | 23,566 |  |                                                                                                           |  | 12.93 | %                      |  | $ | 2,734 |  |  |  | 1.5 | %
|As of December 31, 2010                            |  |                        |        |  |                                                                                                           |  |       |                        |  |   |       |  |  |  |     |  
|Total Risk-Based Capital (to Risk-Weighted Assets) |  | $                      | 17,282 |  |                                                                                                           |  | 19.03 | %                      |  | $ | 7,265 |  |  |  | 8.0 | %
|Tier I Capital (to Risk-Weighted Assets)           |  | $                      | 16,147 |  |                                                                                                           |  | 17.78 | %                      |  | $ | 3,633 |  |  |  | 4.0 | %
|Tier I Capital (to Adjusted Total Assets)          |  | $                      | 16,147 |  |                                                                                                           |  | 9.51  | %                      |  | $ | 5,094 |  |  |  | 3.0 | %
|Tangible Capital (to Adjusted Total Assets)        |  | $                      | 16,147 |  |                                                                                                           |  | 9.51  | %                      |  | $ | 2,547 |  |  |  | 1.5 | %

The following table
provides a reconciliation of total equity per the consolidated financial statements to capital amounts reflected in the above table:



|                                                                           |  |           |        |   |              |   |        | 
|-------------------------------------------------------------------------- |  | --------- | ------ | - | ------------ | - | ------ | 
|                                                                           |  | March 31, |        |   | December 31, |  
|                                                                           |  | 2011      |        |   | 2010         |  
|Total Equity                                                               |  | $         | 29,637 |   |              | $ | 15,987 | 
|Adjustment for accumulated other comprehensive loss                        |  |           | 125    |   |              |   | 160    | 
|Adjustment for parent company equity                                       |  |           | (6,196 | ) |              |   |       | 
|                                                                           |  |           |        |   |              |   |        | 
|Tangible, Tier 1 and Core Capital                                          |  |           | 23,566 |   |              |   | 16,147 | 
|Allowable allowance for loan losses (1.25% of total risk- weighted assets) |  |           | 1,179  |   |              |   | 1,135  | 
|                                                                           |  |           |        |   |              |   |        | 
|Total risk-based capital                                                   |  | $         | 24,745 |   |              | $ | 17,282 | 
|                                                                           |  |           |        |   |              |   |        | 



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|6. | FAIR VALUE MEASUREMENTS
|-- | -----------------------

Effective January 1, 2008, the Company adopted FASB guidance on Fair Value Measurements which defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This guidance applies whenever other standards require (or permit) assets or liabilities to be measured at fair
value but does not expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In
support of this principle, the guidance establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at
commonly quoted intervals.

Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect
an entitys own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

The following table presents the Banks assets measured at fair value on a recurring basis:



|                                        |  |                               |            |  |                                                              |   |   |                                            |  |   |                                         |  |  |   |   | 
|--------------------------------------- |  | ----------------------------- | ---------- |  | ------------------------------------------------------------ | - | - | ------------------------------------------ |  | - | --------------------------------------- |  |  | - | - | 
|                                        |  | Fair Value atMarch 31,2011    |            |  | Quoted Prices inActive Markets for IdenticalAssets (Level 1) |   |   | SignificantOtherObservableInputs (Level 2) |  |   | SignificantUnobservableInputs (Level 3) | 
|Available-for-sale securities:          |  |                               |            |  |                                                              |   |   |                                            |  |   |                                         |  |  |   |   | 
|Bank Notes                              |  | $                             | 1,016,280  |  |                                                              | $ |  |                                            |  | $ | 1,016,280                               |  |  | $ |  | 
|Obligations of U.S. Government agencies |  |                               | 13,901,834 |  |                                                              | $ |  |                                            |  |   | 13,901,834                              |  |  | $ |  | 
|FNMA                                    |  |                               | 13,406,652 |  |                                                              | $ |  |                                            |  |   | 13,406,652                              |  |  | $ |  | 
|GNMA                                    |  |                               | 2,185,920  |  |                                                              | $ |  |                                            |  |   | 2,185,920                               |  |  | $ |  | 
|FHLMC                                   |  |                               | 3,811,089  |  |                                                              | $ |  |                                            |  |   | 3,811,089                               |  |  | $ |  | 
|Private label CMO                       |  |                               | 681,808    |  |                                                              | $ |  |                                            |  |   | 681,808                                 |  |  | $ |  | 
|                                        |  |                               |            |  |                                                              |   |   |                                            |  |   |                                         |  |  |   |   | 
|                                        |  | $                             | 35,003,583 |  |                                                              | $ |  |                                            |  | $ | 35,003,583                              |  |  | $ |  | 
|                                        |  |                               |            |  |                                                              |   |   |                                            |  |   |                                         |  |  |   |   | 
|Total assets measured at fair value     |  | $                             | 35,003,583 |  |                                                              | $ |  |                                            |  | $ | 35,003,583                              |  |  | $ |  | 
|                                        |  |                               |            |  |                                                              |   |   |                                            |  |   |                                         |  |  |   |   | 
|                                        |  |                               |            | 
|                                        |  | Fair Value atDecember 31,2010 |            |  | Quoted Prices inActive Markets for
IdenticalAssets (Level 1) |   |   | SignificantOtherObservableInputs (Level 2) |  |   | SignificantUnobservableInputs (Level 3) | 
|Available-for-sale securities:          |  |                               |            |  |                                                              |   |   |                                            |  |   |                                         |  |  |   |   | 
|Bank Notes                              |  | $                             | 1,006,280  |  |                                                              | $ |  |                                            |  | $ | 1,006,280                               |  |  | $ |  | 
|Obligations of U.S. Government agencies |  |                               | 8,285,000  |  |                                                              | $ |  |                                            |  |   | 8,285,000                               |  |  | $ |  | 
|FNMA                                    |  |                               | 6,743,108  |  |                                                              | $ |  |                                            |  |   | 6,743,108                               |  |  | $ |  | 
|GNMA                                    |  |                               | 102,271    |  |                                                              | $ |  |                                            |  |   | 102,271                                 |  |  | $ |  | 
|FHLMC                                   |  |                               | 4,403,042  |  |                                                              | $ |  |                                            |  |   | 4,403,042                               |  |  | $ |  | 
|Private label CMO                       |  |                               | 826,045    |  |                                                              | $ |  |                                            |  |   | 826,045                                 |  |  | $ |  | 
|                                        |  |                               |            |  |                                                              |   |   |                                            |  |   |                                         |  |  |   |   | 
|                                        |  | $                             | 21,365,746 |  |                                                              | $ |  |                                            |  | $ | 21,365,746                              |  |  | $ |  | 
|                                        |  |                               |            |  |                                                              |   |   |                                            |  |   |                                         |  |  |   |   | 
|Total assets measured at fair value     |  | $                             | 21,365,746 |  |                                                              | $ |  |                                            |  | $ | 21,365,746                              |  |  | $ |  | 
|                                        |  |                               |            |  |                                                              |   |   |                                            |  |   |                                         |  |  |   |   | 



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Securities classified as available-for-sale are reported at fair value utilizing Level 2
Inputs. For these securities, the Association obtains fair values from an independent pricing service and safekeeping custodians. The observable data may include dealer quotes, cash flows, U.S. Treasury yield curve, trading levels, credit
information, and the terms and conditions of the security, among other things.

