As filed with the Securities and Exchange Commission on July 23, 2010

Registration No. 333-167455

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM S-1

Madison Bancorp, Inc.

 

(Exact name of registrant as specified in its charter)

Maryland		6035		27-2585073
State or other jurisdiction of incorporation or organization		(Primary Standard Industrial Classification Code Number)		(IRS Employer Identification No.)

9649 Belair Road, Suite 300
Baltimore, Maryland 21236
(410) 529-7400

(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Gary R. Bronstein, Esq. Joel E. Rappoport, Esq. Kilpatrick Stockton LLP 607 14th Street, NW, Suite 900 Washington, DC 20005 (202) 508-5800		Hugh T. Wilkinson, Esq. Kenneth B. Tabach, Esq. Elias, Matz, Tiernan & Herrick L.L.P. 734 15th Street, NW, 11th Floor Washington, DC 20005 (202) 347-0300

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

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

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

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

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

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

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

Calculation of Registration Fee

				Proposed maximum
	Title of each class of securities to be registered			Aggregate offering price (1)			Amount of registration fee
	Common Stock $0.01 par value			$9,257,500			(2)

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

 

 

PROSPECTUS

 

 

(Proposed Holding Company for Madison Square Federal Savings Bank)

Minimum of 595,000 and Up to 805,000 Shares of Common Stock

 

 

 

 

Madison Bancorp, Inc. is offering shares of its common stock for sale in connection with the conversion of Madison Square Federal Savings Bank from the mutual to the stock form of ownership. After the offering, Madison Bancorp will be the holding company for Madison Square Federal Savings Bank through its ownership of 100% of Madison Square Federal Savings Bank’s outstanding common stock. We intend to have our common stock quoted on the OTC Bulletin Board.

 

If you are or were a depositor of Madison Square Federal Saving Bank:

 

 

If you do not fit into the category above, but are interested in purchasing shares of our common stock:

 

 

We are offering up to 805,000 shares of common stock for sale on a best efforts basis, subject to certain conditions. We must sell a minimum of 595,000 shares to complete the offering. If, as a result of regulatory considerations, demand for the shares or changes in market conditions, the independent appraiser determines that our pro forma market value has increased, we may sell up to 925,750 shares without giving you further notice or the opportunity to change or cancel your order. If our pro forma market value at the end of the stock offering period is either below $5,950,000 or above $9,257,500, then, after consulting with the Office of Thrift Supervision, we may: (i) terminate the stock offering and promptly return all funds, with interest and without deduction; (ii) set a new offering range and give all subscribers the opportunity to confirm, modify or rescind their stock purchase orders; or (iii) take such other actions as may be permitted by the Office of Thrift Supervision and the Securities and Exchange Commission.

 

The offering is expected to close at 4:00 p.m., Eastern time, on [DATE 1]. We may extend this closing date without notice to you until [DATE 2], unless the Office of Thrift Supervision approves a later date, which will not be beyond [DATE 3].

 

Sandler O’Neill + Partners, L.P. will use its best efforts to assist us in our selling efforts, but is not required to purchase any of the common stock that is being offered for sale. Purchasers will not pay a commission to purchase shares of common stock in the offering. All shares offered for sale are offered at a price of $10.00 per share.

 

The minimum purchase is 25 shares. Once submitted, orders are irrevocable unless the offering is terminated or extended beyond [DATE 2]. If the offering is extended beyond [DATE 2], subscribers will have the right to modify or rescind their purchase orders. Funds received before the completion of the offering will be maintained in a segregated account at Madison Square Federal Savings Bank. All funds received will bear interest at Madison Square Federal Savings Bank’s passbook savings rate, which is subject to change at any time and is currently 0.25% per annum. If we terminate the offering for any reason, or if we extend the offering beyond [DATE 2], we will notify you and will promptly return your funds with interest if you do not respond to the notice.

 

We expect our directors and executive officers, together with their associates, to subscribe for 60,900 shares, which equals 10.2% of the shares offered for sale at the minimum of the offering range.

 

The Office of Thrift Supervision conditionally approved our plan of conversion on           , 2010. However, such approval does not constitute a recommendation or endorsement of this offering.

 

This investment involves a degree of risk, including the possible loss of principal.
Please read “Risk Factors” beginning on page   .

 

 

OFFERING SUMMARY
Price Per share: $10.00

 

 

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

 

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

 

For assistance, please contact the stock information center at (          )           -          .

 

 

 

 

 

The date of this prospectus is           , 2010

 

TABLE OF CONTENTS

		PAGE
Summary			1
Risk Factors			13
A Warning About Forward-Looking Statements			21
Selected Consolidated Financial and Other Data			22
Recent Developments			24
Use of Proceeds			28
Our Dividend Policy			29
Market for the Common Stock			30
Capitalization			31
Regulatory Capital Compliance			33
Pro Forma Data			34
Our Business			38
Management’s Discussion and Analysis of Financial Condition and Results of Operations			47
Our Management			72
Subscriptions by Executive Officers and Directors			80
Regulation and Supervision			81
Federal and State Taxation			88
The Conversion and Stock Offering			89
Restrictions on the Acquisition of Madison Bancorp, Inc. and Madison Square Federal Savings Bank			107
Description of Madison Bancorp, Inc. Capital Stock			111
Transfer Agent and Registrar			112
Registration Requirements			112
Legal and Tax Opinions			112
Experts			112
Where You Can Find More Information			112
Index to Consolidated Financial Statements of Madison Square Federal Savings Bank			114
EX-1.1
EX-1.2
EX-2.0
EX-5.0
EX-8.1
EX-8.2
EX-10.2
EX-10.11
EX-10.12
EX-10.13
EX-10.14
EX-10.15
EX-23.2
EX-99.4

Summary

     This summary highlights selected information from this document and may not contain all the information that is important to you. To understand the stock offering fully, you should read this entire document carefully.

The Companies

Madison Bancorp, Inc.
Madison Square Federal Savings Bank
9649 Belair Road, Suite 300
Baltimore, Maryland 21236
(410) 529-7400

     Madison Bancorp, Inc. This offering is made by Madison Bancorp, Inc., a Maryland corporation incorporated in May 2010 by Madison Square Federal Savings Bank to be its holding company following the conversion. Currently, Madison Bancorp has no assets. Following the conversion, Madison Bancorp will own all of Madison Square Federal Savings Bank’s capital stock and will direct, plan and coordinate Madison Square Federal Savings Bank’s business activities. In the future, Madison Bancorp might also acquire or organize other operating subsidiaries, including other financial institutions or financial services companies, although it currently has no specific plans or agreements to do so.

     Madison Square Federal Savings Bank. Founded in 1870, Madison Square Federal Savings Bank is a community-oriented financial institution, dedicated to serving the financial service needs of customers and businesses within its market area, which consists of Baltimore and Harford Counties and northeast Baltimore City in Maryland. We offer a variety of deposit products and provide loans secured by real estate located in our market area. Our real estate loans consist primarily of residential mortgage loans, as well as commercial real estate loans, land loans, home equity lines of credit and residential construction loans. We also offer commercial business loans and, to a limited extent, consumer loans. We currently operate out of our corporate headquarters and main office in the Perry Hall area of Baltimore County and full service branch offices located in Perry Hall, Fallston, Bel Air and Baltimore City, Maryland. We are subject to extensive regulation, examination and supervision by the Office of Thrift Supervision, our primary federal regulator, and the Federal Deposit Insurance Corporation, our deposit insurer. At March 31, 2010, we had total assets of $146.9 million, total deposits of $137.0 million and total equity of $9.1 million.

Recent Operating Results and Operating Strategy (page __)

     We have had losses in recent years, including net losses of $855,000 and $1.7 million for the years ended March 31, 2010 and 2009, respectively. Our return on average assets was (0.59)% and (1.33)% for the years ended March 31, 2010 and 2009, respectively, and our return on average equity was (9.17)% and (16.39)% for the years ended March 31, 2010 and 2009, respectively. These returns compared to a median return on average assets of (0.52)% and a median return on average equity of (5.05)% for the most recent 12-month period for the peer group of comparable institutions utilized by Feldman Financial Advisors, Inc. in preparing our appraisal.

     We have identified the following strategic initiatives we will pursue in our efforts to improve earnings and achieve our mission to operate and grow a profitable community-oriented financial institution:

	•		building on our strengths as a community-oriented financial institution;
	•		growing our balance sheet by increasing commercial real estate and commercial business loans;
	•		emphasizing lower cost core deposits to maintain low funding costs;
	•		controlling noninterest expenses;

	•		adding a new branch in our existing market area or a contiguous county within the next three years; and
	•		expanding our market share within our primary market area.

The Conversion

Description of the Conversion (page ___)

     Currently, we are a federally chartered mutual savings bank with no shareholders. Our depositors currently have the right to vote on certain matters such as the election of directors and this conversion transaction. The conversion transaction that we are undertaking involves a change from our mutual form to a stock savings bank charter that will result in all of Madison Square Federal Savings Bank’s capital stock being owned by Madison Bancorp. Voting rights in Madison Bancorp will belong to its shareholders, including our employee stock ownership plan. For more information on the employee stock ownership plan, see “Summary—Benefits of the Offering to Management—Employee Stock Ownership Plan.” We are conducting the conversion under the terms of our plan of conversion. The Office of Thrift Supervision has conditionally approved the plan of conversion, including a condition that it be approved by our members. We have called a special meeting of members for                           , 2010 to vote on the plan of conversion.

     The following diagram depicts our corporate structure after the conversion and offering, including the number and percentage of shares of common stock that will be owned by public shareholders at the minimum, maximum, and maximum, as adjusted, of the offering range upon completion of the conversion and the offering:

Regulation and Supervision (page __)

     We are, and Madison Bancorp will be upon completion of the conversion, subject to regulation, supervision and examination by the Office of Thrift Supervision. We are also subject to regulation by the Federal Deposit Insurance Corporation.

The Offering

Purchase Price

     The purchase price is $10.00 per share. You will not pay a commission to buy any shares in the offering.

Number of Shares to be Sold (page ___)

     We are offering for sale between 595,000 and 805,000 shares of Madison Bancorp common stock in this offering. With regulatory approval, we may increase the number of shares to be sold to 925,750 shares without giving you further notice or the opportunity to change or cancel your order. In considering whether to increase the offering size, the Office of Thrift Supervision will consider such factors as the level of subscriptions, the views of our independent appraiser, our financial condition and results of operations and changes in market conditions.

How We Determined the Offering Range (page ___)

     We are offering between 595,000 and 805,000 shares, which is our offering range, based on an independent appraisal of our pro forma market value prepared by Feldman Financial Advisors, Inc., an independent appraisal firm experienced in appraisals of financial institutions. Feldman Financial Advisors estimates that as of June 1, 2010, our pro forma market value was between $6.0 million and $8.1 million, with a midpoint of $7.0 million.

     In preparing its appraisal, Feldman Financial Advisors considered the information in this prospectus, including our consolidated financial statements. Feldman Financial Advisors also considered the following factors, among others:

	•		our historical, present and projected operating results and financial condition and the economic and demographic characteristics of our primary market area;
	•		a comparative evaluation of the operating and financial statistics of Madison Square Federal Savings Bank with those of other similarly situated, publicly traded companies;
	•		the effect of the capital raised in this offering on our net worth and earnings potential; and
	•		the trading market for securities of comparable institutions and general conditions in the market for such securities.

