UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 FORM
10-KSB
 
 x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the Fiscal Year Ended December 31,
2007
 OR
 o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from ___________________ to
      ______________________
 
 Commission
File Number: 001-52751
 
 FSB
Community Bankshares, Inc.
 (Exact
Name of Registrant as Specified in its Charter)
 
 
 United States
              
              74-3164710(State
      or Other Jurisdiction of Incorporation or Organization)
              
              (I.R.S.
      Employer Identification No.)45 South Main Street, Fairport, New
      York
              
              14450(Address
      of Principal Executive Offices)
              
              (Zip
      Code)
 
 
 (585)
223-9080
 (Issuer’s
Telephone Number including area code)
 
 
 Securities
Registered Pursuant to Section 12(b) of the Act:
 None
  Name
      of Each ExchangeTitle
      of Class
              On
      Which Registered
  Securities
Registered Pursuant to Section 12(g) of the Act:
 
 Common
Stock, par value $0.10 per share
 
 
 Check whether the Issuer is not
required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act.  o
 
 Check whether the Issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days.
 1.
              YES  x
              NO   o2.
              YES  x
              NO   o
 
 Check if there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B contained in this
form, and no disclosure will be contained, to the best of Registrant’s
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form
10-KSB.   o
 
 Indicate by check mark whether the
Registrant is a shell company (as defined by Rule 12b-2 of the Exchange
Act.)
 YES
      o
              NO 
      x
 
 State
      Issuer’s revenues for its most recent fiscal year:
              $9.2
      million
 
 The aggregate value of the voting stock
held by non-affiliates of the Registrant, computed by reference to the closing
price of the common stock on March 27, 2008 ($7.35 per share) was $6.15
million.
 
 As of March 27, 2008, there were
1,785,000 shares of the Registrant’s common stock, par value $0.10 per share,
outstanding, of which 946,050 shares, or 53%, were held by FSB Community
Bankshares, MHC, the Registrant’s mutual holding company.
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 
 1.
              Proxy
      Statement for the 2008 Annual Meeting of Stockholders (Parts II and
      III).2.
              Annual
      Report to Shareholders for the year ended December 31, 2007 (Part
      II).
 
 Transitional Small Business Disclosure
Format:  YES   o  
NO  x
  
  PART
I
 
 ITEM 1. DESCRIPTION OF
BUSINESS
 
 Forward-Looking
Statements
 
 This Annual Report contains certain
“forward-looking statements” which may be identified by the use of words such as
“believe,” “expect,” “anticipate,” “should,” “planned,” “estimated” and
“potential.”  Examples of forward-looking statements include, but are
not limited to, estimates with respect to our financial condition, results of
operations and business that are subject to various factors which could cause
actual results to differ materially from these estimates and most other
statements that are not historical in nature.  These factors include,
but are not limited to, general and local economic conditions, changes in
interest rates, deposit flows, demand for mortgage, commercial and other loans,
real estate values, competition, changes in accounting principles, policies, or
guidelines, changes in legislation or regulation, and other economic,
competitive, governmental, regulatory, and technological factors affecting our
operations, pricing products and services.
 
 FSB
Community Bankshares, MHC
 
 FSB Community Bankshares, MHC is a
federally chartered mutual holding company and currently owns 53% of the
outstanding common stock of FSB Community Bankshares, Inc.  FSB
Community Bankshares, MHC has not engaged in any significant business other than
owning the common stock of FSB Community Bankshares, Inc.  So long as
FSB Community Bankshares, MHC exists, it is required to own a majority of the
voting stock of FSB Community Bankshares, Inc.  The executive office
of FSB Community Bankshares, MHC is located at 45 S. Main Street, Fairport, New
York 14450, and its telephone number is (585) 223-9080.  FSB Community
Bankshares, MHC is subject to comprehensive regulation and examination by the
Office of Thrift Supervision.
 
 FSB
Community Bankshares, Inc.
 
 FSB
Community Bankshares, Inc. is a federally chartered mid-tier stock holding
company of Fairport Savings Bank.   FSB Community Bankshares,
Inc. owns 100% of the common stock of Fairport Savings Bank and has
approximately $3.0 million in investment securities.   FSB
Community Bankshares, Inc. has not engaged in any significant business activity
other than owning the common stock of Fairport Savings Bank and $3.0 million in
investment securities, and currently does not intend to expand materially its
business activities, other than through its ownership of Fairport Savings Bank
(the “Bank”).
 
 FSB
Community Bankshares, Inc. completed its initial public offering on August 10,
2007 by selling 838,950 shares, or 47.0% of our outstanding common stock, at a
price of $10.00 per share, to the Bank’s eligible depositors, the Bank’s
employee stock ownership plan and the public.  Additionally, we issued
946,050 shares, or 53.0% of our common stock, to FSB Community Bankshares, MHC
our federally chartered mutual holding company parent.
 
 At
December 31, 2007, we had total consolidated assets of $167.6 million, total
deposits of $119.2 million and stockholders’ equity of $20.1
million.  Our consolidated net loss for the year ended December 31,
2007 was $281,000.
 
 Our
executive offices and the Bank’s executive offices are located at 45 South Main
Street, Fairport, New York 14450, and our telephone number is (585)
223-9080.
  Our
website address is www.fairportsavingsbank.com.
Information on our website is not and should not be considered a part of this
Annual Report on Form 10-KSB.
 
 Fairport
Savings Bank
 
 Fairport
Savings Bank is a federally chartered savings bank headquartered in Fairport,
New York and was originally founded in 1888.  Fairport Savings Bank
conducts business from its main office in Fairport, New York and two branches
located in Penfield, New York which opened in 2003 and Irondequoit, New York,
which opened in January 2007.  The telephone number at its main office
is (585) 223-9080.  Fairport Savings Bank is subject to comprehensive
regulation and examination by the OTS.
  2
  Our
principal business consists of originating one- to four-family residential real
estate mortgage loans and home equity lines of credit, and to a lesser extent,
originations of commercial real estate, multi-family, construction and other
consumer loans.  We attract retail deposits from the general public in
the areas surrounding our main office and our branch offices. We offer our
customers a variety of deposit products with interest rates that are competitive
with those of similar products offered by other financial institutions in our
market area.  We retain substantially all of the loans that we
originate.  Loans that we sell consist of long-term, fixed-rate
residential real estate mortgage loans.  We retain the servicing
rights on all loans that we sell.  Our loans are sold without
recourse.  We have not entered into loan participations in recent
years.  Our revenues are derived primarily from interest on loans and,
to a lesser extent, interest on investment securities and mortgage-backed
securities. We also generate revenues from fees and service
charges.  Our primary sources of funds are deposits, borrowings, and
principal and interest payments on loans and securities. Additionally, we derive
a portion of our non-interest income through Oakleaf Services Corporation, our
subsidiary that offers non-deposit investments such as annuities, insurance
products and mutual funds.
  Market
Area
 
 Fairport
Savings Bank considers its market area to consist of Monroe County, New York,
and to a lesser extent, the surrounding counties in Western New York. Monroe
County is a suburban market dominated by the City of Rochester, the third
largest city in the State of New York. In 2006, Monroe County had a population
of 746,000. The Monroe County economy is largely dependent on local businesses
and institutions. The University of Rochester and Strong Memorial Hospital were
two of the largest employers in the Rochester area in 2006. Rochester is also
home to a number of international businesses, including Eastman Kodak, Bausch
& Lomb, Constellation Brands and Paychex. Additionally, Xerox, while no
longer headquartered in Rochester, has its principal offices and manufacturing
facilities in Monroe County.
 
 Competition
 
 We face
intense competition in our market areas both in making loans and attracting
deposits.  Our market areas have a high concentration of financial
institutions, including large money center and regional banks, community banks
and credit unions.  We face additional competition for deposits from
money market funds, brokerage firms, mutual funds and insurance
companies.  Some of our competitors offer products and services that
we currently do not offer, such as commercial business loans, trust services and
private banking.
 
 The
majority of our depositors live and/or work in Monroe County, New York. At June 30, 2007, the
latest date for which information is available through the Federal Deposit
Insurance Corporation, we held approximately 1.3% of the thrift and bank
deposits available in Monroe County.
 
 Our
primary strategy for increasing and retaining our customer base is to offer
competitive deposit and loan rates and product features, delivered with
exceptional customer service.  Our primary focus is to build and
develop profitable customer relationships across all lines of business while
maintaining our role as a community bank.
 
 Lending
Activities
 
 Our principal lending activity is the
origination of first mortgage loans to purchase or refinance one- to four-family
residential real estate.  We also originate a significant number of
home equity lines of credit and, to a lesser extent, multi-family residential,
construction, commercial real estate and other loans (consisting of automobile,
passbook, overdraft protection and unsecured loans).  At December 31,
2007, one- to four-family residential real estate mortgage loans totaled $113.3
million, or 91.2% of our loan portfolio, home equity lines of credittotaled $6.6 million, or
5.3% of our loan portfolio, commercial real estate loans totaled $2.1 million or
1.7% of our loan portfolio, and other loans totaled $2.2 million or 1.8% of our
loan portfolio.
  3
  Our strategic plan continues to focus
on residential real estate lending, whereby a portion of fixed-rate long term
residential loan originations will be sold, on a servicing retained basis, to
increase non-interest income, and the remaining loans will be added to our loan
portfolio for interest earning income.
 
 Loan Portfolio
Composition.The following table sets forth the composition of
our loan portfolio by type of loan at the dates indicated, excluding loans held
for sale.
 
 At
      December 31,2007
              
              
              2006Amount
              
              
              Percent
              
              
              Amount
              
              
              Percent(Dollars
      in thousands)Real
      estate loans:One-
      to four-family residential(1)
              
              $
              113,267
              
              
              
              91.2
              %
              
              $
              109,786
              
              
              
              90.6
              %Home
      equity lines of credit
              
              
              6,622
              
              
              
              5.3
              
              
              
              6,929
              
              
              
              5.7Multi-family
      residential
              
              
              918
              
              
              
              0.7
              
              
              
              1,040
              
              
              
              0.9Construction(2)
              
              
              1,114
              
              
              
              0.9
              
              
              
              380
              
              
              
              0.3Commercial
              
              
              2,123
              
              
              
              1.7
              
              
              
              2,745
              
              
              
              2.3Other
      loans
              
              
              200
              
              
              
              0.2
              
              
              
              241
              
              
              
              0.2Total
      loans receivable
              
              
              124,244
              
              
              
              100.0
              %
              
              
              121,121
              
              
              
              100.0
              %Deferred
      loan costs
              
              
              401
              
              
              
              
              
              
              
              338Allowance
      for loan losses
              
              
              (319
              )
              
              
              
              
              
              
              (322
              )Total
      loans receivable, net
              
              $
              124,326
              
              
              
              
              
              
              $
              121,137
  _____________________(1)
      Includes $4.7 million and $3.9 million of closed-end home equity loans at
      December 31, 2007 and 2006, respectively.(2)
      Represents amounts disbursed at December 31, 2007 and
  2006.
 
 Loan Portfolio
Maturities.The following table summarizes the scheduled
repayments of our gross loan portfolio at December 31, 2007.  Demand
loans, loans having no stated repayment schedule or maturity, and overdraft
loans are reported as being due in the year ending December 31,
2008.  Maturities are based on the final contractual payment date and
do not reflect the impact of prepayments and scheduled principal
amortization.
  One-to-
                  Four
      Family Residential
                  Real
      Estate
                  Loans
              
              
              Home
                  Equity
      Lines
                  of
      Credit
              
              
              Multi-
                  Family
                  Residential
                  Real
      Estate
                  Loans
              
              
              Construction
                  Loans
              
              
              Commercial
                  Real
      Estate
                  Loans
              
              
              Other
      Loans
              
              
              Total(In
      thousands)Due
      During the Years
                Ending December 31,2008
              
              $
              40
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              151
              
              
              $
              39
              
              
              $
              2302009
              
              
              135
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              13
              
              
              
              52
              
              
              
              2002010
              
              
              192
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              144
              
              
              
              39
              
              
              
              3752011
      to 2012
              
              
              2,527
              
              
              
              —
              
              
              
              67
              
              
              
              —
              
              
              
              81
              
              
              
              70
              
              
              
              2,7452013
      to 2017
              
              
              21,068
              
              
              
              —
              
              
              
              318
              
              
              
              —
              
              
              
              337
              
              
              
              —
              
              
              
              21,7232018
      to 2022
              
              
              31,502
              
              
              
              —
              
              
              
              124
              
              
              
              348
              
              
              
              858
              
              
              
              —
              
              
              
              32,8322023
      and beyond
              
              
              57,803
              
              
              
              6,622
              
              
              
              409
              
              
              
              766
              
              
              
              539
              
              
              
              —
              
              
              
              66,139Total
              
              $
              113,267
              
              
              $
              6,622
              
              
              $
              918
              
              
              $
              1,114
              
              
              $
              2,123
              
              
              $
              200
              
              
              $
              124,244
  4
  The
following table sets forth the scheduled repayments of fixed- and
adjustable-rate loans at December 31, 2007 that are contractually due after
December 31, 2008.
 
