----

| SECURITIES      AND EXCHANGE COMMISSION                                                            |
|----------------------------------------------------------------------------------------------------|
| Washington,      D.C.   20549                                                       |
|                                                                                               |   |
| F      O R M   1 0 - K                                                              |
|                                                                                               |   |
| [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE      ACT OF 1934 |
| For      the fiscal year ended December 31, 2008                                                   |
|                                                                                               |   |
| Commission      file number: 000-51507                                                             |
|                                                                                               |   |
|                                                                                               | WATERSTONE      FINANCIAL, INC. |   |
|                                                                                               | (Exact      name of registrant as specified in its charter) |   |
|                                                                                               |   |
| Federally Chartered      Corporation                                                               | 39-0691250 |
| (State      or other jurisdiction of                                                               | (I.R.S.  Employer      Identification No.) |
| incorporation      or organization)                                                                |   |
|                                                                                               |   |
| 11200 W Plank Ct,      Wauwatosa,  WI                                                    | 53226 |
| (Address      of principal executive offices)                                                      | (Zip      Code) |
|                                                                                               |   |
| Registrant's      telephone number, including area code: (414)      761-1000                       |
|                                                                                               |   |
| Securities      registered pursuant to Section 12(b) of the Act:                                   |
|                                                                                               |   |
| Common Stock, $0.01      Par Value                                                                 | The      NASDAQ Stock Market, LLC |
| (Title      of class)                                                                              | (Name      of each exchange on which registered) |
|                                                                                               |
| Securities      registered pursuant to Section 12(g) of the Act:                                   |
| NONE                                                                                               |

| Yes | * |   | No | R |
|-----|---|--------|----|---|

| Yes | * |   | No | R |
|-----|---|--------|----|---|

| Yes | R |   | No | * |
|-----|---|--------|----|---|

| Large      accelerated filer | * |   | Accelerated      filer | R |   | Non-accelerated      filer | * |   | Smaller      Reporting Company | * |
|------------------------------|---|--------|------------------------|---|--------|----------------------------|---|--------|--------------------------------|---|

| Yes | * |   | No | R |
|-----|---|--------|----|---|

| DOCUMENTS      INCORPORATED BY REFERENCE   |
|--------------------------------------------|
|                                       |   | Part      of Form 10-K Into Which |
| Document                                   |   | Portions      of Document are Incorporated |
| Proxy      Statement for Annual Meeting of |   | Part      III |
| Shareholders      on May 12, 2009          |   |   |

| WATERSTONE FINANCIAL, INC.                                                |
|---------------------------------------------------------------------------|
|                                                                      |
| FORM      10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE    COMMISSION |
| FOR      THE YEAR ENDED DECEMBER 31, 2008                                 |

| TABLE OF      CONTENTS |
|------------------------|
|                   |   |   |   |
| ITEM                   |   |   | PAGE |
|                   |   |   |   |
| PART      I            |   |   |   |
|                   |   |   |   |
| 1.                     | Business |   | 3-42 |
| 1A.                    | Risk Factors |   | 42-44 |
| 1B.                    | Unresolved Staff      Comments |   | 44 |
| 2.                     | Properties |   | 45 |
| 3.                     | Legal Proceedings |   | 46 |
| 4.                     | Submission of Matters to a Vote of Security      Holders |   | 46 |
|                   |   |   |   |
| PART      II           |   |   |   |
|                   |   |   |   |
| 5.                     | Market for Registrant's Common Equity,      Related Stockholders Matters and |   |   |
|                   | Issuer      Purchases of Equity Securities |   | 47-49 |
| 6.                     | Selected Financial    Data |   | 50-52 |
| 7.                     | Management's Discussion and Analysis of      Financial |   |   |
|                   | Condition      and Results of Operations |   | 53-68 |
| 7A.                    | Quantitative and Qualitative      Disclosures About Market Risk |   | 69 |
| 8.                     | Financial Statements and Supplementary      Data |   | 70-107 |
| 9.                     | Changes in and Disagreements with      Accountants |   |   |
|                   | on      Accounting and Financial Disclosure |   | 108 |
| 9A.                    | Controls and      Procedures |   | 108-109 |
| 9B.                    | Other Information |   | 110 |
|                   |   |   |   |
| PART      III          |   |   |   |
|                   |   |   |   |
| 10.                    | Directors and Executive Officers of      the Registrant |   | 111 |
| 11.                    | Executive Compensation |   | 112 |
| 12.                    | Security Ownership of Certain Beneficial      Owners and Management and Related             Stockholder Matters |   |  112 |
| 13.                    | Certain Relationships and Related      Transactions, and Director Independence |   | 112 |
| 14.                    | Principal Accountant Fees and      Services |   | 112 |
|                   |   |   |   |
| PART      IV           |   |   |   |
|                   |   |   |   |
| 15.                    | Exhibits and Financial Statement      Schedules |   | 113 |
|                   | Signatures |   | 114 |
|                   |   |   |   |

Table of Contents

Item1.   Business

Table of Contents

|   |          · | adverse      changes in real estate markets; |
|--------|--------------------------------|----------------------------------------------|

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

|   |          · | general      economic conditions, either nationally or in our market area, that are      worse than expected; |
|--------|--------------------------------|---------------------------------------------------------------------------------------------------------------|

|   |          · | inflation      and changes in the interest rate environment that reduce our margins or      reduce the fair value of financialinstruments; |
|--------|--------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

|   |          · | legislative      or regulatory changes that adversely affect our  business; |
|--------|--------------------------------|-----------------------------------------------------------------------------|

|   |          · | our      ability to enter new markets successfully and take advantage of growth      opportunities; |
|--------|--------------------------------|-----------------------------------------------------------------------------------------------------|

|   |          · | significantly      increased competition among depository and other financial      institutions; |
|--------|--------------------------------|--------------------------------------------------------------------------------------------------|

|   |          · | changes      in accounting policies and practices, as may be adopted by the bank      regulatory agencies and the Financial Accounting Standards Board;      and |
|--------|--------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •       | Improving Asset      Quality.  By all measures, our asset quality has      deteriorated over the past three years.  Over 80% of our non      performing loans were originated during or before 2006.  We have      taken a number of significant steps to improve our underwriting of loans      and monitoring asset quality.  We identified the weaknesses in      our underwriting standards and procedures in the fourth quarter of      2005.  In 2006, we rewrote our underwriting policies,      strengthened our underwriting standards and implemented an officers’ loan      committee for review and approval of all loans in excess of      $500,000.  We hired senior loan officers experienced in      systematically identifying, objectively evaluating and documenting good      credit risks.  In 2007, we added an independent loan      underwriting function for all residential loans and a loan review function      to ensure that newly implemented controls and safeguards are uniformly      implemented and applied.  We also expanded our collections staff      and upgraded the tools used to reduce the number of past-due loans that      become chronically delinquent.   In 2008, we hired a Chief      Credit Officer (CCO) and moved credit analysis and loan review functions      to a newly formed credit department headed by the CCO.  The CCO      reports directly to the CEO.  Not withstanding the forgoing, in      the current distressed economic environment at December 31, 2008      non-performing loans totaled $107.7 million, or 6.91% of total loans and      real estate owned totaled $24.7 million.  During the year ended      December 31, 2008, net charge offs totaled $25.3 million, reflecting the      severity of the current local and national economic      environment. |
| •  | Remaining a Community-Oriented      Institution. We were established in Wauwatosa, Wisconsin, a suburb      of Milwaukee, in 1921, and have been operating continuously since that      time. We have been, and continue to be, committed to meeting the financial      needs of the communities we serve, and we are dedicated to providing      quality personal service to our customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| •  | Continuing Emphasis on      Residential Real Estate Lending. We provide long-term, fixed-rate      loans and indexed, adjustable mortgage loan products to our owner-occupied      residential mortgage customers. We intend to continue our emphasis on the      origination of residential real estate loans, especially over four-family      loans. Current loans-to-one borrower limitations cap the amount of credit      that we can extend to a single or affiliated group of investors/developers      at 15% of WaterStone Bank’s capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| •  | Expansion within Our Market      Area. WaterStone Bank’s growth in recent years has been achieved      through the origination of real estate mortgages funded primarily by      fixed-term deposits. We currently operate eight banking offices. In 2007,      we opened a new full service branch in the city of West Allis,      Wisconsin.  We plan to continue to expand our branch network in      the future by adding branches within our existing market area defined as      Milwaukee and Waukesha counties and each of the other five contiguous      counties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| •  | Expansion of Product      Offerings.  Beginning in 2007, the Bank began offering      variable rate, indexed residential mortgage loan and long-term fixed rate      loans.  Prior to this addition, Bank customers interested in      these terms were referred to the Bank’s mortgage brokerage subsidiary,      Waterstone Mortgage Corporation.  We also broadened our      residential product offering by buying high balance, high quality, low      loan-to-value ratio jumbo loans secured by real estate outside our primary      market area and brokered by Waterstone Mortgage    Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

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|                                     |   | At      December 31, |      |   | At      June 30, |   |
|------------------------------------------|--------|----------------------|-----------|--------|------------------|--------|
|                                     |   | 2008                 |      |   | 2007             |   |   | 2006 |   |   | 2005 |   |   | 2005 |   |   | 2004 |   |
|                                     |   | Amount               |      |   | Percent          |   |   | Amount |   |   | Percent |   |   | Amount |   |   | Percent |   |   | Amount |   |   | Percent |   |   | Amount |   |   | Percent |   |   | Amount |   |   | Percent |   |
|                                     |   |                 |      |   |             |   |   | (Dollars      in Thousands) |   |
| Mortgage      loans:                     |   |                 |      |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real      estate loans:                  |   |                 |      |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-      to four-family                 |   | $                    | 790,486   |   |             |   | 48.70 | % |   | $ | 672,362 |   |   |   | 45.64 | % |   |   | 638,089 |   |   |   | 44.17 | % |   | $ | 649,996 |   |   |   | 46.66 | % |   | $ | 628,445 |   |   |   | 48.36 | % |   | $ | 576,348 |   |   |   | 50.89 | % |
| Over      four-family                    |   |                 | 512,746   |   |             |   | 31.59 | % |   |   | 477,766 |   |   |   | 32.45 | % |   |   | 492,693 |   |   |   | 34.10 | % |   |   | 456,686 |   |   |   | 32.78 | % |   |   | 407,601 |   |   |   | 31.36 | % |   |   | 342,535 |   |   |   | 30.25 | % |
| Construction      and land               |   |                 | 131,840   |   |             |   | 8.12 | % |   |   | 156,289 |   |   |   | 10.61 | % |   |   | 168,605 |   |   |   | 11.67 | % |   |   | 157,861 |   |   |   | 11.33 | % |   |   | 143,686 |   |   |   | 11.05 | % |   |   | 107,522 |   |   |   | 9.49 | % |
| Commercial                               |   |                 | 55,193    |   |             |   | 3.40 | % |   |   | 51,983 |   |   |   | 3.53 | % |   |   | 51,062 |   |   |   | 3.53 | % |   |   | 35,196 |   |   |   | 2.53 | % |   |   | 36,586 |   |   |   | 2.81 | % |   |   | 46,282 |   |   |   | 4.09 | % |
| Home      equity                         |   |                 | 89,648    |   |             |   | 5.52 | % |   |   | 85,954 |   |   |   | 5.84 | % |   |   | 91,536 |   |   |   | 6.34 | % |   |   | 93,230 |   |   |   | 6.69 | % |   |   | 83,345 |   |   |   | 6.41 | % |   |   | 59,667 |   |   |   | 5.27 | % |
| Commercial      business                 |   |                 | 43,006    |   |             |   | 2.65 | % |   |   | 28,222 |   |   |   | 1.92 | % |   |   | 2,657 |   |   |   | 0.18 | % |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Consumer                                 |   |                 | 365       |   |             |   | 0.02 | % |   |   | 286 |   |   |   | 0.01 | % |   |   | 141 |   |   |   | 0.01 | % |   |   | 127 |   |   |   | 0.01 | % |   |   | 149 |   |   |   | 0.01 | % |   |   | 154 |   |   |   | 0.01 | % |
|                                     |   |                 |      |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      loans                         |   |                 | 1,623,284 |   |             |   | 100.00 | % |   |   | 1,472,862 |   |   |   | 100.00 | % |   |   | 1,444,783 |   |   |   | 100.00 | % |   |   | 1,393,096 |   |   |   | 100.00 | % |   |   | 1,299,812 |   |   |   | 100.00 | % |   |   | 1,132,508 |   |   |   | 100.00 | % |
|                                     |   |                 |      |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   |                 |      |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Undisbursed      loan proceeds           |   |                 | (61,192   | )      |             |   |   |   |   |   | (67,549 | ) |   |   |   |   |   |   | (67,390 | ) |   |   |   |   |   |   | (82,712 | ) |   |   |   |   |   |   | (77,484 | ) |   |   |   |   |   |   | (61,904 | ) |   |   |   |   |
|                                     |   |                 |      |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      deferred loan fees and premiums |   |                 | (2,334    | )      |             |   |   |   |   |   | (3,265 | ) |   |   |   |   |   |   | (4,486 | ) |   |   |   |   |   |   | (4,366 | ) |   |   |   |   |   |   | (4,161 | ) |   |   |   |   |   |   | (3,631 | ) |   |   |   |   |
| Allowance      for loan losses           |   |                 | (25,167   | )      |             |   |   |   |   |   | (12,839 | ) |   |   |   |   |   |   | (7,195 | ) |   |   |   |   |   |   | (5,250 | ) |   |   |   |   |   |   | (4,606 | ) |   |   |   |   |   |   | (3,378 | ) |   |   |   |   |
|                                     |   |                 |      |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans,      net                          |   | $                    | 1,534,591 |   |             |   |   |   |   | $ | 1,389,209 |   |   |   |   |   |   | $ | 1,365,712 |   |   |   |   |   |   | $ | 1,300,768 |   |   |   |   |   |   | $ | 1,213,561 |   |   |   |   |   |   | $ | 1,063,594 |   |   |   |   |   |

Table of Contents

|                                             |   | One- to four-family         |    |   | Over four-family    |     |   | Construction and Land |   |   | Commercial Real Estate |   |
|--------------------------------------------------|--------|-----------------------------|---------|--------|---------------------|----------|--------|-----------------------|--------|--------|------------------------|--------|
|                                             |   |                        |    |   | Weighted            |     |   |                  |   |   | Weighted               |   |   |   |   |   | Weighted |   |   |   |   |   | Weighted |   |
| Maturity Date                                    |   | Amount                      |    |   | Average Rate        |     |   | Amount                |   |   | Average Rate           |   |   | Amount |   |   | Average Rate |   |   | Amount |   |   | Average Rate |   |
|                                             |   | (Dollars      in Thousands) |    |
| Jan      1, 2009 –  Dec 31, 2009 |   | $                           | 67,121  |   |                |     | 6.61   | %                     |   | $      | 75,292                 |   |   |   | 6.40 | % |   | $ | 46,990 |   |   |   | 5.85 | % |   | $ | 13,214 |   |   |   | 6.35 | % |
| Jan      1, 2010 –  Dec 31, 2010 |   |                        | 38,264  |   |                |     | 6.91   | %                     |   |   | 56,090                 |   |   |   | 6.55 | % |   |   | 15,697 |   |   |   | 4.90 | % |   |   | 6,782 |   |   |   | 8.34 | % |
| Jan      1, 2011 –  Dec 31, 2011 |   |                        | 49,329  |   |                |     | 6.56   | %                     |   |   | 72,300                 |   |   |   | 6.40 | % |   |   | 20,219 |   |   |   | 5.36 | % |   |   | 5,059 |   |   |   | 6.10 | % |
| Jan      1, 2012 –  Dec 31, 2012 |   |                        | 8,247   |   |                |     | 6.75   | %                     |   |   | 22,903                 |   |   |   | 6.52 | % |   |   | 911 |   |   |   | 7.04 | % |   |   | 1,544 |   |   |   | 6.66 | % |
| Jan      1, 2013 –  Dec 31, 2013 |   |                        | 1,476   |   |                |     | 6.51   | %                     |   |   | 23,380                 |   |   |   | 6.36 | % |   |   | 49 |   |   |   | 6.50 | % |   |   | 4,315 |   |   |   | 5.98 | % |
| Jan      1, 2014 and thereafter                  |   |                        | 626,049 |   |                |     | 6.13   | %                     |   |   | 262,781                |   |   |   | 6.21 | % |   |   | 47,974 |   |   |   | 5.98 | % |   |   | 24,279 |   |   |   | 6.43 | % |
|                                             |   |                        |    |   |                |     |   |                  |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                            |   | $                           | 790,486 |   |                |     | 6.24   | %                     |   | $      | 512,746                |   |   |   | 6.32 | % |   | $ | 131,840 |   |   |   | 5.72 | % |   | $ | 55,193 |   |   |   | 6.59 | % |
|                                             |   |                        |    |   |                |     |   |                  |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                             |   |                        |    |   |                |     |   |                  |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                             |   | Home Equity                 |    |   | Commercial Business |     |   | Consumer              |   |   | Total                  |   |
|                                             |   |                        |    |   |                | Weighted |   |                  |   |   |                   |   | Weighted |   |   |   |   |   |   | Weighted |   |   |   |   |   |   | Weighted |   |
| Maturity Date                                    |   | Amount                      |    |   | Average Rate        |     |   | Amount                |   |   | Average Rate           |   |   | Amount |   |   | Average Rate |   |   | Amount |   |   | Average Rate |   |
|                                             |   |                        |    |   |                |     |   |                  |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Jan      1, 2009 –  Dec 31, 2009 |   | $                           | 32,242  |   |                |     | 6.85   | %                     |   | $      | 21,360                 |   |   |   | 3.42 | % |   | $ | 145 |   |   |   | 7.69 | % |   | $ | 256,364 |   |   |   | 6.16 | % |
| Jan      1, 2010 –  Dec 31, 2010 |   |                        | 1,809   |   |                |     | 5.25   | %                     |   |   | 3,162                  |   |   |   | 5.54 | % |   |   | 24 |   |   |   | 8.36 | % |   |   | 121,828 |   |   |   | 6.51 | % |
| Jan      1, 2011 –  Dec 31, 2011 |   |                        | 9,762   |   |                |     | 4.52   | %                     |   |   | 845                    |   |   |   | 6.64 | % |   |   | 46 |   |   |   | 7.76 | % |   |   | 157,560 |   |   |   | 6.19 | % |
| Jan      1, 2012 –  Dec 31, 2012 |   |                        | 8,012   |   |                |     | 4.52   | %                     |   |   | 6,963                  |   |   |   | 6.97 | % |   |   | 46 |   |   |   | 6.52 | % |   |   | 48,626 |   |   |   | 6.31 | % |
| Jan      1, 2013 –  Dec 31, 2013 |   |                        | 15,333  |   |                |     | 4.34   | %                     |   |   | 8,203                  |   |   |   | 6.22 | % |   |   | 104 |   |   |   | 6.43 | % |   |   | 52,860 |   |   |   | 5.73 | % |
| Jan      1, 2014 and thereafter                  |   |                        | 22,490  |   |                |     | 4.54   | %                     |   |   | 2,473                  |   |   |   | 5.91 | % |   |   | - |   |   |   | - |   |   |   | 986,046 |   |   |   | 6.12 | % |
|                                             |   |                        |    |   |                |     |   |                  |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                            |   | $                           | 89,648  |   |                |     | 5.35   | %                     |   | $      | 43,006                 |   |   |   | 4.89 | % |   | $ | 365 |   |   |   | 5.56 | % |   | $ | 1,623,284 |   |   |   | 6.15 | % |

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|                       |   | Due      After December 31, 2009 |    |
|----------------------------|--------|----------------------------------|---------|
|                       |   | Fixed                            |    |   | Variable |   |   | Total |   |
|                       |   | (In      Thousands)              |    |
| Real      estate loans:    |   |                             |    |   |   |   |   |   |   |
| Mortgage      loans        |   |                             |    |   |   |   |   |   |   |
| One-      to four-family   |   | $                                | 12,907  |   |   | $ | 710,458 |   |   | $ | 723,365 |   |
| Over      four-family      |   |                             | 23,918  |   |   |   | 413,536 |   |   |   | 437,454 |   |
| Construction      and land |   |                             | 60,168  |   |   |   | 24,682 |   |   |   | 84,850 |   |
| Commercial                 |   |                             | 14,197  |   |   |   | 27,782 |   |   |   | 41,979 |   |
| Home      equity           |   |                             | 3,807   |   |   |   | 53,599 |   |   |   | 57,406 |   |
| Commercial                 |   |                             | 18,190  |   |   |   | 3,456 |   |   |   | 21,646 |   |
| Consumer                   |   |                             | 220     |   |   |   | - |   |   |   | 220 |   |
|                       |   |                             |    |   |   |   |   |   |   |   |   |   |
| Total      loans           |   | $                                | 133,407 |   |   | $ | 1,233,513 |   |   | $ | 1,366,920 |   |