     Two measures that some investors use to analyze whether a stock might be a good investment are the ratio of the offering price to the issuer’s “book value” and the ratio of the offering price per share to the issuer’s income per share for the past twelve months. Feldman Financial Advisors considered these ratios, among other factors, in preparing its appraisal. Book value is the same as total equity and represents the difference between the issuer’s assets and liabilities. Feldman Financial Advisors’ appraisal also incorporates an analysis of a peer group of publicly traded companies that Feldman Financial Advisors considered to be comparable to us.

     The following table presents a summary of selected pricing ratios for the peer group companies and for us utilized by Feldman Financial Advisors in its appraisal. These ratios are based on book value and tangible book value as of March 31, 2010 at the latest date for which complete financial data was publicly available for the peer group.

		Price to Book				Price to Tangible
		Value Ratio				Book Value Ratio
Madison Bancorp, Inc. (pro forma):
Minimum			43.5	%			43.5	%
Midpoint			47.8				47.8
Maximum			51.7				51.7
Maximum, as adjusted			55.6				55.6
Peer group companies as of June 1, 2010:
Average			55.9				57.8
Median			60.9				62.1

     We reported negative earnings for the most recent twelve month period ended March 31, 2010. Thus, comparisons to peer group ratios related to earnings are not meaningful. Compared to the average price to book value ratio of the peer group at the maximum of the offering range, our stock would be priced at a discount of 7.6%. This means that, at the midpoint of the offering rate, a share of our common stock would be less expensive than the peer group based on a book value per share basis.

     The independent appraisal does not indicate market value. You should not assume or expect that the valuation described above means that our common stock will trade at or above the $10.00 purchase price after the offering.

Possible Change in Offering Range (page ___)

     Feldman Financial Advisors will update its appraisal before we complete the stock offering. If, as a result of regulatory considerations, demand for the shares or changes in market conditions, Feldman Financial Advisors determines that our pro forma market value has increased, we may sell up to 925,750 shares without further notice to you. If our pro forma market value at the end of the stock offering period is either below $5,950,000 or above $9,257,500, then, after consulting with the Office of Thrift Supervision, we may: (i) terminate the stock offering and promptly return all funds, with interest and without deduction; (ii) set a new offering range and give all subscribers the opportunity to confirm, modify or rescind their purchase orders for shares of Madison Bancorp’s common stock; or (iii) take such other actions as may be permitted by the Office of Thrift Supervision and the Securities and Exchange Commission.

Possible Termination of the Offering

     We must sell a minimum of 595,000 shares to complete the offering. If we do not sell the minimum number of shares, or if we terminate the offering for any other reason, we will promptly return all funds, with interest, at our current passbook rate, and without deduction.

After-Market Performance of Mutual-to-Stock Conversions

     The appraisal prepared by Feldman Financial Advisors includes examples of after-market stock price performance for standard mutual-to-stock conversion offerings (i.e., excluding “second step” conversions by mutual holding companies) completed between January 1, 2008 and June 1, 2010. These companies did not constitute the group of ten comparable public companies utilized in Feldman Financial Advisor’s valuation analysis.

						Offering				Percentage Change From Initial Offering Price
Issuer						Size (In				After 1				After 1				After 1				Through
(Market/Symbol)		Date of IPO				Millions)				Day				Week				Month				June 1, 2010
Harvard Illinois Bancorp, Inc. (OTCBB/HARI)			04/09/10				7.8				0.0				0.0				(1.0	)			(21.5	)
OBA Financial Services, Inc. (NASDAQ/OBAF)			01/22/10				46.3				3.9				1.5				3.0				11.5
OmniAmerican Bancorp, Inc. (NASDAQ/OABC)			01/21/10				119.0				18.5				14.0				9.9				14.9
Versailles Financial Corporation (OTCBB/VERF)			01/11/10				4.3				0.0				0.0				0.0				0.0
Athens Bancshares Corporation (NASDAQ/AFCB)			01/07/10				26.8				16.0				15.0				10.6				7.0
Territorial Bancorp, Inc. (NASDAQ/TBNK)			07/13/09				122.3				49.9				47.2				48.0				92.9
St. Joseph Bancorp, Inc. (OTCBB/SJBA)			02/02/09				3.8				0.0				0.0				0.0				0.0
Hibernia Homestead Bancorp, Inc. (OTCBB/HIBE)			01/28/09				11.1				0.0				5.0				5.0				50.0
First Savings Financial Group, Inc. (NASDAQ/FSFG)			10/07/08				24.3				(1.0	)			(4.0	)			(8.0	)			33.0
Home Bancorp, Inc. (NASDAQ/HBCP)			10/03/08				89.3				14.9				3.5				3.1				35.2
Cape Bancorp, Inc. (NASDAQ/CBNJ)			02/01/08				78.2				0.5				0.1				(2.0	)			(29.0	)
Danvers Bancorp, Inc. (NASDAQ/DNBK)			01/10/08				171.9				(2.6	)			(2.2	)			2.6				54.6
All Transactions:
Average			N/A				58.8				8.3				6.7				5.9				20.7
Median			N/A				36.5				0.3				0.8				2.8				13.2
High			N/A				171.9				49.9				47.2				48.0				92.9
Low			N/A				3.8				(2.6	)			(4.0	)			(8.0	)			(29.0	)
OTCBB Transactions:
Average			N/A				6.8				0.0				1.3				1.0				7.1
Median			N/A				6.1				0.0				0.0				0.0				0.0
High			N/A				11.1				0.0				5.0				5.0				50.0
Low			N/A				3.8				0.0				0.0				(1.0	)			(21.5	)

     This table is not intended to indicate how our stock may perform. Furthermore, this table presents only short-term price performance with respect to a limited number of companies that have only recently completed their initial public offerings and may not be indicative of the longer-term stock price performance of these companies.

     Stock price appreciation or depreciation is affected by many factors, including, but not limited to: general market and economic conditions; the interest rate environment; the amount of proceeds a company raises in its offering and its ability to successfully deploy those proceeds through originating loans and making other investments; and numerous factors relating to the specific company, including the experience and ability of management, historical and anticipated operating results, the nature and quality of the company’s assets, and the company’s primary market area. The companies listed in the table above may not be similar to Madison Bancorp, the pricing ratios for their stock offerings were in some cases different from the pricing ratios for Madison Bancorp’s common stock and the market conditions in which these offerings were completed were, in some cases, different from current market conditions. Any or all of these differences may cause our stock to perform differently from these other offerings. Before you make an investment decision, we urge you to read carefully this prospectus, including, but not limited to, the section entitled “Risk Factors.”

     You also should be aware that, recently, stock prices of some thrift initial public offerings have decreased once the stock has begun trading. We cannot assure you that our stock will not trade below the $10.00 purchase price or that our stock will perform similarly to other recent mutual to stock conversions.

Conditions to Completing the Conversion and Offering (page __)

     We are conducting the conversion and offering under the terms of our plan of conversion. We cannot complete the conversion and offering unless:

	•		we sell at least the minimum number of shares offered;
	•		we receive the final approval of the Office of Thrift Supervision to complete the offering; and

•

our members approve the plan of conversion.

Reasons for the Conversion and Offering (page ___)

     Our primary reasons for the conversion and offering are to:

	•		increase the capital of Madison Square Federal Savings Bank to support future lending and operational growth and to allow us to make larger loans to individual borrowers within regulatory limits;
	•		enhance profitability and earnings through reinvesting and leveraging the proceeds, primarily through traditional funding and lending activities;
	•		support future branching activities and/or the acquisition of other financial institutions or financial services companies; and
	•		implement equity compensation plans to retain and attract qualified directors, officers and staff to enhance the current incentive-based compensation programs.

Benefits of the Offering to Management (page __)

     We intend to adopt the following benefit plans and employment agreements:

     Employee Stock Ownership Plan. We have adopted an employee stock ownership plan that we anticipate will purchase in the conversion offering a number of shares of common stock equal to 7% of the shares sold in the offering by means of a 15-year loan from Madison Bancorp. As the loan is repaid and shares are released from collateral, the plan will allocate shares to the accounts of participating employees. Participants will receive allocations based on their individual compensation as a percentage of total plan compensation. Non-employee directors are not eligible to participate in the employee stock ownership plan. The purchase of common stock by the employee stock ownership plan in the offering will comply with all applicable Office of Thrift Supervision regulations except to the extent waived by the Office of Thrift Supervision. We will incur additional compensation expense as a result of this plan. See “Pro Forma Data” for an illustration of the effects of this plan.

     Future Equity Incentive Plan. We intend to implement an equity incentive plan no earlier than six months after completion of the conversion. If we implement the plan within one year after the conversion, the plan must be approved by a majority of the total votes eligible to be cast by our shareholders. If we implement the plan more than one year after the conversion, it must be approved only by a majority of the total votes cast. We currently expect to implement this plan more than one year after the conversion, although no decision has been made. Under this plan, we may award stock options and shares of restricted stock to key employees and directors. We will award shares of restricted stock at no cost to the recipient. We will grant stock options at an exercise price at least equal to 100% of the fair market value of our common stock on the option grant date. We will incur additional compensation expense as a result of this plan. See “Pro Forma Data” for an illustration of the effects of this plan. Under this plan, we may grant stock options in an amount up to 10% of the number of shares sold in the offering, and we may grant awards of restricted stock in an amount of up to 3% of the number of shares sold in the offering. If we implement the equity incentive plan more than one year following the conversion, we would not be subject to Office of Thrift Supervision regulations limiting the awards we may make under the plan. However, if we implement the plan more than one year following the conversion, we do not expect to increase the number of shares available for awards under the plan, except that if Madison Square Federal Savings Bank’s tangible capital exceeds 10% of adjusted total assets when we implement the plan, we may increase the number of shares available for restricted stock awards to 4% of the shares sold in the offering. We expect to fund the plan with shares we purchase in the open market, but in determining whether to do so, the Board of Directors will consider our financial condition and results of operations, capital requirements, economic conditions and whether sufficient shares are available for purchase in the open market. The equity incentive plan will comply with all applicable Office of Thrift Supervision regulations except to the extent waived by the Office of Thrift Supervision.

     The following table represents the total value of all shares to be available for restricted stock awards under the equity incentive plan, based on a range of market prices from $8.00 per share to $14.00 per share. The value of the grants will depend on the actual trading price of our common stock at the time of grant.

				Value of
																27,772
				17,850				21,000				24,150				Shares
				Shares				Shares				Shares				Awarded at
				Awarded at				Awarded at				Awarded at				Maximum, as
				Minimum of				Midpoint of				Maximum of				Adjusted, of
Share Price				Range				Range				Range				Range
				(In thousands, except per share amounts)
$	8.00			$	143			$	168			$	193			$	222
	10.00				179				210				242				278
	12.00				214				252				290				333
	14.00				250				294				338				389

     The following table presents the total value of all stock options available for grant under the equity incentive plan, based on a range of market prices at the date of grant from $8.00 per share to $14.00 per share. For purposes of this table, the value of the stock options was determined using the Black-Scholes option-pricing formula. See “Pro Forma Data.” Financial gains can be realized on a stock option only if the market price of the common stock increases above the exercise price at which the option is granted.