 Due
      After December 31, 2008Fixed
              
              
              Adjustable
              
              
              Total(In
      thousands)Real
      estate loans:One-
      to four-family residential
              
              $
              104,597
              
              
              $
              8,630
              
              
              $
              113,227Home
      equity lines of credit
              
              
              —
              
              
              
              6,622
              
              
              
              6,622Multi-family
      residential
              
              
              434
              
              
              
              484
              
              
              
              918Construction
              
              
              1,114
              
              
              
              —
              
              
              
              1,114Commercial
              
              
              802
              
              
              
              1,170
              
              
              
              1,972Other
      loans
              
              
              161
              
              
              
              —
              
              
              
              161Total
              
              $
              107,108
              
              
              $
              16,906
              
              
              $
              124,014
 
 One- to
Four-Family Residential Real Estate Mortgage Loans.  Our
primary lending activity is the origination of one- to four-family residential
real estate mortgage loans.  At December 31, 2007, $113.3 million, or
91.2% of our total loan portfolio, consisted of one- to four-family residential
real estate mortgage loans.  We offer conforming and non-conforming,
fixed-rate and adjustable-rate residential real estate mortgage loans with
maturities of up to 30 years and maximum loan amounts generally of up to
$750,000.
 
 We
currently offer fixed-rate conventional mortgage loans with terms of up to 30
years that are fully amortizing with monthly loan payments, and adjustable-rate
mortgage loans that provide an initial fixed interest rate for one, three, five,
seven or ten years and that amortize over a period of up to 30
years.  We originate fixed-rate mortgage loans with terms of less than
15 years, but at rates applicable to our 15-year loans.  We originate
fixed-rate bi-weekly mortgage loans with terms of up to 30 years that are fully
amortizing with bi-weekly loan payments.  We also offer “interest
only” loans, where the borrower pays interest for an initial period (ten years),
after which the loan converts to a fully amortizing loan.
 
 One- to
four-family residential real estate mortgage loans are generally underwritten
according to Freddie Mac guidelines, and we refer to loans that conform to such
guidelines as “conforming loans.” We generally originate both fixed and
adjustable-rate mortgage loans in amounts up to the maximum conforming loan
limits as established by the Office of Federal Housing Enterprise Oversight,
which at December 31, 2007 was $417,000 for single-family homes.  We
also originate loans above the lending limit for conforming loans, which we
refer to as “jumbo loans.”  We generally underwrite jumbo loans in a
manner similar to conforming loans generally with increased
rates.  These loans are generally eligible for sale to various firms
that specialize in purchasing non-conforming loans.  Jumbo loans are
not uncommon in our market area.  For first mortgage loans with
loan-to-value ratios in excess of 80% we require private mortgage
insurance.
 
 As a
result of our conservative underwriting standards, we believe that we do not
have any loans in our loan portfolio that are considered sub-prime.
 
 We
actively monitor our interest rate risk position to determine the desirable
level of investment in fixed-rate mortgages.  Depending on market
interest rates and our capital and liquidity position, we may retain all of our
newly originated longer-term fixed-rate residential mortgage loans, or we may
sell all or a portion of such loans in the secondary mortgage market to
government sponsored entities such as Freddie Mac or other
purchasers.
 
 During
periods of low market interest rates, we attempt to sell a portion of our newly
originated fixed-rate residential real estate mortgage loans.  Our
ability to sell these fixed-rate loans has been constrained in recent periods by
rising interest rates. During 2007, we sold $1.0 million in loans. For the year
ended December 31, 2007, we received servicing fees of $5,000.  As of
December 31, 2007, the principal balance of loans serviced for others totaled
$2.8 million.
 
 We
currently offer several adjustable-rate mortgage loans secured by residential
properties with interest rates that are fixed for an initial period ranging from
one year to ten years.  After the initial fixed period, the interest
rate on adjustable-rate mortgage loans is generally reset every year based upon
a contractual spread or margin above the average yield on U.S. Treasury
securities, adjusted to a constant maturity of one year, as published weekly by
the Federal Reserve Board, subject to periodic and lifetime limitations on
interest rate changes.  All of our interest-only loans and our
traditional adjustable-rate mortgage loans with initial fixed-rate periods of
one, three, five, seven and ten years have initial and periodic caps of two
percentage points on interest rate changes, with a cap of six percentage points
for the life of the loan.  Many of the borrowers who select these
loans have shorter-term credit needs than those who select long-term, fixed-rate
mortgage loans.  We do not offer “Option ARM” loans, where borrowers
can pay less than the interest owed on their loan, resulting in an increased
principal balance during the life of the loan.
  5
  Adjustable-rate
mortgage loans generally present different credit risks than fixed-rate mortgage
loans primarily because the underlying debt service payments of the borrowers
increase as interest rates increase, thereby increasing the potential for
default.  Interest-only loans present different credit risks than
fully amortizing loans, as the principal balance of the loan does not decrease
during the interest-only period.  As a result, our exposure to loss of
principal in the event of default does not decrease during this
period.
 
 We
generally require title insurance on all of our one- to four-family residential
real estate mortgage loans, and we also require that borrowers maintain fire and
extended coverage casualty insurance (and, if appropriate, flood insurance) in
an amount at least equal to the lesser of the loan balance or the replacement
cost of the improvements.  For fixed-rate mortgage loans with terms of
fifteen years or less, we will accept an attorney’s letter in lieu of title
insurance.  A majority of our residential real estate mortgage loans
have a mortgage escrow account from which disbursements are made for real estate
taxes and flood insurance.  We do not conduct environmental testing on
residential real estate mortgage loans unless specific concerns for hazards are
identified by the appraiser used in connection with the origination of the
loan.
  Home Equity Lines
of Credit.  We also offer home equity lines of credit, which
are primarily secured by a second mortgage on one- to four-family
residences.  At December 31, 2007, home equity lines of credit totaled
$6.6 million, or 5.3% of total loans receivable.  At this date we had
an additional $7.1 million of undisbursed home equity lines of
credit.
  The
underwriting standards for home equity lines of credit include a determination
of the applicant’s credit history, an assessment of the applicant’s ability to
meet existing obligations and payments on the proposed loan and the value of the
collateral securing the loan.  The combined loan-to-value ratio (first
and second mortgage liens) for home equity lines of credit is generally limited
to 90%.  We originate our home equity lines of credit without
application fees or borrower-paid closing costs.  Our home equity
lines of credit are offered with adjustable rates of interest indexed to the
prime rate, as reported in The
Wall Street Journal.
  Multi-Family
Residential Loans.  Loans secured by multi-family real estate
totaled approximately $918,000, or  0.7%, of the total loan portfolio
at December 31, 2007.  Multi-family residential loans generally are
secured by rental properties.  All multi-family residential loans are
secured by properties located within our lending area.  At December
31, 2007, we had six multi-family loans with an average principal balance of
$153,000, and the largest multi-family real estate loan had a principal balance
of $409,000.  All of our loans secured by multi-family real estate
loans are performing in accordance with their terms.  Multi-family
real estate loans are offered with fixed and adjustable interest
rates.  Multi-family real estate loans are originated for terms of up
to 20 years.  Adjustable-rate multi-family real estate loans are tied
to the average yield on U.S. Treasury securities, subject to periodic and
lifetime limitations on interest rate changes.
  We
consider a number of factors in originating multi-family real estate
loans.  We evaluate the qualifications and financial condition of the
borrower (including credit history), profitability and expertise, as well as the
value and condition of the mortgaged property securing the loan.  When
evaluating the qualifications of the borrower, we consider the financial
resources of the borrower, the borrower’s experience in owning or managing
similar property and the borrower’s payment history with us and other financial
institutions.  In evaluating the property securing the loan, the
factors we consider include the net operating income of the mortgaged property
before debt service and depreciation, the debt service coverage ratio (the ratio
of net operating income to debt service) to ensure that it is at least 120% of
the monthly debt service and the ratio of the loan amount to the appraised value
of the mortgaged property.  Multi-family real estate loans are
originated in amounts up to 70% of the appraised value of the mortgaged property
securing the loan.  All multi-family loans are appraised by outside
independent appraisers approved by the board of directors.
  6
  Loans
secured by multi-family real estate generally involve a greater degree of credit
risk than one-to four-family residential mortgage loans and carry larger loan
balances.  This increased credit risk is a result of several factors,
including the concentration of principal in a limited number of loans and
borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans.  Furthermore, the repayment of loans secured by
multi-family real estate typically depends upon the successful operation of the
real estate property securing the loans.  If the cash flow from the
project is reduced, the borrower’s ability to repay the loan may be
impaired.
  Construction
Loans.We also originate construction loans for the purchase
of developed lots and for the construction of single-family
residences.  Construction loans are offered to individuals for the
construction of their personal residences by a qualified builder
(construction/permanent loans).  At December 31, 2007, construction
loans totaled $1.1 million, or 0.9% of total loans receivable.  At
December 31, 2007, the additional unadvanced portion of these construction loans
totaled $270,000.
  Before
making a commitment to fund a construction loan, we require an appraisal of the
property by an independent licensed appraiser.  We generally also
review and inspect each property before disbursement of funds during the term of
the construction loan.
  Construction
financing generally involves greater credit risk than long-term financing on
improved, owner-occupied real estate.  Risk of loss on a construction
loan depends largely upon the accuracy of the initial estimate of the value of
the property at completion of construction compared to the estimated cost
(including interest) of construction and other assumptions.  If the
estimate of construction cost proves to be inaccurate, we may be required to
advance additional funds beyond the amount originally committed in order to
protect the value of the property.  Moreover, if the estimated value
of the completed project proves to be inaccurate, the borrower may hold a
property with a value that is insufficient to assure full repayment of the
loan.
  Commercial Real
Estate Loans.At December 31, 2007, $2.1 million, or 1.7% of
our total loan portfolio consisted of commercial real estate
loans.  Commercial real estate loans are secured by office buildings,
mixed use properties, places of worship and other commercial
properties.  We generally originate adjustable-rate commercial real
estate loans with maximum terms of up to 15 years.  The maximum
loan-to-value ratio of commercial real estate loans is 70%.  At
December 31, 2007, we had 18 commercial real estate loans with an average
outstanding balance of $117,000.  At December 31, 2007, our largest
loan secured by commercial real estate consisted of a $539,000 loan secured by
an office building/warehouse. At December 31, 2007 this loan was performing in
accordance with its terms.  At December 31, 2007 all of our loans
secured by commercial real estate were performing in accordance with their
terms.
  We
consider a number of factors in originating commercial real estate
loans.  We evaluate the qualifications and financial condition of the
borrower (including credit history), profitability and expertise, as well as the
value and condition of the mortgaged property securing the loan.  When
evaluating the qualifications of the borrower, we consider the financial
resources of the borrower, the borrower’s experience in owning or managing
similar property and the borrower’s payment history with us and other financial
institutions.  In evaluating the property securing the loan, the
factors we consider include the net operating income of the mortgaged property
before debt service and depreciation, the debt service coverage ratio (the ratio
of net operating income to debt service) to ensure that it is at least 120% of
the monthly debt service, and the ratio of the loan amount to the appraised
value of the mortgaged property.  Commercial real estate loans are
originated in amounts up to 70% of the appraised value of the mortgaged property
securing the loan.  All commercial loans are appraised by outside
independent appraisers approved by the board of directors.  Personal
guarantees are generally obtained from commercial real estate
borrowers.
  Loans
secured by commercial real estate generally are larger than one- to four-family
residential loans and involve greater credit risk.  Commercial real
estate loans often involve large loan balances to single borrowers or groups of
related borrowers.  Repayment of these loans depends to a large degree
on the results of operations and management of the properties securing the loans
or the businesses conducted on such property, and may be affected to a greater
extent by adverse conditions in the real estate market or the economy in
general.  Accordingly, the nature of these loans makes them more
difficult for management to monitor and evaluate.
  7
  Other
Loans.  We offer a variety of loans secured by property other
than real estate.  These loans include automobile, passbook, overdraft
protection and unsecured loans.  At December 31, 2007, these other
loans totaled $200,000, or 0.2% of the total loan portfolio.
  Loan
Originations, Sales, and Servicing.Lending activities are
conducted by our loan personnel operating at our main and branch office
locations and through local mortgage brokers.  All loans that we
originate are underwritten pursuant to our policies and procedures, which
incorporate Freddie Mac underwriting guidelines to the extent
applicable.  We originate both adjustable-rate and fixed-rate
loans.  Our ability to originate fixed or adjustable-rate loans is
dependent upon the relative customer demand for such loans, which is affected by
current market interest rates as well as anticipated future market interest
rates.  Our loan origination and sales activity may be adversely
affected by a rising interest rate environment that typically results in
deceased loan demand.  Historically, a majority of our one- to
four-family residential real estate mortgage loan originations have been
generated by local mortgage brokers, as well as our in-house loan
representatives.  Loans obtained from brokers are underwritten and
funded by us.  We also obtain referrals from existing or past
customers and by referrals from local builders, real estate brokers and
attorneys.
  We sell
our loans without recourse.  Historically, we have retained the
servicing rights on all residential real estate mortgage loans that we have
sold, and we intend to continue this practice in the future.  At
December 31, 2007, we were servicing loans owned by others with a principal
balance of $2.8 million.  Loan servicing includes collecting and
remitting loan payments, accounting for principal and interest, contacting
delinquent borrowers, supervising foreclosures and property dispositions in the
event of unremedied defaults, making certain insurance and tax payments on
behalf of the borrowers and generally administering the loans.  We
retain a portion of the interest paid by the borrower on the loans we service as
consideration for our servicing activities. We have not engaged in loan
purchases or entered into loan participations in recent years.
  The
following table shows our loan originations, sales and repayment activities for
the years indicated.
  For
      the year ended December 31,2007
              