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|                                                           |   |                         |      |   |                |   |      |   |   |
|----------------------------------------------------------------|--------|------------------------------|-----------|--------|---------------------|--------|-----------|--------|--------|
|                                                           |   | Year      Ended December 31, |      |
|                                                           |   | 2008                         |      |   | 2007                |   |      | 2006   |   |
|                                                           |   |                         |      |   | (In      Thousands) |   |      |   |   |
|                                                           |   |                         |      |   |                |   |      |   |   |
| Total      loans at beginning of year                          |   | $                            | 1,495,970 |   |                | $      | 1,450,170 |   |   | $ | 1,393,096 |   |
| Mortgage      loans originated for investment:                 |   |                         |      |   |                |   |      |   |   |   |   |   |
| Residential                                                    |   |                         |      |   |                |   |      |   |   |   |   |   |
| One-      to four-family                                       |   |                         | 205,526   |   |                |   | 65,851    |   |   |   | 111,316 |   |
| Over      four-family                                          |   |                         | 122,113   |   |                |   | 64,857    |   |   |   | 99,420 |   |
| Construction      and land                                     |   |                         | 51,367    |   |                |   | 33,705    |   |   |   | 74,104 |   |
| Commercial                                                     |   |                         | 14,876    |   |                |   | 13,494    |   |   |   | 19,867 |   |
| Home      equity                                               |   |                         | 20,672    |   |                |   | 15,886    |   |   |   | 11,916 |   |
| Total      mortgage loans originated for investment            |   |                         | 414,554   |   |                |   | 193,793   |   |   |   | 316,623 |   |
| Consumer      loans originated for investment                  |   |                         | 280       |   |                |   | 157       |   |   |   | - |   |
| Commercial      loans originated for investment                |   |                         | 21,934    |   |                |   | 25,229    |   |   |   | 2,867 |   |
| Total      loans originated for investment                     |   |                         | 436,768   |   |                |   | 219,179   |   |   |   | 319,490 |   |
| Other      loans – net activity                          |   |                         |      |   |                |   | -         |   |   |   | 67 |   |
| Principal      repayments                                      |   |                         | (228,099  | )      |                |   | (171,592  | )      |   |   | (266,042 | ) |
| Transfers      to real estate owned                            |   |                         | (32,946   | )      |                |   | (13,455   | )      |   |   | (1,572 | ) |
| Loan      principal charge off                                 |   |                         | (25,301   | )      |                |   | (6,053    | )      |   |   | (256 | ) |
| Net      activity in loans held for investment                 |   |                         | 150,422   |   |                |   | 28,079    |   |   |   | 51,687 |   |
|                                                           |   |                         |      |   |                |   |      |   |   |   |   |   |
| Loans      originated for sale                                 |   |                         | 255,891   |   |                |   | 242,120   |   |   |   | 84,603 |   |
| Loans      sold                                                |   |                         | (266,006  | )      |                |   | (224,399  | )      |   |   | (79,216 | ) |
| Net      activity in loans held for sale                       |   |                         | (10,115   | )      |                |   | 17,721    |   |   |   | 5,387 |   |
|                                                           |   |                         |      |   |                |   |      |   |   |   |   |   |
| Total      loans receivable and held for sale at end of period |   | $                            | 1,636,277 |   |                | $      | 1,495,970 |   |   | $ | 1,450,170 |   |

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| o   | Any      secured one- to four-family mortgage loan up to $500,000 for a borrower      with total outstanding loans receivable of less than $2,000,000 that is      independently underwritten can be approved and closed by any loan      officer. |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Any      loan up to $500,000 for a borrower with total outstanding loans receivable      of less than $2,000,000 can be approved and closed by a commercial loan      officer. |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Any      secured mortgage loan ranging from $500,001 to $2,999,999 or any new loan      to a borrower with outstanding loans receivable exceeding $2,000,000 must      be approved by the Officer Loan Committee.  If approved, any      loan officer may close the loan. |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Any      loan for $3,000,000 or greater must be approved by the Officer Loan      Committee and board of directors prior to closing.  If approved,      any loan officer may close theloan. |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                                        |   | At      December 31,        |    |   | At      June 30, |   |
|-------------------------------------------------------------|--------|-----------------------------|---------|--------|------------------|--------|
|                                                        |   | 2008                        |    |   | 2007             |   |   | 2006 |   |   | 2005 |   |   | 2005 |   |   | 2004 |   |
|                                                        |   | (Dollars      in Thousands) |    |
| Non-accrual      loans:                                     |   |                        |    |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                 |   |                        |    |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-      to four-family                                    |   | $                           | 42,182  |   |             | $      | 32,587 |   |   | $ | 12,044 |   |   | $ | 8,766 |   |   | $ | 5,232 |   |   | $ | 4,028 |   |
| Over      four-family                                       |   |                        | 35,787  |   |             |   | 38,218 |   |   |   | 8,384 |   |   |   | 6,703 |   |   |   | 5,877 |   |   |   | 4,776 |   |
| Construction      and land                                  |   |                        | 18,271  |   |             |   | 3,855 |   |   |   | 7,664 |   |   |   | 1,360 |   |   |   | 830 |   |   |   | 2,072 |   |
| Commercial      real estate                                 |   |                        | 9,325   |   |             |   | 4,358 |   |   |   | 357 |   |   |   | 962 |   |   |   | 1,137 |   |   |   | 1,139 |   |
| Home      equity                                            |   |                        | 2,015   |   |             |   | 1,332 |   |   |   | 439 |   |   |   | 274 |   |   |   | - |   |   |   | - |   |
| Commercial                                                  |   |                        | 150     |   |             |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Consumer                                                    |   |                        | -       |   |             |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total      non-performing loans                             |   |                        | 107,730 |   |             |   | 80,350 |   |   |   | 28,888 |   |   |   | 18,065 |   |   |   | 13,076 |   |   |   | 12,015 |   |
|                                                        |   |                        |    |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real      estate owned                                      |   |                        |    |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-      to four-family                                    |   |                        | 16,720  |   |             |   | 4,988 |   |   |   | 404 |   |   |   | 215 |   |   |   | 475 |   |   |   | 770 |   |
| Over      four-family                                       |   |                        | 6,057   |   |             |   | 755 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Construction      and land                                  |   |                        | 1,094   |   |             |   | 2,619 |   |   |   | 116 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Commercial      real estate                                 |   |                        | 782     |   |             |   | 181 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total      real estate owned                                |   |                        | 24,653  |   |             |   | 8,543 |   |   |   | 520 |   |   |   | 215 |   |   |   | 475 |   |   |   | 770 |   |
|                                                        |   |                        |    |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      non-performing assets                            |   | $                           | 132,383 |   |             | $      | 88,893 |   |   | $ | 29,408 |   |   | $ | 18,280 |   |   | $ | 13,551 |   |   | $ | 12,785 |   |
|                                                        |   |                        |    |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      non-performing loans to total loans, net         |   |                        | 6.91    | %      |             |   | 5.73 | % |   |   | 2.10 | % |   |   | 1.39 | % |   |   | 1.07 | % |   |   | 1.13 | %  |
| Total      non-performing loans to total assets             |   |                        | 5.71    | %      |             |   | 4.70 | % |   |   | 1.75 | % |   |   | 1.20 | % |   |   | 0.94 | % |   |   | 0.97 | %  |
| Total      non-performing assets  to total assets |   |                        | 7.02    | %      |             |   | 5.20 | % |   |   | 1.78 | % |   |   | 1.21 | % |   |   | 0.98 | % |   |   | 1.03 | %  |

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|                                    |   |                        |   |   |              |   |   |                                   |   |   | At      or for the |   |   |   |   |   |   |   |
|-----------------------------------------|--------|-----------------------------|--------|--------|-------------------|--------|--------|----------------------------------------|--------|--------|--------------------|--------|--------|--------|--------|--------|--------|--------|
|                                    |   |                        |   |   |              |   |   |                                   |   |   | Six      Month     |   |   |   |   |   |   |   |
|                                    |   | At      or for the Year     |   |   | Period      Ended |   |   |                                   |   |   |               |   |
|                                    |   | Ended      December 31,     |   |   | December      31, |   |   | At      or for the Year Ended June 30, |   |
|                                    |   | 2008                        |   |   | 2007              |   |   | 2006                                   |   |   | 2005               |   |   | 2005   |   |   | 2004   |   |
|                                    |   | (Dollars      in Thousands) |   |
|                                    |   |                        |   |   |              |   |   |                                   |   |   |               |   |   |   |   |   |   |   |
| Balance      at beginning of period     |   | $                           | 12,839 |   |              | $      | 7,195  |                                   |   | $      | 5,250              |   |   | $      | 4,606  |   |   | $      | 3,378 |   |   | $ | 2,970 |   |
| Provision      for loan losses          |   |                        | 37,629 |   |              |   | 11,697 |                                   |   |   | 2,201              |   |   |   | 1,035  |   |   |   | 1,238 |   |   |   | 860 |   |
| Charge-offs:                            |   |                        |   |   |              |   |   |                                   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage      loans                     |   |                        |   |   |              |   |   |                                   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-      to four-family (1)            |   |                        | 8,397  |   |              |   | 1,397  |                                   |   |   | 524                |   |   |   | 97     |   |   |   | 1 |   |   |   | 320 |   |
| Over      four-family                   |   |                        | 10,056 |   |              |   | 634    |                                   |   |   | -                  |   |   |   | 169    |   |   |   | - |   |   |   | 125 |   |
| Construction      and land              |   |                        | 5,088  |   |              |   | 3,982  |                                   |   |   | -                  |   |   |   | -      |   |   |   | - |   |   |   | - |   |
| Commercial      real estate             |   |                        | 1,838  |   |              |   | 27     |                                   |   |   | 5                  |   |   |   | 102    |   |   |   | 2 |   |   |   | - |   |
| Home      equity (1)                    |   |                        | 394    |   |              |   | 120    |                                   |   |   | -                  |   |   |   | -      |   |   |   | - |   |   |   | - |   |
| Consumer                                |   |                        | 4      |   |              |   | 3      |                                   |   |   | 7                  |   |   |   | 23     |   |   |   | 8 |   |   |   | 8 |   |
| Total      charge-offs                  |   |                        | 25,777 |   |              |   | 6,163  |                                   |   |   | 536                |   |   |   | 391    |   |   |   | 11 |   |   |   | 453 |   |
| Recoveries:                             |   |                        |   |   |              |   |   |                                   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Mortgage      loans   |   |                        |   |   |              |   |   |                                   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-      to four-family                |   |                        | 313    |   |              |   | 68     |                                   |   |   | 144                |   |   |   | -      |   |   |   | - |   |   |   | - |   |
| Over      four-family                   |   |                        | 31     |   |              |   | -      |                                   |   |   | 30                 |   |   |   | -      |   |   |   | - |   |   |   | - |   |
| Construction      and land              |   |                        | 125    |   |              |   | -      |                                   |   |   | -                  |   |   |   | -      |   |   |   | - |   |   |   | - |   |
| Commercial      real estate             |   |                        | -      |   |              |   | 40     |                                   |   |   | 100                |   |   |   | -      |   |   |   | - |   |   |   | - |   |
| Home      equity                        |   |                        | 1      |   |              |   | 1      |                                   |   |   | -                  |   |   |   | -      |   |   |   | - |   |   |   | - |   |
| Consumer                                |   |                        | 6      |   |              |   | 1      |                                   |   |   | 6                  |   |   |   | -      |   |   |   | 1 |   |   |   | 1 |   |
| Total      recoveries                   |   |                        | 476    |   |              |   | 110    |                                   |   |   | 280                |   |   |   | -      |   |   |   | 1 |   |   |   | 1 |   |
|                                    |   |                        |   |   |              |   |   |                                   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      charge-offs                    |   |                        | 25,301 |   |              |   | 6,053  |                                   |   |   | 256                |   |   |   | 391    |   |   |   | 10 |   |   |   | 452 |   |
| Allowance      at end of year           |   | $                           | 25,167 |   |              | $      | 12,839 |                                   |   | $      | 7,195              |   |   | $      | 5,250  |   |   | $      | 4,606 |   |   | $ | 3,378 |   |
|                                    |   |                        |   |   |              |   |   |                                   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratios:                                 |   |                        |   |   |              |   |   |                                   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance      for loan losses to non-  |   |                        |   |   |              |   |   |                                   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| performing      loans at end of period  |   |                        | 23.36  | %      |              |   | 15.98  | %                                      |   |   | 24.91              | %      |   |   | 29.06  | %      |   |   | 35.22 | % |   |   | 28.11 | %  |
| Allowance      for loan losses to net   |   |                        |   |   |              |   |   |                                   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| loans      outstanding at end of period |   |                        | 1.61   | %      |              |   | 0.92   | %                                      |   |   | 0.52               | %      |   |   | 0.40   | %      |   |   | 0.38 | % |   |   | 0.32 | %  |
| Net      charge-offs to average loans   |   |                        |   |   |              |   |   |                                   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| outstanding      (annualized)           |   |                        | 1.67   | %      |              |   | 0.44   | %                                      |   |   | 0.02               | %      |   |   | 0.06   | %      |   |   | 0.00 | % |   |   | 0.05 | %  |

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|                                 |   | At      December 31,           |   |
|--------------------------------------|--------|--------------------------------|--------|
|                                 |   | 2008                           |   |   | 2007 |   |   | 2006 |   |
|                                 |   | Allowance      for Loan Losses |   |   | %      of Loans in Category to Total Loans |   |   | %      of Allowance in Category to Total Allowance |   |   | Allowance      for Loan Losses |   |   | %      of Loans in Category to Total Loans |   |   | %      of Allowance in Category to Total Allowance |   |   | Allowance      for Loan Losses |   |   | %      of Loans in Category to Total Loans |   |   | %      of Allowance in Category to Total Allowance |   |
|                                 |   | (Dollars      in Thousands)    |   |
| Real      Estate:                    |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential(1)                       |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-      to four-family             |   | $                              | 14,185 |   |   |   | 48.70 | % |   |   | 56.36 | % |   | $ | 5,424 |   |   |   | 45.64 | % |   |   | 42.25 | % |   | $ | 4,116 |   |   |   | 44.17 | % |   |   | 57.21 | % |
| Over      four-family                |   |                           | 6,844  |   |   |   | 31.59 | % |   |   | 27.20 | % |   |   | 4,369 |   |   |   | 32.45 | % |   |   | 34.03 | % |   |   | 2,034 |   |   |   | 34.10 | % |   |   | 28.27 | % |
| Construction      and land           |   |                           | 2,137  |   |   |   | 8.12 | % |   |   | 8.49 | % |   |   | 2,087 |   |   |   | 10.61 | % |   |   | 16.26 | % |   |   | 167 |   |   |   | 11.67 | % |   |   | 2.32 | % |
| Commercial      Real Estate          |   |                           | 445    |   |   |   | 3.40 | % |   |   | 1.77 | % |   |   | 280 |   |   |   | 3.53 | % |   |   | 2.18 | % |   |   | 764 |   |   |   | 3.53 | % |   |   | 10.62 | % |
| Home      equity(1)                  |   |                           | 1,027  |   |   |   | 5.52 | % |   |   | 4.08 | % |   |   | 536 |   |   |   | 5.84 | % |   |   | 4.17 | % |   |   | - |   |   |   | 6.34 | % |   |   | - |   |
| Commercial                           |   |                           | 457    |   |   |   | 2.65 | % |   |   | 1.82 | % |   |   | 99 |   |   |   | 1.92 | % |   |   | 0.77 | % |   |   | - |   |   |   | 0.18 | % |   |   | - |   |
| Consumer                             |   |                           | 39     |   |   |   | 0.02 | % |   |   | 0.15 | % |   |   | 35 |   |   |   | 0.01 | % |   |   | 0.27 | % |   |   | 30 |   |   |   | 0.01 | % |   |   | 0.42 | % |
| Unallocated                          |   |                           | 33     |   |   |   | 0.00 | % |   |   | 0.13 | % |   |   | 9 |   |   |   | 0.00 | % |   |   | 0.07 | % |   |   | 84 |   |   |   | 0.00 | % |   |   | 1.16 | % |
| Total      allowance for loan losses |   | $                              | 25,167 |   |   |   | 100.00 | % |   |   | 100.00 | % |   | $ | 12,839 |   |   |   | 100.00 | % |   |   | 100.00 | % |   | $ | 7,195 |   |   |   | 100.00 | % |   |   | 100.00 | % |

|  (1) | Prior      to the year ended December 31, 2007, one- to four-family loans include      home equity loans and home equity lines of credit, as a separate breakdown      of the allowance for loan losses is not available for those      years. |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                 |   | At      December 31,           |   |   | At      June 30,                           |   |
|--------------------------------------|--------|--------------------------------|--------|--------|--------------------------------------------|--------|
|                                 |   | 2005                           |   |   | 2005                                       |   |   | 2004 |   |
|                                 |   | Allowance      for Loan Losses |   |   | %      of Loans in Category to Total Loans |   |   | %      of Allowance in Category to Total Allowance |   |   | Allowance      for Loan Losses |   |   | %      of Loans in Category to Total Loans |   |   | %      of Allowance in Category to Total Allowance |   |   | Allowance      for Loan Losses |   |   | %      of Loans in Category to Total Loans |   |   | %      of Allowance in Category to Total Allowance |   |
|                                 |   | (Dollars      In Thousands)    |   |
| Real      Estate:                    |   |                           |   |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential(1)                       |   |                           |   |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-      to four-family             |   |                           | 2,624  |   |                                       |   | 46.66 | % |   |   | 49.98 | % |   |   | 1603 |   |   |   | 48.36 | % |   |   | 34.80 | % |   |   | 1118 |   |   |   | 50.89 | % |   |   | 33.10 | % |
| Over      four-family                |   |                           | 1,716  |   |                                       |   | 32.78 | % |   |   | 32.69 | % |   |   | 1,646 |   |   |   | 31.36 | % |   |   | 35.74 | % |   |   | 1,831 |   |   |   | 30.25 | % |   |   | 54.20 | % |
| Construction      and land           |   |                           | 234    |   |                                       |   | 11.33 | % |   |   | 4.46 | % |   |   | 712 |   |   |   | 11.05 | % |   |   | 15.46 | % |   |   | 100 |   |   |   | 9.49 | % |   |   | 2.96 | % |
| Commercial      Real Estate          |   |                           | 630    |   |                                       |   | 2.53 | % |   |   | 12.00 | % |   |   | 450 |   |   |   | 2.81 | % |   |   | 9.77 | % |   |   | 309 |   |   |   | 4.09 | % |   |   | 9.15 | % |
| Home      equity                     |   |                           | -      |   |                                       |   | 6.69 | % |   |   | - |   |   |   | 10 |   |   |   | 6.41 | % |   |   | 0.22 | % |   |   | - |   |   |   | 5.27 | % |   |   | - |   |
| Commercial                           |   |                           | -      |   |                                       |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Consumer                             |   |                           | 27     |   |                                       |   | 0.01 | % |   |   | 0.51 | % |   |   | 25 |   |   |   | 0.01 | % |   |   | 0.54 | % |   |   | 20 |   |   |   | 0.01 | % |   |   | 0.59 | % |
| Unallocated                          |   |                           | 19     |   |                                       |   | - |   |   |   | 0.36 | % |   |   | 160 |   |   |   | - |   |   |   | 3.47 | % |   |   | - |   |   |   | - |   |   |   | - |   |
| Total      allowance for loan losses |   | $                              | 5,250  |   |                                       |   | 100.00 | % |   |   | 100.00 | % |   | $ | 4,606 |   |   |   | 100.00 | % |   |   | 100.00 | % |   | $ | 3,378 |   |   |   | 100.00 | % |   |   | 100.00 | % |

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|                                     |   | At      December 31, |    |
|------------------------------------------|--------|----------------------|---------|
|                                     |   | 2008                 |    |   | 2007 |   |   | 2006 |   |
|                                     |   | Amortized            |    |   |   |   |   | Amortized |   |   |   |   |   | Amortized |   |   |   |   |
|                                     |   | Cost                 |    |   | Fair      Value |   |   | Cost |   |   | Fair      Value |   |   | Cost |   |   | Fair      Value |   |
|                                     |   | (In      Thousands)  |
|                                     |   |                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      Available for Sale:      |   |                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   |                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Government      sponsored entity bonds   |   | $                    | 11,007  |   |   | $ | 11,342 |   |   | $ | 13,996 |   |   | $ | 14,182 |   |   | $ | 13,450 |   |   | $ | 13,257 |   |
| Mortgage-related      securities         |   |                 | 139,862 |   |   |   | 131,542 |   |   |   | 130,547 |   |   |   | 130,610 |   |   |   | 100,693 |   |   |   | 98,873 |   |
| Municipal      obligations               |   |                 | 32,697  |   |   |   | 31,362 |   |   |   | 27,277 |   |   |   | 27,095 |   |   |   | 4,278 |   |   |   | 4,421 |   |
| Corporate      notes                     |   |                 | 992     |   |   |   | 941 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      debt securities               |   |                 | 5,250   |   |   |   | 4,700 |   |   |   | 250 |   |   |   | 250 |   |   |   | 794 |   |   |   | 779 |   |
| Total      securities available for sale |   | $                    | 189,808 |   |   | $ | 179,887 |   |   | $ | 172,070 |   |   | $ | 172,137 |   |   | $ | 119,215 |   |   | $ | 117,330 |   |