								Value of
																				92,575
								59,500				70,000				80,500				Options
								Options				Options				Options				Granted at
								Granted at				Granted at				Granted at				Maximum, as
								Minimum of				Midpoint of				Maximum of				Adjusted, of
Exercise Price				Option Value				Range				Range				Range				Range
								(In thousands, except per share amounts)
$	8.00			$	3.35			$	199			$	235			$	270			$	310
	10.00				4.19				249				293				337				388
	12.00				5.03				299				352				405				466
	14.00				5.87				349				411				473				543

     The following tables summarize at the minimum and maximum of the offering range the total number and value of the shares of common stock that the employee stock ownership plan expects to acquire and the total value of all restricted stock awards and stock options that are expected to be available under the equity incentive plan. At the minimum of the offering range we would sell 595,000 shares and have 595,000 shares outstanding, and at the maximum of the offering range, we would sell 805,000 shares and have 805,000 shares outstanding. The number of shares reflected for the benefit plans in the table below assumes that we grant a number of restricted stock awards equal to 3% of the shares sold in the offering and the application of the net proceeds as described under “Use of Proceeds.” If we adopt an equity incentive plan more than one year after completion of the offering, we would not be subject to Office of Thrift Supervision regulations limiting the awards we may make under the plan. However, if we implement the plan more than one year following the conversion, we do not expect to increase the number of shares available for awards under the plan, except that if Madison Square Federal Savings Bank’s tangible capital exceeds 10% of adjusted total assets when we implement the plan, we may increase the number of shares available for restricted stock awards to 4% of the shares sold in the offering. See “Our Management — Executive Compensation — Nonqualified Deferred Compensation — Future Equity Incentive Plan.”

		Number of Shares to be Granted or
		Purchased at Minimum of Offering Range
										Total
						As a % of				Estimated
		Number of				Common Stock				Value of
		Shares				Sold				Grants
Employee stock ownership plan (1)			41,650				7.0	%		$	416,500
Restricted stock awards (1)			17,850				3.0				178,500
Stock options (2)			59,500				10.0				249,305
Total			119,000				20.0	%			844,305

		Number of Shares to be Granted or
		Purchased At Maximum of Offering Range
										Total
						As a % of				Estimated
		Number of				Common Stock				Value of
		Shares				Sold				Grants
Employee stock ownership plan (1)			56,350				7.0	%		$	563,500
Restricted stock awards (1)			24,150				3.0				241,500
Stock options (2)			80,500				10.0				337,322
Total			161,000				20.0	%		$	1,142,322

     Employment Agreements. Madison Square Federal Savings Bank currently has three-year employment agreements with Messrs. Michael P. Gavin and Ronald E. Ballard, Ms. Melody P. Kline and Ms. Kay Webster and a two-year agreement with Mr. David F. Wallace. Madison Bancorp intends to enter into employment agreements with each of Messrs. Gavin, Wallace and Ballard, Ms. Kline and Ms. Webster on terms similar to the employment agreements with the Bank. Based solely on initial cash compensation payable under the employment agreements and excluding any benefits that would be payable under any employee benefit plan, if a change in control of Madison Bancorp occurred and we terminated the executives, the total payment due under the employment agreements would be approximately $1.5 million.

     Employee Severance Compensation Plan. In connection with the conversion, we intend to adopt an employee severance compensation plan. This plan will provide severance benefits to eligible employees if there is a change in control of Madison Bancorp or Madison Square Federal Savings Bank. Based solely on compensation levels as of March 31, 2010, if a change in control occurred, and we terminated all employees covered by the severance compensation plan, the total payment due under the plan would be approximately $375,000.

The Offering Is Not Expected to Be Taxable to Persons Receiving or Exercising Subscription Rights (page ___)

     As a general matter, the offering is not expected to be a taxable transaction for purposes of federal income taxes to persons who receive or exercise subscription rights. We have received an opinion from our special counsel, Kilpatrick Stockton LLP, that, for federal income tax purposes:

	•		it is more likely than not that the members of Madison Square Federal Savings Bank will not realize any income upon the issuance or exercise of subscription rights;
	•		it is more likely than not that the tax basis to the purchasers in the offering will be the amount paid for our common stock, and that the holding period for shares of common stock will begin on the date of completion of the subscription offering; and
	•		the holding period for shares of common stock purchased in the community offering or syndicated community offering will begin on the day after the date of completion of the purchase.

Persons Who May Order Stock in the Offering (page ___)

     Note: Subscription rights are not transferable, and persons with subscription rights may not subscribe for shares for the benefit of any other person. If you violate this prohibition, you may lose your rights to purchase shares and may face criminal prosecution and/or other sanctions.

     We have granted rights to subscribe for shares of Madison Bancorp common stock in a “subscription offering” to the following persons in the following order of priority:

	1.		Persons with $50 or more on deposit at Madison Square Federal Savings Bank as of the close of business on December 31, 2008.
	2.		Our employee stock ownership plan, which will provide retirement benefits to our employees.
	3.		Persons (other than our directors and officers) with $50 or more on deposit at Madison Square Federal Savings Bank as of the close of business on _________ ___, 2010.
	4.		Madison Square Federal Savings Bank’s depositors as of the close of business on _________ ___, 2010 who were not able to subscribe for shares under categories 1 or 3.

     If we receive subscriptions for more shares than are to be sold in this offering, we may be unable to fill or may only partially fill your order. Shares will be allocated in order of the priorities described above under a formula outlined in the plan of conversion. Generally, shares first will be allocated so as to permit each eligible subscriber, if possible, to purchase a number of shares sufficient to make the subscriber’s total allocation equal to 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining eligible subscribers whose subscriptions remain unfilled in proportion to the amounts that their respective qualifying deposits bear to the total qualifying deposits of all remaining eligible subscribers whose subscriptions remain unfilled. If we increase the number of shares to be sold above 805,000, the employee stock ownership plan will have the first priority right to purchase any shares exceeding that amount to the extent that its subscription has not previously been filled. Any shares remaining will be allocated in the order of priorities described above. See “The Conversion and Stock Offering — Subscription Offering and Subscription Rights” for a description of the allocation procedure.

     We may offer shares not sold in the subscription offering, if any, to the general public in a community offering. People and trusts for the benefit of people who are residents of Baltimore County, Harford County and Baltimore City in Maryland will be given a first preference to purchase shares in the community offering. We may, in our sole discretion, reject orders received in the community offering either in whole or in part. For example, we would reject an order submitted by a person whom we believe is making false representations or whom we believe is attempting to violate, evade or circumvent the terms and conditions of the plan of conversion. If your order is rejected in part, you cannot cancel the remainder of your order. The community offering may commence concurrently with the subscription offering or at any time thereafter and may terminate at any time without notice until [DATE 2], unless the Office of Thrift Supervision approves a later date, which will not be beyond [DATE 3].

Deadline for Ordering Stock (page ___)

     The subscription offering will end at 4:00 p.m., Eastern time, on [DATE 1]. We expect that the community offering will terminate at the same time, although it may continue for up to 45 days after the end of the subscription offering, or longer if the Office of Thrift Supervision approves a later date. No single extension may be for more than 90 days. If we extend the offering beyond [DATE 2], or if we intend to sell fewer than 595,000 shares or more than 925,750 shares, all subscribers will be notified and given the opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will return your funds promptly with interest at our passbook rate and without deduction.

Purchase Limitations (page ___)

     Our plan of conversion establishes limitations on the purchase of stock in the offering. These limitations include the following:

	•		The minimum purchase is 25 shares.
	•		No individual (or individuals on a single deposit account) may purchase more than $250,000 of common stock (which equals 25,000 shares) in the subscription offering.
	•		No individual may purchase more than $250,000 of common stock (which equals 25,000 shares) in the community offering.
	•		No individual, no individual together with any associates, and no group of persons acting in concert may purchase more than the lesser of $450,000 of common stock (which equals 45,000 shares) or 5% of the common stock sold in the offering.

     Subject to the Office of Thrift Supervision’s approval, we may increase or decrease the purchase limitations at any time.

How to Purchase Common Stock (page ___)

     If you want to place an order for shares in the offering, you must complete an original stock order and certification form and send it to us together with full payment, or deliver it in person to the stock information center located at Madison Square Federal Savings Bank’s main office, 9651 Belair Road, Baltimore, Maryland 21236. We must receive your stock order and certification form before the end of the subscription offering or the end of the community offering, as appropriate, regardless of the postmark date. Once we receive your order, you cannot cancel or change it without our consent.

     To ensure that we properly identify your subscription rights, you must list all of your deposit accounts as of the applicable eligibility date on the stock order form. If you fail to do so, your subscription may be reduced or rejected if the offering is oversubscribed. To preserve your purchase priority, only the name(s) of person(s) listed on your deposit account at the applicable date of eligibility may be listed on your order form. You may not add the names of others who were not eligible to purchase common stock in the offering on the applicable date of eligibility.

     You may pay for shares in the subscription offering or the community offering in either of the following ways:

	•		By check or money order made payable to Madison Bancorp, Inc.; or
	•		By authorizing withdrawal from an account at Madison Square Federal Savings Bank.

     Depositors interested in using funds in an individual retirement account with us to purchase common stock should contact the stock information center as soon as possible so that the necessary forms may be forwarded for execution and returned before the subscription offering ends. To use funds in an Individual Retirement Account at

Madison Square Federal Savings Bank, you must transfer your account to an unaffiliated institution or broker and open a self-directed Individual Retirement Account. Individual Retirement Accounts at Madison Square Federal Savings Bank are not self-directed and common stock may only be purchased using a self-directed Individual Retirement Account. Please contact your broker or financial institution as quickly as possible to determine if you may transfer your Individual Retirement Account from Madison Square Federal Savings Bank because the transfer may take several days. You may use funds currently in an independent, self-directed individual retirement account to purchase stock by having your trustee complete and return the subscription form together with a check payable to Madison Bancorp, Inc. before the expiration of the subscription offering.

     We will pay interest on your subscription funds at the rate we pay on passbook accounts, which is subject to change at any time and is currently 0.25% per annum, from the date we receive your funds until the offering is completed or terminated. All funds authorized for withdrawal from deposit accounts with us will earn interest at the applicable account rate until the offering is completed or terminated. If, as a result of a withdrawal from a certificate of deposit, the balance falls below the minimum balance requirement, the remaining funds will earn interest at our passbook rate. There will be no early withdrawal penalty for withdrawals from certificates of deposit used to pay for stock.

How We Will Use the Proceeds of this Offering (page ___)

     The following table summarizes how we will use the proceeds of this offering, based on the sale of shares at the minimum and maximum of the offering range. We expect to contribute the greater of $3.5 million or 50% of the net proceeds of the offering to Madison Square Federal Savings Bank.

		Minimum 595,000				Maximum 805,000
		Shares at $10.00				Shares at $10.00
(In thousands)		Per Share				Per Share
Offering proceeds		$	5,950			$	8,050
Less estimated offering expenses			(730	)			(730	)
Net offering proceeds			5,220				7,320
Less:
Proceeds contributed to Madison Square Federal Savings Bank			(3,500	)			(3,660	)
Proceeds used for loan to employee stock ownership plan			(417	)			(564	)
Proceeds remaining for Madison Bancorp		$	1,304			$	3,097

     Madison Bancorp may use the portion of the proceeds that it retains to, among other things, invest in securities, pay cash dividends or repurchase shares of common stock, subject to regulatory restrictions. Madison Square Federal Savings Bank may use the portion of the proceeds that it receives to fund new loans, open new branches, invest in securities and expand its business activities. Madison Bancorp and Madison Square Federal Savings Bank may also use the proceeds of the offering to diversify their businesses and acquire other companies, although we have no specific plans, arrangements or understandings to do so at this time. Except as described above, neither Madison Bancorp nor Madison Square Federal Savings Bank has any specific plans for the investment of the proceeds of this offering and has not allocated a specific portion of the proceeds to any particular use. For a discussion of our business reasons for undertaking this offering, see “The Conversion and Stock Offering — Reasons for the Conversion.”