Financial Instruments Measured on a
Nonrecurring Basis

The Bank may be required, from time to time, to measure certain other financial assets and liabilities
at fair value on a nonrecurring basis. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis as of
March 31, 2011 and December 31, 2010, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the assets:



|                         |  |                                |           |  |                        |   |   |                                            |  |   |                                         |  |  |   |   | 
|------------------------ |  | ------------------------------ | --------- |  | ---------------------- | - | - | ------------------------------------------ |  | - | --------------------------------------- |  |  | - | - | 
|                         |  | Fair Value at March 31,2011    |           |  | Quoted Prices(Level 1) |   |   | SignificantOtherObservableInputs (Level 2) |  |   | SignificantUnobservableInputs (Level 3) | 
|Impaired Loans           |  |                                |           |  |                        |   |   |                                            |  |   |                                         |  |  |   |   | 
|One-to-four family       |  | $                              | 1,629,356 |  |                        | $ |  |                                            |  | $ | 1,629,356                               |  |  | $ |  | 
|Lines of Credit          |  |                                | 94,382    |  |                        |   |  |                                            |  |   | 94,382                                  |  |  |   |  | 
|Commercial               |  |                                |          |  |                        |   |  |                                            |  |   |                                        |  |  |   |  | 
|Residential Construction |  |                                | 1,565,199 |  |                        |   |  |                                            |  |   | 1,565,199                               |  |  |   |  | 
|Land                     |  |                                | 311,022   |  |                        |   |  |                                            |  |   | 311,022                                 |  |  |   |  | 
|                         |  |                                |           |  |                        |   |   |                                            |  |   |                                         |  |  |   |   | 
|Total                    |  | $                              | 3,599,959 |  |                        | $ |  |                                            |  | $ | 3,599,959                               |  |  | $ |  | 
|                         |  |                                |           |  |                        |   |   |                                            |  |   |                                         |  |  |   |   | 
|Other real estate owned  |  | $                              | 2,157,193 |  |                        | $ |  |                                            |  | $ | 2,157,193                               |  |  | $ |  | 
|                         |  |                                |           |  |                        |   |   |                                            |  |   |                                         |  |  |   |   | 
|                         |  |                                |           | 
|                         |  | Fair Value at
December 31,2010 |           |  | Quoted Prices(Level 1) |   |   | SignificantOtherObservableInputs (Level 2) |  |   | SignificantUnobservableInputs (Level 3) | 
|Impaired Loans           |  |                                |           |  |                        |   |   |                                            |  |   |                                         |  |  |   |   | 
|One-to-four family       |  | $                              | 1,630,986 |  |                        | $ |  |                                            |  | $ | 1,630,986                               |  |  | $ |  | 
|Lines of Credit          |  |                                |          |  |                        |   |  |                                            |  |   |                                        |  |  |   |  | 
|Commercial               |  |                                |          |  |                        |   |  |                                            |  |   |                                        |  |  |   |  | 
|Residential Construction |  |                                | 577,650   |  |                        |   |  |                                            |  |   | 577,650                                 |  |  |   |  | 
|Land                     |  |                                | 545,484   |  |                        |   |  |                                            |  |   | 545,484                                 |  |  |   |  | 
|                         |  |                                |           |  |                        |   |   |                                            |  |   |                                         |  |  |   |   | 
|Total                    |  | $                              | 2,754,120 |  |                        | $ |  |                                            |  | $ | 2,754,120                               |  |  | $ |  | 
|                         |  |                                |           |  |                        |   |   |                                            |  |   |                                         |  |  |   |   | 
|Other real estate owned  |  | $                              | 2,015,909 |  |                        | $ |  |                                            |  | $ | 2,015,909                               |  |  | $ |  | 
|                         |  |                                |           |  |                        |   |   |                                            |  |   |                                         |  |  |   |   | 

Loans for which it is probable that the Bank will not collect all principal and interest due according to
contractual terms are measured for impairment in accordance with FASB guidance. Allowable methods for estimating fair value include using the fair value of the collateral for collateral dependent loans or, where a loan is determined not to be
collateral dependent, using the discounted cash flow method. In our determination of fair value, we have categorized both methods of valuation as estimates based on Level 2 inputs.

If the impaired loan is identified as collateral dependent, then the fair value method measuring the amount of impairment is utilized.
This method requires obtaining a current independent appraisal or utilizing



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some other method of valuation for the collateral and applying a discount factor to the value based on our loan review policy and procedures.

If the impaired loan is determined not to be collateral dependent, then the discounted cash flow method is used. This method requires the
impaired loan to be recorded at the present value of expected future cash flows discounted at the loans effective interest rate. The effective interest rate of a loan is the contractual interest rate adjusted for any net deferred loan fees or
costs, premiums, or discounts existing at origination or acquisition of the loan.



|7. | RECENT ACCOUNTING PRONOUNCEMENTS
|-- | --------------------------------

In April, 2011, the FASB issued ASU No. 2011-03, Reconsideration of Effective Control for Repurchase Agreements.
ASU No. 2011-03 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 in ASU
No. 2011-03 remove from 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. ASU
No. 2011-03 also eliminates the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. The guidance is effective for the Companys
reporting period ended March 31, 2012. The guidance will be applied prospectively to transactions or modifications of existing transaction that occur on or after January 1, 2012.

In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2011-02, A Creditors Determination of Whether a Restructuring Is a Troubled Debt Restructuring. ASU No. 2011-02 provides additional guidance and clarification to help creditors in determining whether a creditor has
granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. The provisions of ASU No. 2011-02 will be effective for the
Companys reporting period ended December 31, 2011 and will be applied retrospectively to January 1, 2011. As a result of the retrospective application, the Company may identify loans that are newly considered impaired. The adoption
of this ASU is not expected to have a material impact on the Companys statements of operations and financial condition.



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

Forward-Looking Statements

When used in this Report, the words or phrases will likely result, are expected to, will continue,
is anticipated, estimate, project or similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to certain risks and uncertainties including changes in economic conditions in the Companys market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Companys market
area, competition and information provided by third-party vendors and the matters described herein under Part II, Item 1A. Risk Factors that could cause actual results to differ materially from historical earnings and those
presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above
could affect the Companys financial performance and could cause the Companys actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

General

Fraternity
Community Bancorp, Inc. (the Company) is a Maryland corporation incorporated on October 12, 2010 by Fraternity Federal Savings and Loan Association (the Bank) to be its holding company following the Banks
conversion from the mutual to the stock form of organization (the Conversion). The Conversion was completed on March 31, 2011 and also on that date, the Company completed its public stock offering and issued 1,587,000 shares of its
common stock for aggregate proceeds of $15,870,000, and net proceeds of $14,965,400. The Companys business is the ownership of the outstanding capital stock of the Bank. The Company does not own or lease any property but instead uses the
premises, equipment and other property of the Bank with payment of appropriate rental fees as required by applicable law and regulations, under the terms of an expense allocation agreement between the Company and the Bank.