              
              2006(In
      thousands)Total
      loans at beginning of period
              
              $
              121,121
              
              
              $
              108,601Loan
      originations:Real
      estate loans:One-to
      four-family residential
              
              
              19,198
              
              
              
              22,721Home
      equity lines of credit
              
              
              1,431
              
              
              
              2,295Multi-family
      residential
              
              
              —
              
              
              
              137Construction
              
              
              —
              
              
              
              1,115Commercial
              
              
              —
              
              
              
              —Other
      loans
              
              
              113
              
              
              
              165Total
      loans originated
              
              
              20,742
              
              
              
              26,433Sales
      and loan principal repayments:Deduct:Principal
      repayments
              
              
              16,605
              
              
              
              12,734Loan
      sales
              
              
              1,014
              
              
              
              1,179Net
      loan activity
              
              
              3,123
              
              
              
              12,520Total
      loans at end of period
              
              $
              124,244
              
              
              $
              121,121
 
 Loan Approval
Policy and Authority. Fairport Savings Bank’s
lending activities follow written, non-discriminatory underwriting standards and
loan origination policies approved by Fairport Savings Bank’s board of
directors.  The loan approval process is intended to assess the
borrower’s ability to repay the loan and value of the property that will secure
the loan.  To assess the borrower’s ability to repay, we review the
borrower’s employment and credit history and information on the historical and
projected income and expenses of the borrower.
  We
generally require independent third-party appraisals of real property securing
loans.  Appraisals are performed by independent licensed
appraisers.  All appraisers are approved by the board of directors
annually.
  8
  Loans to One
Borrower.A federal savings
bank generally may not make a loan or extend credit to a single or related group
of borrowers in excess of 15% of unimpaired capital and surplus.  An
additional amount may be loaned equal to 10% of unimpaired capital and surplus
if the loan is secured by readily marketable collateral, which generally does
not include real estate.  Our loans to one borrower limit under this
regulation is $5.0 million (including the additional amount).  Our
policy provides that loans to one borrower (or related borrowers) should not
exceed $750,000.  At December 31, 2007, we had two loans exceeding
this amount, the largest of which totaled $974,000 and was secured by the
borrower’s primary residence. This loan was performing in accordance with its
terms.  Our next largest lending relationship to one borrower at
December 31, 2007 totaled $898,000, and was secured by the borrower’s primary
residence. This loan was performing in accordance with its terms.
 
 Non-Performing
Assets and Delinquent Loans
 
 System-generated
late notices are mailed to borrowers after the late payment “grace period,”
which is 15 days in the case of all loans secured by real estate and 10 days in
the case of other loans.  A second notice will be mailed to borrowers
if the loan remains past due after 30 days.  When a loan is more than
60 days past due, we attempt to contact the borrower and develop a plan of
repayment.  By the 90th day of
delinquency, we will have our attorneys issue a demand letter.  The
demand letter will require the borrowers to bring the loan current within 30
days in order to avoid the beginning of foreclosure proceedings for loans
secured by real estate.  With respect to automobile loans we will seek
to repossess the vehicle if the loan is 90 days delinquent.  A report
of all loans 30 days or more past due is provided to the board of directors
monthly.
  Loans are
generallyplaced on
non-accrual status when payment of principal or interest is more than 90 days
delinquent, unless the loans are well-secured and in the process of
collection.  Loans are also placed on non-accrual status if collection
of principal or interest in full is in doubt or if the loan has been
restructured.  At December 31, 2007 and December 31, 2006, we had no
restructured loans. When loans are placed on a non-accrual status, unpaid
accrued interest is fully reversed, and further income is recognized only to the
extent received.  The loan may be returned to accrual status if unpaid
principal and interest are repaid so that the loan is less than 90 days
delinquent and a satisfactory payment history has been
established.  Loans not secured by real estate will be charged-off if
they become 120 days past due.
  Non-Performing
Assets.The table below sets forth the amounts and categories
of our non-performing assets at the dates indicated.
  At
      December 31,2007
              
              
              2006(Dollars
      in thousands)Non-accrual
      loans:Real
      estate loans:One-
      to four-family residential
              
              $
              63
              
              
              $
              143Home
      equity lines of credit
              
              
              —
              
              
              
              28Multi-family
      residential
              
              
              —
              
              
              
              —Construction
              
              
              —
              
              
              
              —Commercial
              
              
              —
              
              
              
              —Other
      loans
              
              
              —
              
              
              
              —Total
              
              
              63
              
              
              
              171Accruing
      loans 90 days or more past due:
              
              
              —
              
              
              
              —Total
      non-performing loans
              
              
              63
              
              
              
              171Foreclosed
      real estate
              
              
              —
              
              
              
              —Other
      non-performing assets
              
              
              —
              
              
              
              —Total
      non-performing assets
              
              $
              63
              
              
              $
              171Ratios:Total
      non-performing loans to total loans
              
              
              0.05
              %
              
              
              0.14
              %Total
      non-performing loans to total assets
              
              
              0.04
              %
              
              
              0.11
              %Total
      non-performing assets to total assets
              
              
              0.04
              %
              
              
              0.11
              %
  9
 
 For the
year ended December 31, 2007, gross interest income that would have been
recorded had our non-accruing loans been current in accordance with their
original terms was $1,400.  Interest income recognized on such loans
for the year ended December 31, 2007 was $3,900.
 
 Delinquent
Loans. The following table sets forth our loan delinquencies by type, by
amount and by percentage of type at the dates indicated.
 
 Loans
      Delinquent For30-89
      Days
              
              
              90
      Days and Over
              
              
              TotalNumber
              
              
              Amount
              
              
              Number
              
              
              Amount
              
              
              Number
              
              
              Amount(Dollars
      in thousands)At December 31,
      2007Real
      estate loans:One-
      to four-family residential
              
              
              8
              
              
              $
              358
              
              
              
              —
              
              
              $
              —
              
              
              
              8
              
              
              $
              358Home
      equity lines of credit
              
              
              4
              
              
              
              64
              
              
              
              —
              
              
              
              —
              
              
              
              4
              
              
              
              64Multi-family
      residential
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Construction
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Commercial
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Other
      loans
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Total
              
              
              12
              
              
              $
              422
              
              
              
              —
              
              
              $
              —
              
              
              
              12
              
              
              $
              422At December 31,
      2006Real
      estate loans:One-
      to four-family residential
              
              
              2
              
              
              $
              110
              
              
              
              —
              
              
              $
              —
              
              
              
              2
              
              
              $
              110Home
      equity lines of credit
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Multi-family
      residential
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Construction
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Commercial
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Other
      loans
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Total
              
              
              2
              
              
              $
              110
              
              
              
              —
              
              
              $
              —
              
              
              
              2
              
              
              $
              110
 
 Foreclosed
Real
Estate.  Real estate acquired by us as a result of foreclosure
or by deed in lieu of foreclosure is classified as foreclosed real estate until
sold.  When property is acquired it is recorded at the estimated fair
market value at the date of foreclosure, establishing a new cost
basis.  Estimated fair value generally represents the sale price a
buyer would be willing to pay on the basis of current market conditions,
including normal terms from other financial institutions, less the estimated
costs to sell the property.  Holding costs and declines in estimated
fair market value result in charges to expense after acquisition. At December
31, 2007, we had no foreclosed real estate.
 
 Classification of
Assets.Our policies, consistent with regulatory guidelines,
provide for the classification of loans and other assets that are considered to
be of lesser quality as substandard, doubtful, or loss assets. An asset is
considered substandard if it is inadequately protected by the current net worth
and paying capacity of the obligor or of the collateral pledged, if
any.  Substandard assets include those assets characterized by the
distinct possibility that we will sustain some loss if the deficiencies are not
corrected.  Assets classified as doubtful have all of the weaknesses
inherent in those classified substandard with the added characteristic that the
weaknesses present make collection or liquidation in full, on the basis of
currently existing facts, conditions and values, highly questionable and
improbable.  Assets (or portions of assets) classified as loss are
those considered uncollectible and of such little value that their continuance
as assets is not warranted.  Assets that do not expose us to risk
sufficient to warrant classification in one of the aforementioned categories,
but which possess potential weaknesses that deserve our close attention, are
required to be designated as special mention.  As of December 31,
2007, we had no assets designated as special mention.
 
 When we
classify assets as either substandard or doubtful, we allocate a portion of the
related general loss allowances to such assets as we deem
prudent.  The allowance for loan losses is the amount estimated by
management as necessary to absorb credit losses incurred in the loan portfolio
that are both probable and reasonably estimable at the balance sheet
date.  Our determination as to the classification of our assets and
the amount of our loss allowances are subject to review by our principal federal
regulator, the Office of Thrift Supervision, which can require that we establish
additional loss allowances.  We regularly review our asset portfolio
to determine whether any assets require classification in accordance with
applicable regulations.  On the basis of our review of our assets, at
December 31, 2007, classified assets consisted of substandard assets of
$122,000, and no assets classified as doubtful or loss.  As of
December 31, 2007, our largest substandard asset was a loan secured by
residential real estate, with a principal balance of $101,000.
  10
 Allowance
for Loan Losses
 
 We
provide for loan losses based on the allowance method.  Accordingly,
all loan losses are charged to the related allowance and all recoveries are
credited to it.  Additions to the allowance for loan losses are
provided by charges to income based on various factors which, in our judgment,
deserve current recognition in estimating probable losses.  We
regularly review the loan portfolio and make provisions for loan losses in order
to maintain the allowance for loan losses in accordance with accounting
principles generally accepted in the United States of America.
 
 The
allowance for loan losses is evaluated on a regular basis by management and is
based upon management’s periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower’s ability to repay, estimated
value of any underlying collateral and prevailing economic
conditions.  This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available.
 
 The
allowance consists of specific, general and unallocated
components.  The specific component relates to loans that are
classified as doubtful, substandard or special mention.  For such
loans that are also classified as impaired, an allowance is generally
established when the collateral value of the impaired loan is lower than the
carrying value of that loan.  The general component covers
non-classified loans and is based on historical loss experience adjusted for
qualitative factors.  An unallocated component is maintained to cover
uncertainties that could affect management’s estimate of probable
losses.  The unallocated component of the allowance reflects the
margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating specific and general losses in the
portfolio.
 