Purchases by Directors and Executive Officers (page __)

     We expect that our directors and executive officers, together with their associates, will subscribe for 60,900 shares, which equals 10.2% of the shares that would be sold at the minimum of the offering range. Our directors and executive officers, together with their associates, will pay the same $10.00 price per share as everyone else who purchases shares in the offering. Like all of our depositors, our directors and executive officers and their associates have subscription rights based on their deposits and, if there is an oversubscription, their orders will be subject to the allocation provisions set forth in our plan of conversion, unless waived by the Office of Thrift Supervision.

Purchases by our directors and executive officers and their associates will count towards the minimum number of shares we must sell to close the offering.

Market for Madison Bancorp, Inc.’s Common Stock (page __)

     We intend to list the common stock of Madison Bancorp for trading on the OTC Bulletin Board. Sandler O’Neill + Partners, L.P. currently intends to become a market maker in the common stock, but it is under no obligation to do so. In addition, if needed, Sandler O’Neill + Partners, L.P. will assist us in obtaining additional market makers. We cannot assure you that other market makers will be obtained or that an active and liquid trading market for our common stock will develop or, if developed, will be maintained. After shares of the common stock begin trading, you may contact a stock broker to buy or sell shares.

Madison Bancorp, Inc.’s Dividend Policy (page __)

     After the offering, we initially do not intend to pay cash dividends. Our ability to pay dividends will depend on a number of factors, including capital requirements, regulatory limitations and our operating results and financial condition.

Delivery of Prospectus

     To ensure that each person receives a prospectus at least 48 hours before the offering deadline, we may not mail prospectuses any later than five days before such date or hand-deliver prospectuses later than two days before that date. Stock order forms may only be delivered if accompanied or preceded by a prospectus. We are not obligated to deliver a prospectus or order form by means other than U.S. mail.

     We will make reasonable attempts to provide a prospectus and offering materials to holders of subscription rights. The subscription offering and all subscription rights will expire at 4:00 p.m., Eastern time, on [DATE 1] whether or not we have been able to locate each person entitled to subscription rights.

Delivery of Stock Certificates (page ___)

     Certificates representing shares of common stock issued in the offering will be mailed to purchasers at the address provided by them on the order form as soon as practicable following completion of the offering. Until certificates for common stock are available and delivered to subscribers, subscribers may not be able to sell their shares, even though trading of the common stock will have commenced.

Stock Information Center

     If you have any questions regarding the offering, please call the stock information center at (___) ___-___ to speak to a registered representative of Sandler O’Neill + Partners, L.P. The stock information center will be open Monday through Friday, ___:___ a.m. to ___:___ p.m., Eastern time. The stock information center will be closed on weekends and bank holidays.

Risk Factors

     You should consider carefully the following risk factors before purchasing Madison Bancorp common stock.

Risks Related to Our Business

We have had losses in recent years, and if we cannot increase our income to competitive levels our stock price may be adversely affected.

We have had losses in recent years, including net losses of $855,000 and $1.7 million for the years ended March 31, 2010 and 2009, respectively. Our return on average assets was (0.59)% and (1.33)% for the years ended March 31, 2010 and 2009, respectively, and our return on average equity was (9.17)% and (16.39)% for the years ended March 31, 2010 and 2009, respectively. These returns compared to a median return on average assets of (0.52)% and a median return on average equity of (5.05)% for the most recent 12-month period for the peer group of comparable institutions utilized by Feldman Financial Advisors, Inc. in preparing our appraisal. We have identified various strategic initiatives we will pursue in our efforts to overcome these challenges and improve earnings. These strategic initiative include the following:

	•		building on our strengths as a community-oriented financial institution;
	•		growing our balance sheet by increasing commercial real estate and commercial business loans;
	•		emphasizing lower cost core deposits to maintain low funding costs;
	•		controlling noninterest expenses;
	•		adding a new branch in our existing market area or a contiguous county within the next three years; and
	•		expanding our market share within our primary market area.

For a detailed description of our strategic initiatives to improve earnings, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operating Strategy.” However, our strategic initiatives my not succeed in generating and increasing income. If we are unable to generate or increase income, our stock price may be adversely affected. Moreover, even if we are successful in generating net income, our earnings may be low for some time. In such event, our return on equity, which equals net income divided by average equity, may be below returns on equity achieved by peer institutions, which also could adversely affect our stock price.

Our increased emphasis on commercial real estate and commercial lending may expose us to increased lending risks.

     In recent years we have significantly increased our emphasis on commercial real estate and commercial lending. Commercial real estate loans increased from $2.0 million, or 2.7% of our total loans, at March 31, 2008 to $11.6 million, or 12.8% of our total loans, at March 31, 2010. Commercial loans increased from $150,000, or 0.2% of our total loans, at March 31, 2008 to $4.8 million, or 5.2% of our total loans, at March 31, 2010. Moreover, as part of our strategy to increase earnings, we will seek to continue to increase commercial real estate lending, as well as commercial lending, and intend to add commercial lending personnel to assist us in these efforts. These types of loans generally expose a lender to greater risk of non-payment and loss than single-family residential mortgage loans because repayment of the loans often depends on the successful operation of the property and the income stream of the borrowers and, for commercial construction loans, the accuracy of the estimate of the property’s value at completion of construction and the estimated cost of construction. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to single-family residential mortgage loans. Commercial business loans expose us to additional risks since they typically are made on the basis of the borrower’s ability to make repayments from the cash flow of the borrower’s business and are secured by non-real estate

collateral that may depreciate over time. In addition, since such loans generally entail greater risk than single-family residential mortgage loans, we may need to increase our allowance for loan losses in the future associated with the growth of such loans. Also, many of our commercial and construction borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a single-family residential mortgage loan. In addition, because of the significant increases in commercial real estate and commercial loans in recent years, much of our portfolio of these types of loans is unseasoned, although many of these loans are to borrowers we know well and with whom we have other borrowing or deposit relationships.

Significant loan losses could require us to increase our allowance for loan losses through a charge to earnings.

     When we loan money we incur the risk that our borrowers will not repay their loans. We provide for loan losses by establishing an allowance through a charge to earnings. The amount of this allowance is based on our assessment of loan losses inherent in our loan portfolio. The process for determining the amount of the allowance is critical to our financial condition and results of operations. It requires subjective and complex judgments about the future, including forecasts of economic or market conditions that might impair the ability of our borrowers to repay their loans. We might underestimate the loan losses inherent in our loan portfolio and have loan losses in excess of the amount recorded in our allowance for loan losses. We might increase the allowance because of changing economic conditions. For example, in a rising interest rate environment, borrowers with adjustable-rate loans could see their payments increase. There may be a significant increase in the number of borrowers who are unable or unwilling to repay their loans, resulting in our charging off more loans and increasing our allowance. In addition, when real estate values decline, the potential severity of loss on a real estate-secured loan can increase significantly, especially in the case of loans with high combined loan-to-value ratios. The recent decline in the national economy and the local economies of the areas in which the loans are concentrated could result in an increase in loan delinquencies, foreclosures or repossessions resulting in increased charge-off amounts and the need for additional loan loss allowances in future periods. In addition, our determination as to the amount of our allowance for loan losses is subject to review by our primary regulator, the Office of Thrift Supervision, as part of its examination process, which may result in the establishment of an additional allowance based upon the judgment of the Office of Thrift Supervision after a review of the information available at the time of its examination. Our allowance for loan losses amounted to $605,000, or 0.67% of total loans outstanding and 88.96% of non-performing loans, at March 31, 2010. Our allowance for loan losses at March 31, 2010 may not be sufficient to cover future loan losses. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would decrease our earnings. In addition, at March 31, 2010, we had ten loan relationships with outstanding balances, net of participation interests sold, that exceeded $1.0 million, all of which were performing according to their original terms. However, the deterioration of one or more of these loans could result in a significant increase in our non-performing loans and our provision for loan losses, which would negatively impact our results of operations.

If we conclude that the decline in value of any of our investment securities is other than temporary, we are required to write down the value of that security through a charge to earnings.

     We review our investment securities portfolio at each quarter-end reporting period to determine whether the fair value is below the current carrying value. When the fair value of any of our investment securities has declined below its carrying value, we are required to assess whether the decline is other-than-temporary. If we conclude that the decline is other-than-temporary, we are required to write down the value of that security through a charge to earnings. As of March 31, 2010, our investment securities portfolio held-to-maturity included approximately 54 nonagency mortgage-backed securities with a book value of $1.1 million and an estimated fair value of $1.0 million. Changes in the expected cash flows of these securities and/or prolonged price declines may result in our concluding in future periods that the impairment of these securities is other than temporary, which would require a charge to earnings to write down theses securities to their fair value. During the year ended March 31, 2010, we wrote down these securities for an other-than-temporary impairment of $283,000. Any charges for other-than-temporary impairment would not impact cash flow, tangible capital or liquidity.

Our stock price may decline when trading commences.

     If you purchase shares in the offering, you may not be able to sell them at or above the $10.00 purchase price. After the shares of our common stock begin trading, the trading price of the common stock will be determined by the marketplace, and will be influenced by many factors outside of our control, including prevailing interest rates, investor perceptions, securities analyst research reports and general industry, geopolitical and economic conditions. Publicly traded stocks, including stocks of financial institutions, often experience substantial market price volatility. These market fluctuations might not be related to the operating performance of particular companies whose shares are traded. Additionally, the stock prices of some recently converted thrift institutions have declined below, and remain below, their initial offering prices.

The loss of senior management could hurt our operations.

     We rely heavily on our executive officers, Messrs. Gavin, Wallace and Ballard, Ms. Kline and Ms. Webster. The loss of one or more members of senior management could have an adverse effect on us because, as a small community bank, our senior executive officers have more responsibility than would be typical at a larger financial institution with more employees. In addition, as a small community bank, we have fewer management-level personnel who are in a position to assume the responsibilities of our senior executive officers.

Continued turmoil in the financial markets could have an adverse effect on our financial position or results of operations.

     Beginning in 2008, United States and global financial markets experienced severe disruption and volatility, and general economic conditions have declined significantly. Adverse developments in credit quality, asset values and revenue opportunities throughout the financial services industry, as well as general uncertainty regarding the economic, industry and regulatory environment, have had a negative impact on the industry. The United States and the governments of other countries have taken steps to try to stabilize the financial system, including investing in financial institutions, and have implemented programs intended to improve general economic conditions. The U.S. Department of the Treasury created the Capital Purchase Program under the Troubled Asset Relief Program, pursuant to which the Treasury Department provided additional capital to participating financial institutions through the purchase of preferred stock or other securities. Other measures include homeowner relief that encourages loan restructuring and modification; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering of the federal funds rate; regulatory action against short selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to address illiquidity and other weaknesses in the banking sector. Notwithstanding the actions of the United States and other governments, there can be no assurance that these efforts will be successful in restoring industry, economic or market conditions to their previous levels and that they will not result in adverse unintended consequences. Factors that could continue to pressure financial services companies, including Madison Bancorp, are numerous and include:

	•		worsening credit quality, leading among other things to increases in loan losses and reserves,
	•		continued or worsening disruption and volatility in financial markets, leading among other things to continuing reductions in asset values,
	•		capital and liquidity concerns regarding financial institutions generally,
	•		limitations resulting from or imposed in connection with governmental actions intended to stabilize or provide additional regulation of the financial system, or
	•		recessionary conditions that are deeper or last longer than currently anticipated.