Founded in 1913, the Bank is a community-oriented financial institution, dedicated to serving the financial service needs of customers
and businesses within its market area, which consists of Baltimore City and Baltimore, Carroll and Howard Counties in Maryland. We offer a variety of deposit products and provide loans secured by real estate located in our market area. Our real
estate loans consist primarily of one- to four-family mortgage loans, as well as commercial real estate loans, land loans, home equity lines of credit and residential construction loans. We also offer consumer loans and, to a limited extent,
commercial business loans. We currently operate out of our corporate headquarters and main office in Baltimore and full-service branch offices located in Cockeysville, Ellicott City and Hampstead, Maryland. We are subject to extensive regulation,
examination and supervision by the Office of Thrift Supervision, our primary federal regulator, and the Federal Deposit Insurance Corporation, our deposit insurer.

The Company and the Bank maintain an Internet website at http://www.fraternityfed.com. Information on our website should not be considered a part of this Quarterly Report on Form 10-Q.

Critical Accounting Policies

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

Allowance for Loan
Losses. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is
charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the



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allowance are: loss exposure at default; the amount and timing of future cash flows on impaired loans; value of collateral; and determination of loss factors to be applied to the various elements
of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance monthly and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience,
current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be
necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation. In addition, the Office of Thrift Supervision, as an integral part of its examination process, periodically reviews our allowance for
loan losses and may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish
the allowance, which would adversely affect earnings.

Comparison of Financial Condition at March 31, 2011 and December 31, 2010

Assets. At March 31, 2011, total assets increased by $11.7 million to $181.4 million at March 31,
2011 from $169.7 million at December 31, 2010. The increase in assets for the three months ended March 31, 2011 was due mainly to a $13.6 million increase in available for sale investment securities, offset, in part, by a $2.1 million
decrease in loans receivable, net, as many loan customers took advantage of low long-term mortgage rates and refinanced their mortgage loans. Fixed-rate one- to four-family loans decreased to $84.4 million at March 31, 2011 from $86.2 million
at December 31, 2010; residential construction loans increased to $6.5 million at March 31, 2011 from $5.8 million at December 31, 2010; and lines of credit, all of which are secured by one- to four-family residential properties,
totaled $12.1 million at March 31, 2011 compared to $12.7 million at December 31, 2010.

Cash and cash
equivalents increased by $425,000 from $25.9 million at December 31, 2010, to $26.3 million at March 31, 2011, as excess liquidity provided by loan refinancings was invested in short-term securities, including overnight deposits.

At March 31, 2011, we had $35.0 million of securities available-for-sale compared to $21.4 million at
December 31, 2010. The increase was due to investing of excess liquidity.

Borrowings decreased from $22.6 million at
December 31, 2010 to $22.5 million at March 31, 2011.

Results of Operations for the Three Months Ended March 31, 2011 and
2010

Overview. We had a net loss of $80,600 for the three months ended March 31, 2011, as compared to
net income of $135,300 for the three months ended March 31, 2010. The decrease in net income between the periods was primarily due to a decline in net interest income of $193,000 or 19.8%. This was due to a large decrease in loans receivable
and an increase in nonaccrual loans. Noninterest income decreased by $134,500, or 71.0% from $189,600 for the three months ended March 31, 2010 to $55,100 for the three months ended March 31, 2011. Noninterest expense decreased by $51,300
or 5.2% from $991,400 for the three months ended March 31, 2010 to $940,100 for the three months ended March 31, 2011. Provision for loan and lease losses increased by $60,100, or 100% for the three months ended March 31, 2011 from $0
for the three months ended March 31, 2010.

Net Interest Income. Net interest income decreased by $193,000,
or 19.8%, from $976,700 for the three months ended March 31, 2010 to $783,600 for the three months ended March 31, 2011. The decrease in net interest income is primarily attributable to a large decrease in loans receivable as borrowers
continued to refinance higher coupon loans to lower rates. Contributing to the decrease was a $2.7 million increase in nonaccrual loans during the first three months of 2011.

Interest on loans receivable, net decreased by $249,300, or 14.6%, from $1.7 million for the three months ended March 31, 2010 to $1.5 million for the three months ended March 31, 2011, due to a
$10.1 million, or 8.4%, decrease in the average balance of loans and a 38 basis point decrease in the average yield. The decrease in the average balance of loans reflected our decision to sell a greater portion of our fixed-rate one- to four-family
loan originations during the three months ended March 31, 2010 due to the low rates available on those loans. The decrease in the average yield on loans was attributable to market rates remaining at a low level.



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Interest on investment securities available-for-sale decreased by $52,300, or 20.9%, for the
three months ended March 31, 2011 as compared to the three months ended March 31, 2010, as a $4.3 million, or 16.2%, increase in the average balance of investment securities available-for-sale was more than offset by a 127 basis point
decrease in the average yield.

Interest on cash and cash equivalents remained low by historical standards during the three
months ended March 31, 2011 and 2010 due to the historically low prevailing market rates during those periods.

During
the three months ended March 31, 2011, we were able to reduce interest paid on deposits primarily as the result of time deposits being rolled over at lower rates in response to general declines in market interest rates and decreases in the cost
of other deposits due to a decline in market rates. Interest on time deposits decreased by $110,800, or 15.2%, from $728,000 for the three months ended March 31, 2010, to $617,100 for the three months ended March 31, 2011, as a 45 basis
point decrease in the average cost of time deposits more than offset a $1 million, or 1.0%, increase in the average balance of time deposits. During the three months ended March 31, 2011, we were able to take advantage of declining interest
rates to reprice maturing certificates of deposit at lower rates. Interest on brokered deposits remained stable at $24,700 for the three months ended March 31, 2011 and 2010, as both the average balance of, and average rate paid on, brokered
deposits remained stable. Interest on NOW and money market accounts remained stable during the three months ended March 31, 2011 as compared to the three months ended March 31, 2010, even with a 5.3% increase in the average balance of NOW
and money market accounts. Interest on passbook accounts increased by $6,600, or 39.5%, from $16,800 for the three months ended March 31, 2010 to $23,400 for the three months ended March 31, 2011, due primarily to a 7 basis point increase
in the average rate paid on passbook accounts. The average balance of passbook accounts increased during the three months ended March 31, 2011, from $12.3 million as of March 31, 2010 to $15.5 million as of March 31, 2011.

Interest on other interest-bearing liabilities, which consist of Federal Home Loan Bank of Atlanta advances, decreased by
$2,400, or 1.1%, for three months ended March 31, 2011 as compared to the three months ended March 31, 2010, as a $3.7 million decrease in the average balance of other interest-bearing liabilities more than offset a 51 basis point increase
in the average cost of other interest-bearing liabilities. The 51 basis point increase was due to a $5 million advance being borrowed and repaid during the first quarter of 2010 at a very low interest rate. At March 31, 2011, we had $22.5
million of Federal Home Loan Bank of Atlanta advances compared to $22.6 in advances as of December 31, 2010.