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|                                     |   | One      Year or Less       |   |   | More      than One Year through Five Years |   |   | More      than Five Years through Ten Years |   |   | More      than Ten Years |   |   | Total      Securities |   |
|------------------------------------------|--------|-----------------------------|--------|--------|--------------------------------------------|--------|--------|---------------------------------------------|--------|--------|--------------------------|--------|--------|-----------------------|--------|
|                                     |   |                        |   |   | Weighted                                   |   |   |                                        |   |   | Weighted                 |   |   |                  |   |   | Weighted |   |   |   |   |   | Weighted |   |   |   |   |   | Weighted |   |
|                                     |   | Carrying                    |   |   | Average                                    |   |   | Carrying                                    |   |   | Average                  |   |   | Carrying              |   |   | Average |   |   | Carrying |   |   | Average |   |   | Carrying |   |   | Average |   |
|                                     |   | Value                       |   |   | Yield                                      |   |   | Value                                       |   |   | Yield                    |   |   | Value                 |   |   | Yield |   |   | Value |   |   | Yield |   |   | Value |   |   | Yield |   |
|                                     |   | (Dollars      in Thousands) |   |
|                                     |   |                        |   |   |                                       |   |   |                                        |   |   |                     |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      available for sale:      |   |                        |   |   |                                       |   |   |                                        |   |   |                     |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Government      sponsored entity bonds   |   | $                           | 8,120  |   |                                       |   | 4.43   | %                                           |   | $      | 3,222                    |   |   |                  | 4.91   | % |   | $ | - |   |   |   | - |   |   | $ | - |   |   |   | - |   |   | $ | 11,342 |   |   |   | 4.56 | % |
| Mortgage-related      securities         |   |                        | 5,503  |   |                                       |   | 4.20   | %                                           |   |   | 90,070                   |   |   |                  | 5.03   | % |   |   | 20,828 |   |   |   | 5.38 | % |   |   | 15,141 |   |   |   | 6.85 | % |   |   | 131,542 |   |   |   | 5.35 | % |
| Municipal      obligations               |   |                        | -      |   |                                       |   | -      |                                        |   |   | 1,299                    |   |   |                  | 5.08   | % |   |   | 6,127 |   |   |   | 5.16 | % |   |   | 23,936 |   |   |   | 6.03 | % |   |   | 31,362 |   |   |   | 5.83 | % |
| Corporate      notes                     |   |                        | 941    |   |                                       |   | 7.04   | %                                           |   |   | -                        |   |   |                  | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 941 |   |   |   | 7.04 | % |
| Other      debt securities               |   |                        | -      |   |                                       |   | -      |                                        |   |   | 250                      |   |   |                  | 4.05   | % |   |   | - |   |   |   | - |   |   |   | 4,450 |   |   |   | 10.00 | % |   |   | 4,700 |   |   |   | 9.72 | % |
| Total      securities available for sale |   | $                           | 14,564 |   |                                       |   | 4.77   | %                                           |   | $      | 94,841                   |   |   |                  | 5.02   | % |   | $ | 26,955 |   |   |   | 5.33 | % |   | $ | 43,527 |   |   |   | 6.75 | % |   | $ | 179,887 |   |   |   | 5.54 | % |
|                                     |   |                        |   |   |                                       |   |   |                                        |   |   |                     |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      held to maturity:        |   |                        |   |   |                                       |   |   |                                        |   |   |                     |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Corporate      notes                     |   |                        | -      |   |                                       |   | -      |                                        |   |   | -                        |   |   |                  | -      |   |   |   | - |   |   |   | - |   |   | $ | 8,165 |   |   |   | 7.43 | % |   | $ | 8,165 |   |   |   | 7.43 | % |

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|                            |   | At      December 31,        |      |
|---------------------------------|--------|-----------------------------|-----------|
|                            |   | 2008                        |      |   | 2007 |   |   | 2006 |   |
|                            |   |                        |      |   |   |   |   | Weighted |   |   |   |   |   |   |   |   | Weighted |   |   |   |   |   |   |   |   | Weighted |   |
|                            |   |                        |      |   |   |   |   | Average |   |   |   |   |   |   |   |   | Average |   |   |   |   |   |   |   |   | Average |   |
|                            |   | Balance                     |      |   | Percent |   |   | Rate |   |   | Balance |   |   | Percent |   |   | Rate |   |   | Balance |   |   | Percent |   |   | Rate |   |
|                            |   | (Dollars      in Thousands) |      |
|                            |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposit      type:              |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand      deposits            |   | $                           | 20,664    |   |   |   | 1.73 | % |   |   | 0.00 | % |   | $ | 18,950 |   |   |   | 1.91 | % |   |   | 0.00 | % |   | $ | 15,087 |   |   |   | 1.46 | % |   |   | 0.00 | % |
| NOW      accounts               |   |                        | 32,770    |   |   |   | 2.74 | % |   |   | 0.13 | % |   |   | 34,260 |   |   |   | 3.44 | % |   |   | 0.82 | % |   |   | 43,320 |   |   |   | 4.18 | % |   |   | 0.95 | % |
| Regular      savings            |   |                        | 27,029    |   |   |   | 2.26 | % |   |   | 0.47 | % |   |   | 19,162 |   |   |   | 1.93 | % |   |   | 0.87 | % |   |   | 18,177 |   |   |   | 1.75 | % |   |   | 0.40 | % |
| Money      market and           |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| savings      deposits           |   |                        | 73,901    |   |   |   | 6.18 | % |   |   | 0.22 | % |   |   | 95,225 |   |   |   | 9.57 | % |   |   | 3.66 | % |   |   | 76,295 |   |   |   | 7.36 | % |   |   | 4.70 | % |
|                            |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      transaction accounts |   |                        | 154,364   |   |   |   | 12.91 | % |   |   | 0.21 | % |   |   | 167,597 |   |   |   | 16.85 | % |   |   | 2.35 | % |   |   | 152,879 |   |   |   | 14.75 | % |   |   | 2.67 | % |
|                            |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Certificates      of deposit    |   |                        | 1,041,533 |   |   |   | 87.09 | % |   |   | 3.85 | % |   |   | 826,938 |   |   |   | 83.15 | % |   |   | 4.75 | % |   |   | 883,339 |   |   |   | 85.25 | % |   |   | 4.63 | % |
|                            |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      deposits             |   | $                           | 1,195,897 |   |   |   | 100.00 | % |   |   | 3.38 | % |   | $ | 994,535 |   |   |   | 100.00 | % |   |   | 4.35 | % |   | $ | 1,036,218 |   |   |   | 100.00 | % |   |   | 4.34 | % |

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|                                                                                                         |   | (In      Thousands) |    |
|--------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|
|                 Due      in: |   |                |    |
| Three      months or less                                                                                    |   | $                   | 76,101  |   |
| Over      three months through six months                                                                    |   |                | 37,157  |   |
| Over      six months through 12 months                                                                       |   |                | 136,461 |   |
| Over      12 months                                                                                          |   |                | 52,911  |   |
|                                                                                                         |   |                |    |   |
| Total                                                                                                        |   | $                   | 302,630 |   |

|                                                     |   |                          |    |   |   |   |    |   |   |
|----------------------------------------------------------|--------|-------------------------------|---------|--------|--------|--------|---------|--------|--------|
|                                                     |   | At      or For the Year Ended |    |
|                                                     |   | December      31,             |    |
|                                                     |   | 2008                          |    |   | 2007   |   |    | 2006   |   |
| Borrowings:                                              |   | (Dollars      in Thousands)   |    |
|                                                     |   |                          |    |   |   |   |    |   |   |
| Balance      outstanding at end of period                |   | $                             | 487,000 |   |   | $      | 475,484 |   |   |   | 334,003 |   |
| Weighted      average interest rate at the end of period |   |                          | 3.99    | %      |   |   | 4.16    | %      |   |   | 4.31 | % |
| Maximum      amount of advances outstanding at any       |   |                          |    |   |   |   |    |   |   |   |   |   |
| month      end during the period                         |   |                          | 519,296 |   |   |   | 475,484 |   |   |   | 349,003 |   |
| Average      balance outstanding during the period       |   |                          | 494,655 |   |   |   | 403,577 |   |   |   | 277,505 |   |
| Weighted      average interest rate during the period    |   |                          | 4.11    | %      |   |   | 4.28    | %      |   |   | 4.25 | % |

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| ·      | for      loans secured by raw land, the supervisory loan-to-value limit is 65% of      the value of the collateral; |
|--------------------------------------|---------------------------------------------------------------------------------------------------------------------|

| ·      | for      land development loans (i.e., loans for the purpose of improving      unimproved property prior to the erection of structures), the supervisory      limit is 75%; |
|--------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·      | for      loans for the construction of commercial, over four-family or other      non-residential property, the supervisory limit is  80%; |
|--------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

| ·      | for      loans for the construction of one- to four-family properties, the      supervisory limit is 85%; and |
|--------------------------------------|---------------------------------------------------------------------------------------------------------------|

| ·      | for      loans secured by other improved property (e.g., farmland, completed      commercial property and other income-producing property, including      non-owner occupied, one- to four-family property), the limit is      85%. |
|--------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Item1A.   RiskFactors

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Item1B.   Unresolved Staff Comments

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 Item2.   Properties

|                                  |               | Year           |   | Date      of        |   |   |                   |   |
|---------------------------------------|--------------------|----------------|--------|---------------------|--------|--------|------------------------|--------|
|                                  | Owned      Or      | Acquired       |   | Lease               |   |   | December      31, 2008 |   |
| Location                              | Leased             | Or      Leased |   | Expiration          |   |   | Net      Book Value    |   |
|                                  |               |           |   | (In      Thousands) |   |
| Branches:                             |               |           |   |                |   |   |                   |   |
| 7500      West State Street           |               |           |   |                |   |   |                   |   |
| Wauwatosa,      Wisconsin             | Own                | 1971           |   |                | N/A    |   |                   | $      | 1,179 |   |
|                                  |               |           |   |                |   |   |                   |   |   |   |
| 6560 South 27th Street |               |           |   |                |   |   |                   |   |   |   |
| Oak      Creek, Wisconsin             | Own                | 1986           |   |                | N/A    |   |                   | $      | 1,177 |   |
|                                  |               |           |   |                |   |   |                   |   |   |   |
| 21505      East Moreland Blvd (1)     |               |           |   |                |   |   |                   |   |   |   |
| Waukesha,      Wisconsin              | Capital      Lease | 2005           |   | 2009                |   |   | $                      | 5,072  |   |
|                                  |               |           |   |                |   |   |                   |   |   |   |
| 1233      Corporate Center Drive      |               |           |   |                |   |   |                   |   |   |   |
| Oconomowoc,      Wisconsin            | Own                | 2003           |   |                | N/A    |   |                   | $      | 2,649 |   |
|                                  |               |           |   |                |   |   |                   |   |   |   |
| 1230      George Towne Drive          |               |           |   |                |   |   |                   |   |   |   |
| Pewaukee,      Wisconsin              | Own                | 2004           |   |                | N/A    |   |                   | $      | 3,753 |   |
|                                  |               |           |   |                |   |   |                   |   |   |   |
| 6555      S 108th St                  |               |           |   |                |   |   |                   |   |   |   |
| Franklin,      Wisconsin              | Own                | 2006           |   |                | N/A    |   |                   | $      | 2,540 |   |
|                                  |               |           |   |                |   |   |                   |   |   |   |
| W188N9820      Appleton Ave           |               |           |   |                |   |   |                   |   |   |   |
| Germantown,      Wisconsin            | Own                | 2006           |   |                | N/A    |   |                   | $      | 2,518 |   |
|                                  |               |           |   |                |   |   |                   |   |   |   |
| 10101      W Greenfield Ave           |               |           |   |                |   |   |                   |   |   |   |
| West      Allis, Wisconsin            | Own                | 2006           |   |                | N/A    |   |                   | $      | 4,346 |   |
|                                  |               |           |   |                |   |   |                   |   |   |   |
| 7136      W State Street (2)          |               |           |   |                |   |   |                   |   |   |   |
| Wauwatosa,      Wiscsonsin            | Own                | 2000           |   |                | N/A    |   |                   | $      | 529 |   |
|                                  |               |           |   |                |   |   |                   |   |   |   |
| Corporate      Center:                |               |           |   |                |   |   |                   |   |   |   |
| 11200      West Plank Court           |               |           |   |                |   |   |                   |   |   |   |
| Wauwatosa,      Wisconsin             | Own                | 2004           |   |                | N/A    |   |                   | $      | 4,657 |   |

| (1)   | The      Company exercised its purchase option on February 25,  2009 |
|-----------------|----------------------------------------------------------------------|

| (2)   | Drive-up      banking facility only. |
|-----------------|--------------------------------------|

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Item3.   LegalProceedings

Item4.   Submission of Matters to aVote of Security Holders

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Item5.   Market for Registrant'sCommon Equity and Related Stockholder Matters and Issuer Purchase of EquitySecurities

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| 2008             |   | High   |   |   | Low    |   |
|------------------|--------|--------|--------|--------|--------|--------|
| 1st      Quarter |   |   | 13.30  |   |   |   | 11.30 |   |
| 2nd      Quarter |   |   | 13.17  |   |   |   | 10.62 |   |
| 3rd      Quarter |   |   | 11.94  |   |   |   | 9.06 |   |
| 4th      Quarter |   |   | 9.60   |   |   |   | 2.91 |   |
|             |   |   |   |   |   |   |   |   |
| 2007             |   |   |   |   |   |   |   |   |
| 1st      Quarter |   |   | 17.99  |   |   |   | 17.07 |   |
| 2nd      Quarter |   |   | 17.99  |   |   |   | 16.11 |   |
| 3rd      Quarter |   |   | 16.65  |   |   |   | 14.41 |   |
| 4th      Quarter |   |   | 17.02  |   |   |   | 12.78 |   |
|             |   |   |   |   |   |   |   |   |
| 2006             |   |   |   |   |   |   |   |   |
| 1st      Quarter |   |   | 13.85  |   |   |   | 11.44 |   |
| 2nd      Quarter |   |   | 17.06  |   |   |   | 13.08 |   |
| 3rd      Quarter |   |   | 18.90  |   |   |   | 15.70 |   |
| 4th      Quarter |   |   | 18.23  |   |   |   | 17.17 |   |

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| Stock/Index                                  |   | 10/4/2005 |   |   | 12/31/2005 |   |   | 3/31/2006  |   |   | 6/30/2006 |   |   | 9/30/2006 |   |   |      | 12/31/2006 |   |   | 3/31/2007  |
|----------------------------------------------|--------|-----------|--------|--------|------------|--------|--------|------------|--------|--------|-----------|--------|--------|-----------|--------|--------|-----------|------------|--------|--------|------------|
|                                         |   |      |   |   |       |   |   |       |   |   |      |   |   |      |   |   |      |       |   |   |       |
| Waterstone      Financial, Inc (WSBF)        |   |      | 100.00 |   |       |   | 114.40 |       |   |   | 136.00    |   |   |      | 170.60 |   |      |       | 176.50 |   |       |   | 178.20 |   |   |   | 174.80 |
| NASDAQ      Stock Market (^IXIC)             |   |      | 100.00 |   |       |   | 103.08 |       |   |   | 109.37    |   |   |      | 101.53 |   |      |       | 105.57 |   |       |   | 112.90 |   |   |   | 113.19 |
| ABA      NASDAQ Commumity Bank Index (^ABAQ) |   |      | 100.00 |   |       |   | 102.75 |       |   |   | 109.05    |   |   |      | 108.42 |   |      |       | 111.51 |   |       |   | 116.49 |   |   |   | 110.84 |
|                                         |   |      |   |   |       |   |   |       |   |   |      |   |   |      |   |   |      |       |   |   |       |   |   |   |   |   |   |
|                                         |   | 6/30/2007 |   |   | 9/30/2007  |   |   | 12/31/2007 |   |   | 3/31/2008 |   |   | 6/30/2008 |   |   | 9/30/2008 |       |   |   | 12/31/2008 |
|                                         |   |      |   |   |       |   |   |       |   |   |      |   |   |      |   |   |      |       |   |   |       |   |   |   |   |   |   |
| Waterstone      Financial, Inc (WSBF)        |   |      | 165.40 |   |       |   | 162.50 |       |   |   | 128.20    |   |   |      | 119.00 |   |      |       | 106.20 |   |       |   | 97.70 |   |   |   | 33.50 |
| NASDAQ      Stock Market (^IXIC)             |   |      | 121.68 |   |       |   | 126.28 |       |   |   | 123.98    |   |   |      | 106.53 |   |      |       | 107.18 |   |       |   | 97.78 |   |   |   | 73.72 |
| ABA      NASDAQ Commumity Bank Index (^ABAQ) |   |      | 105.78 |   |       |   | 102.64 |       |   |   | 89.87     |   |   |      | 88.44  |   |      |       | 71.68  |   |       |   | 87.00 |   |   |   | 74.55 |

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Item6.   Selected FinancialData

|                                    |   | At      December 31, |      |   | At      June 30, |
|-----------------------------------------|--------|----------------------|-----------|--------|------------------|
|                                    |   | 2008                 |      |   | 2007             |   |   | 2006 |   |   | 2005 |   |   | 2005 |   |   | 2004 |
|                                    |   | (In      Thousands)  |
| Selected      Financial Condition Data: |   |                 |      |   |             |   |   |   |   |   |   |   |   |   |   |   |   |
|                                    |   |                 |      |   |             |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      assets                       |   | $                    | 1,885,432 |   |             | $ | 1,710,202 |   |   | $ | 1,648,470 |   |   | $ | 1,511,209 |   |   | $ | 1,386,132 |   |   | $ | 1,240,084 |
| Available      for sale securities      |   |                 | 179,887   |   |             |   | 172,137 |   |   |   | 117,330 |   |   |   | 121,955 |   |   |   | 83,991 |   |   |   | 99,549 |
| Federal      Home Loan Bank stock       |   |                 | 21,653    |   |             |   | 19,289 |   |   |   | 17,213 |   |   |   | 14,406 |   |   |   | 14,097 |   |   |   | 13,322 |
| Loans      receivable, net              |   |                 | 1,534,591 |   |             |   | 1,389,209 |   |   |   | 1,365,712 |   |   |   | 1,306,716 |   |   |   | 1,213,561 |   |   |   | 1,063,594 |
| Cash      and cash equivalents          |   |                 | 23,849    |   |             |   | 17,884 |   |   |   | 73,807 |   |   |   | 16,498 |   |   |   | 20,467 |   |   |   | 19,392 |
| Deposits                                |   |                 | 1,195,897 |   |             |   | 994,535 |   |   |   | 1,036,218 |   |   |   | 1,045,593 |   |   |   | 1,128,791 |   |   |   | 1,035,588 |
| Borrowings                              |   |                 | 487,000   |   |             |   | 475,484 |   |   |   | 334,003 |   |   |   | 201,212 |   |   |   | 93,162 |   |   |   | 60,000 |
| Total      shareholders' equity         |   |                 | 171,267   |   |             |   | 201,819 |   |   |   | 241,272 |   |   |   | 231,696 |   |   |   | 133,416 |   |   |   | 122,799 |
| Allowance      for loan losses          |   |                 | 25,167    |   |             |   | 12,839 |   |   |   | 7,195 |   |   |   | 5,250 |   |   |   | 4,606 |   |   |   | 3,378 |
| Non-performing      loans               |   |                 | 107,730   |   |             |   | 80,350 |   |   |   | 28,888 |   |   |   | 18,065 |   |   |   | 13,076 |   |   |   | 12,015 |