 A loan is
considered impaired when, based on current information and events, it is
probable that Fairport Savings Bank will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement.  Factors considered by management in determining
impairment include payment status, collateral value, and the probability of
collecting scheduled principal and interest payments when due.  Loans
that experience insignificant payment delays and payment shortfalls generally
are not classified as impaired.  Management considers the significance
of payment delays and payment short falls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower’s
prior payment record, and the amount of the shortfall in relation to the
principal and interest owed.  Impairment is measured on a loan by loan
basis by either the present value of expected future cash flows discounted at
the loan’s effective interest rate or the fair value of the collateral if the
loan is collateral dependent.
 
 Large
groups of smaller balance homogeneous loans are collectively evaluated for
impairment.  Accordingly, we do not separately identify individual
consumer and residential loans for impairment disclosures.
 
 We periodically evaluate the carrying
value of loans and the allowance is adjusted accordingly.  While we
use the best information available to make evaluations, future adjustments to
the allowance may be necessary if conditions differ substantially from the
information used in making the evaluations.  In addition, as an
integral part of their examination process, the Office of Thrift Supervision
periodically reviews the allowance for loan losses.  The Office of
Thrift Supervision may require us to recognize additions to the allowance based
on their analysis of information available to them at the time of their
examination.
  11
  The following table sets forth activity
in our allowance for loan losses for the years indicated.  During 2007
and 2006, we had no recoveries.
 
 At
      or For the Years
                  Ended
      December 31,2007
              
              
              2006(Dollars
      in thousands)Balance
      at beginning of year
              
              $
              322
              
              
              $
              331Charge-offs:Real
      estate loans:One-
      to four-family residential
              
              
              —
              
              
              
              —Home
      equity lines of credit
              
              
              —
              
              
              
              —Multi-family
      residential
              
              
              —
              
              
              
              —Construction
              
              
              —
              
              
              
              —Commercial
              
              
              —
              
              
              
              —Other
      loans
              
              
              3
              
              
              
              9Total
      charge-offs
              
              
              3
              
              
              
              9Net
      charge-offs
              
              
              3
              
              
              
              9Provision
      for loan losses
              
              
              —
              
              
              
              —Balance
      at end of year
              
              $
              319
              
              
              $
              322Ratios:Net
      charge-offs to average loans outstanding
              
              
              —
              %
              
              
              0.01
              %Allowance
      for loan losses to non-performing loans at end of year
              
              
              506.35
              %
              
              
              188.30
              %Allowance
      for loan losses to total loans at end of year
              
              
              0.26
              %
              
              
              0.27
              %
 
 Allocation of
Allowance for Loan Losses.The following table sets forth the
allowance for loan losses allocated by loan category, the total loan balances by
category, and the percent of loans in each category to total loans at the dates
indicated.  The allowance for loan losses allocated to each category
is not necessarily indicative of future losses in any particular category and
does not restrict the use of the allowance to absorb losses in other
categories.
  At
      December 31,2007
              
              
              2006Amount
              
              
              Percent
      of
                  Allowance
      to
                  Total
                  Allowance
              
              
              Percent
      of
                  Loans
      in
                  Category
      to
                  Total
      Loans
              
              
              Amount
              
              
              Percent
      of
                  Allowance
      to
                  Total
                  Allowance
              
              
              Percent
      of
                  Loans
      in
                  Category
      to
                  Total
      Loans(Dollars
      in thousands)Real
      estate loans:One-
      to four-family residential
              
              $
              218
              
              
              
              68.3
              %
              
              
              91.2
              %
              
              $
              228
              
              
              
              70.8
              %
              
              
              90.6
              %Home
      equity lines of credit
              
              
              67
              
              
              
              21.0
              
              
              
              5.3
              
              
              
              55
              
              
              
              17.1
              
              
              
              5.7Multi-family
      residential
              
              
              7
              
              
              
              2.2
              
              
              
              0.7
              
              
              
              8
              
              
              
              2.5
              
              
              
              0.9Construction
              
              
              5
              
              
              
              1.6
              
              
              
              0.9
              
              
              
              2
              
              
              
              0.6
              
              
              
              0.3Commercial
              
              
              21
              
              
              
              6.6
              
              
              
              1.7
              
              
              
              28
              
              
              
              8.7
              
              
              
              2.3Other
      loans
              
              
              1
              
              
              
              0.3
              
              
              
              0.2
              
              
              
              1
              
              
              
              0.3
              
              
              
              0.2Total
      allocated allowance
              
              
              319
              
              
              
              100.0
              
              
              
              100.0
              
              
              
              322
              
              
              
              100.0
              
              
              
              100.0Unallocated
      allowance
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Total
      allowance for loan losses
              
              $
              319
              
              
              
              100.0
              %
              
              
              100.0
              %
              
              $
              322
              
              
              
              100.0
              %
              
              
              100.0
              %
 
 Investments
 
 Our board
of directors is responsible for approving and overseeing our investment
policy.  The investment policy is reviewed at least annually by
management and any changes to the policy are recommended to the board of
directors and are subject to its approval.  This policy dictates that
investment decisions be made based on the safety of the investment, liquidity
requirements, potential returns, the ability to provide collateral for pledging
requirements, and consistency with our interest rate risk management
strategy.  Our asset/liability management committee, which consists of
our chief executive officer, chief financial officer and other members of
management, oversees our investing activities and strategies.  All
transactions are formally reviewed by the board of directors at least
quarterly.  Any investment which, subsequent to its purchase, fails to
meet the guidelines of the policy is reported to the asset/liability management
committee, which decides whether to hold or sell the investment.
  12
  Our
current investment policy permits us to invest in debt securities issued by the
U.S. Government, agencies of the U.S. Government or U.S. Government-sponsored
enterprises.  The policy also permits investments in mortgage-backed
securities, including pass-through securities issued and guaranteed by Fannie
Mae, Freddie Mac and Ginnie Mae. We also may hold investments in New York State
municipal obligations.  The investment policy also permits investments
in asset-backed securities, pooled trust securities, bankers acceptances, money
market funds, term federal funds, repurchase agreements and reverse repurchase
agreements.
 
 Our
current investment policy prohibits hedging through the use of such instruments
as financial futures, interest rate options and swaps.
 
 Statement
on Financial Accounting Standard No. 115 requires that, at the time of purchase,
we designate a security as held to maturity, available-for-sale, or trading,
depending on our ability and intent.  Securities available-for-sale
are reported at fair value, while securities held to maturity are reported at
amortized cost. We do not have a trading portfolio.
  Our
investment portfolio at December 31, 2007, consisted of $19.0 million of
U.S. Government and federal agency obligations.  At December 31, 2007,
our mortgage-backed securities portfolio totaled $9.6 million, or 5.7% of
total assets, and consisted of securities guaranteed by Fannie Mae, Ginnie Mae,
Federal Farm Credit and Freddie Mac.  At December 31, 2007, our
securities classified as available for sale consisted of Freddie Mac stock with
a cost basis of $65,000 and a fair value of $244,000.
  U.S. Government
and Federal Agency Obligations.  U.S. Government and
federal agency securities are utilized as shorter-term investment vehicles and
as an alternative to loan originations.  Investment in U.S. government
and agency securities provide lower yields than loans, however, they provide
greater liquidity on a short-term basis.
  Mortgage-Backed
Securities.We purchase both fixed-rate and adjustable-rate
mortgage-backed securities insured or guaranteed by Fannie Mae, Freddie Mac or
Ginnie Mae.  We invest in mortgage-backed securities to achieve higher
interest income and monthly cash flow with minimal administrative expense, and
to lower our credit risk as a result of the guarantees provided by Freddie Mac,
Fannie Mae or Ginnie Mae.
  Mortgage-backed
securities are created by the pooling of mortgages and the issuance of a
security with an interest rate that is less than the interest rate on the
underlying mortgages.  Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages,
although we invest only in mortgage-backed securities backed by one- to
four-family mortgages.  The issuers of such securities (generally
Ginnie Mae, a U.S. Government agency, and government sponsored enterprises,
such as Fannie Mae and Freddie Mac) pool and resell the participation interests
in the form of securities to investors such as Fairport Savings Bank, and
guarantee the payment of principal and interest to
investors.  Mortgage-backed securities generally yield less than the
loans that underlie such securities because of the cost of payment guarantees
and credit enhancements.  However, mortgage-backed securities are more
liquid than individual mortgage loans since there is an active trading market
for such securities.  In addition, mortgage-backed securities may be
used to collateralize our specific liabilities and
obligations.  Investments in mortgage-backed securities involve a risk
that actual payments will be greater or less than the prepayment rate estimated
at the time of purchase, which may require adjustments to the amortization of
any premium or acceleration of any discount relating to such interests, thereby
affecting the net yield on our securities.  We periodically review
current prepayment speeds to determine whether prepayment estimates require
modification that could cause amortization or accretion
adjustments.  Our mortgage-backed securities portfolio contains no
sub-prime mortgage loans and has no exposure to sub-prime investment
activity.
  13
  The
following table sets forth the amortized cost and fair value of our securities
portfolio at the dates indicated.
  At
      December 31,2007
              
              
              2006Amortized
                  Cost
              
              
              Fair
                  Value
              
              
              Amortized
                  Cost
              
              
              Fair
                  Value(In
      thousands)Securities
      held to maturity:U.S.
      Government and agency obligations
              
              $
              18,997
              
              
              $
              19,031
              
              
              $
              18,200
              
              
              $
              18,001State
      and municipal
                Mortgage-backed
              
              
              —
              
              
              
              —
              
              
              
              50
              
              
              
              509,553
              
              
              
              9,566
              
              
              
              5,941
              
              
              
              5,822Total
      securities held to maturity
              
              $
              28,550
              
              
              $
              28,597
              
              
              $
              24,191
              
              
              $
              23,873Securities
      available for sale:Freddie
      Mac stock
              
              $
              65
              
              
              $
              244
              
              
              $
              67
              
              
              $
              604Total
      securities available for sale
              
              $
              65
              
              
              $
              244
              
              
              $
              67
              
              
              $
              604
 
 14
  Portfolio
Maturities and Yields.The composition and maturities of the
investment securities portfolio and the mortgage-backed securities portfolio at
December 31, 2007 are summarized in the following table.  Maturities
are based on the final contractual payment dates, and do not reflect the impact
of prepayments or early redemptions that may occur.  All of our
securities at December 31, 2007 were taxable securities.  Equity
securities consisting of Freddie Mac common stock with an amortized cost of
$65,000 and a fair value of $244,000 have no maturity
date.  Accordingly, they are not included in the table.
  One
      Year or Less
              
              
              More
      than One Year
                  through
      Five Years
              
              
              More
      than Five Years
                  through
      Ten Years
              
              
              More
      than Ten Years
              
              
              Total
      SecuritiesAmortized
      Cost
              
              
              Weighted
      Average Yield
              
              
              Amortized
      Cost
              
              
              Weighted
      Average Yield
              
              
              Amortized
      Cost
              
              
              Weighted
      Average Yield
              
              
              Amortized
      Cost
              
              
              Weighted
      Average Yield
              
              
              Amortized
      Cost
              
              
              Fair
      Value
              
              
              Weighted
      Average Yield(Dollars
      in thousands)Securities
      held to maturity:U.S.
      Government and agency obligations
              
              $
              2,500
              
              
              
              4.89
              %
              
              $
              4,307
              
              
              
              4.71
              %
              
              $
              5,550
              
              
              
              4.93
              %
              
              $
              6,640
              
              
              
              5.88
              %
              
              $
              18,997
              
              
              $
              19,031
              
              
              
              5.21
              %Mortgage-backed
      securities
              
              
              79
              
              
              
              5.08
              %
              
              
              —
              
              
              
              —
              %
              
              
              2
              
              
              
              5.88
              %
              
              
              9,472
              
              
              
              4.96
              %
              
              
              9,553
              
              
              
              9,566
              
              
              
              4.96
              %Total
      securities held to maturity
              
              $
              2,579
              
              
              
              4.90
              %
              
              $
              4,307
              
              
              
              4.71
              %
              
              $
              5,552
              
              
              
              4.93
              %
              
              $
              16,112
              
              
              
              5.34
              %
              
              $
              28,550
              
              
              $
              28,597
              
              
              
              5.13
              %
 
 
 15
 
 Sources
of Funds
 
 General.Deposits
traditionally have been our primary source of funds for our lending and
investment activities.  We also borrow, primarily from the Federal
Home Loan Bank of New York, to supplement cash flow needs, to lengthen the
maturities of liabilities for interest rate risk management purposes and to
manage our cost of funds.  Our additional sources of funds are
scheduled loan payments, loan prepayments, maturing investments, mortgage-backed
securities amortization and pre-payments, proceeds of loan sales, and retained
earnings.
  Deposits. We generate deposits
primarily from the areas in which our branch offices are located.  We
rely on our competitive pricing, convenient locations and customer service to
attract and retain deposits.  We offer a variety of deposit accounts
with a range of interest rates and terms.  Our deposit accounts
consist of savings accounts, NOW accounts, money market accounts, certificates
of deposit and individual retirement accounts and non-interest bearing demand
deposits.  We currently do not accept brokered deposits.
  Interest
rates paid, maturity terms, service fees and withdrawal penalties are
established on a periodic basis.  Deposit rates and terms are based
primarily on current operating strategies and market interest rates, liquidity
requirements, interest rates paid by competitors and our deposit growth
goals.
  At
December 31, 2007, our deposits totaled
$119.2 million.  Specifically, at December 31, 2007, NOW accounts
totaled $5.5 million, savings accounts totaled $13.6 million, money market
accounts totaled $10.7 million and non-interest bearing checking accounts
totaled $3.2 million. At December 31, 2007, certificates of deposit, including
individual retirement accounts (all of which were certificate of deposit
accounts), totaled $86.2 million, of which $63.8 million had remaining
maturities of one year or less.  Based on historical experience and
our current pricing strategy, we believe we will retain a large portion of these
accounts upon maturity.
 