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##### Table of Contents

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



|                                                                                 |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  
|-------------------------------------------------------------------------------- |  | ---------------------------- | ----------- |  | -------------------- | - | --------- | ---------- |  |  | -------------- | - |  | -------------------- | ----------- |  | ---------- | - | --------- |  |  |  | ------ | -
|                                                                                 |  | Three Months Ended March 31, |            
|                                                                                 |  | 2011                         |             |  | 2010                 |  
|                                                                                 |  | AverageBalance               |             |  | InterestandDividends |   |           | Yield/Cost |  |  | AverageBalance |   |  | InterestandDividends |             |  | Yield/Cost |  
|Assets:                                                                          |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  
|Cash and cash equivalents                                                        |  | $                            | 21,786,836  |  |                      | $ | 3,697     |            |  |  | .07            | % |  | $                    | 14,472,772  |  |            | $ | 1,150     |  |  |  | .03    | %
|Loans receivable net                                                             |  |                              | 109,426,840 |  |                      |   | 1,462,407 |            |  |  | 5.35           |   |  |                      | 119,524,009 |  |            |   | 1,711,705 |  |  |  | 5.73   |  
|Investment securities available-for-sale (1)                                     |  |                              | 30,570,541  |  |                      |   | 191,688   |            |  |  | 2.51           |   |  |                      | 26,307,526  |  |            |   | 248,468   |  |  |  | 3.78   |  
|Other interest-earning assets                                                    |  |                              | 2,256,676   |  |                      |   | 14,965    |            |  |  | 2.65           |   |  |                      | 2,356,829   |  |            |   | 11,056    |  |  |  | 1.88   |  
|                                                                                 |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  
|Total interest-earning assets                                                    |  |                              | 164,040,893 |  |                      |   | 1,672,757 |            |  |  | 4.08           |   |  |                      | 162,661,136 |  |            |   | 1,972,379 |  |  |  | 4.85   |  
|                                                                                 |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  
|Noninterest-earning assets                                                       |  |                              | 9,595,742   |  |                      |   |          |            |  |  |                |   |  |                      | 6,770,494   |  |            |   |          |  |  |  |        |  
|                                                                                 |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  
|Total assets                                                                     |  |                              | 173,636,635 |  |                      |   | 1,672,757 |            |  |  |                |   |  |                      | 169,431,630 |  |            |   | 1,972,379 |  |  |  |        |  
|                                                                                 |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  
|Liabilities and equity:                                                          |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  
|Time deposits                                                                    |  |                              | 104,921,383 |  |                      |   | 617,144   |            |  |  | 2.35           |   |  |                      | 103,880,774 |  |            |   | 727,981   |  |  |  | 2.80   |  
|NOW and money market                                                             |  |                              | 4,990,255   |  |                      |   | 3,058     |            |  |  | .25            |   |  |                      | 4,737,424   |  |            |   | 2,916     |  |  |  | .25    |  
|Passbook                                                                         |  |                              | 15,491,675  |  |                      |   | 23,449    |            |  |  | .61            |   |  |                      | 12,341,474  |  |            |   | 16,812    |  |  |  | .54    |  
|Brokered deposits                                                                |  |                              | 2,326,995   |  |                      |   | 24,640    |            |  |  | 4.24           |   |  |                      | 2,332,960   |  |            |   | 24,764    |  |  |  | 4.25   |  
|Other interest-bearing liabilities (Federal Home Loan Bank advances)             |  |                              | 22,527,778  |  |                      |   | 220,876   |            |  |  | 3.92           |   |  |                      | 26,194,445  |  |            |   | 223,256   |  |  |  | 3.41   |  
|                                                                                 |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  
|Total interest-bearing liabilities                                               |  |                              | 150,258,086 |  |                      |   | 889,167   |            |  |  | 2.37           |   |  |                      | 149,487,077 |  |            |   | 995,729   |  |  |  | 2.66   |  
|Noninterest-bearing liabilities                                                  |  |                              | 2,760,717   |  |                      |   |          |            |  |  |                |   |  |                      | 2,849,049   |  |            |   |          |  |  |  |        |  
|                                                                                 |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  
|Total liabilities                                                                |  |                              | 153,018,803 |  |                      |   | 889,167   |            |  |  |                |   |  |                      | 152,336,126 |  |            |   | 995,729   |  |  |  |        |  
|                                                                                 |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  
|Total equity                                                                     |  |                              | 20,617,832  |  |                      |   |          |            |  |  |                |   |  |                      | 17,095,504  |  |            |   |          |  |  |  |        |  
|                                                                                 |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  
|Total liabilities and equity                                                     |  | $                            | 173,636,635 |  |                      |   | 889,167   |            |  |  |                |   |  | $                    | 169,431,630 |  |            |   | 995,729   |  |  |  |        |  
|                                                                                 |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  
|Net interest income                                                              |  |                              |             |  |                      | $ | 783,590   |            |  |  |                |   |  |                      |             |  |            | $ | 976,650   |  |  |  |        |  
|                                                                                 |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  
|Interest rate spread                                                             |  |                              |             |  |                      |   |           |            |  |  | 1.71           | % |  |                      |             |  |            |   |           |  |  |  | 2.19   | %
|                                                                                 |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  
|Net interest margin                                                              |  |                              |             |  |                      |   |           |            |  |  | 1.91           | % |  |                      |             |  |            |   |           |  |  |  | 2.40   | %
|                                                                                 |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                              |             |  |                      |   |           |            |  |  | 109.17         | % |  |                      |             |  |            |   |           |  |  |  | 108.81 | %
|                                                                                 |  |                              |             |  |                      |   |           |            |  |  |                |   |  |                      |             |  |            |   |           |  |  |  |        |  



|(1) | Investment securities available-for-sale are presented at fair market value.
|--- | ----------------------------------------------------------------------------



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

Our provision for loan losses was $60,100 for the
three months ended March 31, 2011 compared to $0 for the three months ended March 31, 2010. The increase was primarily due to the deterioration in our land loan portfolio. At March 31, 2011, the allowance for loan losses was $1.285
million, or 1.2%, of the total loan portfolio compared to $1.3 million, or 1.2% of the total loan portfolio, at December 31, 2010.

We have had minimal historical loss experience until late 2009. Due to the worsening economic environment, management felt it prudent to increase the allowance for loan losses, and, therefore, the
provision for loan losses, during the first half of 2010. As management has continued to monitor closely the level of the allowance for loan losses throughout 2010, and taking into consideration our historical loss experience and current economic
conditions, we have further increased the allowance for loan losses and, therefore, the provision for loan losses, to reflect managements most current assessment.