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|                                             |   |                          |    |   |                                          |   |   |                      |   |   | Six      Months |   |   |   |   |   |   |   |
|--------------------------------------------------|--------|-------------------------------|---------|--------|-----------------------------------------------|--------|--------|---------------------------|--------|--------|-----------------|--------|--------|--------|--------|--------|--------|--------|
|                                             |   |                          |    |   |                                          |   |   |                      |   |   | Ended           |   |   |   |   |   |   |   |
|                                             |   | Years      Ended December 31, |    |   | December      31,                             |   |   | Years      Ended June 30, |   |
|                                             |   | 2008                          |    |   | 2007                                          |   |   | 2006                      |   |   | 2005            |   |   | 2005   |   |   | 2004   |   |
|                                             |   |                          |    |   | (In      Thousands, except per share amounts) |   |
| Selected      Operating Data:                    |   |                          |    |   |                                          |   |   |                      |   |   |            |   |   |   |   |   |   |   |
| Interest      income                             |   | $                             | 104,078 |   |                                          | $      | 96,975 |                      |   | $      | 92,228          |   |   | $      | 42,036 |   |   | $      | 74,207 |   |   | $ | 66,088 |   |
| Interest      expense                            |   |                          | 63,027  |   |                                          |   | 62,134 |                      |   |   | 53,779          |   |   |   | 20,758 |   |   |   | 36,068 |   |   |   | 32,432 |   |
| Net      interest income                         |   |                          | 41,051  |   |                                          |   | 34,841 |                      |   |   | 38,449          |   |   |   | 21,278 |   |   |   | 38,139 |   |   |   | 33,656 |   |
| Provision      for loan losses                   |   |                          | 37,629  |   |                                          |   | 11,697 |                      |   |   | 2,201           |   |   |   | 1,035  |   |   |   | 1,238 |   |   |   | 860 |   |
| Net      interest income after                   |   |                          |    |   |                                          |   |   |                      |   |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| provision      for loan losses                   |   |                          | 3,422   |   |                                          |   | 23,144 |                      |   |   | 36,248          |   |   |   | 20,243 |   |   |   | 36,901 |   |   |   | 32,796 |   |
| Noninterest      income                          |   |                          | 6,291   |   |                                          |   | 6,842  |                      |   |   | 5,156           |   |   |   | 2,244  |   |   |   | 3,257 |   |   |   | 3,035 |   |
| Noninterest      expense                         |   |                          | 33,860  |   |                                          |   | 28,682 |                      |   |   | 28,652          |   |   |   | 18,303 |   |   |   | 23,522 |   |   |   | 20,384 |   |
| Income      (loss) before income taxes           |   |                          | (24,147 | )      |                                          |   | 1,304  |                      |   |   | 12,752          |   |   |   | 4,184  |   |   |   | 16,636 |   |   |   | 15,447 |   |
| Provision      for income taxes (benefit)        |   |                          | 2,299   |   |                                          |   | (254   | )                         |   |   | 4,699           |   |   |   | 1,471  |   |   |   | 7,520 |   |   |   | 4,863 |   |
|                                             |   |                          |    |   |                                          |   |   |                      |   |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income (loss)                           |   | $                             | (26,446 | )      |                                          | $      | 1,558  |                      |   | $      | 8,053           |   |   | $      | 2,713  |   |   | $      | 9,116 |   |   | $ | 10,584 |   |
|                                             |   |                          |    |   |                                          |   |   |                      |   |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      (loss) per share – basic (1)   |   | $                             | (0.87   | )      |                                          | $      | 0.05   |                      |   | $      | 0.24            |   |   | $      | (0.02  | )      |   |   | N/A |   |   |   | N/A |   |
| Income      (loss) per share – diluted (1) |   | $                             | (0.87   | )      |                                          | $      | 0.05   |                      |   | $      | 0.24            |   |   | $      | (0.02  | )      |   |   | N/A |   |   |   | N/A |   |

Table of Contents

|                                                                              |   |                           |   |   |              |   |   |   |   |   |              |   |   | At      or for the                      |   |   |   |   |   |   |   |
|-----------------------------------------------------------------------------------|--------|--------------------------------|--------|--------|-------------------|--------|--------|--------|--------|--------|-------------------|--------|--------|-----------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                              |   |                           |   |   |              |   |   |   |   |   |              |   |   | Six      Months                         |   |   |   |   |   |   |   |
|                                                                              |   | At      or For the Years Ended |   |   | Ended             |   |   |   |   |   |              |   |
|                                                                              |   |                           |   |   | December      31, |   |   |   |   |   | December      31. |   |   | At      or For the Years Ended June 30, |   |
|                                                                              |   | 2008                           |   |   | 2007              |   |   | 2006   |   |   | 2005              |   |   | 2005                                    |   |   | 2005   |   |   | 2004   |   |
| Selected      Financial Ratios (4)      and Other Data:                           |   |                           |   |   |              |   |   |   |   |   |              |   |   |                                    |   |   |   |   |   |   |   |
|                                                                              |   |                           |   |   |              |   |   |   |   |   |              |   |   |                                    |   |   |   |   |   |   |   |
| Performance      Ratios:                                                          |   |                           |   |   |              |   |   |   |   |   |              |   |   |                                    |   |   |   |   |   |   |   |
| Return      on average assets                                                     |   |                           | (1.44  | %)     |              |   | 0.09   | %      |   |   | 0.50              | %      |   |                                    | 0.43   | %      |   |   | 0.36   | %      |   |   | 0.70 | % |   |   | 0.90 | % |
| Return      on average equity                                                     |   |                           | (13.76 | )      |              |   | 0.72   |   |   |   | 3.41              |   |   |                                    | 4.52   |   |   |   | 3.22   |   |   |   | 7.12 |   |   |   | 8.88 |   |
| Interest      rate spread (1)                                                     |   |                           | 2.04   |   |              |   | 1.74   |   |   |   | 2.00              |   |   |                                    | 2.56   |   |   |   | 2.43   |   |   |   | 2.74 |   |   |   | 2.70 |   |
| Net      interest margin (2)                                                      |   |                           | 2.32   |   |              |   | 2.19   |   |   |   | 2.52              |   |   |                                    | 2.95   |   |   |   | 2.96   |   |   |   | 3.04 |   |   |   | 2.98 |   |
| Noninterest      expense to average assets                                        |   |                           | 1.85   |   |              |   | 1.73   |   |   |   | 1.80              |   |   |                                    | 2.09   |   |   |   | 2.44   |   |   |   | 1.81 |   |   |   | 1.74 |   |
| Efficiency      ratio (3)                                                         |   |                           | 71.52  |   |              |   | 68.85  |   |   |   | 66.19             |   |   |                                    | 67.80  |   |   |   | 77.84  |   |   |   | 56.88 |   |   |   | 55.55 |   |
| Average      interest-earning assets to average interest-bearing      liabilities |   |                           | 107.85 |   |              |   | 111.68 |   |   |   | 114.59            |   |   |                                    | 113.07 |   |   |   | 118.38 |   |   |   | 110.29 |   |   |   | 109.71 |   |
|                                                                              |   |                           |   |   |              |   |   |   |   |   |              |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital      Ratios:                                                              |   |                           |   |   |              |   |   |   |   |   |              |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity      to total assets at end of period                                      |   |                           | 9.08   | %      |              |   | 11.80  | %      |   |   | 14.64             | %      |   |                                    | 15.33  | %      |   |   | 15.33  | %      |   |   | 9.63 | % |   |   | 9.90 | % |
| Average      equity to average assets                                             |   |                           | 10.44  |   |              |   | 13.07  |   |   |   | 14.79             |   |   |                                    | 9.41   |   |   |   | 11.25  |   |   |   | 9.83 |   |   |   | 10.15 |   |
| Total      capital to risk-weighted assets                                        |   |                           | 12.84  |   |              |   | 13.43  |   |   |   | 21.36             |   |   |                                    | 22.79  |   |   |   | 22.79  |   |   |   | 14.05 |   |   |   | 15.02 |   |
| Tier      I capital to risk-weighted assets                                       |   |                           | 11.58  |   |              |   | 12.52  |   |   |   | 20.75             |   |   |                                    | 22.29  |   |   |   | 22.29  |   |   |   | 13.58 |   |   |   | 14.62 |   |
| Tier      I capital to average assets                                             |   |                           | 8.93   |   |              |   | 10.08  |   |   |   | 14.47             |   |   |                                    | 14.23  |   |   |   | 14.23  |   |   |   | 9.84 |   |   |   | 10.18 |   |
|                                                                              |   |                           |   |   |              |   |   |   |   |   |              |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Asset      Quality Ratios:                                                        |   |                           |   |   |              |   |   |   |   |   |              |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance      for loan losses as a percent of total loans                        |   |                           | 1.61   | %      |              |   | 0.92   | %      |   |   | 0.52              | %      |   |                                    | 0.40   | %      |   |   | 0.40   | %      |   |   | 0.38 | % |   |   | 0.32 | % |
| Allowance      for loan losses as a percent of non-performing loans               |   |                           | 23.36  |   |              |   | 15.98  |   |   |   | 24.91             |   |   |                                    | 29.06  |   |   |   | 29.06  |   |   |   | 35.22 |   |   |   | 28.11 |   |
| Net      charge-offs to average outstanding loans during the period               |   |                           | 1.67   |   |              |   | 0.44   |   |   |   | 0.02              |   |   |                                    | 0.03   |   |   |   | 0.06   |   |   |   | 0 |   |   |   | 0.05 |   |
| Non-performing      loans as a percent of total loans                             |   |                           | 6.91   |   |              |   | 5.73   |   |   |   | 2.10              |   |   |                                    | 1.39   |   |   |   | 1.39   |   |   |   | 1.07 |   |   |   | 1.13 |   |
| Non-performing      assets as a percent of total assets                           |   |                           | 5.71   |   |              |   | 5.20   |   |   |   | 1.75              |   |   |                                    | 1.20   |   |   |   | 1.21   |   |   |   | 0.98 |   |   |   | 1.03 |   |
|                                                                              |   |                           |   |   |              |   |   |   |   |   |              |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      Data:                                                                  |   |                           |   |   |              |   |   |   |   |   |              |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number      of full service offices                                               |   |                           | 8      |   |              |   | 8      |   |   |   | 7                 |   |   |                                    | 5      |   |   |   | 5      |   |   |   | 5 |   |   |   | 5 |   |
| Number      of limited service offices                                            |   |                           | 1      |   |              |   | 1      |   |   |   | 1                 |   |   |                                    | 1      |   |   |   | 1      |   |   |   | 1 |   |   |   | 1 |   |

Table of Contents

Item7.   Management's Discussion andAnalysis of Financial Condition and Results ofOperations

Table of Contents

Table of Contents

Table of Contents

Table of Contents

|                                         |   | Years      Ended December 31, |      |
|----------------------------------------------|--------|-------------------------------|-----------|
|                                         |   | 2008                          |      |   | 2007 |   |   | 2006 |   |
|                                         |   | Average                       |      |   |   |   |   | Average |   |   | Average |   |   |   |   |   | Average |   |   | Average |   |   |   |   |   | Average |   |
|                                         |   | Balance                       |      |   | Interest |   |   | Rate |   |   | Balance |   |   | Interest |   |   | Rate |   |   | Balance |   |   | Interest |   |   | Rate |   |
|                                         |   | (Dollars      in Thousands)   |      |
| Interest-earning      assets:                |   |                          |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans      receivable, net                   |   | $                             | 1,510,952 |   |   | $ | 92860 | (1) |   |   | 6.13 | % |   | $ | 1,387,803 |   |   | $ | 87,101 | (1) |   |   | 6.28 | % |   | $ | 1,350,865 |   |   | $ | 83,822 | (1) |   |   | 6.21 | % |
| Mortgage      related securities(5)      (6) |   |                          | 136,505   |   |   |   | 7,679 |   |   |   | 5.61 |   |   |   | 111,132 |   |   |   | 5,869 |   |   |   | 5.28 |   |   |   | 87,102 |   |   |   | 4,263 |   |   |   | 4.89 |   |
| Other      earning assets                    |   |                          | 116,395   |   |   |   | 3,539 |   |   |   | 3.03 |   |   |   | 90,859 |   |   |   | 4,005 |   |   |   | 4.41 |   |   |   | 90,729 |   |   |   | 4,143 |   |   |   | 4.57 |   |
| Total      interest-earning assets           |   |                          | 1,763,852 |   |   |   | 104,078 |   |   |   | 5.88 |   |   |   | 1,589,794 |   |   |   | 96,975 |   |   |   | 6.10 |   |   |   | 1,528,696 |   |   |   | 92,228 |   |   |   | 6.03 |   |
| Noninterest-earning      assets              |   |                          | 77,768    |   |   |   |   |   |   |   |   |   |   |   | 69,015 |   |   |   |   |   |   |   |   |   |   |   | 68,286 |   |   |   |   |   |   |   |   |   |
| Total      assets                            |   |                          | 1,841,620 |   |   |   |   |   |   |   |   |   |   | $ | 1,658,809 |   |   |   |   |   |   |   |   |   |   | $ | 1,596,982 |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities:           |   |                          |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand      and money market accounts        |   |                          | 141,052   |   |   |   | 2,103 |   |   |   | 1.49 |   |   |   | 143,295 |   |   |   | 4,478 |   |   |   | 3.13 |   |   | $ | 110,907 |   |   |   | 2,810 |   |   |   | 2.53 |   |
| Savings      accounts                        |   |                          | 26,272    |   |   |   | 246 |   |   |   | 0.93 |   |   |   | 19,299 |   |   |   | 83 |   |   |   | 0.43 |   |   |   | 20,658 |   |   |   | 101 |   |   |   | 0.49 |   |
| Certificates      of deposit                 |   |                          | 951,780   |   |   |   | 39,849 |   |   |   | 4.18 |   |   |   | 857,319 |   |   |   | 40,297 |   |   |   | 4.70 |   |   |   | 925,026 |   |   |   | 39,080 |   |   |   | 4.22 |   |
| Total      interest-bearing deposits         |   |                          | 1,119,104 |   |   |   | 42,198 |   |   |   | 3.76 |   |   |   | 1,019,913 |   |   |   | 44,858 |   |   |   | 4.40 |   |   |   | 1,056,591 |   |   |   | 41,991 |   |   |   | 3.97 |   |
| Borrowings                                   |   |                          | 494,655   |   |   |   | 20,380 |   |   |   | 4.11 |   |   |   | 381,614 |   |   |   | 16,791 |   |   |   | 4.40 |   |   |   | 265,821 |   |   |   | 11,472 |   |   |   | 4.32 |   |
| Other      interest bearing liabilities      |   |                          | 21,674    |   |   |   | 449 |   |   |   | 2.07 |   |   |   | 21,963 |   |   |   | 485 |   |   |   | 2.21 |   |   |   | 11,684 |   |   |   | 316 |   |   |   | 2.70 |   |
| Total      interest-bearing liabilities      |   |                          | 1,635,433 |   |   |   | 63,027 |   |   |   | 3.84 |   |   |   | 1,423,490 |   |   |   | 62,134 |   |   |   | 4.36 |   |   |   | 1,334,096 |   |   |   | 53,779 |   |   |   | 4.03 |   |
| Noninterest-bearing      liabilities         |   |                          | 13,971    |   |   |   |   |   |   |   |   |   |   |   | 18,442 |   |   |   |   |   |   |   |   |   |   |   | 26,716 |   |   |   |   |   |   |   |   |   |
| Total      liabilities                       |   |                          | 1,649,404 |   |   |   |   |   |   |   |   |   |   |   | 1,441,932 |   |   |   |   |   |   |   |   |   |   |   | 1,360,812 |   |   |   |   |   |   |   |   |   |
| Equity                                       |   |                          | 192,216   |   |   |   |   |   |   |   |   |   |   |   | 216,877 |   |   |   |   |   |   |   |   |   |   |   | 236,170 |   |   |   |   |   |   |   |   |   |
| Total      liabilities and equity            |   |                          | 1,841,620 |   |   |   |   |   |   |   |   |   |   | $ | 1,658,809 |   |   |   |   |   |   |   |   |   |   | $ | 1,596,982 |   |   |   |   |   |   |   |   |   |
| Net      interest income                     |   |                          |      |   |   |   | 41,051 |   |   |   |   |   |   |   |   |   |   | $ | 34,841 |   |   |   |   |   |   |   |   |   |   | $ | 38,449 |   |   |   |   |   |
| Net      interest rate spread (2)            |   |                          |      |   |   |   |   |   |   |   | 2.04 |   |   |   |   |   |   |   |   |   |   |   | 1.74 | % |   |   |   |   |   |   |   |   |   |   | 2.00 | % |
| Net      interest-earning assets (3)         |   |                          | 128,419   |   |   |   |   |   |   |   |   |   |   | $ | 166,304 |   |   |   |   |   |   |   |   |   |   | $ | 194,600 |   |   |   |   |   |   |   |   |   |
| Net      interest margin (4)                 |   |                          |      |   |   |   |   |   |   |   | 2.32 | % |   |   |   |   |   |   |   |   |   |   | 2.19 | % |   |   |   |   |   |   |   |   |   |   | 2.52 | % |
| Average      interest-earning assets         |   |                          |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| to      average interest-bearing             |   |                          |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| liabilities                                  |   |                          |      |   |   |   |   |   |   |   | 107.85 | % |   |   |   |   |   |   |   |   |   |   | 111.68 | % |   |   |   |   |   |   |   |   |   |   | 114.59 | % |

| (1)    Includes      net deferred loan fee amortization income of $1,582,000, $2,164,000 and      $885,000 for the years ended December 31, 2008, 2007 and2006,              respectively. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Net      interest rate spread represents the difference between the yield on      average interest-earning assets and the cost of average interest-bearing      liabilities. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Net      interest-earning assets represent total interest-earning assets less total      interest-bearing liabilities. |
|-----|------------------------------------------------------------------------------------------------------------------------|

| (4) | Net      interest margin represents net interest income divided by average total      interest-earning assets. |
|-----|----------------------------------------------------------------------------------------------------------------|

| (5) | Average      balance of available for sale securities is based on amortized historical      cost. |
|-----|---------------------------------------------------------------------------------------------------|

| (6) | Interest      income from tax exempt securities is not significant to total interest      income, therefore, interest and yield on interest earnings assets are not      stated on a tax equivalent basis. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Table of Contents

|                                                            |   | Years      Ended December 31,   |   |   | Years      Ended December 31,   |   |
|-----------------------------------------------------------------|--------|---------------------------------|--------|--------|---------------------------------|--------|
|                                                            |   | 2008      vs. 2007              |   |   | 2007      vs. 2006              |   |
|                                                            |   | Increase      (Decrease) due to |   |   | Increase      (Decrease) due to |   |
|                                                            |   | Volume                          |   |   | Rate                            |   |   | Net |   |   | Volume |   |   | Rate |   |   | Net |   |
|                                                            |   | (In      Thousands)             |   |
| Interest      and dividend income:                              |   |                            |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans      receivable(1)      (2)                               |   | $                               | 7,828  |   |                            |   | (2,069 | ) |   |   | 5,759 |   |   | $ | 2,311 |   |   |   | 968 |   |   |   | 3,279 |   |
| Mortgage      related securites                                 |   |                            | 1,422  |   |                            |   | 388 |   |   |   | 1,810 |   |   |   | 1,248 |   |   |   | 358 |   |   |   | 1,606 |   |
| Other      interest-earning assets                              |   |                            | 964    |   |                            |   | (1,429 | ) |   |   | (465 | ) |   |   | 6 |   |   |   | (144 | ) |   |   | (138 | )  |
|  Total      interest-earning assets                        |   |                            | 10,214 |   |                            |   | (3,110 | ) |   |   | 7,104 |   |   |   | 3,565 |   |   |   | 1,182 |   |   |   | 4,747 |   |
|                                                            |   |                            |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      expense:                                          |   |                            |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand      and money market accounts                           |   |                            | (69    | )      |                            |   | (2,306 | ) |   |   | (2,375 | ) |   |   | 927 |   |   |   | 741 |   |   |   | 1,668 |   |
| Savings      accounts                                           |   |                            | 39     |   |                            |   | 124 |   |   |   | 163 |   |   |   | (6 | ) |   |   | (12 | ) |   |   | (18 | )  |
| Certificates      of deposit                                    |   |                            | 4,248  |   |                            |   | (4,696 | ) |   |   | (448 | ) |   |   | (2,262 | ) |   |   | 3,479 |   |   |   | 1,217 |   |
|  Total      interest-bearing deposits                      |   |                            | 4,218  |   |                            |   | (6,878 | ) |   |   | (2,660 | ) |   |   | (1,341 | ) |   |   | 4,208 |   |   |   | 2,867 |   |
| Borrowings                                                      |   |                            | 4,750  |   |                            |   | (1,161 | ) |   |   | 3,589 |   |   |   | 5,091 |   |   |   | 229 |   |   |   | 5,320 |   |
| Other      interest-bearing liabilities                         |   |                            | (6     | )      |                            |   | (29 | ) |   |   | (35 | ) |   |   | 213 |   |   |   | (45 | ) |   |   | 168 |   |
|     Total      interest-bearing liabilities |   |                            | 8,962  |   |                            |   | (8,068 | ) |   |   | 894 |   |   |   | 3,963 |   |   |   | 4,392 |   |   |   | 8,355 |   |
| Net      change in net interest income                          |   | $                               | 1,252  |   |                            |   | 4,958 |   |   |   | 6,210 |   |   | $ | (398 | ) |   |   | (3,210 | ) |   |   | (3,608 | ) |

| (1) | Includes      net deferred loan fee amortization income of $1,582,000, $2,164,000 and      $885,000 for the years ended December 31, 2008, 2007 and 2006,      respectively. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Non-accrual      loans have been included in average loans receivable    balance. |
|-----|-----------------------------------------------------------------------------------|