The recent economic downturn could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which would lead to lower revenue, higher loan losses and lower earnings.

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

Increased and/or special FDIC assessments will hurt our earnings.

     The recent economic downturn has caused a high level of bank failures, which has dramatically increased FDIC resolution costs and led to a significant reduction in the balance of the Deposit Insurance Fund. As a result, the FDIC has significantly increased the initial base assessment rates paid by financial institutions for deposit insurance. Increases in the base assessment rate have increased our deposit insurance costs and negatively impacted our earnings. In addition, in May 2009, the FDIC imposed a special assessment on all insured institutions. Our special assessment, which was reflected in earnings for the quarter ended June 30, 2009, was $67,000. In lieu of imposing an additional special assessment, the FDIC required all institutions to prepay their assessments for all of 2010, 2011 and 2012, which for us totaled $863,000. Additional increases in the base assessment rate or additional special assessments would negatively impact our earnings.

Changing interest rates may decrease our earnings and asset value.

     Our net interest income is the interest we earn on loans and investments less the interest we pay on our deposits and borrowings. Our interest rate spread is the difference between the yield we earn on our assets and the interest rate we pay for deposits and our other sources of funding. Changes in interest rates—up or down—could adversely affect our interest rate spread and, as a result, our net interest income. Although the yield we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our interest rate spread to expand or contract. Our liabilities tend to be shorter in duration than our assets, so they may adjust faster in response to changes in interest rates. As a result, when interest rates rise, our funding costs may rise faster than the yield we earn on our assets, causing our interest rate spread to contract until the yield catches up. This contraction could be more severe following a prolonged period of lower interest rates, as a larger proportion of our fixed rate residential loan portfolio will have been originated at those lower rates and borrowers may be more reluctant or unable to sell their homes in a higher interest rate environment. Changes in the slope of the “yield curve”—or the spread between short-term and long-term interest rates—could also reduce our net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because our liabilities tend to be shorter in duration than our assets, when the yield curve flattens or even inverts, we could experience pressure on our interest rate spread as our cost of funds increases relative to the yield we can earn on our assets. For further discussion of how changes in interest rates could impact us, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Risk Management — Interest Rate Risk Management.”

Strong competition within our primary market area could negatively impact our profits and slow growth.

     We face intense competition both in making loans and attracting deposits. This competition has made it more difficult for us to make new loans and attract deposits. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which would reduce net interest income. Competition also makes it more difficult to grow loans and deposits. At June 30, 2009, which is the most recent date for which data is available from the Federal Deposit Insurance Corporation, we held approximately 0.26% of the deposits in Baltimore County, Maryland, 1.46% of the deposits in Harford County, Maryland and 0.27% of the deposits in Baltimore City, Maryland. Most of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our primary market area. See “Our Business — Market Area” and “Our Business — Competition” for more information about our primary market area and the competition we face.

Recently enacted regulatory reform may have a material impact on our operations.

     On July 21, 2010, the President signed into law The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act restructures the regulation of depository institutions. Under the Dodd-Frank Act, the Office of Thrift Supervision will be merged into the Office of the Comptroller of the Currency, which regulates national banks. Savings and loan holding companies will be regulated by the Federal Reserve Board. The Dodd-Frank Act contains various provisions designed to enhance the regulation of depository institutions and prevent the recurrence of a financial crisis such as occurred in 2008-2009. Also included is the creation of a new federal agency to administer and enforce consumer and fair lending laws, a function that is now performed by the depository institution regulators. The federal preemption of state laws currently accorded federally chartered depository institutions will be reduced as well. The Dodd-Frank Act also will impose consolidated capital requirements on savings and loan holding companies effective in five years, which will limit our ability to borrow at the holding company and invest the proceeds from such borrowings as capital in Madison Square Federal Savings Bank that could be leveraged to support additional growth. The full impact of the Dodd-Frank Act on our business and operations will not be known for years until regulations implementing the statute are written and adopted. The Dodd-Frank Act may have a material impact on our operations, particularly through increased compliance costs resulting from possible future consumer and fair lending regulations.

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

     We are subject to extensive regulation, supervision and examination by the Office of Thrift Supervision, our primary federal regulator, and the Federal Deposit Insurance Corporation, as insurer of our deposits. Such regulation and supervision governs the activities in which an institution and its holding company may engage, and are intended primarily for the protection of the insurance fund and the depositors and borrowers of Madison Square Federal Savings Bank rather than for holders of our common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations.

Risks Related to this Offering

We may sell up to 925,750 shares of stock in the offering without providing you with an opportunity to change or cancel your order.

     Pursuant to the Office of Thrift Supervision conversion regulations, we are permitted to close the offering if we obtain orders for shares within the range of a minimum of 595,000 shares to a maximum, as adjusted, of 925,750 shares, without giving you further notice or the opportunity to change or cancel your order. Should we receive orders for the maximum, as adjusted, of 925,750 shares, this will result in higher pro forma pricing ratios in terms of

the price to book value ratio and the price to tangible book value ratio (see “Pro Forma Data”). This may negatively affect our post-conversion trading price.

There likely will be a limited market for our common stock, which may adversely affect our stock price.

     Although we intend to list our shares of common stock for trading on the OTC Bulletin Board, our shares of common stock are not likely to be actively traded. If an active trading market for our common stock does not develop, you may not be able to sell all of your shares of common stock and the sale of a large number of shares at one time could temporarily depress the market price. There also may be a wide spread between the bid and asked price for our common stock. When there is a wide spread between the bid and asked price, the price at which you may be able to sell our common stock may be significantly lower than the price at which you could buy it at that time.

Additional expenses following the offering from operating as a public company will adversely affect our profitability.

     Following the offering, our noninterest expenses will increase as a result of the financial accounting, legal and various other expenses usually associated with operating as a public company and complying with public company disclosure obligations, particularly those obligations imposed by the Sarbanes-Oxley Act of 2002. Compliance with the Sarbanes-Oxley Act of 2002 will require us to upgrade our accounting systems, which will increase our operating expenses and adversely affect our profitability.

We will incur additional expenses following the conversion relating to our plan to hire additional lending personnel in furtherance of our strategy to expand our lending activity.

     Part of our strategic plan is to grow our balance sheet by increasing commercial real estate and commercial business loans. To accomplish this, we anticipate that following the conversion we will add additional lending personnel. We anticipate that this initiative will enhance long-term shareholder value. However, upon the addition of new lending personnel, we will be required to make increased expenditures for salaries and employee benefits, and it may take some period of time for the new personnel to generate sufficient loan volume to offset these expenditures. Accordingly, we anticipate that, in the short term, net income will be negatively affected.

Additional expenses following the offering from the implementation of new equity benefit plans will adversely affect our profitability.

     We will recognize additional annual employee compensation and benefit expenses stemming from options and shares of common stock granted to employees, directors and executives under new benefit plans. These additional expenses will adversely affect our profitability. We cannot determine the actual amount of these new stock-related compensation and benefit expenses at this time because applicable accounting practices generally require that they be based on the fair market value of the options or shares of common stock at the date of the grant; however, we expect them to be material. We will recognize expenses for our employee stock ownership plan when shares are committed to be released to participants’ accounts and will recognize expenses for restricted stock awards and stock options generally over the vesting period of awards made to recipients. These benefit expenses in the first year following the offering have been estimated to be approximately $153,000 on a pre-tax basis at the maximum of the offering range assuming the $10.00 per share purchase price as fair market value. Actual expenses, however, may be higher or lower, depending on the price of our common stock. For further discussion of these plans, see “Our Management — Benefit Plans.”

We have broad discretion in allocating the proceeds of the offering. Our failure to effectively utilize such proceeds would reduce our profitability.

     We intend to contribute the greater of $3.5 million or 50% of the net proceeds of the offering to Madison Square Federal Savings Bank. Madison Bancorp may use the portion of the proceeds that it retains to, among other things, invest in securities, pay cash dividends or repurchase shares of common stock, subject to regulatory restrictions. Madison Square Federal Savings Bank may use the portion of the proceeds that it receives to fund new loans, open new branches, invest in securities and expand its business activities. Madison Bancorp and Madison Square Federal Savings Bank may also use the proceeds of the offering to diversify their businesses and acquire other companies, although we have no specific plans to do so at this time. We have not allocated specific amounts of proceeds for any of these purposes, and we will have significant flexibility in determining how much of the net proceeds we apply to different uses and the timing of such applications. Our failure to utilize these funds effectively would reduce our profitability.

A significant percentage of our common stock will be held by our directors and executive officers and benefit plans.

     We expect that our directors and executive officers, together with their associates, will subscribe for 60,900 shares in the offering. In addition, we intend to establish an employee stock ownership plan that will purchase an amount of shares equal to 7% of the shares sold in the offering. As a result, upon consummation of the offering, a total of up to 102,550, or 17.2%, and 117,250, or 14.6%, of our outstanding shares will be held by our directors and executive officers and our employee stock ownership plan at the minimum and maximum of the offering range, respectively. Further, shares will be held by management following the implementation of an equity incentive plan, which we intend to implement no earlier than six months following the completion of the offering. Assuming the equity incentive plan is implemented, under the plan options are granted to and exercised by directors and executive officers for 10% of the shares sold in the conversion and restricted stock awards are made to directors and executive officers for 3% of the shares sold in the conversion and the plan is funded with shares purchased in the open market, a total of up to 179,900, or 30.2%, and 221,900, or 27.6%, of our outstanding shares will be held by our directors and executive officers and our employee stock ownership plan at the minimum and maximum of the offering range, respectively. The articles of incorporation and bylaws of Madison Bancorp contain supermajority voting provisions that require that the holders of at least 75% of Madison Bancorp’s outstanding shares of voting stock approve certain actions including, but not limited to, the amendment of certain provisions of Madison Bancorp’s articles of incorporation and bylaws. If our directors and executive officers and benefit plans were to hold more than 25% of our outstanding common stock following the completion of the offering, the shares held by these individuals and benefit plans could be voted in a manner that would ensure that the 75% supermajority needed to approve such actions could not be attained. For more information on the restrictions included in the articles of incorporation and bylaws of Madison Bancorp, see “Restrictions on the Acquisition of Madison Bancorp, Inc. and Madison Square Federal Savings Bank.”

Issuance of shares for benefit programs may dilute your ownership interest.

     We intend to adopt an equity incentive plan following the offering. If shareholders approve the new equity incentive plan, we intend to issue shares to our officers, employees and directors through this plan. If the restricted stock awards under the equity incentive plan are funded from authorized but unissued stock, your ownership interest in the shares could be diluted by up to approximately 2.91%, assuming awards of common stock equal to 3% of the shares sold in the offering are awarded under the plan. If we adopt the equity incentive plan more than one year after completion of the offering, we may elect to increase the awards of restricted stock we may grant. In such event, your ownership interest in the shares could be further diluted. If the shares issued upon the exercise of stock options under the equity incentive plan are issued from authorized but unissued stock, your ownership interest in the shares could be diluted by up to approximately 9.09%, assuming stock option grants equal to 10% of the shares sold in the offering are granted under the plan. See “Pro Forma Data” and “Our Management — Benefit Plans.”