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

Nonaccrual loans amounted to $3.3 million
at March 31, 2011 compared to $663,000 at December 31, 2010. Net loan charge-offs amounted to $75,000 during the three months ended March 31, 2011, compared to $7,000 during the three months ended March 31, 2010. As of
March 31, 2011, nonaccrual loans included a $1.6 million speculative construction loan on a residential property where the builder has declared bankruptcy, a $194,000 lot loan to the same builder, 3 troubled debt restructured loans totaling
$1.2 million that have defaulted and 2 home equity lines of credit totaling $94,000. All of the aforementioned loans were added to nonaccrual status as of March 31, 2011, while a previously nonaccrual lot loan totaling $360,000 was sold at
foreclosure and has since settled and paid off and another lot loan totaling $185,484 at December 31, 2010 has been written down to $117,000 as of March 31, 2011.

Noninterest Income. Total noninterest income decreased by $134,500, or 71.0%, from $189,600 for the three months ended March 31, 2010 compared to $55,000 for the three months ended
March 31, 2011. The decrease was primarily due to the absence in the 2011 quarter of any gain on sale of investments, compared to a gain of $115,900 during the 2010 quarter, and a decrease in the sale of loans of $10,800, or 100.0%.

Noninterest Expenses. Total noninterest expenses decreased by $ 51,300, or 5.2%, from $991,400 for the three months ended
March 31, 2010 to $940,100 for the three months ended March 31, 2011. The decrease primarily was attributable to decreases of $58,700, or 10.4%, and $8,600, or 6.2%, in salaries and employee benefits, and occupancy expenses respectively.

Income Tax Expense. We had an income tax benefit of $80,900 during the three months ended March 31, 2011,
due to our incurring a net loss during that period. For the three months ended March 31, 2010, we had an income tax expense of $39,500.

Liquidity Management.Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds available to meet short-term liquidity
needs consist of deposit inflows, loan repayments and maturities and sales of investment securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions and competition. We regularly adjust our investments in liquid assets available to meet short-term liquidity needs based upon our assessment of (i) expected loan demand,
(ii) expected deposit flows, (iii) yields available on interest-earning deposits and securities and (iv) the objectives of our



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asset/liability management policy. We do not have long-term debt or other financial obligations that would create long-term liquidity concerns.

Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The level of these assets depends on our operating,
financing, lending and investing activities during any given period. At March 31, 2011, cash and cash equivalents totaled $26.3 million. Securities classified as available-for-sale, amounting to $35.0 million at March 31, 2011, provides an
additional source of liquidity. In addition, at March 31, 2011, we had the ability to borrow a total of approximately $28.4 million from the Federal Home Loan Bank of Atlanta and had $22.5 million in Federal Home Loan Bank advances outstanding.
For additional liquidity, if needed, we have a $3 million line of credit with another bank, on which we had no outstanding balance at March 31, 2011.

At March 31, 2011, we had $2.3 million in commitments to extend credit outstanding. Certificates of deposit due within one year of March 31, 2011 totaled $53.6 million, or 52.1%, of certificates
of deposit. We believe the large percentage of certificates of deposit that mature within one year reflects customers hesitancy to invest their funds for long periods due to the recent low interest rate environment and local competitive
pressures. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings.

Capital Management.We are subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital
guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2011, we exceeded all of our regulatory
capital requirements and were considered well capitalized under regulatory guidelines.

Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally
accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers
requests for funding and take the form of loan commitments, unused lines of credit and letters of credit. For the three months ended March 31, 2011, we did not engage in any off-balance sheet transactions reasonably likely to have a material
effect on our financial condition, results of operations or cash flows.

Analysis of Nonperforming and Classified Assets

We consider repossessed assets and loans that are 90 days or more past due to be nonperforming assets. Loans are generally placed on
nonaccrual status when they become 90 days delinquent, at which time the accrual of interest ceases and the allowance for any uncollectible accrued interest is established and charged against interest income. Typically, payments received on a
nonaccrual loan are first applied to the outstanding principal balance.

Real estate that we acquire as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned until it is sold. When property is acquired it is recorded at the lower of its cost, which is the unpaid balance of the loan plus foreclosure costs, or fair
market value at the date of foreclosure. Any holding costs and declines in fair value after acquisition of the property result in charges against income.



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The following table provides information with respect to our nonperforming assets at the
dates indicated.



|                                                                                      |  |               |            |   |                  |   |           |  
|------------------------------------------------------------------------------------- |  | ------------- | ---------- | - | ---------------- | - | --------- | -
|                                                                                      |  | At            |           
|                                                                                      |  | March 31,2011 |            |   | December 31,2010 |  
|Nonaccrual loans:                                                                     |  |               |            |   |                  |   |           |  
|Real estate loans:                                                                    |  |               |            |   |                  |   |           |  
|One-to four-family                                                                    |  | $             | 1,360,603  |   |                  | $ | 117,101   |  
|Lines of credit                                                                       |  |               | 94,382     |   |                  |   |          |  
|Commercial                                                                            |  |               |           |   |                  |   |          |  
|Residential construction                                                              |  |               | 1,565,199  |   |                  |   |          |  
|Land                                                                                  |  |               | 311,022    |   |                  |   | 545,484   |  
|Commercial                                                                            |  |               |           |   |                  |   |          |  
|Consumer                                                                              |  |               |           |   |                  |   |          |  
|                                                                                      |  |               |            |   |                  |   |           |  
|Total                                                                                 |  | $             | 3,331,206  |   |                  | $ | 662,585   |  
|                                                                                      |  |               |            |   |                  |   |           |  
|Accruing loans past due 90 days or more:                                              |  |               |            |   |                  |   |           |  
|Real estate loans:                                                                    |  |               |            |   |                  |   |           |  
|One-to four-family                                                                    |  |               |           |   |                  |   |          |  
|Lines of credit                                                                       |  |               |           |   |                  |   |          |  
|Commercial                                                                            |  |               |           |   |                  |   |          |  
|Residential construction                                                              |  |               |           |   |                  |   |          |  
|Land                                                                                  |  |               |           |   |                  |   |          |  
|Commercial                                                                            |  |               |           |   |                  |   |          |  
|Consumer                                                                              |  |               |           |   |                  |   |          |  
|                                                                                      |  |               |            |   |                  |   |           |  
|Total                                                                                 |  | $             |           |   |                  | $ |          |  
|                                                                                      |  |               |            |   |                  |   |           |  
|Total of nonaccrual loans and accruing loans 90 days Or more past due                 |  | $             | 3,331,206  |   |                  | $ | 662,585   |  
|Assets acquired through foreclosure                                                   |  |               | 2,157,193  |   |                  |   | 2,015,909 |  
|                                                                                      |  |               |            |   |                  |   |           |  
|Total nonperforming assets                                                            |  | $             | 5,488,399  |   |                  | $ | 2,678,494 |  
|                                                                                      |  |               |            |   |                  |   |           |  
|Troubled debt restructurings                                                          |  | $             | 1,512,255  |   |                  | $ | 2,091,535 |  
|                                                                                      |  |               |            |   |                  |   |           |  
|Troubled debt restructurings included in non-accrual loans                            |  | $             | (1,243,502 | ) |                  | $ |          |  
|                                                                                      |  |               |            |   |                  |   |           |  
|Troubled debt restructurings and total nonperforming assets                           |  | $             | 5,757,152  |   |                  | $ | 4,770,029 |  
|                                                                                      |  |               |            |   |                  |   |           |  
|Total of nonaccrual loans and accruing loans past due 90 days Or more to total loans  |  |               | 3.04       | % |                  |   | 0.59      | %
|                                                                                      |  |               |            |   |                  |   |           |  
|Total of nonaccrual loans and accruing loans past due 90 days Or more to total assets |  |               | 1.84       | % |                  |   | 0.39      | %
|                                                                                      |  |               |            |   |                  |   |           |  
|Total nonperforming assets to total assets                                            |  |               | 3.03       | % |                  |   | 1.58      | %
|                                                                                      |  |               |            |   |                  |   |           |  