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|                                        |   |                |      |   |   |             |   |    |   | More      Than   |   |   |    | More      Than    |   |   |   |                 |
|---------------------------------------------|--------|---------------------|-----------|--------|--------|------------------|--------|---------|--------|------------------|--------|--------|---------|-------------------|--------|--------|--------|----------------------|
|                                        |   |                |      |   |   |             |   |    |   | One      Year    |   |   |    | Three      Years  |   |   |   |                 |
|                                        |   |                |      |   |   | One      Year or |   |    |   | Through          |   |   |    | Through      Five |   |   |   |                 |
|                                        |   | Total               |      |   |   | Less             |   |    |   | Three      Years |   |   |    | Years             |   |   |   | Over      Five Years |
|                                        |   | (In      Thousands) |
| Deposits      without a stated maturity (5) |   | $                   | 154,364   |   |   |             | $      | 154,364 |   |             |   | $      | -       |              |   |   | $      | -                    |   |   |   | $ | - |
| Certificates      of deposit (5)            |   |                | 1,041,533 |   |   |             |   | 826,027 |   |             |   |   | 193,432 |              |   |   |   | 21,997               |   |   |   |   | 77 |
| Federal      Home Loan Bank advances (1)    |   |                | 403,000   |   |   |             |   | 4,100   |   |             |   |   | 48,900  |              |   |   |   | -                    |   |   |   |   | 350,000 |
| Repurchase      agreements (5)              |   |                | 84,000    |   |   |             |   | -       |   |             |   |   | -       |              |   |   |   | -                    |   |   |   |   | 84,000 |
| Operating      leases (2)                   |   |                | 104       |   |   |             |   | 104     |   |             |   |   | -       |              |   |   |   | -                    |   |   |   |   | - |
| Capital      lease (3)                      |   |                | 3,375     |   |   |             |   | 3,375   |   |             |   |   | -       |              |   |   |   | -                    |   |   |   |   | - |
| State      income tax obligation (4)        |   |                | 2,484     |   |   |             |   | 1,242   |   |             |   |   | 1,242   |              |   |   |   | -                    |   |   |   |   |  - |
| Salary      continuation agreements         |   |                | 2,257     |   |   |             |   | 576     |   |             |   |   | 746     |              |   |   |   | 340                  |   |   |   |   | 595 |
| Total      Contractual Obligations          |   | $                   | 1,691,117 |   |        |             | $      | 989,788 |   |                  |   | $      | 244,320 |              |   |   | $      | 22,337               |   |  |   | $ | 434,672 |

| (1)  Secured      under a blanket security agreement on qualifying assets, principally,      mortgage loans.  Excludes interest which willaccrue           on the advances.  All Federal Home Loan Bank      advances with maturities exceeding five years are callable on a quarterly      basis           with the initial call at various times through March      2009. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)  Represents      remaining amounts due to the Wisconsin Department of Revenue related to      the operations of the Company’s Nevada  subsidiary. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5)  Excludes      interest. |
|----------------------------------------|

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|                                                       |   |                |   |   |          |   |   | More      than |   |   | More      than  |   |   |           |   |
|------------------------------------------------------------|--------|---------------------|--------|--------|---------------|--------|--------|----------------|--------|--------|-----------------|--------|--------|----------------|--------|
|                                                       |   |                |   |   |          |   |   | One      Year  |   |   | Three           |   |   |           |   |
|                                                       |   |                |   |   |          |   |   | through        |   |   | Years           |   |   |           |   |
|                                                       |   |                |   |   | One      Year |   |   | Three          |   |   | Through         |   |   | Over      Five |   |
|                                                       |   | Total               |   |   | or      Less  |   |   | Years          |   |   | Five      Years |   |   | Years          |   |
|                                                       |   | (In      Thousands) |   |
| Real      estate loan commitments(1)                       |   | $                   | 15,340 |   |          | $      | 15,340 |           |   | $      | -               |   |   | $              | -      |   |   | $ | - |   |
| Unused      portion of home equity lines of credit(2)      |   |                | 30,368 |   |          |   | 30,368 |           |   |   | -               |   |   |           | -      |   |   |   | - |   |
| Unused      portion of construction loans(3)               |   |                | 20,241 |   |          |   | 20,241 |           |   |   | -               |   |   |           | -      |   |   |   | - |   |
| Unused      portion of business lines of credit            |   |                | 10,584 |   |          |   | 10,584 |           |   |   |            |   |   |           |   |   |   |   |   |   |
| Standby      letters of credit                             |   |                | 1,866  |   |          |   | 1,629  |           |   |   | 152             |   |   |           | 85     |   |   |   | - |   |
|      Total      Other Commitments |   | $                   | 78,399 |   |          | $      | 78,162 |           |   | $      | 152             |   |   | $              | 85     |   |   | $ | - |   |

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|                                                     |   | Quarter      Ended                         |   |
|----------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                     |   | March      31                              |   |   | June      30 |   |   | September      30 |   |   | December      31 |   |
|                                                     |   | (In      thousands, except per share data) |   |
| 2008      (unaudited)                                    |   |                                       |   |   |   |   |   |   |   |   |   |   |
| Interest      income                                     |   | $                                          | 24,577 |   |   | $ | 25,248 |   |   | $ | 28,087 |   |   | $ | 26,166 |   |
| Interest      expense                                    |   |                                       | 16,084 |   |   |   | 15,498 |   |   |   | 15,756 |   |   |   | 15,689 |   |
| Net      interest income                                 |   |                                       | 8,493  |   |   |   | 9,750 |   |   |   | 12,331 |   |   |   | 10,477 |   |
| Provision      for loan losses                           |   |                                       | 2,699  |   |   |   | 8,577 |   |   |   | 23,301 |   |   |   | 3,052 |   |
| Net      income after provision for loan losses          |   |                                       | 5,794  |   |   |   | 1,173 |   |   |   | (10,970 | ) |   |   | 7,425 |   |
| Total      noninterest income                            |   |                                       | 1,727  |   |   |   | 2,252 |   |   |   | 597 |   |   |   | 1,715 |   |
| Total      noninterest expense                           |   |                                       | 7,002  |   |   |   | 8,653 |   |   |   | 9,236 |   |   |   | 8,969 |   |
|    Income      (loss) before income taxes |   |                                       | 519    |   |   |   | (5,228 | ) |   |   | (19,609 | ) |   |   | 171 |   |
| Income      taxes (benefit)                              |   |                                       | (90    | ) |   |   | (2,692 | ) |   |   | 8,578 |   |   |   | (3,497 | ) |
|    Net      income (loss)                 |   | $                                          | 609    |   |   | $ | (2,536 | ) |   | $ | (28,187 | ) |   | $ | 3,668 |   |
| Income      (loss) per share – basic               |   | $                                          | 0.02   |   |   | $ | (0.08 | ) |   | $ | (0.92 | ) |   | $ | 0.11 |   |
| Income      (loss) per share - diluted                   |   | $                                          | 0.02   |   |   | $ | (0.08 | ) |   | $ | (0.92 | ) |   | $ | 0.11 |   |
|                                                     |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2007      (unaudited)                                    |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income                                     |   | $                                          | 23,575 |   |   | $ | 24,335 |   |   | $ | 24,420 |   |   | $ | 24,645 |   |
| Interest      expense                                    |   |                                       | 14,809 |   |   |   | 15,345 |   |   |   | 15,913 |   |   |   | 16,067 |   |
| Net      interest income                                 |   |                                       | 8,766  |   |   |   | 8,990 |   |   |   | 8,507 |   |   |   | 8,578 |   |
| Provision      for loan losses                           |   |                                       | 350    |   |   |   | 5,676 |   |   |   | 2,826 |   |   |   | 2,845 |   |
| Net      income after provision for loan losses          |   |                                       | 8,416  |   |   |   | 3,314 |   |   |   | 5,681 |   |   |   | 5,733 |   |
| Total      noninterest income                            |   |                                       | 1,603  |   |   |   | 1,711 |   |   |   | 1,863 |   |   |   | 1,665 |   |
| Total      noninterest expense                           |   |                                       | 6,808  |   |   |   | 6,988 |   |   |   | 7,178 |   |   |   | 7,708 |   |
|    Income      (loss) before income taxes |   |                                       | 3,211  |   |   |   | (1,963 | ) |   |   | 366 |   |   |   | (310 | ) |
| Income      taxes (benefit)                              |   |                                       | 1,112  |   |   |   | (694 | ) |   |   | (55 | ) |   |   | (617 | ) |
|    Net      income (loss)                 |   | $                                          | 2,099  |   |   | $ | (1,269 | ) |   | $ | 421 |   |   | $ | 307 |   |
| Income      (loss) per share – basic               |   | $                                          | 0.06   |   |   | $ | (0.04 | ) |   | $ | 0.01 |   |   | $ | 0.01 |   |
| Income      (loss) per share - diluted                   |   | $                                          | 0.06   |   |   | $ | (0.04 | ) |   | $ | 0.01 |   |   | $ | 0.01 |   |

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Item7A.  Quantitative and QualitativeDisclosures About Market Risk

|                                   |   | Percentage              Increase (Decrease)           in Estimated Net            Annual Interest Income     Over 24 Months     |   |
|----------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                   |   |                                                                                                                                                                                                                                                              |   |
| 300      basis point increase in rates |   |                                                                                                                                                                                                                                                              | (0.69  | %) |
| 200      basis point increase in rates |   |                                                                                                                                                                                                                                                              | 0.98   | % |
| 100      basis point increase in rates |   |                                                                                                                                                                                                                                                              | 0.36   | % |
| 100      basis point decrease in rates |   |                                                                                                                                                                                                                                                              | (5.29  | %) |
| 200      basis point decrease in rates |   |                                                                                                                                                                                                                                                              | (6.33  | %) |
| 300      basis point decrease in rates |   |                                                                                                                                                                                                                                                              | (11.21 | %) |

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Item8.  Financial Statements andSupplementary Data

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|                                                                    |   | December      31,                      |      |
|-------------------------------------------------------------------------|--------|----------------------------------------|-----------|
|                                                                    |   | 2008                                   |      |   | 2007 |   |
| Assets                                                                  |   | (In      Thousands, except share data) |      |
| Cash                                                                    |   | $                                      | 14,847    |   |   |   | 5,492 |   |
| Federal      funds sold                                                 |   |                                   | 9,002     |   |   |   | 11,833 |   |
| Interest-earning      deposits in other financial institutions          |   |                                   |      |   |   |   |   |   |
|     and      other short term investments           |   |                                   | -         |   |   |   | 559 |   |
| Cash      and cash equivalents                                          |   |                                   | 23,849    |   |   |   | 17,884 |   |
| Securities      available for sale (at fair value)                      |   |                                   | 179,887   |   |   |   | 172,137 |   |
| Securities      held to maturity (at amortized cost)                    |   |                                   |      |   |   |   |   |   |
| fair      value of $8,165 in 2008 and $7,174 in 2007                    |   |                                   | 9,938     |   |   |   | 7,646 |   |
| Loans      held for sale                                                |   |                                   | 12,993    |   |   |   | 23,108 |   |
| Loans      receivable                                                   |   |                                   | 1,559,758 |   |   |   | 1,402,048 |   |
| Less:      Allowance for loan losses                                    |   |                                   | 25,167    |   |   |   | 12,839 |   |
| Loans      receivable, net                                              |   |                                   | 1,534,591 |   |   |   | 1,389,209 |   |
|                                                                    |   |                                   |      |   |   |   |   |   |
| Office      properties and equipment, net                               |   |                                   | 30,560    |   |   |   | 32,018 |   |
| Federal      Home Loan Bank stock, at cost                              |   |                                   | 21,653    |   |   |   | 19,289 |   |
| Cash      surrender value of life insurance                             |   |                                   | 32,399    |   |   |   | 25,649 |   |
| Real      estate owned                                                  |   |                                   | 24,653    |   |   |   | 8,543 |   |
| Prepaid      expenses and other assets                                  |   |                                   | 14,909    |   |   |   | 14,719 |   |
| Total      assets                                                       |   | $                                      | 1,885,432 |   |   |   | 1,710,202 |   |
| Liabilities      and Shareholders’ Equity                         |   |                                   |      |   |   |   |   |   |
| Liabilities:                                                            |   |                                   |      |   |   |   |   |   |
| Demand      deposits                                                    |   | $                                      | 53,434    |   |   |   | 53,210 |   |
| Money      market and savings deposits                                  |   |                                   | 100,930   |   |   |   | 114,387 |   |
| Time      deposits                                                      |   |                                   | 1,041,533 |   |   |   | 826,938 |   |
| Total      deposits                                                     |   |                                   | 1,195,897 |   |   |   | 994,535 |   |
|                                                                    |   |                                   |      |   |   |   |   |   |
| Short-term      borrowings                                              |   |                                   | 4,100     |   |   |   | 53,484 |   |
| Long-term      borrowings                                               |   |                                   | 482,900   |   |   |   | 422,000 |   |
| Advance      payments by borrowers for taxes                            |   |                                   | 862       |   |   |   | 607 |   |
| Other      liabilities                                                  |   |                                   | 30,406    |   |   |   | 37,757 |   |
| Total      liabilities                                                  |   |                                   | 1,714,165 |   |   |   | 1,508,383 |   |
|                                                                    |   |                                   |      |   |   |   |   |   |
| Shareholders’      equity:                                        |   |                                   |      |   |   |   |   |   |
| Preferred      stock (par value $.01 per share)                         |   |                                   |      |   |   |   |   |   |
| Authorized      - 20,000,000 shares, no shares issued                   |   |                                   | -         |   |   |   | - |   |
| Common      stock (par value $.01 per share)                            |   |                                   |      |   |   |   |   |   |
| Authorized      - 200,000,000 shares in 2008 and 2007                   |   |                                   |      |   |   |   |   |   |
| Issued      - 33,974,250 in 2008 and 33,975,250 in 2007                 |   |                                   |      |   |   |   |   |   |
| Outstanding      -  31,249,897 in 2008 and 31,250,897 in 2007 |   |                                   | 340       |   |   |   | 340 |   |
| Additional      paid-in capital                                         |   |                                   | 107,839   |   |   |   | 106,306 |   |
| Accumulated      other comprehensive income (loss), net of taxes        |   |                                   | (6,449    | ) |   |   | 44 |   |
| Retained      earnings                                                  |   |                                   | 119,921   |   |   |   | 146,367 |   |
| Unearned      ESOP shares                                               |   |                                   | (5,123    | ) |   |   | (5,977 | )  |
| Treasury      shares (2,724,353 shares), at cost                        |   |                                   | (45,261   | ) |   |   | (45,261 | )  |
| Total      shareholders’ equity                                   |   |                                   | 171,267   |   |   |   | 201,819 |   |
| Total      liabilities and shareholders’ equity                   |   | $                                      | 1,885,432 |   |   |   | 1,710,202 |   |

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|                                                          |   | Years      ended December 31,                 |       |
|---------------------------------------------------------------|--------|-----------------------------------------------|------------|
|                                                          |   | 2008                                          |       |   | 2007 |   |   | 2006 |   |
|                                                          |   | (In      Thousands, except per share amounts) |       |
|                                                          |   |                                          |       |   |   |   |   |   |   |
| Interest      income:                                         |   |                                          |       |   |   |   |   |   |   |
| Loans                                                         |   | $                                             | 92,860     |   |   |   | 87,101 |   |   |   | 83,822 |   |
| Mortgage-related      securities                              |   |                                          | 7,679      |   |   |   | 5,869 |   |   |   | 4,263 |   |
| Debt      securities, federal funds sold and                  |   |                                          |       |   |   |   |   |   |   |   |   |   |
| short-term      investments                                   |   |                                          | 3,539      |   |   |   | 4,005 |   |   |   | 4,143 |   |
| Total      interest income                                    |   |                                          | 104,078    |   |   |   | 96,975 |   |   |   | 92,228 |   |
| Interest      expense:                                        |   |                                          |       |   |   |   |   |   |   |   |   |   |
| Deposits                                                      |   |                                          | 42,250     |   |   |   | 44,910 |   |   |   | 42,038 |   |
| Borrowings                                                    |   |                                          | 20,777     |   |   |   | 17,224 |   |   |   | 11,741 |   |
| Total      interest expense                                   |   |                                          | 63,027     |   |   |   | 62,134 |   |   |   | 53,779 |   |
| Net      interest income                                      |   |                                          | 41,051     |   |   |   | 34,841 |   |   |   | 38,449 |   |
| Provision      for loan losses                                |   |                                          | 37,629     |   |   |   | 11,697 |   |   |   | 2,201 |   |
| Net      interest income after provision for loan losses      |   |                                          | 3,422      |   |   |   | 23,144 |   |   |   | 36,248 |   |
| Noninterest      income:                                      |   |                                          |       |   |   |   |   |   |   |   |   |   |
| Service      charges on loans and deposits                    |   |                                          | 1,656      |   |   |   | 1,983 |   |   |   | 2,021 |   |
| Increase      in cash surrender value of life insurance       |   |                                          | 1,444      |   |   |   | 1,192 |   |   |   | 1,055 |   |
| Loss      on impairment or sale of securities                 |   |                                          | (1,997     | ) |   |   | - |   |   |   | (819 | ) |
| Mortgage      banking income                                  |   |                                          | 4,296      |   |   |   | 2,912 |   |   |   | 2,109 |   |
| Other                                                         |   |                                          | 892        |   |   |   | 755 |   |   |   | 790 |   |
| Total      noninterest income                                 |   |                                          | 6,291      |   |   |   | 6,842 |   |   |   | 5,156 |   |
| Noninterest      expenses:                                    |   |                                          |       |   |   |   |   |   |   |   |   |   |
| Compensation,      payroll taxes, and other employee benefits |   |                                          | 17,080     |   |   |   | 15,487 |   |   |   | 16,209 |   |
| Occupancy,      office furniture, and equipment               |   |                                          | 4,779      |   |   |   | 4,990 |   |   |   | 4,304 |   |
| Advertising                                                   |   |                                          | 1,155      |   |   |   | 1,158 |   |   |   | 1,369 |   |
| Data      processing                                          |   |                                          | 1,377      |   |   |   | 1,622 |   |   |   | 1,730 |   |
| Communications                                                |   |                                          | 692        |   |   |   | 729 |   |   |   | 700 |   |
| Professional      fees                                        |   |                                          | 924        |   |   |   | 1,230 |   |   |   | 1,243 |   |
| Real      estate owned                                        |   |                                          | 4,551      |   |   |   | 1,200 |   |   |   | 116 |   |
| Other                                                         |   |                                          | 3,302      |   |   |   | 2,266 |   |   |   | 2,981 |   |
| Total      noninterest expenses                               |   |                                          | 33,860     |   |   |   | 28,682 |   |   |   | 28,652 |   |
| Income      (loss) before income taxes                        |   |                                          | (24,147    | ) |   |   | 1,304 |   |   |   | 12,752 |   |
| Income      tax (benefit) expense                             |   |                                          | 2,299      |   |   |   | (254 | ) |   |   | 4,699 |   |
| Net      income (loss)                                        |   | $                                             | (26,446    | ) |   |   | 1,558 |   |   |   | 8,053 |   |
| Income      (loss) per share:                                 |   |                                          |       |   |   |   |   |   |   |   |   |   |
| Basic                                                         |   | $                                             | (0.87      | ) |   |   | 0.05 |   |   |   | 0.24 |   |
| Diluted                                                       |   | $                                             | (0.87      | ) |   |   | 0.05 |   |   |   | 0.24 |   |
| Weighted      average shares outstanding:                     |   |                                          |       |   |   |   |   |   |   |   |   |   |
| Basic                                                         |   |                                          | 30,556,004 |   |   |   | 31,570,677 |   |   |   | 33,076,565 |   |
| Diluted                                                       |   |                                          | 30,556,004 |   |   |   | 31,578,626 |   |   |   | 33,076,565 |   |