The articles of incorporation and bylaws of Madison Bancorp, Inc. and certain laws and regulations may prevent or make more difficult certain transactions, including a sale or merger of Madison Bancorp, Inc.

     Provisions of the articles of incorporation and bylaws of Madison Bancorp, state corporate law and federal banking regulations may make it more difficult for companies or persons to acquire control of Madison Bancorp. As a result, our shareholders may not have the opportunity to participate in such a transaction and the trading price of our common stock may not rise to the level of other institutions that are more vulnerable to hostile takeovers. The factors that may discourage takeover attempts or make them more difficult include:

•

Articles of incorporation and bylaws. Provisions of the articles of incorporation and bylaws of Madison Bancorp may make it more difficult and expensive to pursue a takeover attempt that the board of directors opposes. These provisions also make more difficult the removal of current directors or management, or the election of new directors. These provisions include:

	•		limitation on the right to vote shares;
	•		the election of directors to staggered terms of three years;
	•		provisions regarding the timing and content of shareholder proposals and nominations;
	•		provisions restricting the calling of special meetings of shareholders;
	•		the absence of cumulative voting by shareholders in the election of directors;
	•		the removal of directors only for cause; and
	•		supermajority voting requirements for changes to some provisions of the articles of incorporation and bylaws.

	•		Maryland anti-takeover statute. Under Maryland law, any person who acquires more than 10% of a Maryland corporation without prior approval of its board of directors is prohibited from engaging in any type of business combination with the corporation for a five-year period. Any business combination after the five-year period would be subject to supermajority shareholder approval or minimum price requirements.
	•		Office of Thrift Supervision regulations. Office of Thrift Supervision regulations prohibit, for three years following the completion of a mutual-to-stock conversion, the offer to acquire or the acquisition of more than 10% of any class of equity security of a converted institution without the prior approval of the Office of Thrift Supervision. See “Restrictions on Acquisition of Madison Bancorp, Inc.”

A Warning About Forward-Looking Statements

     This prospectus contains forward-looking statements, which can be identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions. Forward-looking statements include:

	•		statements of our goals, intentions and expectations;
	•		statements regarding our business plans, prospects, growth and operating strategies;
	•		statements regarding the quality of our loan and investment portfolios; and
	•		estimates of our risks and future costs and benefits.

     These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

	•		general economic conditions, either nationally or in our primary market area, that are worse than expected;
	•		a continued decline in real estate values;
	•		changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments;
	•		increased competitive pressures among financial services companies;
	•		changes in consumer spending, borrowing and savings habits;
	•		legislative, regulatory or supervisory changes that adversely affect our business;
	•		adverse changes in the securities markets; and
	•		changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board or the Public Company Accounting Oversight Board.

     Any of the forward-looking statements that we make in this prospectus and in other public statements we make may later prove incorrect because of inaccurate assumptions, the factors illustrated above or other factors that we cannot foresee. Consequently, no forward-looking statement can be guaranteed.

Selected Consolidated Financial and Other Data

     The summary consolidated financial information presented below is derived in part from our consolidated financial statements. The following is only a summary and you should read it in conjunction with the consolidated financial statements and notes beginning on page F-1. The information at March 31, 2010 and 2009 and for the years then ended is derived in part from the audited consolidated financial statements of Madison Square Federal Savings Bank that appear elsewhere in this prospectus.

		At March 31,
		2010				2009
Financial Condition Data:
Total assets		$	146,889,494			$	140,431,511
Cash and cash equivalents			13,354,975				16,321,326
Investment securities available-for-sale			33,480,669				25,573,864
Investment securities held-to-maturity			2,283,707				3,210,122
Loans receivable, net			90,336,475				89,409,186
Deposits			136,965,267				129,581,391
Total equity			9,063,027				9,911,327

		For the Year Ended March 31,
		2010				2009
Operating Data:
Interest revenue		$	6,321,730			$	5,915,671
Interest expense			3,022,119				3,583,538
Net interest income			3,299,611				2,332,133
Provision for loan losses			242,074				213,114
Net interest income after provision for loan losses			3,057,537				2,119,019
Noninterest revenue (loss)			25,866				(222,605	)
Noninterest expenses			3,938,351				3,812,359
Loss before income taxes			(854,948	)			(1,915,945	)
Income tax expense (benefit)			—				(198,037	)
Net loss			(854,948	)			(1,717,908	)

		At or For the Year Ended
		March 31,
		2010				2009
Performance Ratios (1):
Return on average assets			(0.59	%)			(1.33	%)
Return on average equity			(9.17	)			(16.39	)
Interest rate spread (2)			2.24				1.73
Net interest margin (3)			2.37				1.91
Noninterest expenses to average assets			2.70				2.96
Average interest-earning assets to average interest-bearing liabilities			106.33				106.45
Average equity to average assets			6.40				8.13
Regulatory Capital Ratios:
Total risk-based capital (to risk-weighted assets)			12.3				13.7
Tier 1 capital (to risk-weighted assets)			11.5				13.2
Tier 1 capital (to adjusted total assets)			6.1				7.0
Asset Quality Ratios:
Allowance for loan losses as a percent of total loans			0.67				0.42
Allowance for loan losses as a percent of nonperforming loans			88.96				46.92
Net charge-offs to average outstanding loans during the period			0.02				0.01
Nonperforming loans as a percent of total loans			0.75				0.90
Nonperforming assets as a percent of total assets			0.49				0.76
Other Data:
Number of offices			5				5
Number of deposit accounts			7,186				6,881
Number of loans			1,082				1,214

(1)		With the exception of end of period ratios, all ratios are based on average daily balances during the periods.
(2)		Represents the difference between the average yield on average interest-earning assets and the average cost on average interest-bearing liabilities.
(3)		Represents net interest income as a percent of average interest-earning assets.

Recent Developments

     The summary financial information presented below is derived in part from our consolidated financial statements. The following is only a summary and you should read it in conjunction with the consolidated financial statements and notes beginning on page F-1. The information at March 31, 2010 is derived in part from the audited financial statements that appear in this prospectus. The data at June 30, 2010 and for the three months ended June 30, 2010 and 2009 was not audited, but in the opinion of management, reflects all adjustments necessary for a fair presentation. All of these adjustments are normal and recurring. The results of operations for the three months ended June 30, 2010 are not necessarily indicative of the results of operations that may be expected for the entire year.

		At June 30,				At March 31,
		2010				2010
		(unaudited)
Financial Condition Data:
Total assets		$	150,698,780			$	146,889,494
Cash and cash equivalents			21,874,232				13,354,975
Investment securities available-for-sale			29,259,920				33,480,669
Investment securities held-to-maturity			1,819,058				2,283,707
Loans receivable, net			90,189,147				90,336,475
Deposits			140,119,868				136,965,267
Total equity			9,266,173				9,063,027

		For the Three Months Ended
		June 30,
		2010				2009
		(unaudited)				(unaudited)
Operating Data:
Interest revenue		$	1,547,867				1,496,616
Interest expense			602,847				881,164
Net interest income			945,020				615,452
Provision for loan losses			51,359				40,000
Net interest income after provision for loan losses			893,661				575,452
Noninterest revenue			107,392				58,667
Noninterest expenses			1,001,385				1,047,827
Loss before income taxes			(332	)			(413,708	)
Income tax expense (benefit)			0				0
Net loss			(332	)			(413,708	)

		At or For the Three Months
		Ended June 30,
		2010				2009
Performance Ratios (1):
Return on average assets			0.00	%			(0.29	)%
Return on average equity			0.00				(4.28	)
Interest rate spread (2)			2.59				1.69
Net interest margin (3)			2.65				1.79
Noninterest expenses to average assets			2.69				2.96
Average interest-earning assets to average interest-bearing liabilities			106.90				107.34
Average equity to average assets			6.16				6.83
Regulatory Capital Ratios:
Total risk-based capital (to risk-weighted assets)			12.27				12.13
Tier 1 capital (to risk-weighted assets)			11.54				11.63
Tier 1 capital (to adjusted total assets)			5.92				6.55
Asset Quality Ratios:
Allowance for loan losses as a percent of total loans			0.73				0.47
Allowance for loan losses as a percent of nonperforming loans			76.09				42.70
Net charge-offs to average outstanding loans during the period			0.00				0.00
Nonperforming loans as a percent of total loans			0.95				1.09
Nonperforming assets as a percent of total assets			0.58				1.01
Other Data:
Number of offices			5				5
Number of deposit accounts			6,587				6,813
Number of loans			936				1,127

(1)		Performance ratios are annualized.
(2)		Represents the difference between the average yield on average interest-earning assets and the average cost on average interest-bearing liabilities.
(3)		Represents net interest income as a percent of average interest-earning assets.

Comparison of Financial Condition at June 30, 2010 and March 31, 2010

     Assets. Total assets increased from $146.9 million at March 31, 2010 to $150.7 million at June 30, 2010. The increase was primarily due to increases in cash and cash equivalents, which were partially offset by a decrease in investment securities available-for-sale.

     Loans. Net loans receivable decreased by $147,000, or 0.2%, from $90.3 million at March 31, 2010 to $90.2 million at June 30, 2010, primarily as a result of the net effect of a $1.4 million decrease in residential mortgage loans, a $226,000 increase in commercial real estate loans, a $285,000 increase in land loans, a $795,000 increase in residential construction loans, a $48,000 decrease in consumer loans and a $183,000 increase in commercial loans. The decrease in residential mortgage loans was primarily a result of borrowers refinancing of loans elsewhere and normal principal reductions.

     Securities. Cash and cash equivalents increased by $8.5 million, or 63.4%, from $13.4 million at March 31, 2010 to $21.9 million at June 30, 2010, as excess liquidity was invested in short-term securities including overnight deposits. Our securities available-for-sale decreased by $4.2 million, or 12.6%, from $33.5 million at March 31, 2010 to $29.3 million at June 30, 2010, as the result of certain securities being called or having matured and sales of selected securities. Our securities held-to-maturity decreased by $465,000, or 20.4%, to $1.8 million at June 30, 2010 from $2.3 million at March 31, 2010. The decrease reflects a $135,000 decrease in agency mortgage-backed securities, as repayments were received, and a decrease of $328,000 in nonagency mortgage-backed securities, as principal payments were received and the sales of certain downgraded securities. Proceeds from the sale of available-for-sale securities and held-to-maturity securities were $2.5 million and $262,000, respectively, resulting in gross gains of $68,000 and gross losses of $45,000, respectively. At June 30, 2010, we also held a $243,000 investment in the common stock of the Federal Home Loan Bank of Atlanta.

     Ground Rent. Income from ground leases remained constant.

     Deposits. Total deposits increased by $3.2 million to $140.1 million at June 30, 2010 from $137.0 million at March 31, 2010. Balances of noninterest-bearing deposits remained relatively constant at $5.2 million at June 30, 2010. Interest-bearing deposits increased by $3.2 million to $134.9 million at June 30, 2010 compared to $131.7 million at March 31, 2010. Despite our lowering of rates on deposits, there continues to be an increase in interest-bearing deposits. This may be due to customers seeking the security of FDIC-insured deposits.