As of March 31, 2011, nonaccrual loans included a $1.6 million speculative construction loan on a
residential property where the builder has declared bankruptcy, a $194,000 lot loan to the same builder, 3 troubled debt restructured loans totaling $1.2 million that have defaulted and 2 home equity lines of credit totaling $94,000. All of the
aforementioned loans were added to nonaccrual status as of March 31, 2011, while a previously nonaccrual lot loan totaling $360,000 was sold at foreclosure and has since settled and paid off and another lot loan totaling $185,484 at
December 31, 2010 has been written down to $117,000 as of March 31, 2011.

At March 31, 2011, assets acquired
through foreclosure included a luxury home carried at $1.2 million. This property was securing a speculative construction loan that was a nonaccrual loan at December 31, 2010. The property is under contract for sale, and the carrying value at
March 31, 2011 is based on the sale price less estimated disposition costs.

For further information on our methodology
for establishing specific valuation allowances, see Analysis and Determination of the Allowance for Loan Losses  Specific Valuation Allowance.



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We occasionally modify loans to extend the term or make other concessions to help borrowers
stay current on their loan and to avoid foreclosure. We do not forgive principal or interest on loans or modify the interest rates on loans to rates that are below market rates. At March 31, 2011 and December 31, 2010, we had $1.5
million and $2.1 million, respectively, in modified loans, which are also referred to as troubled debt restructurings. At March 31, 2011, troubled debt restructured loans included four owner-occupied one-to four-family loans aggregating $1.5
million.

Our four owner-occupied one- to four-family troubled debt restructured loans had outstanding balances of $269,000,
$265,000, $437,000 and $542,000 at March 31, 2011. The borrower on the loan with an outstanding balance of $269,000 was having temporary financial difficulty, and we agreed to modify the loan to allow the borrower to make interest only payments
for a period of seven months. No principal or interest was forgiven and no change in the interest rate was made. At the end of this period, the loan will be re-amortized to pay off the loan by the original maturity date. This loan has never been
nonaccrual. The interest for the three months ended March 31, 2011 on this loan was $2,520, all of which was recognized as income. The borrower has complied with the temporary payment, however, payments are being made a little late.

The borrower on the $265,000 loan was having temporary financial difficulty, and we agreed to modify the loan by allowing a temporary
payment plan. The borrower complied with the temporary payment plan. At the conclusion of the temporary payment plan, we agreed to defer the payment of the then accrued interest of $4,000 until the loan was paid off. No principal or interest was
forgiven and no change in the interest rate was made. This loan was never in nonaccrual status during 2010. During 2011 the borrower has had difficulty making his payment. As of March 31, 2011 the loan was 30 days delinquent. This loan has been
placed on nonaccrual status as of March 31, 2011 and will remain there until the borrower shows an ability to make his payment on time for a period of at least six months.

The borrower on the $437,000 loan was having temporary financial difficulty, and we agreed to modify the loan by allowing a temporary
payment plan. The borrower complied with the temporary payment arrangement. At the conclusion of the temporary payment plan, we agreed to defer the payment of the then accrued interest of $16,000 until the loan was paid off. No principal or interest
was forgiven and no change in the interest rate was made. During 2011 the borrower has had difficulty making his payment. As of March 31, 2011 the loan was 60 days delinquent. This loan has been placed on nonaccrual status as of March 31,
2011 and will remain there until the borrower shows the ability to make payments on time for a period of at least six months.

The borrower on the $542,000 loan was having temporary difficulty, and we agreed to modify the loan by allowing a temporary payment plan.
At a later date, we agreed to defer the payment of the then accrued interest of $10,000 until the loan is paid off. No principal or interest was forgiven and no change in the interest rate was made. During 2011 the borrower has had difficulty making
his payment. As of March 31, 2011 the loan was 60 days delinquent. This loan has been placed on nonaccrual status as of March 31, 2011 and will remain there until the borrower shows the ability to make payments on time for a period of at
least six months.

If a loan is in nonaccrual status at the time we restructure it and classify the restructure as a troubled
debt restructuring, it is our policy to maintain the loan as nonaccrual until we receive six payments under the restructured terms, unless we have adequate collateral valuations or other analysis to support maintaining the loan on accrual status.

All of the above loans were classified as impaired and measured for loss in accordance with Accounting Standards Codification
310-10-35. All of these loans were measured using the present value of discounted cash flows method. The discount rate used was the original note rate, which in each of these instances is equal to the modified terms rate. The other significant
assumptions used in our discounted cash flow model to determine the fair value of the loans were the schedule of cash flows produced under the modified terms. It should be noted that in all cases, we did not forgive principal or interest or reduce
the interest rate from the original note rate.

Interest income that would have been recorded for the three month period ended
March 31, 2011 had nonaccrual loans been current according to their original terms, amounted to approximately $51,000.

At March 31, 2011, we had $2.2 million of other real estate owned.



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Analysis and Determination of the Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to
establish allowances against losses on loans on a monthly basis, and any adjustments must be approved quarterly by the Board. When additional allowances are necessary, a provision for loan losses is charged to earnings. Our methodology for assessing
the appropriateness of the allowance for loan losses is reviewed periodically by the board of directors. The board of directors also reviews the allowance for loan losses established on a quarterly basis.

General Valuation Allowance.We establish a general valuation allowance for loans that should be adequate to reserve for
the estimated credit losses inherent in each segment of our loan portfolio, given the facts and circumstances as of the valuation date for all loans in the portfolio that have not been classified. The allowance is based on our average annual rate of
net charge offs experienced over the previous four quarters on each segment of the portfolio and is adjusted for current qualitative factors. If historical loss data is not available for a segment, the estimates used will be based on various
components such as industry averages. For purposes of determining the estimated credit losses, the loan portfolio is segmented as follows: (i) one- to four-family loans; (ii) home equity lines of credit; (iii) commercial real estate loans;
(iv) construction loans; (v) land loans; (vi) consumer loans and (vii) commercial loans. Qualitative factors that are considered in determining the adequacy of the allowance for loan losses are as follows: (i) trends of delinquent and
nonaccrual loans; (ii) economic factors; (iii) concentrations of credit; (iv) changes in the nature and volume of the loan portfolio; and (v) changes in lending staff and loan policies.