Table of Contents

|                                               |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   | Accumulated        |   |          |   |   |   |          |   |
|----------------------------------------------------|--------|---------------------|---------------|--------|---------|--------|---------------|------------|--------|--------|---------------|--------|--------|---------------|---------------|--------|--------------------|--------|---------------|--------|--------|--------|---------------|--------|
|                                               |   |                |          |   |    |   |          | Additional |   |   |          |   |   | Unearned      |          |   | Other              |   |          |   |   |   |          |   |
|                                               |   | Common      Stock   |          |   | Paid-In |   |          | Retained   |   |   | ESOP          |   |   | Comprehensive |          |   | Treasury           |   |          |   |   |
|                                               |   | Shares              |          |   | Amount  |   |          | Capital    |   |   | Earnings      |   |   | Shares        |          |   | Income      (Loss) |   |          | Shares |   |   | Equity        |   |
|                                               |   | (In      Thousands) |          |
| Balances      at December 31, 2005                 |   |                | 33,724        |   |    |   | 337           |       |   |   | 103,859       |   |   |          | 136,756       |   |               |   | (7,685        | )      |   |   | (1,571        | )      |   |   | —  |   |   |   | 231,696 |   |
|                                               |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| Comprehensive      income:                         |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| Net      income                                    |   |                | —  |   |    |   | —  |       |   |   | —  |   |   |          | 8,053         |   |               |   | —  |   |   |   | —  |   |   |   | —  |   |   |   | 8,053 |   |
| Other      comprehensive income:                   |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| Net      unrealized holding losses on              |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| available      for sale securities arising during  |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| the      period, net of taxes of $101              |   |                | —  |   |    |   | —  |       |   |   | —  |   |   |          | —  |   |               |   | —  |   |   |   | (187          | )      |   |   | —  |   |   |   | (187 | ) |
| Reclassification      adjustment for net losses    |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| on      available for sale securities realized in  |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| net      income, net of taxes of $285              |   |                | —  |   |    |   | —  |       |   |   | —  |   |   |          | —  |   |               |   | —  |   |   |   | 533           |   |   |   | —  |   |   |   | 533 |   |
| Total      comprehensive income                    |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   | 8,399 |   |
| ESOP      shares committed to be released to Plan  |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
|   participants                           |   |                | —  |   |    |   | —  |       |   |   | 323           |   |   |          | —  |   |               |   | 854           |   |   |   | —  |   |   |   | —  |   |   |   | 1,177 |   |
|                                               |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
|                                               |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| Balances      at December 31, 2006                 |   |                | 33,724        |   |    | $      | 337           |       |   |   | 104,182       |   |   |          | 144,809       |   |               |   | (6,831        | )      |   |   | (1,225        | )      |   |   | —  |   |   |   | 241,272 |   |
|                                               |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| Comprehensive      income:                         |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| Net      income                                    |   |                | —  |   |    |   | —  |       |   |   | —  |   |   |          | 1,558         |   |               |   | —  |   |   |   | —  |   |   |   | —  |   |   |   | 1,558 |   |
| Other      comprehensive income:                   |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| Net      unrealized holding gains on               |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| available      for sale securities realized in net |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| income,      net of taxes of $684                  |   |                | —  |   |    |   | —  |       |   |   | —  |   |   |          | —  |   |               |   | —  |   |   |   | 1,269         |   |   |   | —  |   |   |   | 1,269 |   |
| Total      comprehensive income                    |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   | 2,827 |   |
| ESOP      shares committed to be released to       |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
|   Plan      participants                 |   |                | —  |   |    |   | —  |       |   |   | 398           |   |   |          | —  |   |               |   | 854           |   |   |   | —  |   |   |   | —  |   |   |   | 1,252 |   |
| Stock      based compensation                      |   |                | 251           |   |    |   | 3             |       |   |   | 1,726         |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   | 1,729 |   |
| Purchase      of treasury shares                   |   |                | (2,724        | )      |    |   | —       |       |   |   | —       |   |   |          | —       |   |               |   | —       |   |   |   | —       |   |   |   | (45,261 | ) |   |   | (45,261 | ) |
|                                               |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| Balances      at December 31, 2007                 |   |                | 31,251        |   |    | $      | 340           |       |   |   | 106,306       |   |   |          | 146,367       |   |               |   | (5,977        | )      |   |   | 44            |   |   |   | (45,261 | ) |   |   | 201,819 |   |

Table of Contents

|                                              |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   | Accumulated        |   |          |   |   |   |          |   |
|---------------------------------------------------|--------|---------------------|---------------|--------|---------|--------|---------------|------------|--------|--------|---------------|--------|--------|---------------|---------------|--------|--------------------|--------|---------------|--------|--------|--------|---------------|--------|
|                                              |   |                |          |   |    |   |          | Additional |   |   |          |   |   | Unearned      |          |   | Other              |   |          |   |   |   |          |   |
|                                              |   | Common      Stock   |          |   | Paid-In |   |          | Retained   |   |   | ESOP          |   |   | Comprehensive |          |   | Treasury           |   |          |   |   |
|                                              |   | Shares              |          |   | Amount  |   |          | Capital    |   |   | Earnings      |   |   | Shares        |          |   | Income      (Loss) |   |          | Shares |   |   | Equity        |   |
|                                              |   | (In      Thousands) |          |
| Balances      at December 31, 2007                |   |                | 31,251        |   |    |   | 340           |       |   |   | 106,306       |   |   |          | 146,367       |   |               |   | (5,977        | )      |   |   | 44            |   |   |   | (45,261 | ) |   |   | 201,819 |   |
|                                              |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| Comprehensive      income:                        |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| Net      loss                                     |   |                | —  |   |    |   | —  |       |   |   | —  |   |   |          | (26,446       | )      |               |   | —  |   |   |   | —  |   |   |   | —  |   |   |   | (26,446 | ) |
| Other      comprehensive income:                  |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| Net      unrealized holding losses on             |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| available      for sale securities arising during |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| the      period, net of taxes of $4,195           |   |                | —  |   |    |   | —  |       |   |   | —  |   |   |          | —  |   |               |   | —  |   |   |   | (7,791        | )      |   |   | —  |   |   |   | (7,791 | ) |
| Reclassification      adjustment for net losses   |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| on      available for sale securities realized in |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| net      income, net of taxes of $699             |   |                | —  |   |    |   | —  |       |   |   | —  |   |   |          | —  |   |               |   | —  |   |   |   | 1,298         |   |   |   | —  |   |   |   | 1,298 |   |
| Total      comprehensive income                   |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   | (32,939 | ) |
| ESOP      shares committed to be released to      |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
|   Plan      participants                |   |                | —  |   |    |   | —  |       |   |   | (78           | )      |   |          | —  |   |               |   | 854           |   |   |   | —  |   |   |   | —  |   |   |   | 776 |   |
| Stock      based compensation                     |   |                | (1            | )      |    |   | —  |       |   |   | 1,611         |   |   |          | —  |   |               |   | —  |   |   |   | —  |   |   |   | —  |   |   |   | 1,611 |   |
|                                              |   |                |          |   |    |   |          |       |   |   |          |   |   |          |          |   |               |   |          |   |   |   |          |   |   |   |   |   |   |   |   |   |
| Balances      at December 31, 2008                |   |                | 31,250        |   |    | $      | 340           |       |   |   | 107,839       |   |   |          | 119,921       |   |               |   | (5,123        | )      |   |   | (6,449        | )      |   |   | (45,261 | ) |   |   | 171,267 |   |

Table of Contents

|                                                                |   | Years      ended December 31, |     |
|---------------------------------------------------------------------|--------|-------------------------------|----------|
|                                                                |   | 2008                          |     |   | 2007 |   |   | 2006 |   |
|                                                                |   | (In      Thousands)           |     |
|                                                                |   |                          |     |   |   |   |   |   |   |
| Operating      activities:                                          |   |                          |     |   |   |   |   |   |   |
| Net      (loss) income                                              |   | $                             | (26,446  | ) |   |   | 1,558 |   |   |   | 8,053 |   |
| Adjustments      to reconcile net income to net                     |   |                          |     |   |   |   |   |   |   |   |   |   |
| cash      provided by (used in) operating activities:               |   |                          |     |   |   |   |   |   |   |   |   |   |
| Provision      for loan losses                                      |   |                          | 37,629   |   |   |   | 11,697 |   |   |   | 2,201 |   |
| Provision      for depreciation                                     |   |                          | 2,430    |   |   |   | 2,633 |   |   |   | 2,369 |   |
| Deferred      income taxes                                          |   |                          | 7,560    |   |   |   | (2,469 | ) |   |   | (1,280 | ) |
| Stock      based compensation                                       |   |                          | 1,611    |   |   |   | 1,729 |   |   |   | — |   |
| Net      amortization of premium/discount on debt and               |   |                          |     |   |   |   |   |   |   |   |   |   |
|    mortgage      related securities                  |   |                          | (445     | ) |   |   | (219 | ) |   |   | 22 |   |
| Amortization      of unearned ESOP shares                           |   |                          | 776      |   |   |   | 1,252 |   |   |   | 1,177 |   |
| Gain      on sale of loans held for sale                            |   |                          | (3,437   | ) |   |   | (1,820 | ) |   |   | (1,054 | ) |
| Loans      originated for sale                                      |   |                          | (255,891 | ) |   |   | (242,120 | ) |   |   | (84,603 | ) |
| Proceeds      on sales of loans originated for sale                 |   |                          | 268,690  |   |   |   | 226,219 |   |   |   | 80,270 |   |
| Increase      in accrued interest receivable                        |   |                          | (1,207   | ) |   |   | (950 | ) |   |   | (621 | ) |
| Increase      in cash surrender value of life insurance             |   |                          | (1,444   | ) |   |   | (1,192 | ) |   |   | (1,055 | ) |
| Increase      (decrease) in accrued interest  on deposits |   |                          | 1,240    |   |   |   | (45 | ) |   |   | 1,301 |   |
| Increase      (decrease) in other liabilities                       |   |                          | (6,054   | ) |   |   | 1,046 |   |   |   | 2,901 |   |
| Loss      on impairment or sale of securities                       |   |                          | 1,997    |   |   |   | — |   |   |   | 819 |   |
| (Gain)      loss on sale of office properties and equipment         |   |                          | 233      |   |   |   | (77 | ) |   |   | 7 |   |
| Net      loss related to real estate owned                          |   |                          | 1,417    |   |   |   | 712 |   |   |   | 31 |   |
| Other                                                               |   |                          | (4,591   | ) |   |   | 1,822 |   |   |   | (417 | ) |
|                                                                |   |                          |     |   |   |   |   |   |   |   |   |   |
| Net      cash provided by (used in) operating activities            |   |                          | 24,068   |   |   |   | (224 | ) |   |   | 10,121 |   |
|                                                                |   |                          |     |   |   |   |   |   |   |   |   |   |
| Investing      activities:                                          |   |                          |     |   |   |   |   |   |   |   |   |   |
| Net      increase in loans receivable                               |   |                          | (215,957 | ) |   |   | (48,643 | ) |   |   | (68,717 | ) |
| Purchases      of:                                                  |   |                          |     |   |   |   |   |   |   |   |   |   |
| Debt      securities                                                |   |                          | (11,596  | ) |   |   | (28,958 | ) |   |   | — |   |
| Mortgage      related securities                                    |   |                          | (30,525  | ) |   |   | (47,401 | ) |   |   | (36,037 | ) |
| Structured      notes, held to maturity                             |   |                          | (4,289   | ) |   |   | (7,646 | ) |   |   | — |   |
| Premises      and equipment, net                                    |   |                          | (1,284   | ) |   |   | (2,122 | ) |   |   | (11,598 | ) |
| Waterstone      Mortgage Corporation, net of cash                   |   |                          | —  |   |   |   | — |   |   |   | (1,081 | ) |
| Bank      owned life insurance                                      |   |                          | (5,306   | ) |   |   | (306 | ) |   |   | (306 | ) |
| FHLB      stock                                                     |   |                          | (2,364   | ) |   |   | (2,076 | ) |   |   | (2,807 | ) |
| Proceeds      from:                                                 |   |                          |     |   |   |   |   |   |   |   |   |   |
| Principal      repayments on mortgage-related securities            |   |                          | 19,452   |   |   |   | 17,621 |   |   |   | 15,457 |   |
| Maturities      of debt securities                                  |   |                          | 3,244    |   |   |   | 5,509 |   |   |   | — |   |
| Sales      of debt securities                                       |   |                          | —  |   |   |   | — |   |   |   | 12,832 |   |
| Sales      of mortgage related securities                           |   |                          | —  |   |   |   | — |   |   |   | 13,036 |   |
| Calls      of structured notes                                      |   |                          | 1,998    |   |   |   | — |   |   |   | — |   |
| Sales      of foreclosed properties and other assets                |   |                          | 15,391   |   |   |   | 3,369 |   |   |   | 2,984 |   |
|                                                                |   |                          |     |   |   |   |   |   |   |   |   |   |
| Net      cash used by investing activities                          |   |                          | (231,236 | ) |   |   | (110,653 | ) |   |   | (76,237 | ) |

Table of Contents

|                                                         |   | Years      ended December 31, |    |
|--------------------------------------------------------------|--------|-------------------------------|---------|
|                                                         |   | 2008                          |    |   | 2007 |   |   | 2006 |   |
|                                                         |   |                          |    |   | (In      Thousands) |   |   |   |   |
|                                                         |   |                          |    |   |   |   |   |   |   |
| Financing      activities:                                   |   |                          |    |   |   |   |   |   |   |
| Net      increase (decrease) in deposits                     |   |                          | 201,362 |   |   |   | (41,683 | ) |   |   | (9,375 | ) |
| Net      change in short-term borrowings                     |   |                          | (53,484 | ) |   |   | (35,519 | ) |   |   | (112,209 | ) |
| Proceeds      from long-term borrowings                      |   |                          | 65,000  |   |   |   | 177,000 |   |   |   | 245,000 |   |
| Net      increase in advance payments by borrowers for taxes |   |                          | 255     |   |   |   | 417 |   |   |   | 9 |   |
| Purchase      of treasury stock                              |   |                          | — |   |   |   | (45,261 | ) |   |   | — |   |
|                                                         |   |                          |    |   |   |   |   |   |   |   |   |   |
| Net      cash provided by financing activities               |   |                          | 213,133 |   |   |   | 54,954 |   |   |   | 123,425 |   |
| Increase      (decrease) in cash and cash equivalents        |   |                          | 5,965   |   |   |   | (55,923 | ) |   |   | 57,309 |   |
| Cash      and cash equivalents at beginning of period        |   |                          | 17,884  |   |   |   | 73,807 |   |   |   | 16,498 |   |
| Cash      and cash equivalents at end of period              |   | $                             | 23,849  |   |   |   | 17,884 |   |   |   | 73,807 |   |
|                                                         |   |                          |    |   |   |   |   |   |   |   |   |   |
| Supplemental      information:                               |   |                          |    |   |   |   |   |   |   |   |   |   |
| Cash      paid or credited during the period for:            |   |                          |    |   |   |   |   |   |   |   |   |   |
| Income      tax payments                                     |   |                          | 230     |   |   |   | 4,429 |   |   |   | 4,777 |   |
| Interest      payments                                       |   |                          | 61,787  |   |   |   | 62,179 |   |   |   | 52,477 |   |
| Noncash      investing activities:                           |   |                          |    |   |   |   |   |   |   |   |   |   |
| Loans      receivable transferred to other real estate       |   |                          | 32,946  |   |   |   | 13,455 |   |   |   | 1,572 |   |
| Non      Cash financing activities:                          |   |                          |    |   |   |   |   |   |   |   |   |   |
| Long-term      FHLB advances reclassified to short-term      |   |                          | 4,100   |   |   |   | 47,779 |   |   |   | 66,224 |   |

Table of Contents

| 1)   | Summary      of Accounting Policies |
|----------------|-------------------------------------|

| a)   | Organization |
|----------------|--------------|

| b)   | Nature      of Operations |
|----------------|---------------------------|

| c)   | Principles      of Consolidation |
|----------------|----------------------------------|

| d)   | Use      of Estimates |
|----------------|-----------------------|

| e)   | Cash      and Cash Equivalents |
|----------------|--------------------------------|

Table of Contents

| f)   | Securities |
|----------------|------------|

Table of Contents

| g)   | Loans      Held for Sale |
|----------------|--------------------------|

| h)   | Loans      Receivable and Related InterestIncome |
|----------------|--------------------------------------------------|

| i)   | Allowance      for Loan Losses |
|----------------|--------------------------------|

Table of Contents

| j)   | Real      Estate Owned |
|----------------|------------------------|

| k)   | Cash      Surrender Value of Life Insurance |
|----------------|---------------------------------------------|

| l)   | Office      Properties and Equipment |
|----------------|--------------------------------------|

| m)   | Income      Taxes |
|----------------|-------------------|

Table of Contents

|  | n)   | Earnings      Per Share |
|--|----------------|-------------------------|

| o)   | Other      Comprehensive Income |
|----------------|---------------------------------|

| p)   | Employee      Stock Ownership Plan (ESOP) |
|----------------|-------------------------------------------|

| q)   | Reclassifications |
|----------------|-------------------|

Table of Contents

| 2)   | Securities |
|----------------|------------|

|                                     |   | December      31, 2008 |    |
|------------------------------------------|--------|------------------------|---------|
|                                     |   |                   |    |   | Gross |   |   | Gross |   |   |   |   |
|                                     |   | Amortized              |    |   | unrealized |   |   | unrealized |   |   |   |   |
|                                     |   | cost                   |    |   | gains |   |   | losses |   |   | Fair      value |   |
|                                     |   | (In      Thousands)    |    |
| Mortgage-backed      securities          |   | $                      | 38,966  |   |   |   | 1,133 |   |   |   | (14 | ) |   |   | 40,085 |   |
| Collateralized      mortgage obligations |   |                   | 100,896 |   |   |   | 1,068 |   |   |   | (10,507 | ) |   |   | 91,457 |   |
| Mortgage      related securities         |   |                   | 139,862 |   |   |   | 2,201 |   |   |   | (10,521 | ) |   |   | 131,542 |   |
| Government      sponsored entity bonds   |   |                   | 11,007  |   |   |   | 335 |   |   |   | — |   |   |   | 11,342 |   |
| Municipals                               |   |                   | 32,697  |   |   |   | 291 |   |   |   | (1,626 | ) |   |   | 31,362 |   |
| Corporate      notes                     |   |                   | 992     |   |   |   | — |   |   |   | (51 | ) |   |   | 941 |   |
| Other      debt securities               |   |                   | 5,250   |   |   |   | — |   |   |   | (550 | ) |   |   | 4,700 |   |
| Debt      securities                     |   |                   | 49,946  |   |   |   | 626 |   |   |   | (2,227 | ) |   |   | 48,345 |   |
|                                     |   | $                      | 189,808 |   |   |   | 2,827 |   |   |   | (12,748 | ) |   |   | 179,887 |   |
|                                     |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   | December      31, 2007 |    |
|                                     |   |                   |    |   |   | Gross |   |   | Gross |   |   |   |   |   |
|                                     |   | Amortized              |    |   | unrealized |   |   | unrealized |   |   |   |   |   |
|                                     |   | cost                   |    |   | gains |   |   | losses |   |   | Fair      value |   |
|                                     |   | (In      Thousands)    |    |
| Mortgage-backed      securities          |   | $                      | 20,128  |   |   |   | 154 |   |   |   | (68 | ) |   |   | 20,214 |   |
| Collateralized      mortgage obligations |   |                   | 110,419 |   |   |   | 1,050 |   |   |   | (1,073 | ) |   |   | 110,396 |   |
| Mortgage      related securities         |   |                   | 130,547 |   |   |   | 1,204 |   |   |   | (1,141 | ) |   |   | 130,610 |   |
| Government      sponsored entity bonds   |   |                   | 13,996  |   |   |   | 187 |   |   |   | (1 | ) |   |   | 14,182 |   |
| Municipals                               |   |                   | 27,277  |   |   |   | 209 |   |   |   | (391 | ) |   |   | 27,095 |   |
| Debt      securities                     |   |                   | 41,273  |   |   |   | 396 |   |   |   | (392 | ) |   |   | 41,277 |   |
| Other      securities                    |   |                   | 250     |   |   |   | — |   |   |   | — |   |   |   | 250 |   |
|                                     |   | $                      | 172,070 |   |   |   | 1,600 |   |   |   | (1,533 | ) |   |   | 172,137 |   |

Table of Contents

|                                        |   | December      31, 2008 |    |
|---------------------------------------------|--------|------------------------|---------|
|                                        |   | Amortized              |    |   |   |   |
|                                        |   | cost                   |    |   | Fair      value |   |
|                                        |   | (In      Thousands)    |    |
| Debt      securities:                       |   |                   |    |   |   |   |
| Due      within one year                    |   | $                      | 8,994   |   |   |   | 9,061 |   |
| Due      after one year through five years  |   |                   | 4,514   |   |   |   | 4,772 |   |
| Due      after five years through ten years |   |                   | 5,949   |   |   |   | 6,127 |   |
| Due      after ten years                    |   |                   | 30,489  |   |   |   | 28,385 |   |
| Mortgage-related      securities            |   |                   | 139,862 |   |   |   | 131,542 |   |
|                                        |   | $                      | 189,808 |   |   |   | 179,887 |   |