 The
following table sets forth the distribution of our average total deposit
accounts, by account type, for the years indicated.
  For
      the Years Ended December 31,2007
              
              
              2006Average
                  Balance
              
              
              Percent
              
              
              Weighted
                  Average
                  Rate
              
              
              Average
                  Balance
              
              
              Percent
              
              
              Weighted
                  Average
                  Rate(Dollars
      in thousands)Deposit
      type:NOW
              
              $
              5,721
              
              
              
              4.9
              %
              
              
              0.65
              %
              
              $
              3,826
              
              
              
              3.5
              %
              
              
              0.52
              %Savings
              
              
              14,306
              
              
              
              12.1
              
              
              
              1.29
              
              
              
              12,041
              
              
              
              11.0
              
              
              
              0.69Money
      market
              
              
              10,400
              
              
              
              8.8
              
              
              
              2.89
              
              
              
              10,567
              
              
              
              9.7
              
              
              
              2.42Individual
      retirement accounts
              
              
              15,733
              
              
              
              13.3
              
              
              
              4.44
              
              
              
              14,900
              
              
              
              13.6
              
              
              
              3.89Certificates
      of deposit
              
              
              68,672
              
              
              
              58.2
              
              
              
              4.51
              
              
              
              64,028
              
              
              
              58.6
              
              
              
              3.86Non-interest
      bearing demand deposits
              
              
              3,214
              
              
              
              2.7
              
              
              
              —
              
              
              
              3,887
              
              
              
              3.6
              
              
              
              —Total
      deposits
              
              $
              118,046
              
              
              
              100.0
              %
              
              
              3.66
              %
              
              $
              109,249
              
              
              
              100.0
              %
              
              
              3.12
              %
  As of
December 31, 2007, the aggregate amount of our outstanding certificates of
deposit, including our individual retirement accounts, in amounts greater than
or equal to $100,000 was approximately $19.4 million.  The following
table sets forth the maturity of those certificates as of December 31,
2007.
  At
                  December
      31, 2007(In
      thousands)Three
      months or less
              
              $
              2,768Over
      three months through six months
              
              
              5,393Over
      six months through one year
              
              
              7,237Over
      one year to three years
              
              
              2,785Over
      three years
              
              
              1,241Total
              
              $
              19,424
   16
   The
following table sets forth, by interest rate ranges, information concerning the
period to maturity of our certificates of deposit, including our individual
retirement accounts.
  At
      December 31, 2007Period
      to MaturityLess
      Than or
                  Equal
      to
                  One
      Year
              
              
              More
      Than
                  One
      to
                  Two
      Years
              
              
              More
      Than
                Two
      to
                Three
      Years
              
              
              More
      Than
                Three
      Years
              
              
              Total
              
              
              Percent
      of
                Total(Dollars
      in thousands)Interest
      Rate Range:2.99%
      and below
              
              $
              461
              
              
              $
              —
              
              
              $
              —
              
              
              $
              12
              
              
              $
              473
              
              
              
              0.55
              %3.00%
      to 3.99%
              
              
              10,132
              
              
              
              4,390
              
              
              
              1,743
              
              
              
              403
              
              
              
              16,668
              
              
              
              19.344.00%
      to 4.99%
              
              
              31,941
              
              
              
              4,811
              
              
              
              3,146
              
              
              
              4,346
              
              
              
              44,244
              
              
              
              51.325.00%
      to 5.99%
              
              
              21,255
              
              
              
              664
              
              
              
              567
              
              
              
              2,335
              
              
              
              24,821
              
              
              
              28.79Total
              
              $
              63,789
              
              
              $
              9,865
              
              
              $
              5,456
              
              
              $
              7,096
              
              
              $
              86,206
              
              
              
              100.00
              %
 
 The
following table sets forth our time deposits, including our individual
retirement accounts classified by interest rate range at the dates
indicated.
  At
      December 31,2007
              
              
              2006(In
      thousands)Interest
      Rate Range:2.99%
      and below
              
              $
              473
              
              
              $
              2,9803.00%
      to 3.99%
              
              
              16,668
              
              
              
              34,9624.00%
      to 4.99%
              
              
              44,244
              
              
              
              32,8605.00%
      to 5.99%
              
              
              24,821
              
              
              
              7,242Total
              
              $
              86,206
              
              
              $
              78,044
 
 Borrowings.  Our
borrowings consist primarily of loans, commonly referred to as advances, from
the Federal Home Loan Bank of New York.  Our advances carried a
weighted average rate at the end of 2007 of 4.70%.  At December 31,
2007, we had the ability to borrow approximately $96.0 million under our credit
facilities with the Federal Home Loan Bank of New York of which $25.6 million
were advanced.  Borrowings from the Federal Home Loan Bank of New York
are secured by our investment in the common stock of the Federal Home Loan Bank
of New York as well as by a blanket pledge of our mortgage portfolio not
otherwise pledged.
 
 Our
short-term borrowings consist of Federal Home Loan Bank advances. The following
table sets forth information concerning balances and interest rates on all of
our short-term borrowings at and for the periods shown:
  At
      or For the Years Ended
                  December
      31,2007
              
              
              2006(Dollars
      in thousands)Balance
      at end of year
              
              $
              —
              
              
              $
              4,200Average
      balance during year
              
              
              499
              
              
              $
              1,017Maximum
      outstanding at any month end
              
              
              3,200
              
              
              $
              4,200Weighted
      average interest rate at end of year
              
              
              —
              %
              
              
              5.33
              %Average
      interest rate during year
              
              
              6.01
              %
              
              
              4.95
              %
 
 Subsidiary
Activities
 
 Oakleaf
Services Corporation, our subsidiary, provides investment advisory services to
our customers by providing annuities, insurance products and mutual
funds.  At December 31, 2007 we had a $50,000 investment in Oakleaf
Services Corporation, and during the year ended December 31, 2007, we derived
$79,000 of fee income from Oakleaf Services Corporation.
  17
  Federal
savings banks are required to provide 30 days advance notice to the OTS and the
FDIC before establishing or acquiring a subsidiary or conducting a new activity
in a subsidiary.  The insured savings bank must also provide the FDIC
and the OTS such information as may be required by applicable regulations and
must conduct the activity in accordance with the rules and orders of the OTS. In
addition to other enforcement and supervision powers, the OTS may determine
after notice and opportunity for a hearing that the continuation of a savings
bank's ownership of or relation to a subsidiary (i) constitutes a serious risk
to the safety, soundness or stability of the savings bank, or (ii) is
inconsistent with law and regulation.  Upon the making of such a
determination, the OTS may order the savings bank to divest the subsidiary or
take other actions.
  Personnel
 
 As of
December 31, 2007, we had 34 full-time employees and 5 part-time
employees.  Our employees are not represented by any collective
bargaining group.  Management believes that our relationship with our
employees is good.
  FEDERAL
AND STATE TAXATION
 
 Federal
Taxation
 
 General.FSB Community
Bankshares, Inc. and Fairport Savings Bank are subject to federal income
taxation in the same general manner as other corporations, with some exceptions
discussed below.  FSB Community Bankshares, Inc. files consolidated
tax returns with Fairport Savings Bank, its wholly owned
subsidiary.  Our consolidated federal tax returns are not currently
under audit and have not been audited during the past five years.  The
following discussion of federal taxation is intended only to summarize certain
pertinent federal income tax matters and is not a comprehensive description of
the tax rules applicable to FSB Community Bankshares, MHC, FSB Community
Bankshares, Inc. or Fairport Savings Bank.
  Method of
Accounting.For federal
income tax purposes, FSB Community Bankshares, MHC currently reports its income
and expenses on the accrual method of accounting and uses a tax year ending
December 31 for filing its federal and state income tax returns.
 
 Bad Debt
Reserves.Historically,
Fairport Savings Bank was subject to special provisions in the tax law
applicable to qualifying savings associations regarding allowable tax bad debt
deductions and related reserves.  Tax law changes were enacted in 1996
that eliminated the ability of savings associations to use the percentage of
taxable income method for computing tax bad debt reserves for tax years after
1995, and required recapture into taxable income over a six-year period of all
bad debt reserves accumulated after a savings association’s last tax year
beginning before January 1, 1988.  At December 31, 2007, Fairport
Savings Bank had recaptured all amounts that resulted from these changes in the
tax law.
 
 FSB
Community Bankshares, Inc. uses the specific chargeoff method to account for tax
bad debt deductions in the future.
 
 Taxable
Distributions and Bad Debt Recapture.Prior to 1996,
bad debt reserves created prior to 1988 were subject to recapture into taxable
income if Fairport Savings Bank failed to meet certain thrift asset and
definitional tests or made certain distributions.  Tax law changes in
1996 eliminated thrift-related recapture rules.  However, under
current law, pre-1988 tax bad debt reserves remain subject to recapture if
Fairport Savings Bank makes certain non-dividend distributions, repurchases any
of its common stock, pays dividends in excess of earnings and profits, or fails
to qualify as a bank for tax purposes.
 
 At
December 31, 2007, the total federal pre-base year bad debt reserve of Fairport
Savings Bank was approximately $1.5 million.
 
 Alternative
Minimum Tax.The Internal
Revenue Code of 1986, as amended, imposes an alternative minimum tax at a rate
of 20% on a base of regular taxable income plus certain tax preferences, less
any available exemption.  The alternative minimum tax is imposed to
the extent it exceeds the regular income tax.  Net operating losses
can offset no more than 90% of alternative taxable income.  Certain
payments of alternative minimum tax may be used as credits against regular tax
liabilities in future years.  Our consolidated group has not been
subject to the alternative minimum tax and has no such amounts available as
credits for carryover.
  18
  Net Operating
Loss Carryovers.A financial
institution may carry back net operating losses to the preceding two taxable
years and forward to the succeeding 20 taxable years.  At December 31,
2007, our consolidated group had no net operating loss carryforwards for federal
income tax purposes.
 
 Corporate
Dividends-Received Deduction.FSB Community
Bankshares, Inc. may exclude from its federal taxable income 100% of dividends
received from Fairport Savings Bank as a wholly owned subsidiary.  The
corporate dividends-received deduction is 80% when the corporation receiving the
dividend owns at least 20% of the stock of the distributing corporation. The
dividends-received deduction is 70% when the corporation receiving the dividend
owns less than 20% of the distributing corporation.
 