     Borrowings. We had no borrowings from the Federal Home Loan Bank of Atlanta at June 30, 2010 or March 31, 2010.

Results of Operations for the Three Months Ended June 30, 2010 and 2009

     Overview. Our net loss was less than $1,000 for the three months ended June 30, 2010, compared to a net loss of $413,708 for the three months ended June 30, 2009. The net loss for the 2010 quarter included improvements in many categories but primarily increases in net interest income.

     Net Interest Income. Our net interest income benefited from falling interest rates during the three months ended June 30, 2010. Net interest income increased to $945,000 for the three months ended June 30, 2010 as compared to $615,000 for the three months ended June 30, 2009. The increase in net interest income is primarily attributable to a 90 basis point increase in our interest rate spread from 1.69% for the three months ended June 30, 2009 to 2.59% at June 30, 2010, as we continued to take advantage of decreasing market interest rates to reduce our cost of funds while limiting the decrease in yields earned on our assets. Also contributing to the increase in net interest income was a $6.7 million increase in the average balance of interest-earning assets.

     Interest on loans increased by $22,000, primarily due to an increase in the average balance of loans, and due to a slight increase in the average yield. The average balance of loans increased by $1.2 million to $90.6 million for the three months ended June 30, 2010 from $89.4 million for the three months ended June 30, 2009. The average yield on loans increased to 5.62% for the three months ended June 30, 2010 from 5.60% for the three months ended June 30, 2009.

     Interest on securities available-for-sale increased by $41,000 for the three months ended June 30, 2010 as compared to the three months ended June 30, 2009, caused by a 41 basis point decrease in the average yield offset a $6.7 million increase in the average balance of investment securities available-for-sale. Interest on securities held-to-maturity was $26,000 for the three months ended June 30, 2010 as compared to $36,000 for the three months ended June 30, 2009, due to a 2 basis point decrease in the average yield and a $700,000 decrease in the average balance of securities held-to-maturity. The decreased yield during the three months ended June 30, 2010 was related to slower accretion of the discount related to these securities.

     Interest on cash and cash equivalents was $7,000 for the three months ended June 30, 2010 as compared to $8,000 for the three months ended June 30, 2009, as a result of decreases in the average yield and the average balance of cash and cash equivalents.

     Interest on total deposits decreased to $603,000 for the three months ended June 30, 2010 from $881,000 for the three months ended June 30, 2009, as a 91 basis point decrease in the average cost of savings deposits offset an $8.2 million increase in the average balance of savings deposits. Interest on NOW and money market accounts decreased by $5,000 to $3,000 for the three months ended June 30, 2010 due to the decrease in the average cost of the deposits.

     Provision for Loan Losses. Our provision for loan losses increased from $40,000 for the three months ended June 30, 2009 to $51,000 for the three months ended June 30, 2010. At June 30, 2010, the allowance for loan losses was $658,000, or 0.73% of the total loan portfolio, compared to $605,000, or 0.67% of the total loan portfolio, at March 31, 2010. Nonaccrual loans amounted to $865,000 and $680,000 at June 30, 2010 and March 31, 2010, respectively. There were no loan charge-offs during the three months ended June 30, 2010 or the three months ended June 30, 2009. There was a recovery of $2,000 during the three months ended June 30, 2010.

     The Bank’s largest nonaccrual loan was in the amount of $608,000. In the March 2010 quarter a valuation was performed indicating a required specific reserve of $50,000 which was recorded in the March 2010 quarter. For more information about this loan, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Analysis of Non-performing and Classified Assets.” Due to the lack of activity and payments during the quarter ended June 30, 2010, the lead bank initiated foreclosure. The foreclosure auction was held on June 15, 2010. The lead bank had the highest bid at the foreclosure sale. Ratification of the sale is anticipated to take from three to six months. The lead bank provided us with a copy of a new independent certified appraisal of the collateral, performed by an appraiser not involved in the original appraisal or market analysis performed at March 31, 2010. This appraisal was consistent with the net realizable value analysis performed in March 2010, but applied a larger discount for marketing costs and absorption factors. This resulted in a discounted value requiring a specific reserve of $106,000, the additional $56,000 of which we recorded as of June 30, 2010.

     Noninterest Revenue. Noninterest revenue increased for the three months ended June 30, 2010 to $107,000 as compared to $59,000 for the three months ended June 30, 2009. The increase during the 2010 period was primarily due to the gain on sale of certain nonagency and available-for-sale securities and increased fee income from the sale of non-deposit products.

     Noninterest Expenses. Noninterest expenses decreased by $46,000 from $1.05 million for the three months ended June 30, 2009 to $1.0 million for the three months ended June 30, 2010, primarily due to reductions in compensation expense, FDIC insurance premiums and other operation expense, which was partially offset by increases in occupancy and audit and accounting expenses.

     Income Tax Expense. For the three months ended June 30, 2010, and June 30, 2099 we incurred no income tax expense.

Use of Proceeds

     The following table shows how we intend to use the net proceeds of the offering. The actual net proceeds will depend on the number of shares of common stock sold in the offering and the actual expenses incurred in connection with the offering. Payments for shares made through withdrawals from deposit accounts at Madison Square Federal Savings Bank will reduce deposits and will not result in the receipt of new funds for investment. See “Pro Forma Data” for the assumptions used to arrive at these amounts.

																										Maximum,
		Minimum of								Midpoint of								Maximum of								as Adjusted,
		Offering Range								Offering Range								Offering Range								of Offering Range
		595,000				Percent				700,000				Percent				805,000				Percent				925,750				Percent
		Shares at				of				Shares at				of				Shares at				of				Shares at				of
		$10.00				Net				$10.00				Net				$10.00				Net				$10.00				Net
(Dollars in thousands)		Per Share				Proceeds				Per Share				Proceeds				Per Share				Proceeds				Per Share				Proceeds
Offering proceeds		$	5,950							$	7,000							$	8,050							$	9,258
Less: estimated offering expenses			(730	)							(730	)							(730	)							(730	)
Net offering proceeds			5,220				100.00	%			6,270				100.00	%			7,320				100.00	%			8,528				100.00	%
Less:
Proceeds contributed to Madison Square Federal Savings Bank			(3,500	)			67.0	%			(3,500	)			55.8	%			(3,660	)			50.0	%			(4,264	)			50.0	%
Proceeds used for loan to employee stock ownership plan			(417	)			8.0	%			(490	)			7.8	%			(564	)			7.7	%			(648	)			7.6	%
Proceeds remaining for Madison Bancorp (1)		$	1,304				25.0	%		$	2,280				36.4	%		$	3,097				42.3	%		$	3,616				42.4	%

(1)		Following the completion of the stock offering and in accordance with applicable regulations, Madison Bancorp may purchase shares of its common stock in the open market in order to grant awards of restricted stock under its proposed equity incentive plan. Assuming a market price of $10.00 per share at the time of purchase, the cost of acquiring the shares would be approximately $179,000 (17,850 shares) at the minimum of the offering range, $210,000 (21,000 shares) at the midpoint of the offering range, $242,000 (24,150 shares) at the maximum of the offering range and $278,000 (27,772 shares) at the maximum, as adjusted, of the offering range and assuming we grant a number of restricted stock awards equal to 3% of the shares sold in the offering. See “Pro Forma Data” and “Our Management — Benefit Plans — Nonqualified Deferred Compensation — Future Equity Incentive Plan.”

     Madison Bancorp intends to invest the proceeds it retains from the offering initially in short-term, liquid investments. Over time, Madison Bancorp may use the proceeds it retains from the offering:

	•		to invest in securities;
	•		to pay dividends to shareholders;
	•		to repurchase shares of its common stock, subject to regulatory restrictions;
	•		for possible future investment in Madison Square Federal Savings Bank if needed to support future growth or expansion; and
	•		for general corporate purposes.

     The specific amounts of net proceeds to be allocated in the future to each of the uses described above have not been determined, is subject to change and will depend on capital requirements, regulatory limitations, future expansion opportunities and our operating results and financial condition.

     Under current Office of Thrift Supervision regulations, Madison Bancorp may not repurchase shares of its common stock during the first year following the offering, except to fund shareholder-approved equity benefit plans or, with prior regulatory approval, when extraordinary circumstances exist.

     We expect to contribute the greater of $3.5 million or 50% of the net proceeds of the offering to Madison Square Federal Savings Bank. Madison Square Federal Savings Bank may use the proceeds that it receives from the offering, which is shown in the table above as the amount contributed to Madison Square Federal Savings Bank:

	•		to fund new loans;
	•		to invest in securities;
	•		subject to the receipt of regulatory approval, to finance the possible expansion of its business activities through the establishment of new branch offices and/or the acquisition of other financial institutions or financial services companies; while we intend to open a new branch office in our current market area or a contiguous county in the next three years, we currently have no definitive plans, arrangements, understandings or commitments regarding potential branch office expansion or acquisition opportunities; and
	•		for general corporate purposes.

     Except as described above, neither Madison Bancorp nor Madison Square Federal Savings Bank has any specific plans, arrangements or understandings for the investment of the proceeds of this offering and has not allocated a specific portion of the proceeds to any particular use. The specific amounts of net proceeds to be allocated in the future to each of the uses described above have not been determined, is subject to change and will depend on capital requirements, regulatory limitations, future expansion opportunities and our operating results and financial condition. For a discussion of our business reasons for undertaking the offering, see “The Conversion and Stock Offering — Reasons for the Conversion.”

Our Dividend Policy

     Following the offering, our board of directors initially does not intend to pay cash dividends.

     In the future, the board of directors may declare and pay regular cash dividends and/or periodic special cash dividends in addition to, or in lieu of, regular cash dividends. In determining whether to declare or pay any dividends, whether regular or special, the board of directors will take into account our financial condition and results of operations, tax considerations, capital requirements, industry standards, and economic conditions. We will also consider the regulatory restrictions that affect the payment of dividends by Madison Square Federal Savings Bank to us, discussed below.

     Madison Bancorp is subject to Maryland law, which generally permits a corporation to pay dividends on its common stock unless, after giving effect to the dividend, the corporation would be unable to pay its debts as they become due in the usual course of its business or the total assets of the corporation would be less than its total liabilities.

     Madison Bancorp will not be subject to Office of Thrift Supervision regulatory restrictions on the payment of dividends. However, our ability to pay dividends may depend, in part, upon dividends we receive from Madison Square Federal Savings Bank because we initially will have no source of income other than dividends from Madison Square Federal Savings Bank and earnings from the investment of the net proceeds from the offering that we retain. Office of Thrift Supervision regulations limit dividends and other distributions from Madison Square Federal Savings Bank to us. Madison Square Federal Savings Bank may not declare or pay a cash dividend on its capital stock if its effect would be to reduce the regulatory capital of Madison Square Federal Savings Bank below the amount required for the liquidation account to be established as required by our plan of conversion. No insured depository institution may make a capital distribution if, after making the distribution, the institution would be undercapitalized. See “Regulation and Supervision — Regulation of Federal Savings Associations — Limitation on Capital Distributions” and “The Conversion and Stock Offering —Effects of Conversion to Stock Form — Liquidation Account.”

     Any payment of dividends by Madison Square Federal Savings Bank to us that would be deemed to be drawn out of Madison Square Federal Savings Bank’s bad debt reserves would require Madison Square Federal Savings Bank to pay federal income taxes at the then current income tax rate on the amount deemed distributed. See

“Federal and State Taxation —Federal Income Taxation.” We do not contemplate any distribution by Madison Square Federal Savings Bank that would result in this type of tax liability.