Table of Contents

|                                     |   | December      31, 2008   |    |
|------------------------------------------|--------|--------------------------|---------|
|                                     |   | Less      than 12 months |    |   | 12      months or longer |   |   | Total |   |
|                                     |   | Fair                     |    |   | Unrealized |   |   | Fair |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                     |   | value                    |    |   | loss |   |   | value |   |   | loss |   |   | value |   |   | loss |   |
|                                     |   | (In      Thousands)      |    |
| Mortgage-backed      securities          |   | $                        | — |   |   |   | — |   |   |   | 1,705 |   |   |   | (14 | ) |   |   | 1,705 |   |   |   | (14 | ) |
| Collateralized      mortgage obligations |   |                     | 33,787  |   |   |   | (9,599 | ) |   |   | 15,050 |   |   |   | (908 | ) |   |   | 48,837 |   |   |   | (10,507 | ) |
| Government      sponsored entity bonds   |   |                     | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Municipals                               |   |                     | 10,169  |   |   |   | (533 | ) |   |   | 11,260 |   |   |   | (1,093 | ) |   |   | 21,429 |   |   |   | (1,626 | ) |
| Corporate      notes                     |   |                     | 941     |   |   |   | (51 | ) |   |   | — |   |   |   | — |   |   |   | 941 |   |   |   | (51 | ) |
| Other      debt securities               |   |                     | 4,450   |   |   |   | (550 | ) |   |   | — |   |   |   | — |   |   |   | 4,450 |   |   |   | (550 | ) |
|                                     |   | $                        | 49,347  |   |   |   | (10,733 | ) |   |   | 28,015 |   |   |   | (2,015 | ) |   |   | 77,362 |   |   |   | (12,748 | ) |
|                                     |   |                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   | December      31, 2007   |    |
|                                     |   | Less      than 12 months |    |   | 12      months or longer |   |   | Total |   |
|                                     |   | Fair                     |    |   | Unrealized |   |   | Fair |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                     |   | value                    |    |   | loss |   |   | value |   |   | loss |   |   | value |   |   | loss |   |
|                                     |   | (In      Thousands)      |    |
| Mortgage-backed      securities          |   | $                        | — |   |   |   | — |   |   |   | 3,230 |   |   |   | (68 | ) |   |   | 3,230 |   |   |   | (68 | ) |
| Collateralized      mortgage obligations |   |                     | — |   |   |   | — |   |   |   | 38,707 |   |   |   | (1,073 | ) |   |   | 38,707 |   |   |   | (1,073 | ) |
| Government      sponsored entity bonds   |   |                     | — |   |   |   | — |   |   |   | 998 |   |   |   | (1 | ) |   |   | 998 |   |   |   | (1 | ) |
| Municipals                               |   |                     | 15,079  |   |   |   | (391 | ) |   |   | — |   |   |   | — |   |   |   | 15,079 |   |   |   | (391 | ) |
| Other      Securities                    |   |                     | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
|                                     |   | $                        | 15,079  |   |   |   | (391 | ) |   |   | 42,935 |   |   |   | (1,142 | ) |   |   | 58,014 |   |   |   | (1,533 | ) |

Table of Contents

| 3)   | Loans      Receivable |
|----------------|-----------------------|

|                           |   | December      31,   |      |
|--------------------------------|--------|---------------------|-----------|
|                           |   | 2008                |      |   | 2007 |   |
| Mortgage      loans:           |   | (In      Thousands) |      |
| Residential      real estate:  |   |                |      |   |   |   |
| One-      to four-family       |   | $                   | 790,486   |   |   |   | 672,362 |   |
| Over      four-family          |   |                | 512,746   |   |   |   | 477,766 |   |
| Construction      and land     |   |                | 131,840   |   |   |   | 156,289 |   |
| Commercial      real estate    |   |                | 55,193    |   |   |   | 51,983 |   |
| Home      equity               |   |                | 89,648    |   |   |   | 85,954 |   |
| Consumer                       |   |                | 365       |   |   |   | 286 |   |
| Commercial      loans          |   |                | 43,006    |   |   |   | 28,222 |   |
|                           |   |                | 1,623,284 |   |   |   | 1,472,862 |   |
| Less:                          |   |                |      |   |   |   |   |   |
| Undisbursed      loan proceeds |   |                | 61,192    |   |   |   | 67,549 |   |
| Unearned      loan fees        |   |                | 2,334     |   |   |   | 3,265 |   |
|                           |   | $                   | 1,559,758 |   |   |   | 1,402,048 |   |

Table of Contents

|                                |   | Years      ended December 31, |    |
|-------------------------------------|--------|-------------------------------|---------|
|                                |   | 2008                          |    |   | 2007 |   |   | 2006 |   |
|                                |   | (In      Thousands)           |    |
|                                |   |                          |    |   |   |   |   |   |   |
| Balance      at beginning of period |   | $                             | 12,839  |   |   |   | 7,195 |   |   |   | 5,250 |   |
| Provision      for loan losses      |   |                          | 37,629  |   |   |   | 11,697 |   |   |   | 2,201 |   |
| Charge-offs                         |   |                          | (25,777 | ) |   |   | (6,163 | ) |   |   | (536 | ) |
| Recoveries                          |   |                          | 476     |   |   |   | 110 |   |   |   | 280 |   |
| Balance      at end of period       |   | $                             | 25,167  |   |   |   | 12,839 |   |   |   | 7,195 |   |
| Percentage      of allowance to     |   |                          |    |   |   |   |   |   |   |   |   |   |
| gross      loans                    |   |                          | 1.61    | % |   |   | 0.92 | % |   |   | 0.52 | % |

|                                       |   | December      31,   |   |
|--------------------------------------------|--------|---------------------|--------|
|                                       |   | 2008                |   |   | 2007 |   |
|                                       |   | (In      Thousands) |   |
| Impaired      loans for which an allowance |   |                |   |   |   |   |
| has      been provided                     |   | $                   | 41,970 |   |   |   | 27,896 |   |
| Impaired      loans for which no allowance |   |                |   |   |   |   |   |   |
| has      been provided                     |   |                | 56,382 |   |   |   | 54,632 |   |
| Total      loans determined to be impaired |   | $                   | 98,352 |   |   |   | 82,528 |   |
| Allowance      for loan losses related to  |   |                |   |   |   |   |   |   |
| impaired      loans                        |   | $                   | 9,832  |   |   |   | 5,783 |   |
|                                       |   |                |   |   |   |   |   |   |
| Average      recorded investment in        |   |                |   |   |   |   |   |   |
| impaired      loans                        |   | $                   | 93,066 |   |   |   | 51,110 |   |
| Cash      basis interest income recognized |   |                |   |   |   |   |   |   |
| from      impaired loans                   |   | $                   | 5,549  |   |   |   | 2,735 |   |

Table of Contents

| 4)   | Office      Properties and Equipment |
|----------------|--------------------------------------|

|                                   |   | December      31,   |    |
|----------------------------------------|--------|---------------------|---------|
|                                   |   | 2008                |    |   | 2007 |   |
|                                   |   | (In      Thousands) |    |
| Land                                   |   | $                   | 6,297   |   |   |   | 5,994 |   |
| Office      buildings and improvements |   |                | 29,791  |   |   |   | 29,709 |   |
| Furniture      and equipment           |   |                | 9,553   |   |   |   | 9,224 |   |
|                                   |   |                | 45,641  |   |   |   | 44,927 |   |
| Less      accumulated depreciation     |   |                | (15,081 | ) |   |   | (12,909 | ) |
|                                   |   | $                   | 30,560  |   |   |   | 32,018 |   |

|                                   |   | December      31,   |   |
|----------------------------------------|--------|---------------------|--------|
|                                   |   | 2008                |   |   | 2007 |   |
|                                   |   | (In      Thousands) |   |
| Office      buildings and improvements |   | $                   | 5,708  |   |   |   | 5,727 |   |
| Less      accumulated depreciation     |   |                | (620   | ) |   |   | (432 | ) |
|                                   |   | $                   | 5,088  |   |   |   | 5,295 |   |

Table of Contents

|                                    |   | Capital             |   |   | Operating |   |
|-----------------------------------------|--------|---------------------|--------|--------|-----------|--------|
|                                    |   | lease               |   |   | leases    |   |
|                                    |   | (In      Thousands) |   |
| Within      one year                    |   | $                   | 3,375  |   |      |   | 104 |   |
| Total                                   |   | $                   | 3,375  |   |      |   | 104 |   |
|                                    |   |                |   |   |      |   |   |   |
| Net      minimum lease payments         |   |                | 3,375  |   |      |   |   |   |
| Less      amounts representing interest |   |                | (66    | )      |      |   |   |   |
| Present      value of net minimum       |   |                |   |   |      |   |   |   |
| capital      lease payments             |   | $                   | 3,309  |   |      |   |   |   |

| 5)   | Deposits |
|----------------|----------|

|                                   |   | Years      ended December 31, |   |
|----------------------------------------|--------|-------------------------------|--------|
|                                   |   | 2008                          |   |   | 2007 |   |   | 2006 |   |
|                                   |   | (In      Thousands)           |   |
|                                   |   |                          |   |   |   |   |   |   |   |   |
| Interest-bearing      demand deposits  |   | $                             | 151    |   |   |   | 331 |   |   |   | 631 |   |
| Money      market and savings deposits |   |                          | 2,231  |   |   |   | 4,283 |   |   |   | 2,326 |   |
| Time      deposits                     |   |                          | 39,868 |   |   |   | 40,296 |   |   |   | 39,081 |   |
|                                   |   | $                             | 42,250 |   |   |   | 44,910 |   |   |   | 42,038 |   |

|                         |   | (In      Thousands) |      |
|------------------------------|--------|---------------------|-----------|
| Within      one year         |   | $                   | 826,027   |   |
| One      to two years        |   |                | 176,510   |   |
| Two      to three years      |   |                | 16,922    |   |
| Three      to four years     |   |                | 18,645    |   |
| Four      through five years |   |                | 3,352     |   |
| After      five years        |   |                | 77        |   |
|                         |   | $                   | 1,041,533 |   |

Table of Contents

| 6)   | Borrowings |
|----------------|------------|

|                                                  |   | December      31, 2008 |    |   | December      31, 2007 |   |
|-------------------------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
|                                                  |   |                   |    |   | Weighted               |   |   |   |   |   | Weighted |   |
|                                                  |   |                   |    |   | Average                |   |   |   |   |   | Average |   |
|                                                  |   | Balance                |    |   | Rate                   |   |   | Balance |   |   | Rate |   |
|                                                  |   | (In      Thousands)    |    |
| Federal      funds purchased maturing:                |   |                   |    |   |                   |   |   |   |   |   |   |   |
| 2008                                                  |   | $                      | -       |   |                   |   | - |   |   |   | 5,705 |   |   |   | 4.75 | % |
|                                                  |   |                   |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Federal      Home Loan Bank (FHLB) advances maturing: |   |                   |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| 2008                                                  |   |                   | -       |   |                   |   | - |   |   |   | 47,779 |   |   |   | 4.24 | % |
| 2009                                                  |   |                   | 4,100   |   |                   |   | 4.23 | % |   |   | 4,100 |   |   |   | 4.23 | % |
| 2010                                                  |   |                   | 48,900  |   |                   |   | 4.80 | % |   |   | 48,900 |   |   |   | 4.80 | % |
| 2016                                                  |   |                   | 220,000 |   |                   |   | 4.34 | % |   |   | 220,000 |   |   |   | 4.34 | % |
| 2017                                                  |   |                   | 65,000  |   |                   |   | 3.19 | % |   |   | 65,000 |   |   |   | 3.19 | % |
| 2018                                                  |   |                   | 65,000  |   |                   |   | 2.97 | % |   |   | - |   |   |   | - |   |
|                                                  |   |                   |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase      agreements maturing:                  |   |                   |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| 2018                                                  |   |                   | 84,000  |   |                   |   | 3.96 | % |   |   | 84,000 |   |   |   | 3.96 | % |
|                                                  |   | $                      | 487,000 |   |                   |   | 3.99 | % |   |   | 475,484 |   |   |   | 4.16 | % |

Table of Contents

| 7)   | Regulatory      Capital |
|----------------|-------------------------|

Table of Contents

|                                          |   | December      31, 2008      |    |
|-----------------------------------------------|--------|-----------------------------|---------|
|                                          |   |                        |    |   |   |   |   |   |   |   |   |   |   | To      Be Well-Capitalized |   |
|                                          |   |                        |    |   |   |   |   | For      Capital |   |   | Under      Prompt Corrective |   |
|                                          |   | Actual                      |    |   | Adequacy      Purposes |   |   | Action      Provisions |   |
|                                          |   | Amount                      |    |   | Ratio |   |   | Amount |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
|                                          |   | (Dollars      In Thousands) |    |
|                                          |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| WaterStone      Bank                          |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      capital (to risk-weighted assets)  |   | $                           | 188,527 |   |   |   | 12.84 | % |   |   | 117,470 |   |   |   | 8.00 | % |   |   | 146,838 |   |   |   | 10.00 | % |
| Tier      I capital (to risk-weighted assets) |   |                        | 170,101 |   |   |   | 11.58 | % |   |   | 58,735 |   |   |   | 4.00 | % |   |   | 88,103 |   |   |   | 6.00 | % |
| Tier      I capital (to average assets)       |   |                        | 170,101 |   |   |   | 8.93 | % |   |   | 76,161 |   |   |   | 4.00 | % |   |   | 95,202 |   |   |   | 5.00 | % |
| State      of Wisconsin (to total assets)     |   |                        | 170,101 |   |   |   | 9.06 | % |   |   | 112,680 |   |   |   | 6.00 | % |   |   | N/A |   |   |   | N/A |   |
|                                          |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                          |   | December      31, 2007      |    |
| WaterStone      Bank                          |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      capital (to risk-weighted assets)  |   | $                           | 181,745 |   |   |   | 13.43 | % |   |   | 108,248 |   |   |   | 8.00 | % |   |   | 135,311 |   |   |   | 10.00 | % |
| Tier      I capital (to risk-weighted assets) |   |                        | 169,431 |   |   |   | 12.52 | % |   |   | 54,124 |   |   |   | 4.00 | % |   |   | 81,186 |   |   |   | 6.00 | % |
| Tier      I capital (to average assets)       |   |                        | 169,431 |   |   |   | 10.08 | % |   |   | 67,225 |   |   |   | 4.00 | % |   |   | 84,031 |   |   |   | 5.00 | % |
| State      of Wisconsin (to total assets)     |   |                        | 169,431 |   |   |   | 9.94 | % |   |   | 102,250 |   |   |   | 6.00 | % |   |   | N/A |   |   |   | N/A |   |

Table of Contents

| 8)   | Stock      Based Compensation |
|----------------|-------------------------------|

|                                             |   | 2008           |   |   | 2007           |   |
|--------------------------------------------------|--------|----------------|--------|--------|----------------|--------|
| Dividend      Yield                              |   |           | 1.32   | %      |           |   | 1.32 | % |
| Risk-free      interest rate                     |   |           | 3.57   | %      |           |   | 4.44 | % |
| Expected      volatility                         |   |           | 31.86  | %      |           |   | 31.86 | % |
| Weighted      average expected life              |   | 6.5      years |   |   | 6.5      years |   |
| Weighted      average per share value of options |   | $              | 3.94   |   |           | $      | 6.25 |   |

Table of Contents

| Stock      Options                            |   | Shares |    |   | Weighted      Average Exercise Price |   |   | Weighted      Average Years Remaining in Contractual Term |   |   | Aggregate      Instrinsic Value(000's) |   |
|-----------------------------------------------|--------|--------|---------|--------|--------------------------------------|--------|--------|-----------------------------------------------------------|--------|--------|----------------------------------------|--------|
| Outstanding      December 31, 2006            |   |   |    |   |                                 |   |   |                                                      |   |   |                                   |   |
| Granted                                       |   |   | 797,500 |   |                                 | $      | 17.63  |                                                      |   |   | 10.00                                  |   |   |   | - |   |
| Excercised                                    |   |   | -       |   |                                 |   |   |                                                      |   |   |                                   |   |   |   | - |   |
| Forfeited                                     |   |   | (15,000 | )      |                                 |   | 17.67  |                                                      |   |   | 9.50                                   |   |   |   | - |   |
| Outstanding      December 31, 2007            |   |   | 782,500 |   |                                 |   | 17.63  |                                                      |   |   | 9.02                                   |   |   |   | - |   |
| Options      exercisable at December 31, 2007 |   |   | -       |   |                                 |   |   |                                                      |   |   |                                   |   |   |   |   |   |
| Granted                                       |   |   | 5,000   |   |                                 | $      | 11.71  |                                                      |   |   | 10.00                                  |   |   |   | - |   |
| Excercised                                    |   |   | -       |   |                                 |   |   |                                                      |   |   |                                   |   |   |   | - |   |
| Forfeited                                     |   |   | (20,000 | )      |                                 |   | 17.67  |                                                      |   |   | 8.50                                   |   |   |   | - |   |
| Outstanding      December 31, 2008            |   |   | 767,500 |   |                                 |   | 17.59  |                                                      |   |   | 8.03                                   |   |   |   | - |   |
| Options      exercisable at December 31, 2008 |   |   | 152,500 |   |                                 |   | 17.63  |                                                      |   |   |                                   |   |   |   | - |   |

|                                |   |   |     |   | Weighted      Average      |   |
|-------------------------------------|--------|--------|----------|--------|----------------------------|--------|
| Stock      Options                  |   | Shares |     |   | Grant      Date Fair Value |   |
| Nonvested      at December 31, 2007 |   |   | 782,500  |   |                       | $      | 6.25 |   |
| Granted                             |   |   | 5,000    |   |                       |   | 3.94 |   |
| Vested                              |   |   | (152,500 | )      |                       |   | 6.25 |   |
| Forfeited                           |   |   | (20,000  | )      |                       |   | 6.25 |   |
| Nonvested      at December 31, 2008 |   |   | 615,000  |   |                       |   | 6.21 |   |

Table of Contents

|                                |   |   |    |   | Weighted      Average      |   |
|-------------------------------------|--------|--------|---------|--------|----------------------------|--------|
| Restricted      Stock               |   | Shares |    |   | Grant      Date Fair Value |   |
| Nonvested      at December 31, 2007 |   |   | 251,500 |   |                       | $      | 17.67 |   |
| Granted                             |   |   | 5,000   |   |                       |   | 9.46 |   |
| Vested                              |   |   | (50,300 | )      |                       |   | 17.67 |   |
| Forfeited                           |   |   | (6,000  | )      |                       |   | 17.67 |   |
| Nonvested      at December 31, 2008 |   |   | 200,200 |   |                       |   | 17.46 |   |

| 9)   | Employee      Benefit Plans |
|----------------|-----------------------------|

Table of Contents

| 10)   | Employee      Stock Ownership Plan |
|-----------------|------------------------------------|

|                                                |   | 2008   |    |   | 2007   |   |
|-----------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Beginning      ESOP shares                          |   |   | 533,061 |   |   |   | 609,213 |   |
| Shares      committed to be released                |   |   | (76,152 | )      |   |   | (76,152 | ) |
| Unreleased      shares                              |   |   | 456,909 |   |   |   | 533,061 |   |
|                                                |   |   |    |   |   |   |   |   |
| Fair      value of unreleased shares (in thousands) |   | $      | 1,530   |   |   |   | 6,834 |   |

Table of Contents

| 11)   | Income      Taxes |
|-----------------|-------------------|

|      |   |                          |   |   |   |   |   |   |   |
|-----------|--------|-------------------------------|--------|--------|--------|--------|--------|--------|--------|
|      |   | Years      ended December 31, |   |
|      |   | 2008                          |   |   | 2007   |   |   | 2006   |   |
|      |   | (In      Thousands)           |   |
| Current:  |   |                          |   |   |   |   |   |   |   |
| Federal   |   | $                             | (5,083 | )      |   |   | 2,046  |   |   |   | 4,761 |   |
| State     |   |                          | (178   | )      |   |   | 169    |   |   |   | 1,218 |   |
|      |   |                          | (5,261 | )      |   |   | 2,215  |   |   |   | 5,979 |   |
| Deferred: |   |                          |   |   |   |   |   |   |   |   |   |   |
| Federal   |   |                          | 5,492  |   |   |   | (1,780 | )      |   |   | (899 | ) |
| State     |   |                          | 2,068  |   |   |   | (689   | )      |   |   | (381 | ) |
|      |   |                          | 7,560  |   |   |   | (2,469 | )      |   |   | (1,280 | ) |
| Total     |   | $                             | 2,299  |   |   |   | (254   | )      |   |   | 4,699 |   |

|                                                 |   | Years      ended December 31, |    |
|------------------------------------------------------|--------|-------------------------------|---------|
|                                                 |   | 2008                          |    |   | 2007 |   |   | 2006 |   |
|                                                 |   | (Dollars      In Thousands)   |    |
|                                                 |   |                          |    |   |   |   |   |   |   |
| Income      before income taxes                      |   | $                             | (24,147 | ) |   |   | 1,304 |   |   |   | 12,752 |   |
| Tax      at Federal statutory rate (35%)             |   |                          | (8,451  | ) |   |   | 456 |   |   |   | 4,463 |   |
| Add      (deduct) effect of:                         |   |                          |    |   |   |   |   |   |   |   |   |   |
| State      income taxes before valuation allowance,  |   |                          |    |   |   |   |   |   |   |   |   |   |
| net      of Federal income tax benefit (expense)     |   |                          | (1,698  | ) |   |   | (338 | ) |   |   | 545 |   |
| Cash      surrender value of life insurance          |   |                          | (505    | ) |   |   | (417 | ) |   |   | (370 | ) |
| Non-deductible      ESOP and stock                   |   |                          |    |   |   |   |   |   |   |   |   |   |
| option      expense                                  |   |                          | 169     |   |   |   | 258 |   |   |   | 113 |   |
| Tax-exempt      interest income                      |   |                          | (397    | ) |   |   | (282 | ) |   |   | (69 | ) |
| Change      in valuation allowance on deferred taxes |   |                          | 13,154  |   |   |   | 15 |   |   |   | 14 |   |
| Other                                                |   |                          | 27      |   |   |   | 54 |   |   |   | 3 |   |
| Income      tax provision (benefit)                  |   |                          | 2,299   |   |   |   | (254 | ) |   |   | 4,699 |   |
| Effective      tax rate                              |   |                          | (9.5    | %) |   |   | (19.6 | %) |   |   | 36.9 | % |