 State
Taxation
 
 FSB
Community Bankshares, Inc. and Fairport Savings Bank report income on a calendar
year basis to New York State.  New York State franchise tax on
corporations is imposed in an amount equal to the greater of (a) 7.5% of “entire
net income” allocable to New York State, (b) 3% of “alternative entire net
income” allocable to New York State, (c) 0.01 % of the average value of assets
allocable to New York State, or (d) nominal minimum tax.  Entire net
income is based on Federal taxable income, subject to certain
modifications.  Alternative entire net income is equal to entire net
income without certain modifications.
 
 Expense
and Tax Allocation
  Fairport Savings Bank has entered into
an agreement with FSB Community Bankshares, Inc. and FSB Community Bankshares,
MHC to provide them with certain administrative support services, whereby
Fairport Savings Bank will be compensated at not less than the fair market value
of the services provided.  In addition, Fairport Savings Bank and FSB
Community Bankshares, Inc. have entered into an agreement to establish a method
for allocating and for reimbursing the payment of their consolidated tax
liability.
  SUPERVISION
AND REGULATION
 
 General
 
 Fairport
Savings Bank is examined and supervised by the Office of Thrift Supervision and
is subject to examination by the Federal Deposit Insurance
Corporation.  This regulation and supervision establishes a
comprehensive framework of activities in which an institution may engage and is
intended primarily for the protection of the Federal Deposit Insurance
Corporation’s deposit insurance funds and depositors.  Under this
system of federal regulation, financial institutions are periodically examined
to ensure that they satisfy applicable standards with respect to their capital
adequacy, assets, management, earnings, liquidity and sensitivity to market
interest rates.  Following completion of its examination, the federal
agency critiques the institution’s operations and assigns its rating (known as
an institution’s CAMELS rating).  Under federal law, an institution
may not disclose its CAMELS rating to the public.  Fairport Savings
Bank also is a member of and owns stock in the Federal Home Loan Bank of New
York, which is one of the twelve regional banks in the Federal Home Loan Bank
System.  Fairport Savings Bank also is regulated to a lesser extent by
the Board of Governors of the Federal Reserve System, governing reserves to be
maintained against deposits and other matters.  The Office of Thrift
Supervision will examine Fairport Savings Bank and prepare reports for the
consideration of its board of directors on any operating
deficiencies.  Fairport Savings Bank’s relationship with its
depositors and borrowers also is regulated to a great extent by federal law and,
to a much lesser extent, state law, especially in matters concerning the
ownership of deposit accounts and the form and content of Fairport Savings
Bank’s mortgage documents.
  Any
change in these laws or regulations, whether by the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision or Congress, could have a material
adverse impact on FSB Community Bankshares, Inc., Fairport Savings Bank and
their operations.
  19
  FSB
Community Bankshares, Inc. and FSB Community Bankshares, MHC, as savings and
loan holding companies, are required to file certain reports with, are subject
to examination by, and otherwise must comply with the rules and regulations of
the Office of Thrift Supervision.  FSB Community Bankshares, Inc. is
also subject to the rules and regulations of the Securities and Exchange
Commission under the federal securities laws.
  Certain
of the regulatory requirements that are or will be applicable to Fairport
Savings Bank, FSB Community Bankshares, Inc. and FSB Community Bankshares, MHC
are described below.  This description of statutes and regulations is
not intended to be a complete explanation of such statutes and regulations and
their effects on Fairport Savings Bank, FSB Community Bankshares, Inc. and FSB
Community Bankshares, MHC and is qualified in its entirety by reference to the
actual statutes and regulations.
  Federal
Banking Regulation
 
 Business
Activities.A federal savings bank derives its lending and
investment powers from the Home Owners’ Loan Act, as amended, and the
regulations of the Office of Thrift Supervision.  Under these laws and
regulations, Fairport Savings Bank may invest in: mortgage loans secured by
residential real estate without limitation as a percentage of assets;
non-residential real estate loans up to 400% of capital in the aggregate;
commercial business loans up to 20% of assets in the aggregate; consumer loans
up to 35% of assets in the aggregate; and certain types of debt securities and
certain other assets.  Fairport Savings Bank also may establish
subsidiaries that may engage in activities not otherwise permissible for
Fairport Savings Bank, including real estate investment and securities and
insurance brokerage.
  Capital
Requirements.  Office of Thrift Supervision regulations require
savings associations to meet three minimum capital standards: a 1.5% tangible
capital ratio, a 4% leverage ratio (3% for savings associations receiving the
highest rating on the CAMELS rating system) and an 8% risk-based capital
ratio.
  The
risk-based capital standard for savings associations requires the maintenance of
Tier 1 (core) and total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively.  In determining the amount of risk-weighted assets, all
assets, including certain off-balance sheet assets, are multiplied by a
risk-weight factor of 0% to 100%, assigned by the Office of Thrift Supervision,
based on the risks believed inherent in the type of asset.  Core
capital is defined as common shareholders’ equity (including retained earnings),
certain noncumulative perpetual preferred stock and related surplus and minority
interests in equity accounts of consolidated subsidiaries, less intangibles
other than certain mortgage servicing rights and credit card
relationships.  The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock, the allowance for loan and lease losses limited to a maximum of 1.25% of
risk-weighted assets and up to 45% of net unrealized gains on available-for-sale
equity securities with readily determinable fair market
values.  Overall, the amount of supplementary capital included as part
of total capital cannot exceed 100% of core capital.  Additionally, a
savings association that retains credit risk in connection with an asset sale
may be required to maintain additional regulatory capital because of the
recourse back to the savings association.  Fairport Savings Bank does
not typically engage in asset sales.
  20
  The
following table shows Fairport Savings Bank’s Tangible capital, Core capital,
Tier-1 risk based capital and Total Risk Based Capital ratios at December 31,
2007.
  As
      of December 31, 2007Capital
              
              
              Percent
      of
                  Assets
      (1)
              
              
              Required
                  Percent
      of
                  Assets
      (1)(Dollars
      in thousands)Tangible
      capital
              
              $
              16,214
              
              
              
              9.89
              %
              
              
              1.50
              %Core
      capital
              
              
              16,214
              
              
              
              9.89
              
              
              
              4.00Tier 1
      risk-based capital
              
              
              16,214
              
              
              
              21.81
              
              
              
              4.00Total
      risk-based capital
              
              
              16,533
              
              
              
              22.23
              
              
              
              8.00
 
 _________________(1)
              Tangible capital levels are shown
      as a percentage of tangible assets. Core capital levels are shown as a
      percentage of total adjusted assets.  Total risk-based capital
      levels are shown as a percentage of risk-weighted
      assets.
 
 As the
table shows, at December 31, 2007, Fairport Savings Bank’s capital exceeded all
applicable requirements.
  Loans-to-One
Borrower.
Generally, a federal savings association may not make a loan or extend credit to
a single or related group of borrowers in excess of 15% of unimpaired capital
and surplus.  An additional amount may be loaned, equal to 10% of
unimpaired capital and surplus, if the loan is secured by readily marketable
collateral, which generally does not include real estate.  As of
December 31, 2007, Fairport Savings Bank’s largest lending relationship with a
single or related group of borrowers was a residential mortgage loan totaling
$974,000, which represented 4.8% of unimpaired capital and surplus, and
therefore, Fairport Savings Bank was in compliance with the loans-to-one
borrower limitations.
  Qualified Thrift
Lender Test.As a federal savings
association, Fairport Savings Bank must satisfy the qualified thrift lender, or
“QTL,” test.  Under the QTL test, Fairport Savings Bank must maintain
at least 65% of its “portfolio assets” in “qualified thrift investments”
(primarily residential mortgages and related investments, including
mortgage-backed securities) in at least nine months of the most recent 12-month
period.  “Portfolio assets” generally means total assets of a savings
institution, less the sum of specified liquid assets up to 20% of total assets,
goodwill and other intangible assets, and the value of property used in the
conduct of the savings association’s business.
  Fairport
Savings Bank also may satisfy the QTL test by qualifying as a “domestic building
and loan association” as defined in the Internal Revenue Code.
  A savings
association that fails the qualified thrift lender test must either convert to a
bank charter or operate under specified restrictions.  At December 31,
2007, Fairport Savings Bank maintained approximately 95.26% of its portfolio
assets in qualified thrift investments, and therefore satisfied the QTL
test.
  Capital
Distributions.Office of Thrift
Supervision regulations govern capital distributions by a federal savings
association, which include cash dividends, stock repurchases and other
transactions charged to the capital account.  A savings association
must file an application for approval of a capital distribution if:
  ·
              the
      total capital distributions for the applicable calendar year exceed the
      sum of the savings association’s net income for that year to date plus the
      savings association’s retained net income for the preceding two
      years;·
              the
      savings association would not be at least adequately capitalized following
      the distribution;·
              the
      distribution would violate any applicable statute, regulation, agreement
      or Office of Thrift Supervision-imposed condition; or·
              the
      savings association is not eligible for expedited treatment of its
      filings.
 
 Even if
an application is not otherwise required, every savings association that is a
subsidiary of a holding company must still file a notice with the Office of
Thrift Supervision at least 30 days before the board of directors declares a
dividend or approves a capital distribution.
  21
  The
Office of Thrift Supervision may disapprove a notice or application
if:
  ·
              the
      savings association would be undercapitalized following the
      distribution;·
              the
      proposed capital distribution raises safety and soundness concerns;
      or·
              the
      capital distribution would violate a prohibition contained in any statute,
      regulation or agreement.
 