     In addition, Madison Bancorp may not make a distribution that would constitute a return of capital during the three-year term of the business plan submitted in connection with the offering.

Market for the Common Stock

     We have not previously issued common stock and there is currently no established market for the common stock. We intend to list our common stock for trading on the OTC Bulletin Board upon completion of the offering. Sandler O’Neill + Partners, L.P. intends to become a market maker in our common stock following the offering, but it is under no obligation to do so. We cannot assure you that an active and liquid trading market for the common stock will develop or, if developed, will be maintained.

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

Capitalization

     The following table presents the historical capitalization of Madison Square Federal Savings Bank at March 31, 2010 and the capitalization of Madison Bancorp reflecting the offering (referred to as “pro forma” information). The pro forma capitalization gives effect to the assumptions listed under “Pro Forma Data,” based on the sale of the number of shares of common stock indicated in the table. This table does not reflect the issuance of additional shares as a result of the exercise of options granted under the proposed equity incentive plan. A change in the number of shares to be issued in the offering may materially affect pro forma capitalization. We are offering our common stock on a best efforts basis. We must sell a minimum of 595,000 shares to complete the offering.

						Pro Forma
						Capitalization Based Upon the Sale of
						595,000				700,000				805,000				925,750
		Capitalization				Shares at				Shares at				Shares at				Shares at
		as of				$10.00				$10.00				$10.00				$10.00
		March 31, 2010				Per Share				Per Share				Per Share				Per Share
		(Dollars in thousands)
Deposits (1)		$	136,965			$	136,965			$	136,965			$	136,965			$	136,965
Borrowings			—				—				—				—				—
Total deposits and borrowed funds		$	136,965			$	136,965			$	136,965			$	136,965			$	136,965
Shareholders’ equity:
Preferred stock:
10,000,000 shares, $0.01 par value per share, authorized; none issued or outstanding		$	—			$	—			$	—			$	—			$	—
Common stock:
50,000,000 shares, $0.01 par value per share, authorized; specified number of shares assumed to be issued and outstanding (2)			—				6				7				8				9
Additional paid-in capital			—				5,214				6,263				7,312				8,518
Retained earnings (3)			8,904				8,904				8,904				8,904				8,904
Accumulated other comprehensive income			159				159				159				159				159
Less:
Common stock acquired by employee stock ownership plan (4)			—				(417	)			(490	)			(564	)			(648	)
Common stock to be acquired by equity incentive plan (5)			—				(179	)			(210	)			(242	)			(278	)
Total shareholders’ equity		$	9,063			$	13,688			$	14,633			$	15,578			$	16,665
Shareholders’ equity to assets (1)			6.17	%			9.03	%			9.60	%			10.15	%			10.79	%

(1)		Does not reflect withdrawals from deposit accounts for the purchase of common stock in the offering. Withdrawals to purchase common stock will reduce pro forma deposits and assets by the amounts of the withdrawals.
(2)		Reflects total issued and outstanding shares of 595,000, 700,000, 805,000 and 925,750 at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively.
(3)		Retained earnings are restricted by applicable regulatory capital requirements.
(4)		Assumes that 7% of the common stock sold in the offering will be acquired by the employee stock ownership plan in the offering with funds borrowed from Madison Bancorp. Under generally accepted accounting principles, the amount of common stock to be purchased by the employee stock ownership plan represents unearned compensation and is, accordingly, reflected as a reduction of capital and a liability to the employee stock ownership plan. As shares are released to plan participants’ accounts, a compensation expense will be charged, along with related tax benefit, and a reduction in the charge against capital will occur in the amount of the compensation expense recognized. Since the funds are borrowed from Madison Bancorp, the borrowing will be eliminated in consolidation and no liability or interest expense will be reflected in the financial statements of Madison Bancorp. The loan will be repaid principally through Madison Square Federal Savings Bank’s contributions to the employee stock ownership plan and dividends payable on common stock, if any, held by the

		plan over the anticipated 15-year term of the loan. See “Our Management — Benefit Plans — Employee Stock Ownership Plan.”
(5)		Assumes the purchase in the open market at $10.00 per share, for restricted stock awards under the proposed equity incentive plan, of a number of shares equal to 3% of the shares of common stock sold in the offering. The shares are reflected as a reduction of shareholders’ equity. The equity incentive plan will be submitted to shareholders for approval at a meeting following the offering. See “Risk Factors — Issuance of shares for benefit programs may dilute your ownership interest,” “Pro Forma Data” and “Our Management — Benefit Plans — Future Equity Incentive Plan.”

Regulatory Capital Compliance

     At March 31, 2010, Madison Square Federal Savings Bank exceeded all regulatory capital requirements. The following table presents Madison Square Federal Savings Bank’s capital position relative to its regulatory capital requirements at March 31, 2010, on a historical and a pro forma basis. The table reflects receipt by Madison Square Federal Savings Bank of the greater of $3.5 million or 50% of the net proceeds of the offering. For purposes of the table, the amount expected to be borrowed by the employee stock ownership plan is deducted from pro forma regulatory capital. For a discussion of the assumptions underlying the pro forma capital calculations presented below, see “Use of Proceeds,” “Capitalization” and “Pro Forma Data.” The definitions of the terms used in the table are those provided in the capital regulations issued by the Office of Thrift Supervision. For a discussion of the capital standards applicable to Madison Square Federal Savings Bank, see “Regulation and Supervision — Regulation of Federal Savings Associations — Capital Requirements.”

										Pro Forma at March 31, 2010
																																		Maximum, as
										Minimum of								Midpoint of								Maximum of								Adjusted, of
										Offering Range								Offering Range								Offering Range								Offering Range
		Historical at								595,000 Shares								700,000 Shares								805,000 Shares								925,750 Shares
		March 31, 2010								At $10.00 Per Share								At $10.00 Per Share								At $10.00 Per Share								At $10.00 Per Share
						Percent								Percent								Percent								Percent								Percent
						of								of								of								of								of
		Amount				Assets (1)				Amount				Assets				Amount				Assets				Amount				Assets				Amount				Assets
		(Dollars in thousands)
Total capital under generally accepted accounting principles		$	9,063				6.17	%		$	12,147				8.07	%		$	12,073				8.03	%		$	12,160				8.07	%		$	12,679				8.39	%
Tangible Capital:
Capital level (2)		$	8,900				6.07	%		$	11,984				7.98	%		$	11,910				7.93	%		$	11,997				7.98	%		$	12,516				8.29	%
Requirement			2,200				1.50				2,253				1.50				2,253				1.50				2,255				1.50				2,264				1.50
Excess		$	6,700				4.57	%		$	9,731				6.48	%		$	9,657				6.43	%		$	9,742				6.48	%		$	10,252				6.79	%
Core Capital:
Capital level (2)		$	8,900				6.07	%		$	11,984				7.98	%		$	11,910				7.93	%		$	11,997				7.98	%		$	12,516				8.29	%
Requirement			5,867				4.00				6,007				4.00				6,007				4.00				6,013				4.00				6,037				4.00
Excess		$	3,033				2.07	%		$	5,977				3.98	%		$	5,903				3.93	%		$	5,984				3.98	%		$	6,479				4.29	%
Tier 1 Risk-Based Capital:
Capital level		$	8,900				11.53	%		$	11,984				15.39	%		$	11,910				15.30	%		$	11,997				15.40	%		$	12,516				16.04	%
Requirement			3,087				4.00				3,115				4.00				3,115				4.00				3,116				4.00				3,121				4.00
Excess		$	5,813				7.53	%		$	8,869				11.39	%		$	8,795				11.30	%		$	8,881				11.40	%		$	9,395				12.04	%
Total Risk-Based Capital:
Total risk-based capital (3)		$	9,458				12.26	%		$	12,542				16.11	%		$	12,468				16.01	%		$	12,555				16.12	%		$	13,074				16.76	%
Requirement			6,173				8.00				6,229				8.00				6,229				8.00				6,232				8.00				6,242				8.00
Excess		$	3,285				4.26	%		$	6,313				8.11	%		$	6,239				8.01	%		$	6,323				8.12	%		$	6,832				8.76	%
Reconciliation of capital infusion to Madison Square Federal Savings Bank:
Net proceeds of offering										$	5,220							$	6,270							$	7,320							$	8,528
Proceeds to Madison Square Federal Savings Bank											3,500								3,500								3,660								4,264
Less: stock acquired by ESOP											(417	)							(490	)							(564	)							(648	)
Pro forma increase in GAAP and regulatory capital										$	3,084							$	3,010							$	3,097							$	3,616

Pro Forma Data

     The following tables show information about our net income and shareholders’ equity reflecting the sale of common stock in the offering. The information provided illustrates our pro forma net income and shareholders’ equity based on the sale of common stock at the minimum of the offering range, the midpoint of the offering range, the maximum of the offering range and the maximum, as adjusted, of the offering range. The actual net proceeds from the sale of the common stock cannot be determined until the offering is completed. Net proceeds indicated in the following tables are based upon the following assumptions:

	•		All shares of stock will be sold in the subscription and community offerings;
	•		Our employee stock ownership plan will purchase a number of shares equal to 7% of the shares sold in the offering with a loan from Madison Bancorp that will be repaid in equal installments over 15 years;
	•		Sandler O’Neill + Partners, L.P. will receive a success fee equal to $140,000; and
	•		Total expenses of the offering, excluding fees paid to Sandler O’Neill + Partners, L.P., will be approximately $590,000.

     Actual expenses may vary from this estimate.

     Pro forma net income for the year ended March 31, 2010 has been calculated as if the offering were completed at the beginning of the period, and the net proceeds had been invested at 1.02% for the year ended March 31, 2010, which represents the two-year treasury rate at March 31, 2010. We believe that the two-year treasury rate at March 31, 2010 represents a more realistic yield on the investment of the offering proceeds than the arithmetic average of the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our deposits, which is the reinvestment rate required to be assumed by Office of Thrift Supervision regulations.

     A pro forma after-tax return of 0.67% is used for the year ended March 31, 2010, after giving effect to a combined federal and state income tax rate of 34% for the period. Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the number of shares of common stock indicated in the tables.

     When reviewing the following tables you should consider the following:

	•		The final column gives effect to a 15% increase in the offering range, which may occur without any further notice if Feldman Financial Advisors, Inc. increases its appraisal to reflect the results of this offering, changes in our financial condition or results of operations or changes in market conditions after the offering begins. See “The Conversion and Stock Offering — How We Determined the Offering Range and the $10.00 Per Share Purchase Price.”
	•		Since funds on deposit at Madison Square Federal Savings Bank may be withdrawn to purchase shares of common stock, the amount of funds available for investment will be reduced by the amount of withdrawals for stock purchases. The pro forma tables do not reflect withdrawals from deposit accounts.
	•		Historical per share amounts have been computed as if the shares of common stock expected to be issued in the offering had been outstanding at the beginning of the period covered by the table. However, neither historical nor pro forma shareholders’ equity has been adjusted to reflect the investment of the estimated net proceeds from the sale of the shares in the offering, the additional employee stock ownership plan expense or the proposed equity incentive plan.
	•		Pro forma shareholders’ equity (“book value”) represents the difference between the stated amounts of our assets and liabilities. Book value amounts do not represent fair market values or