Specific Valuation Allowance.All loans meeting the following loan balance thresholds are individually reviewed:
(i) speculative construction loans; (ii) commercial loans greater than $500,000; (iii) land loans greater than $500,000; (iv) all other loans greater than $1.5 million. If a loan is determined to be impaired, we will measure that
loan for loss. It has been our policy to not maintain specific reserves against impaired loans. Impaired loans are measured for loss using the fair value of collateral less disposition costs method for collateral dependent loans, and the present
value of discounted cash flows method for other loans. It has been our policy to directly charge off any loss determined on impaired loans using these methods, and we do not foresee maintaining specific reserves for these loans.

We charge off 100% of the assets or portions thereof classified as loss. The amount of the loss will be the excess of the recorded
investment in the loan over the fair value of collateral less disposition costs estimated on the date that a probable loss is identified. Management obtains updated appraisals with respect to loans secured by real estate.

All other adversely classified loans as well as special mention and watch loans are reviewed monthly. Our historical loss experience in
each category of loans is utilized in determining the allowance for that group. The determined loss factor in each loan category may be adjusted for qualitative factors as determined by management.

Unallocated Valuation Allowance.Our allowance for loan losses methodology also includes an unallocated component to
reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the loan portfolio.



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The following table sets forth the breakdown of the allowance for loan losses by loan
category at the dates indicated. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.



|                         |  |                |           |  |                                |  |        |                                   |  |  |        |   |  |                                |           |  |                                   |  |        |   |  |  |        |  
|------------------------ |  | -------------- | --------- |  | ------------------------------ |  | ------ | --------------------------------- |  |  | ------ | - |  | ------------------------------ | --------- |  | --------------------------------- |  | ------ | - |  |  | ------ | -
|                         |  | At             |          
|                         |  | March 31, 2011 |           |  | December 31, 2010              | 
|                         |  | Amount         |           |  | % ofAllowanceto TotalAllowance |  |        | % ofLoans inCategoryto TotalLoans |  |  | Amount |   |  | % ofAllowanceto TotalAllowance |           |  | % ofLoans inCategoryto TotalLoans | 
|Real estate loans:       |  |                |           |  |                                |  |        |                                   |  |  |        |   |  |                                |           |  |                                   |  |        |   |  |  |        |  
|One-to four-family       |  | $              | 521,631   |  |                                |  | 40.60  | %                                 |  |  | 76.95  | % |  | $                              | 536,549   |  |                                   |  | 41.27  | % |  |  | 77.06  | %
|Lines of credit          |  |                | 385,952   |  |                                |  | 30.04  |                                   |  |  | 11.06  |   |  |                                | 407,352   |  |                                   |  | 31.33  |   |  |  | 11.40  |  
|Commercial               |  |                | 75,184    |  |                                |  | 5.85   |                                   |  |  | 3.61   |   |  |                                | 70,473    |  |                                   |  | 5.42   |   |  |  | 3.56   |  
|Residential construction |  |                | 92,441    |  |                                |  | 7.19   |                                   |  |  | 5.89   |   |  |                                | 80,789    |  |                                   |  | 6.21   |   |  |  | 5.16   |  
|Land                     |  |                | 203,703   |  |                                |  | 15.85  |                                   |  |  | 2.42   |   |  |                                | 173,024   |  |                                   |  | 13.31  |   |  |  | 2.76   |  
|Consumer                 |  |                | 3,363     |  |                                |  | .26    |                                   |  |  | .05    |   |  |                                | 8,259     |  |                                   |  | .64    |   |  |  | .04    |  
|Commercial               |  |                |          |  |                                |  |       |                                   |  |  | .02    |   |  |                                |          |  |                                   |  |       |   |  |  | .02    |  
|Unallocated              |  |                | 2,726     |  |                                |  | .21    |                                   |  |  |       |   |  |                                | 23,554    |  |                                   |  | 1.82   |   |  |  |       |  
|                         |  |                |           |  |                                |  |        |                                   |  |  |        |   |  |                                |           |  |                                   |  |        |   |  |  |        |  
|Total                    |  | $              | 1,285,000 |  |                                |  | 100.00 | %                                 |  |  | 100.00 | % |  | $                              | 1,300,000 |  |                                   |  | 100.00 | % |  |  | 100.00 | %
|                         |  |                |           |  |                                |  |        |                                   |  |  |        |   |  |                                |           |  |                                   |  |        |   |  |  |        |  

Although we believe that we use the best information available to establish the allowance for loan losses,
future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we
believe we have established our allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that the Office of Thrift Supervision, in reviewing our loan portfolio, will not require us to increase
our allowance for loan losses. The Office of Thrift Supervision may require us to increase our allowance for loan losses based on judgments different from ours. In addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material
increase in the allowance for loan losses may adversely affect our financial condition and results of operation.





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



|                                                                  |  |                             |           |   |      |   |         |  
|----------------------------------------------------------------- |  | --------------------------- | --------- | - | ---- | - | ------- | -
|                                                                  |  | Three Months
EndedMarch 31, |          
|                                                                  |  | 2011                        |           |   | 2010 |  
|Allowance for loan losses at beginning of period                  |  | $                           | 1,300,000 |   |      | $ | 276,621 |  
|Charge-offs:                                                      |  |                             |           |   |      |   |         |  
|Real estate loans:                                                |  |                             |           |   |      |   |         |  
|One-to four-family                                                |  |                             |          |   |      |   | 6,785   |  
|Lines of credit                                                   |  |                             |          |   |      |   |        |  
|Commercial                                                        |  |                             |          |   |      |   |        |  
|Residential construction                                          |  |                             |          |   |      |   |        |  
|Land                                                              |  |                             | 75,718    |   |      |   |        |  
|Commercial                                                        |  |                             |          |   |      |   |        |  
|Consumer                                                          |  |                             |          |   |      |   |        |  
|                                                                  |  |                             |           |   |      |   |         |  
|Total charge-offs                                                 |  |                             | 75,718    |   |      |   | 6,785   |  
|                                                                  |  |                             |           |   |      |   |         |  
|Recoveries                                                        |  |                             | 660       |   |      |   |        |  
|                                                                  |  |                             |           |   |      |   |         |  
|Net charge-offs                                                   |  |                             | 75,058    |   |      |   | 6,785   |  
|Provision for loan losses                                         |  |                             | 60,058    |   |      |   |        |  
|                                                                  |  |                             |           |   |      |   |         |  
|Allowance at end of period                                        |  | $                           | 1,285,000 |   |      | $ | 269,836 |  
|Allowance for loan losses to total loans at the end of the period |  |                             | 1.17      | % |      |   | .24     | %
|                                                                  |  |                             |           |   |      |   |         |  
|Net charge-offs to average loans outstanding during the period    |  |                             | .07       | % |      |   | .01     | %
|                                                                  |  |                             |           |   |      |   |         |  

Loans are considered impaired when, based on available information, it is probable that we will not collect
all principal and interest payments according to contractual terms. Generally, loans are considered impaired once principal and interest payments are past due and they are placed on nonaccrual. Management also considers the financial condition of
the borrower, cash flows of the loan and the value of the related collateral. Impaired loans do not include large groups of smaller balance homogeneous credits such as residential real estate, consumer installment loans, and commercial leases, which
are evaluated collectively for impairment. Loans specifically reviewed for impairment are not considered impaired during periods of minimal delay in payment (usually 90 days or less), provided eventual collection of all amounts due is
expected. The impairment of a loan is measured based on the present value of expected future cash flows discounted at the loans effective interest rate, or the fair value of the collateral if repayment is expected to be provided by the
collateral. Generally, we measure impairment on such loans by reference to the fair value of the collateral. Fair value of the collateral is generally determined using third party appraisals that are reviewed by management for propriety and
reasonableness. Third party appraisals are conducted at least annually. Additionally, internal evaluations of collateral value are conducted quarterly to ensure any further deterioration of the collateral value is recognized on a timely basis. Once
a loss is determined to have occurred, the loan is charged down to the fair value of the collateral, net of any disposal costs, or net realizable value. Income on impaired loans is recognized in a manner similar to the method followed on nonaccrual
loans.