 In
addition, the Federal Deposit Insurance Act provides that an insured depository
institution shall not make any capital distribution, if after making such
distribution the institution would be undercapitalized.
  Liquidity.  A
federal savings association is required to maintain a sufficient amount of
liquid assets to ensure its safe and sound operation.  We seek to
maintain a ratio of 4.0% or greater of liquid assets to total
assets.  For the year ended December 31, 2007, our liquidity ratio
averaged 6.6%.  We believe that we have enough sources of liquidity to
satisfy our short and long-term liquidity needs as of December 31,
2007.
  Community
Reinvestment Act and Fair Lending Laws.  All savings
associations have a responsibility under the Community Reinvestment Act and
related regulations of the Office of Thrift Supervision to help meet the credit
needs of their communities, including low and moderate-income
neighborhoods.  In connection with its examination of a federal
savings association, the Office of Thrift Supervision is required to assess the
savings association’s record of compliance with the Community Reinvestment
Act.  In addition, the Equal Credit Opportunity Act and the Fair
Housing Act prohibit lenders from discriminating in their lending practices on
the basis of characteristics specified in those statutes.  A savings
association’s failure to comply with the provisions of the Community
Reinvestment Act could, at a minimum, result in denial of certain corporate
applications such as branches or mergers, or in restrictions on its
activities.  The failure to comply with the Equal Credit Opportunity
Act and the Fair Housing Act could result in enforcement actions by the Office
of Thrift Supervision, as well as other federal regulatory agencies and the
Department of Justice.  Fairport Savings Bank received a satisfactory
Community Reinvestment Act rating in its most recent federal
examination.
  Transactions with
Related Parties.  A federal savings association’s authority to
engage in transactions with its affiliates is limited by Office of Thrift
Supervision regulations and by Sections 23A and 23B of the Federal Reserve Act
and its implementing Regulation W.  An affiliate is a company that
controls, is controlled by, or is under common control with an insured
depository institution such as Fairport Savings Bank.  FSB Community
Bankshares, Inc. is an affiliate of Fairport Savings Bank.  In
general, loan transactions between an insured depository institution and its
affiliates are subject to certain quantitative and collateral
requirements.  In this regard, transactions between an insured
depository institution and its affiliates are limited to 10% of the
institution’s unimpaired capital and unimpaired surplus for transactions with
any one affiliate and 20% of unimpaired capital and unimpaired surplus for
transactions in the aggregate with all affiliates.  Collateral in
specified amounts ranging from 100% to 130% of the amount of the transaction
must usually be provided by affiliates in order to receive loans from the
savings association.  In addition, Office of Thrift Supervision
regulations prohibit a savings association from lending to any of its affiliates
that are engaged in activities that are not permissible for bank holding
companies and from purchasing the securities of any affiliate, other than a
subsidiary.  Finally, transactions with affiliates must be consistent
with safe and sound banking practices, not involve low-quality assets and be on
terms that are as favorable to the institution as comparable transactions with
non-affiliates.  The Office of Thrift Supervision requires savings
associations to maintain detailed records of all transactions with
affiliates.
  Fairport
Savings Bank’s authority to extend credit to its directors, executive officers
and 10% shareholders, as well as to entities controlled by such persons, is
currently governed by the requirements of Sections 22(g) and 22(h) of the
Federal Reserve Act and Regulation O of the Federal Reserve
Board.  Among other things, these provisions require that extensions
of credit to insiders:
  (i)
              be
      made on terms that are substantially the same as, and follow credit
      underwriting procedures that are not less stringent than, those prevailing
      for comparable transactions with unaffiliated persons and that do not
      involve more than the normal risk of repayment or present other
      unfavorable features, and(ii)
              not
      exceed certain limitations on the amount of credit extended to such
      persons, individually and in the aggregate, which limits are based, in
      part, on the amount of Fairport Savings Bank’s
  capital.
  22
  In
addition, extensions of credit in excess of certain limits must be approved by
Fairport Savings Bank’s board of directors.
  Enforcement.  The
Office of Thrift Supervision has primary enforcement responsibility over federal
savings institutions and has the authority to bring enforcement action against
all “institution-affiliated parties,” including shareholders, attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured
institution.  Formal enforcement action by the Office of Thrift
Supervision may range from the issuance of a capital directive or cease and
desist order, to removal of officers and/or directors of the institution and the
appointment of a receiver or conservator.  Civil penalties cover a
wide range of violations and actions, and range up to $25,000 per day, unless a
finding of reckless disregard is made, in which case penalties may be as high as
$1 million per day.  The Federal Deposit Insurance Corporation also
has the authority to terminate deposit insurance or to recommend to the Director
of the Office of Thrift Supervision that enforcement action be taken with
respect to a particular savings institution.  If action is not taken
by the Director, the Federal Deposit Insurance Corporation has authority to take
action under specified circumstances.
  Standards for
Safety and Soundness.  Federal law requires each federal
banking agency to prescribe certain standards for all insured depository
institutions.  These standards relate to, among other things, internal
controls, information systems and audit systems, loan documentation, credit
underwriting, interest rate risk exposure, asset growth, compensation, and other
operational and managerial standards as the agency deems
appropriate.  The federal banking agencies adopted Interagency
Guidelines Prescribing Standards for Safety and Soundness to implement the
safety and soundness standards required under federal law.  The
guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired.  If the appropriate federal banking
agency determines that an institution fails to meet any standard prescribed by
the guidelines, the agency may require the institution to submit to the agency
an acceptable plan to achieve compliance with the standard.  If an
institution fails to meet these standards, the appropriate federal banking
agency may require the institution to submit a compliance plan.
  Prompt Corrective
Action Regulations.  Under the prompt
corrective action regulations, the Office of Thrift Supervision is required and
authorized to take supervisory actions against undercapitalized savings
associations.  For this purpose, a savings association is placed in
one of the following five categories based on the savings association’s
capital:
  ·
              well-capitalized
      (at least 5% leverage capital, 6% Tier 1 risk-based capital and 10%
      total risk-based capital);·
              adequately
      capitalized (at least 4% leverage capital, 4% Tier 1 risk-based
      capital and 8% total risk-based capital);·
              undercapitalized
      (less than 8% total risk-based capital, 4% Tier 1 risk-based capital
      or 3% leverage capital);·
              significantly
      undercapitalized (less than 6% total risk-based capital, 3% Tier 1
      risk-based capital or 3% leverage capital); and·
              critically
      undercapitalized (less than 2% tangible
  capital).
 
 Generally,
the banking regulator is required to appoint a receiver or conservator for a
savings association that is “critically undercapitalized” within specific time
frames.  The regulations also provide that a capital restoration plan
must be filed with the Office of Thrift Supervision within 45 days of the date a
savings association receives notice that it is “undercapitalized,”
“significantly undercapitalized” or “critically
undercapitalized.”  The criteria for an acceptable capital restoration
plan include, among other things, the establishment of the methodology and
assumptions for attaining adequately capitalized status on an annual basis,
procedures for ensuring compliance with restrictions imposed by applicable
federal regulations, the identification of the types and levels of activities
the savings association will engage in while the capital restoration plan is in
effect, and assurances that the capital restoration plan will not appreciably
increase the current risk profile of the savings association.  Any
holding company for the savings association required to submit a capital
restoration plan must guarantee the lesser of an amount equal to 5% of the
savings association’s assets at the time it was notified or deemed to be under
capitalized by the Office of Thrift Supervision, or the amount necessary to
restore the savings association to adequately capitalized
status.  This guarantee remains in place until the Office of Thrift
Supervision notifies the savings association that it has maintained adequately
capitalized status for each of four consecutive calendar quarters, and the
Office of Thrift Supervision has the authority to requirement payment and
collect payment under the guarantee.  Failure by a holding company to
provide the required guarantee will result in certain operating restrictions on
the savings association, such as restrictions on the ability to declare and pay
dividends, pay executive compensation and management fees, and increase assets
or expand operations. The Office of Thrift
Supervision may also take any one of a number of discretionary supervisory
actions against undercapitalized associations, including the issuance of a
capital directive and the replacement of senior executive officers and
directors.
  23
  At
December 31, 2007, Fairport Savings Bank met the criteria for being considered
“well-capitalized.”
  Insurance of
Deposit Accounts.Deposit accounts in
Fairport Savings Bank are insured by the Federal Deposit Insurance Corporation,
generally up to a maximum of $100,000 per separately insured depositor and up to
a maximum of $250,000 for self-directed retirement accounts.  Fairport
Savings Bank’s deposits, therefore, are subject to Federal Deposit Insurance
Corporation deposit insurance assessments.
 
 The
Federal Deposit Insurance Corporation regulations assess insurance premiums
based on an institution’s risk.  Under this assessment system, the
Federal Deposit Insurance Corporation evaluates the risk of each financial
institution based on its supervisory rating, financial ratios, and long-term
debt issuer rating.  The rates for nearly all of the financial
institutions industry vary between five and seven cents for every $100 of
domestic deposits.  The assessment paid during the year ended December
31, 2007 was $14,000.  Federal law requires the Federal Deposit
Insurance Corporation to establish a deposit reserve ratio for the deposit
insurance fund of between 1.15% and 1.50% of estimated deposits. The Federal
Deposit Insurance Corporation has designated the reserve ratio for the deposit
insurance fund through the first quarter of 2008 at 1.25% of estimated insured
deposits.
  Effective
March 31, 2006, the Federal Deposit Insurance Corporation merged the Bank
Insurance Fund (“BIF”) and the Savings Association Insurance Fund (“SAIF”) into
a single fund called the Deposit Insurance Fund.  In addition to the
Federal Deposit Insurance Corporation assessments, the Financing Corporation
(“FICO”) is authorized to impose and collect, with the approval of the Federal
Deposit Insurance Corporation, assessments for anticipated payments, issuance
costs and custodial fees on bonds issued by the FICO in the 1980s to
recapitalize the Federal Savings and Loan Insurance Corporation.  The
bonds issued by the FICO are due to mature in 2017 through 2019.  For
the quarter ended December 31, 2007, the annualized FICO assessment was equal to
1.2 basis points for each $100 in domestic deposits maintained at an
institution.
  Prohibitions
Against Tying Arrangements.  Federal savings
associations are prohibited, subject to some exceptions, from extending credit
to or offering any other service, or fixing or varying the consideration for
such extension of credit or service, on the condition that the customer obtain
some additional service from the institution or its affiliates or not obtain
services of a competitor of the institution.
  Federal Home Loan
Bank System.  Fairport Savings Bank is a member of the Federal
Home Loan Bank System, which consists of 12 regional Federal Home Loan
Banks.  The Federal Home Loan Bank System provides a central credit
facility primarily for member institutions.  As a member of the
Federal Home Loan Bank of New York, Fairport Savings Bank is required to acquire
and hold shares of capital stock in the Federal Home Loan Bank in an amount at
least equal to 1% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year, 1/20 of
its borrowings from the Federal Home Loan Bank, or 0.3% of assets, whichever is
greater.  As of December 31, 2007, Fairport Savings Bank was in
compliance with this requirement.
  24
  Other
Regulations
 
 Interest
and other charges collected or contracted for by Fairport Savings Bank are
subject to state usury laws and federal laws concerning interest
rates.  Fairport Savings Bank’s operations are also subject to federal
laws applicable to credit transactions, such as the:
  ·
              Truth-In-Lending
      Act, governing disclosures of credit terms to consumer
      borrowers;·
              Home
      Mortgage Disclosure Act of 1975, requiring financial institutions to
      provide information to enable the public and public officials to determine
      whether a financial institution is fulfilling its obligation to help meet
      the housing needs of the community it serves;·
              Equal
      Credit Opportunity Act, prohibiting discrimination on the basis of race,
      creed or other prohibited factors in extending credit;·
              Fair
      Credit Reporting Act of 1978, governing the use and provision of
      information to credit reporting agencies;·
              Fair
      Debt Collection Act, governing the manner in which consumer debts may be
      collected by collection agencies; and·
              rules
      and regulations of the various federal agencies charged with the
      responsibility of implementing such federal
  laws.
  The
operations of Fairport Savings Bank also are subject to the:
  ·
              Right
      to Financial Privacy Act, which imposes a duty to maintain confidentiality
      of consumer financial records and prescribes procedures for complying with
      administrative subpoenas of financial records;·
              Electronic
      Funds Transfer Act and Regulation E promulgated thereunder, which govern
      automatic deposits to and withdrawals from deposit accounts and customers’
      rights and liabilities arising from the use of automated teller machines
      and other electronic banking services;·
              Title
      III of The Uniting and Strengthening America by Providing Appropriate
      Tools Required to Intercept and Obstruct Terrorism Act of 2001 (referred
      to as the “USA PATRIOT Act”), which significantly expanded the
      responsibilities of financial institutions, including savings and loan
      associations, in preventing the use of our financial system to fund
      terrorist activities.  Among other provisions, the USA PATRIOT
      Act and the related regulations of the Office of Thrift Supervision
      require savings associations operating in the United States to develop new
      anti-money laundering compliance programs, due diligence policies and
      controls to ensure the detection and reporting of money laundering. Such
      required compliance programs are intended to supplement existing
      compliance requirements, also applicable to financial institutions, under
      the Bank Secrecy Act and the Office of Foreign Assets Control Regulations;
      and·
              The
      Gramm-Leach-Bliley Act, which placed limitations on the sharing of
      consumer financial  information by financial institutions with
      unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act
      requires all financial institutions offering financial products or
      services to retail customers to provide such customers with the financial
      institution’s privacy policy and provide such customers the opportunity to
      “opt out” of the sharing of certain personal financial information with
      unaffiliated third parties.
  25
  Holding
Company Regulation
 
 General.  FSB
Community Bankshares, Inc. is a non-diversified savings and loan holding company
within the meaning of the Home Owners’ Loan Act.  As such, FSB
Community Bankshares, Inc. is registered with the Office of Thrift Supervision
and subject to Office of Thrift Supervision regulations, examinations,
supervision and reporting requirements.  In addition, the Office of
Thrift Supervision has enforcement authority over FSB Community Bankshares, Inc.
and its subsidiaries.  Among other things, this authority permits the
Office of Thrift Supervision to restrict or prohibit activities that are
determined to be a serious risk to the subsidiary savings
institution.  As a federal corporation, FSB Community Bankshares, Inc.
is generally not subject to state business organization laws.
 
 Permitted
Activities.  Pursuant to Section 10(o) of the Home Owners’ Loan
Act and Office of Thrift Supervision regulations and policy, a mutual holding
company and a federally chartered mid-tier holding company such as FSB Community
Bankshares, Inc. may engage in the following activities: (i) investing in the
stock of a savings bank; (ii) acquiring a mutual association through the merger
of such association into a savings bank subsidiary of such holding company or an
interim savings bank subsidiary of such holding company; (iii) merging with or
acquiring another holding company, one of whose subsidiaries is a savings bank;
(iv) investing in a corporation, the capital stock of which is available for
purchase by a savings bank under federal law or under the law of any state where
the subsidiary savings bank or associations share their home offices; (v)
furnishing or performing management services for a savings bank subsidiary of
such company; (vi) holding, managing or liquidating assets owned or acquired
from a savings subsidiary of such company; (vii) holding or managing properties
used or occupied by a savings bank subsidiary of such company; (viii) acting as
trustee under deeds of trust; (ix) any other activity: (a) that the Federal
Reserve Board, by regulation, has determined to be permissible for bank holding
companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the
Director, by regulation, prohibits or limits any such activity for savings and
loan holding companies; or (b) in which multiple savings and loan holding
companies were authorized (by regulation) to directly engage on March 5, 1987;
(x) any activity permissible for financial holding companies under Section 4(k)
of the Bank Holding Company Act, including securities and insurance
underwriting; and (xi) purchasing, holding, or disposing of stock acquired in
connection with a qualified stock issuance if the purchase of such stock by such
savings and loan holding company is approved by the Director.  If a
mutual holding company acquires or merges with another holding company, the
holding company acquired or the holding company resulting from such merger or
acquisition may only invest in assets and engage in activities listed in (i)
through (x) above, and has a period of two years to cease any nonconforming
activities and divest any nonconforming investments.
  The Home Owners’ Loan Act prohibits a
savings and loan holding company, including FSB Community Bankshares, Inc.,
directly or indirectly, or through one or more subsidiaries, from acquiring more
than 5% of another savings institution or holding company thereof, without prior
written approval of the Office of Thrift Supervision.  It also
prohibits the acquisition or retention of, with certain exceptions, more than 5%
of a nonsubsidiary company engaged in activities other than those permitted by
the Home Owners’ Loan Act, or acquiring or retaining control of an institution
that is not federally insured.  In evaluating applications by holding
companies to acquire savings institutions, the Office of Thrift Supervision must
consider the financial and managerial resources, future prospects of the company
and institution involved, the effect of the acquisition on the risk to the
federal deposit insurance fund, the convenience and needs of the community and
competitive factors.
 
 The Office of Thrift Supervision is
prohibited from approving any acquisition that would result in a multiple
savings and loan holding company controlling savings institutions in more than
one state, subject to two exceptions:
  (i)
              the
      approval of interstate supervisory acquisitions by savings and loan
      holding companies; and(ii)
              the
      acquisition of a savings institution in another state if the laws of the
      state of the target savings institution specifically permit such
      acquisitions.
  The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
  26
  Waivers of
Dividends byFSB Community
Bankshares, MHC.  Office of Thrift Supervision regulations
require FSB Community Bankshares, MHC to notify the Office of Thrift Supervision
of any proposed waiver of its receipt of dividends from FSB Community
Bankshares, Inc.  The Office of Thrift Supervision reviews dividend
waiver notices on a case-by-case basis, and, in general, does not object to any
such waiver if:
 
 (i)
              the
      waiver would not be detrimental to the safe and sound operation of the
      subsidiary savings association; and(ii)
              the
      mutual holding company’s board of directors determines that such waiver is
      consistent with such directors’ fiduciary duties to the mutual holding
      company’s members.
  We anticipate that FSB Community
Bankshares, MHC will waive any dividends paid by FSB Community Bankshares,
Inc.  Under Office of Thrift Supervision regulations, our public
shareholders would not be diluted because of any dividends waived by FSB
Community Bankshares, MHC (and waived dividends would not be considered in
determining an appropriate exchange ratio) in the event FSB Community
Bankshares, MHC converts to stock form.
 
 Conversion ofFSB
Community Bankshares, MHCto Stock
Form.  Office of Thrift Supervision regulations permit FSB
Community Bankshares, MHC to convert from the mutual form of organization to the
capital stock form of organization.  There can be no assurance when,
if ever, a conversion transaction would occur, and the board of directors has no
current intention or plan to undertake a conversion transaction.  In a
conversion transaction a new stock holding company would be formed as the
successor to FSB Community Bankshares, Inc., FSB Community Bankshares, MHC’s
corporate existence would end, and certain depositors and borrowers of Fairport
Savings Bank would receive the right to subscribe for additional shares of the
new holding company.  In a conversion transaction, each share of
common stock held by shareholders other than FSB Community Bankshares, MHC would
be automatically converted into a number of shares of common stock of the new
holding company determined pursuant an exchange ratio that ensures that
shareholders other than FSB Community Bankshares, MHC own the same percentage of
common stock in the new holding company as they owned in FSB Community
Bankshares, Inc. immediately prior to the conversion transaction, subject to
adjustment for any assets held by FSB Community Bankshares, MHC.
 
 Federal
Securities Laws
 
 Our
common stock is registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, and we are subject to the information, proxy
solicitation, insider trading restrictions and other requirements under the
Securities Exchange Act of 1934.
 
 Sarbanes-Oxley
Act
 
 The
Sarbanes-Oxley Act addresses, among other issues, corporate governance, auditing
and accounting, executive compensation, and enhanced and timely disclosure of
corporate information. As directed by the Sarbanes-Oxley Act, our Chief
Executive Officer and Chief Financial Officer each will be required to certify
that our quarterly and annual reports do not contain any untrue statement of a
material fact. The rules adopted by the Securities and Exchange Commission under
the Sarbanes-Oxley Act have several requirements, including having these
officers certify that: they are responsible for establishing, maintaining and
regularly evaluating the effectiveness of our internal control over financial
reporting; they have made certain disclosures to our auditors and the audit
committee of the board of directors about our internal control over financial
reporting; and they have included information in our quarterly and annual
reports about their evaluation and whether there have been changes in our
internal control over financial reporting or in other factors that could
materially affect internal control over financial reporting.  We will
prepare policies, procedures and systems designed to ensure compliance with
these regulations.
  We
anticipate that we will incur additional expense in 2008 in order to comply with
the provisions of the Act.
  27
  ITEM 2.DESCRIPTION OF
PROPERTY
  Properties
 
 We operate from our main office in
Fairport, New York which we own, and our two branch offices, both of which are
leased, located in the towns of Penfield and Irondequoit.  The
consolidated net book value of our premises, land and equipment was $2.5 million
at December 31, 2007.  The following is a list of our
locations:
 
 Fairport
      (Main Office)
                45
      South Main Street
                Fairport,
      New York 14450
                (585)
      223-9080
              Penfield
                2163
      Rte 250
                Fairport,
      New York 14450
                (585)
      377-8970
              Irondequoit
                2118
      Hudson Ave.
                Irondequoit,
      New York 14617
                (585)
      266-4100
 
 ITEM 3. LEGAL
PROCEEDINGS
 
 We are
periodically involved in various claims and lawsuits that arise incident to our
financial services business. At December 31, 2007 we were not involved in any
legal proceedings, the outcome of which would be material to our financial
condition or results of operations.
  ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
 
 None.
 PART
II
 
 ITEM 5. MARKET FOR COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES
 
 (a)             
The information required by this item is incorporated by reference to our Annual
Report to Shareholders. No equity securities were sold during the year ended
December 31, 2007 that were not registered under the Securities
Act.
 
 (b)           
  Not applicable.
 
 (c)             
 FSB Community Bankshares, Inc. did not repurchase any of its equity
securities during the quarter ended December 31, 2007.
 
 ITEM 6. MANAGEMENT’S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION
 
 The information contained in the
section captioned “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” is incorporated by reference to our Annual Report to
Shareholders.
 
 ITEM 7. FINANCIAL
STATEMENTS
 
 The
consolidated financial statements included in our Annual Report to Shareholders
are incorporated herein by reference.
 
 ITEM
8.CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
 
 Information required by this item is
incorporated herein by reference from our definitive Annual Meeting Proxy
Statement (the “Proxy Statement”), specifically the section captioned “Proposal
II – Ratification of Appointment of Independent Registered Public Accounting
Firm—Changes In and Disagreements with Accountants on Accounting and Financial
Disclosures.”
  28
 
 ITEM
8A(T). CONTROLS AND
PROCEDURES
 
 Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we evaluated the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act) as of the end of the period covered by this report. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective in timely
alerting them to the material information relating to us (or our consolidated
subsidiaries) required to be included in our periodic SEC
filings.  There were no significant changes made in our internal
controls during the period covered by this report or, to our knowledge, in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
  This
annual report does not include a report of management’s assessment regarding
internal control over financial reporting or an attestation report of the
company’s registered public accounting firm due to a transition period
established by rules of the Securities and Exchange Commission for newly public
companies.
  ITEM
8B. OTHER
INFORMATION
 
 None.
  PART
III
 
 ITEM
9.DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS ANDCORPORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE
 EXCHANGE
ACT
 
 FSB Community Bankshares, Inc. has
adopted a Code of Ethics that applies to FSB Community Bankshares, Inc.’s
principal executive officer, principal financial officer and all other employees
and directors.  The Code of Ethics is available on our website at
www.fairportsavingsbank.com.
 
 Information
concerning directors and executive officers of FSB Community Bankshares, Inc. is
incorporated herein by reference from the Proxy Statement, specifically the
section captioned “Proposal I—Election of Directors.”
 
 ITEM 10.EXECUTIVE
COMPENSATION
 
 Information concerning executive
compensation is incorporated herein by reference from the Proxy Statement,
specifically the section captioned “Executive Compensation.”
 
 ITEM
11.SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
 
 Information concerning security
ownership of certain owners and management is incorporated herein by reference
from the Proxy Statement, specifically the section captioned “Voting Securities
and Principal Holder Thereof.”
 
 ITEM
12.           CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
 Information concerning
relationships,  transactions and director independence is incorporated
herein by reference from the Proxy Statement, specifically the section captioned
“Transactions with Certain Related Persons” and “Board
Independence.”
  29
 ITEM
13. EXHIBITS
 
 The
following exhibits are either filed or attached as part of this report or are
incorporated herein by reference:
 
 3.1
              Charter
      of FSB Community Bankshares, Inc. (1)3.2
              Bylaws
      of FSB Community Bankshares, Inc. (1)4
              Form
      of common stock certificate of FSB Community Bankshares, Inc.
      (1)10.1
              Employment
      Agreement of Dana C. Gavenda (1)10.2
              Supplemental
      Executive Retirement Plan (1)10.3
              Employee
      Stock Ownership Plan (1)13
              Portions
      of Annual Report to Shareholders14
              Code
      of Ethics (2)16
              Change
      in Accountants Letter21
              Subsidiaries
      of the Registrant31.1
              Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
              Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002
  ______________________________
 (1)
              Incorporated
      by reference to the Registration Statement on Form SB-2 of FSB Community
      Bankshares, Inc. (File No. 333-141380), originally filed with the
      Securities and Exchange Commission on March 16, 2007.(2)
              Available
      on our website at www.fairportsavingsbank.com.
 
 ITEM
14. PRINCIPAL ACCOUNTANT FEES
AND SERVICES
 
 Information concerning principal
accountant fees and services is incorporated herein by reference from the Proxy
Statement, specifically the section captioned “Proposal II-Ratification of
Appointment of Auditors.”
  30
  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.
 
 FSB
      Community Bankshares, Inc.Date:
      March 31, 2008
              By:
              /s/ Dana C. GavendaDana
      C. Gavenda, President andChief
      Executive Officer
 
 Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
 
  By:
              /s/ Dana C. Gavenda
              
              By:
              /s/ Thomas J. HanssDana
      C. Gavenda, President, and Chief
              
              
              Thomas
      J. HanssExecutive
      Officer
              
              
              Chairman
      of the Board(Principal
      Executive Officer)Date:
      March 31, 2008
              
              
              Date:
      March 31, 2008By:
              /s/ Kevin D. Maroney
              
              By:
              /s/ Gary LindsayKevin
      D. Maroney, Executive Vice President
              
              
              Gary
      Lindsayand
      Chief Financial Officer
              
              
              Director(Principal
      Financial and Accounting Officer)Date:
      March 31, 2008
              
              
              Date:
      March 31, 2008By:
              /s/ Terence O’Neil
              
              By:
              /s/ D.LawrenceKeefTerence
      O’Neil
              
              
              D.
      Lawrence KeefVice
      Chairman of the Board
              
              
              DirectorDate:
      March 31, 2008
              
              
              Date:
      March 31, 2008By:
              /s/ James E. Smith
              
              By:
              /s/LowellT.
      TwitchellJames
      E. Smith
              
              
              Lowell
      T. TwitchellDirector
              
              
              DirectorDate:
      March 31, 2008
              
              
              Date:
      March 31, 2008By:
              /s/ Robert W. Sturn
              
              By:
              /s/
      Charis W. WarshofRobert
      W. Sturn
              
              
              Charis
      W. WarshofDirector
              
              
              DirectorDate:
      March 31, 2008
              
              
              Date:
      March 31, 2008










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