We have classified as impaired, loans that are 90 days or more delinquent, nonaccrual loans, or a troubled debt
restructuring. The amount of impaired loans was $3,599,959 as of March 31, 2011.

We measure an impaired loan for loss in
the following ways:



| |  |  | Collateral dependent loans are measured for loss at the point the loan becomes 60 or more days delinquent or at maturity if an extension is requested.
We obtain a third party appraisal to determine the fair market value of the collateral. We measure these loans for loss by using the fair value of collateral less disposition costs method and if any loss is determined it is charged off directly.
Subsequently, these loans are re-evaluated at least annually by obtaining an updated third party appraisal to determine if there should be any further loss recognition.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Non-collateral dependent loans are measured for loss at the point the loan becomes 90 to 120 days delinquent. If there are no work-out arrangements, we
will treat the loan as a collateral dependent loan and measure for loss as stated above. If there is a work-out arrangement, the loan will be
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | measured for loss using the present value of discounted cash flows method. If any loss is determined, it is our policy to charge off this loss directly. As long as the borrower performs under the
terms of the work-out arrangement, no further measurement for loss is performed. If the borrower would fail to perform under the work-out arrangement, we will treat the loan as a collateral dependent loan and measure for loss as stated above.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We utilize appraisals performed by third parties to determine the fair value of the real estate securing
these loans and an internal review process that consists of monitoring recent market activity, including comparable recent sales activity, listings and general economic conditions in our quarterly evaluation. It is our policy to obtain an updated
appraisal on at least an annual basis on our collateral dependent loans. If we have evidence that causes us to believe that additional deterioration may have occurred, we will require a more frequent updated appraisal. Given the cost of more
frequent updates and our knowledge of the local market areas in which we lend, we believe this to be prudent.

We have not
experienced any significant time lapses between the time a third party appraisal is ordered and the time it is received and used to evaluate if any loss has been incurred and subsequently recognized, if applicable. We have not charged off an amount
different from what was determined after evaluating a collateral dependent loan for loss using the fair value of collateral less disposition costs method.

During the three months ended March 31, 2011, we had charge-offs totaling $75,718. Of this amount, $68,484 related to a residential lot loan and $7,234 was attributable to a speculative residential
lot loan that was sold at foreclosure and settled in the first three months of 2011.

Item 3. Quantitative
and Qualitative Disclosures About Market Risk

This item is not applicable as the Company is a smaller reporting
company.

Item 4. Controls and Procedures

As of the end of the period covered by this report, management of the Company carried out an evaluation, under the supervision and with
the participation of the Companys principal executive officer and principal financial officer, of the effectiveness of the Companys disclosure controls and procedures as that term is defined in Rule 13a-5(e). Based on this evaluation,
the Companys principal executive officer and principal financial officer concluded that the Companys disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in reports that it
files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions rules and forms and is accumulated and
communicated to the Companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

It should be noted that the design of the Companys disclosure controls and procedures is based in part upon certain reasonable
assumptions about the likelihood of future events, and there can be no reasonable assurance that any design of disclosure controls and procedures will succeed in achieving its stated goals under all potential future conditions, regardless of how
remote, but the Companys principal executive and financial officers have concluded that the Companys disclosure controls and procedures are, in fact, effective at a reasonable assurance level.

There have been no changes in the Companys internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Securities and Exchange Commission Rule 13a-15 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Periodically, there may be various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties
in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect
on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors

For information regarding the Companys risk factors, see the section entitled Risk Factors in the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed with the Securities and Exchange Commission on March 30, 2011. As of the date of this filing, the risk factors of the Company have not changed
materially from those reported in the Form 10-K.

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

The effective date of the Companys Registration Statement on Form S-1 (File No. 333-170215) was
February 10, 2011. The offering was consummated on March 31, 2011 with the sale of $15,870,000 of securities registered pursuant to the registration Statement. Sandler ONeill & Partners, L.P. acted as marketing agent for the
offering. The class of securities registered was common stock, par value $0.01 per share. The aggregate value of such securities registered was $15,870,000 of common stock. The amount of securities sold in the offering was $15,870,000, or 1,587,000
shares of common stock, all of which were sold to certain depositors and borrowers of the Bank and the Banks employee stock ownership plan at a price of $10.00 per shares for aggregate proceeds of $15,870,000. The expenses paid or incurred in
connection with the stock offering were $905,000, including expenses paid to the marketing agent of $261,000, attorney and accounting fees of $347,000, and other expenses of $ 297,000. The net proceeds resulting from the offering after deducting all
expenses related to the offering were $13.7 million. The net proceeds have initially been invested in securities and cash and cash equivalents.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. [Removed and Reserved]

Not applicable.

Item 5. Other Information

Not
applicable.

Item 6. Exhibits



|     |  |                                                                                    
|---- |  | -----------------------------------------------------------------------------------
|No.  |  | Description                                                                        
|     | 
|3.1  |  | Articles of Incorporation of Fraternity Community Bancorp, Inc. (1)                
|     | 
|3.2  |  | Bylaws of Fraternity Community Bancorp, Inc. (1)                                   
|     | 
|31.0 |  | Rule 13a-14(a) Certification of Chief Executive Officer and Chief Financial Officer
|     | 
|32.0 |  | Section 1350 Certifications                                                        



|(1) | Incorporated herein by reference to the Companys Registration Statement on Form S-1, as amended (File No. 333-170215).
|--- | -----------------------------------------------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.



|             |  |  |  |                                    |  |                          |  |                                                                           
|------------ |  |  |  | ---------------------------------- |  | ------------------------ |  | --------------------------------------------------------------------------
|             |  |  |  | FRATERNITY COMMUNITY BANCORP, INC.
|             |  |  | 
|May 16, 2011 |  |  |  | By:                                |  | /s/    Thomas K. Sterner
|             |  |  |  |                                    |  |                          |  | Thomas K. Sterner                                                         
|             |  |  |  |                                    |  |                          |  | Chairman of the Board, Chief Executive Officer and Chief Financial Officer



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