Table of Contents

|                                                  |   | December      31,   |    |
|-------------------------------------------------------|--------|---------------------|---------|
|                                                  |   | 2008                |    |   | 2007 |   |
| Gross      deferred tax assets:                       |   | (In      Thousands) |    |
| Excess      book depreciation                         |   | $                   | 650     |   |   |   | 530 |   |
| Compensation      agreements                          |   |                | 789     |   |   |   | 1,189 |   |
| Restricted      stock and stock options               |   |                | 722     |   |   |   | 558 |   |
| Allowance      for loan losses                        |   |                | 10,101  |   |   |   | 5,233 |   |
| Interest      recognized for tax but not books        |   |                | 1,267   |   |   |   | 1,761 |   |
| State      tax liability - Nevada settlement          |   |                | 435     |   |   |   | 869 |   |
| State      NOL carryforward                           |   |                | 1,281   |   |   |   | 146 |   |
| Unrealized      loss on impaired securities           |   |                | 656     |   |   |   | — |   |
| Unrealized      loss on securities available for sale |   |                | 3,473   |   |   |   | — |   |
| Charitable      contributions carry forward           |   |                | 1,078   |   |   |   | 1,275 |   |
| AMT      carry forward                                |   |                | 319     |   |   |   | — |   |
| Other                                                 |   |                | 365     |   |   |   | 139 |   |
| Total      gross deferred tax assets                  |   |                | 21,136  |   |   |   | 11,700 |   |
| Valuation      allowance                              |   |                | (13,530 | ) |   |   | (375 | ) |
| Deferred      tax assets                              |   |                | 7,606   |   |   |   | 11,325 |   |
| Gross      deferred tax liabilities:                  |   |                |    |   |   |   |   |   |
| FHLB      stock dividends                             |   |                | (931    | ) |   |   | (932 | ) |
| Deferred      loan fees                               |   |                | (1,035  | ) |   |   | (666 | ) |
| Unrealized      gain on securities available for sale |   |                | — |   |   |   | (24 | ) |
| Deferred      liabilities                             |   |                | (1,966  | ) |   |   | (1,622 | ) |
| Net      deferred tax assets                          |   | $                   | 5,640   |   |   |   | 9,703 |   |

Table of Contents

|                                                          |   | 2008   |   |   | 2007   |   |
|---------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Balance      at January 1                                     |   | $      | 24,000 |   |   |   | 4,132,000 |   |
| Increases      related to state tax exposure                  |   |   | 4,000  |   |   |   | — |   |
| Decreases      related to settlements with taxing authorities |   |   | (8,000 | )      |   |   | (4,108,000 | ) |
| Balance      at December 31                                   |   |   | 20,000 |   |   |   | 24,000 |   |

| 12)   | Financial      Instruments with Off-Balance-SheetRisk |
|-----------------|-------------------------------------------------------|

Table of Contents

|                                            |   | December      31,   |   |
|-------------------------------------------------|--------|---------------------|--------|
|                                            |   | 2008                |   |   | 2007 |   |
|                                            |   | (In      Thousands) |   |
| Financial      instruments whose contract       |   |                |   |   |   |   |
| amounts      represent potential credit risk:   |   |                |   |   |   |   |
| Commitments      to extend credit under         |   |                |   |   |   |   |
| first      mortgage loans                       |   | $                   | 15,340 |   |   |   | 16,674 |   |
| Commitments      to extend credit under         |   |                |   |   |   |   |   |   |
| home      equity lines of credit                |   |                | 30,368 |   |   |   | 31,492 |   |
| Unused      portion of construction loans       |   |                | 20,241 |   |   |   | 27,336 |   |
| Unused      portion of business lines of credit |   |                | 10,584 |   |   |   | 8,721 |   |
| Standby      letters of credit                  |   |                | 1,866  |   |   |   | 2,337 |   |

Table of Contents

| 13)   | Fair      Values Measurements |
|-----------------|-------------------------------|

|                               |   | AssetsMeasured      atFair      Value atDecember      31, 2008 |    |   | Quoted      Prices inActive      Markets for      IdenticalAssets(Level      1) |   |   | SignificantOtherObservableInputs(Level      2) |   |   | SignificantUnobservableInputs(Level      3) |   |
|------------------------------------|--------|----------------------------------------------------------------|---------|--------|--------------------------------------------------------------------------------------|--------|--------|------------------------------------------------|--------|--------|---------------------------------------------|--------|
|                               |   | (In      Thousands)                                            |    |
|                               |   |                                                           |    |   |                                                                                 |   |   |                                           |   |   |                                        |   |
| Available      for sale securities |   | $                                                              | 179,887 |   |                                                                                 |   | -      |                                           |   |   | 175,645                                     |   |   |   | 4,242 |   |

Table of Contents

|                                                                        |   | Available      for sale securties |   |
|-----------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                        |   | (In      Thousands)               |   |
|                                                                        |   |                              |   |
| Balance      December 31, 2007                                              |   | $                                 | 7,073  |   |
| Unrealized      holding losses arising during the period:                   |   |                              |   |   |
|    Included      in other comprehensive income               |   |                              | (127   | ) |
|    Other      than temporary impairment included in net loss |   |                              | (1,997 | ) |
| Principal      repayments                                                   |   |                              | (823   | ) |
| Net      accretion of discount/amortization of premium                      |   |                              | 116    |   |
| Balance      at December 31, 2008                                           |   | $                                 | 4,242  |   |

Table of Contents

|                                        |   | December      31, 2008 |      |   | December      31, 2007 |   |
|---------------------------------------------|--------|------------------------|-----------|--------|------------------------|--------|
|                                        |   | Carrying               |      |   | Fair                   |   |   | Carrying |   |   | Fair |   |
|                                        |   | amount                 |      |   | value                  |   |   | amount |   |   | value |   |
|                                        |   | (In      Thousands)    |      |
| Financial      Assets                       |   |                   |      |   |                   |   |   |   |   |   |   |   |
| Cash      and cash equivalents              |   | $                      | 23,849    |   |                   |   | 23,849 |   |   |   | 17,884 |   |   |   | 17,884 |   |
| Securities      available-for-sale          |   |                   | 179,887   |   |                   |   | 179,887 |   |   |   | 172,137 |   |   |   | 172,137 |   |
| Securities      held-to-maturity            |   |                   | 9,938     |   |                   |   | 8,165 |   |   |   | 7,646 |   |   |   | 7,174 |   |
| Loans      held for sale                    |   |                   | 12,993    |   |                   |   | 12,993 |   |   |   | 23,108 |   |   |   | 23,108 |   |
| Loans      receivable                       |   |                   | 1,559,758 |   |                   |   | 1,553,577 |   |   |   | 1,402,048 |   |   |   | 1,385,695 |   |
| FHLB      stock                             |   |                   | 21,653    |   |                   |   | 21,653 |   |   |   | 19,289 |   |   |   | 19,289 |   |
| Cash      surrender value of life insurance |   |                   | 32,399    |   |                   |   | 32,399 |   |   |   | 25,649 |   |   |   | 25,649 |   |
| Accrued      interest receivable            |   |                   | 4,323     |   |                   |   | 4,323 |   |   |   | 3,129 |   |   |   | 3,129 |   |
|                                        |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Financial      Liabilities                  |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                    |   |                   | 1,195,897 |   |                   |   | 1,202,939 |   |   |   | 994,535 |   |   |   | 997,394 |   |
| Advance      payments by                    |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| borrowers      for taxes                    |   |                   | 862       |   |                   |   | 862 |   |   |   | 607 |   |   |   | 607 |   |
| Borrowings                                  |   |                   | 487,000   |   |                   |   | 501,858 |   |   |   | 475,484 |   |   |   | 511,880 |   |
| Accrued      interest payable               |   |                   | 5,539     |   |                   |   | 5,539 |   |   |   | 4,299 |   |   |   | 4,299 |   |
| Obligations      under capital leases       |   |                   | 3,308     |   |                   |   | 3,308 |   |   |   | 3,343 |   |   |   | 3,343 |   |
|                                        |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Other      Financial Instruments            |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Stand-by      letters of credit             |   |                   | 12        |   |                   |   | 12 |   |   |   | 16 |   |   |   | 16 |   |

Table of Contents

|   | a)      Cash      and Cash Equivalents |
|--------|----------------------------------------------------------------------|

|   | b)      Securities |
|--------|--------------------------------------------------|

|   | c)      Loans      Held for Sale |
|--------|----------------------------------------------------------------|

|   | Fair      value is estimated using the prices of the Company’s existing commitments      to sell such loans and/or the quoted market price for commitments to sell      similar loans. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d)      Loans      Receivable |
|--------|-------------------------------------------------------------|

|   | e)      FHLB      Stock |
|--------|-------------------------------------------------------|

|   | f)      Cash      Surrender Value of Life Insurance |
|--------|-----------------------------------------------------------------------------------|

|   | g)       Deposits      and Advance Payments by Borrowers forTaxes |
|--------|------------------------------------------------------------------------------------------------------|

Table of Contents

|   | h)      Borrowings |
|--------|--------------------------------------------------|

|   | i)      Accrued      Interest Payable and Accrued InterestReceivable |
|--------|----------------------------------------------------------------------------------------------------|

|   | j)      Obligations      under Capital Leases |
|--------|-----------------------------------------------------------------------------|

|   | k)      Commitments      to Extend Credit and Standby Letters ofCredit |
|--------|------------------------------------------------------------------------------------------------------|

| 14)   | Earnings      (loss) per share |
|-----------------|--------------------------------|

|                                             |   | For      the year ended December 31,          |    |
|--------------------------------------------------|--------|-----------------------------------------------|---------|
|                                             |   | 2008                                          |    |   | 2007 |   |   | 2006 |   |
|                                             |   | (In      Thousands, except per share amounts) |    |
|                                             |   |                                          |    |   |   |   |   |   |   |
| Net      income (loss)                           |   | $                                             | (26,446 | ) |   |   | 1,558 |   |   |   | 8,053 |   |
|                                             |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Weighted      average shares outstanding         |   |                                          | 30,556  |   |   |   | 31,571 |   |   |   | 33,077 |   |
| Effect      of dilutive potential common shares  |   |                                          | -       |   |   |   | 8 |   |   |   | - |   |
| Diluted      weighted average shares outstanding |   |                                          | 30,556  |   |   |   | 31,579 |   |   |   | 33,077 |   |
|                                             |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Basic      earnings (loss) per share             |   | $                                             | (0.87   | ) |   |   | 0.05 |   |   |   | 0.24 |   |
| Diluted      earnings (loss) per share           |   | $                                             | (0.87   | ) |   |   | 0.05 |   |   |   | 0.24 |   |

Table of Contents

| 15)   | Condensed      Parent Company Only Statements |
|-----------------|-----------------------------------------------|

| Statements      of Financial Condition                                  |   |                |    |   |   |   |
|-------------------------------------------------------------------------|--------|---------------------|---------|--------|--------|--------|
|                                                                    |   | December      31,   |    |
|                                                                    |   | 2008                |    |   | 2007   |   |
|                                                                    |   | (In      Thousands) |    |
| Assets                                                                  |   |                |    |   |   |   |
| Cash      and cash equivalents                                          |   | $                   | 1,055   |   |   |   | 24,352 |   |
| Securities      available-for-sale (at fair value)                      |   |                | 4,450   |   |   |   | -  |   |
| Loans      receivable                                                   |   |                | -       |   |   |   | 4,829 |   |
| Less:      Allowance for loan losses                                    |   |                | -       |   |   |   | (442 | ) |
| Loans      receivable, net                                              |   |                | -       |   |   |   | 4,387 |   |
| Investment      in subsidiaries                                         |   |                | 164,648 |   |   |   | 170,143 |   |
| Receivable      from ESOP                                               |   |                | 1,153   |   |   |   | 1,195 |   |
| Other      assets                                                       |   |                | 319     |   |   |   | 1,801 |   |
| Total      Assets                                                       |   | $                   | 171,625 |   |   |   | 201,878 |   |
|                                                                    |   |                |    |   |   |   |   |   |
| Liabilities      and shareholders' equity                               |   |                |    |   |   |   |   |   |
| Liabilities:                                                            |   |                |    |   |   |   |   |   |
| Other      liabilities                                                  |   |                | 358     |   |   |   | 59 |   |
| Shareholders'      equity                                               |   |                |    |   |   |   |   |   |
| Preferred      Stock (par value $.01 per share)                         |   |                | -       |   |   |   | - |   |
| Authorized      - 20,000,000 shares, no shares issued                   |   |                |    |   |   |   |   |   |
| Common      stock (par value $.01 per share)                            |   |                | 340     |   |   |   | 340 |   |
| Authorized      - 200,000,000 shares in 2007 and 2006                   |   |                |    |   |   |   |   |   |
| Issued      - 33,975,250 in 2007 and 33,723,750 in 2006                 |   |                |    |   |   |   |   |   |
| Outstanding      -  31,250,897 in 2007 and 33,723,750 in 2006 |   |                |    |   |   |   |   |   |
| Additional      paid-in-capital                                         |   |                | 107,839 |   |   |   | 106,306 |   |
| Retained      earnings                                                  |   |                | 119,921 |   |   |   | 146,367 |   |
| Unearned      ESOP shares                                               |   |                | (5,123  | )      |   |   | (5,977 | ) |
| Treasury      stock (2,724,353 shares), at cost                         |   |                | (45,261 | )      |   |   | (45,261 | ) |
| Accumulated      other comprehensive loss (net of taxes)                |   |                | (6,449  | )      |   |   | 44 |   |
| Total      shareholders' equity                                         |   |                | 171,267 |   |   |   | 201,819 |   |
| Total      liabilities and shareholders' equity                         |   | $                   | 171,625 |   |   |   | 201,878 |   |

Table of Contents

| Statements      of Operations                        |   |                                 |    |   |                |   |   |   |   |
|------------------------------------------------------|--------|--------------------------------------|---------|--------|---------------------|--------|--------|--------|--------|
|                                                 |   |                                 |    |   |                |   |   |   |   |
|                                                 |   | For      the year ended December 31, |    |
|                                                 |   | 2008                                 |    |   | 2007                |   |   | 2006   |   |
|                                                 |   |                                 |    |   | (In      Thousands) |   |   |   |   |
|                                                 |   |                                 |    |   |                |   |   |   |   |
| Interest      income                                 |   | $                                    | 1,043   |   |                |   | 2,163  |   |   |   | 2,601 |   |
| Provision      for loan losses                       |   |                                 | 252     |   |                |   | 271    |   |   |   | 171 |   |
| Interest      income after provision for loan losses |   |                                 | 791     |   |                |   | 1,892  |   |   |   | 2,430 |   |
|                                                 |   |                                 |    |   |                |   |   |   |   |   |   |   |
| Equity      in earnings (loss) of subsidiaries       |   |                                 | (25,220 | )      |                |   | 1,170  |   |   |   | 7,390 |   |
| Total      income (loss)                             |   |                                 | (24,429 | )      |                |   | 3,062  |   |   |   | 9,820 |   |
|                                                 |   |                                 |    |   |                |   |   |   |   |   |   |   |
| Compensation                                         |   |                                 | (30     | )      |                |   | 446    |   |   |   | 513 |   |
| Professional      fees                               |   |                                 | 47      |   |                |   | 81     |   |   |   | 146 |   |
| Other      expense                                   |   |                                 | 557     |   |                |   | 464    |   |   |   | 448 |   |
| Total      expense                                   |   |                                 | 574     |   |                |   | 991    |   |   |   | 1,107 |   |
|                                                 |   |                                 |    |   |                |   |   |   |   |   |   |   |
| Income      (loss) before income tax                 |   |                                 | (25,003 | )      |                |   | 2,071  |   |   |   | 8,713 |   |
| Income      tax expense                              |   |                                 | 1,443   |   |                |   | 513    |   |   |   | 660 |   |
| Net      income (loss)                               |   | $                                    | (26,446 | )      |                |   | 1,558  |   |   |   | 8,053 |   |

Table of Contents

| Statements      of Cash Flows                            |   |                                 |    |   |   |   |    |   |   |
|----------------------------------------------------------|--------|--------------------------------------|---------|--------|--------|--------|---------|--------|--------|
|                                                     |   |                                 |    |   |   |   |    |   |   |
|                                                     |   |                                 |    |   |   |   |    |   |   |
|                                                     |   | For      the year ended December 31, |    |
|                                                     |   | 2008                                 |    |   | 2007   |   |    | 2006   |   |
|                                                     |   | (In      Thousands)                  |    |
| Cash      flows from operating activities                |   |                                 |    |   |   |   |    |   |   |
| Net      income (loss)                                   |   | $                                    | (26,446 | )      |   |   | 1,558   |   |   |   | 8,053 |   |
| Adjustments      to reconcile net income (loss) to net   |   |                                 |    |   |   |   |    |   |   |   |   |   |
| cash      provided by (used in) operating activities:    |   |                                 |    |   |   |   |    |   |   |   |   |   |
| Provision      for loan losses                           |   |                                 | 252     |   |   |   | 271     |   |   |   | 171 |   |
| Amortization      of unearned ESOP                       |   |                                 | 776     |   |   |   | 1,252   |   |   |   | 1,177 |   |
| Stock      based compensation                            |   |                                 | 1,611   |   |   |   | 1,729   |   |   |   | - |   |
| Deferred      income taxes                               |   |                                 | 1,285   |   |   |   | (416    | )      |   |   | 502 |   |
| Equity      in earnings of subsidiaries                  |   |                                 | 25,220  |   |   |   | (1,170  | )      |   |   | (7,390 | ) |
| Change      in other assets and liabilities              |   |                                 | 1,088   |   |   |   | (1,650  | )      |   |   | (956 | ) |
| Net      cash provided by (used in) operating actitivies |   |                                 | 3,786   |   |   |   | 1,574   |   |   |   | 1,557 |   |
|                                                     |   |                                 |    |   |   |   |    |   |   |   |   |   |
| Cash      flows from investing activities:               |   |                                 |    |   |   |   |    |   |   |   |   |   |
| Net      decrease (increase) in loans receivable         |   |                                 | 4,135   |   |   |   | 37,957  |   |   |   | (42,786 | ) |
| Purchase      of available for sale securities           |   |                                 | (5,000  | )      |   |   | -       |   |   |   | - |   |
| Investment      of proceeds in subsidiary                |   |                                 | (26,218 | )      |   |   | -       |   |   |   | - |   |
| Net      cash provided by (used in) investing activities |   |                                 | (27,083 | )      |   |   | 37,957  |   |   |   | (42,786 | ) |
|                                                     |   |                                 |    |   |   |   |    |   |   |   |   |   |
| Cash      flows from financing activities:               |   |                                 |    |   |   |   |    |   |   |   |   |   |
| Purchase      of treasury stock                          |   |                                 | -       |   |   |   | (45,261 | )      |   |   | - |   |
| Dividend      received from subsidiary                   |   |                                 | -       |   |   |   | 30,000  |   |   |   | - |   |
| Net      cash provided by (used in) financing activities |   |                                 | -       |   |   |   | (15,261 | )      |   |   | - |   |
| Net      increase (decrease) in cash                     |   |                                 | (23,297 | )      |   |   | 24,270  |   |   |   | (41,229 | ) |
| Cash      and cash equivalents at beginning of period    |   |                                 | 24,352  |   |   |   | 82      |   |   |   | 41,311 |   |
| Cash      and cash equivalents at end of period          |   | $                                    | 1,055   |   |   |   | 24,352  |   |   |   | 82 |   |

| 16)   | Segments      and Related Information |
|-----------------|---------------------------------------|

Table of Contents

Item9.           Changes in and Disagreementswith Accountants on Accounting and Financial Disclosure

Item9A.        Controls andProcedures

Table of Contents

Table of Contents

Item9B.         OtherInformation.

Table of Contents

Item10.          Directors and ExecutiveOfficers of the Registrant

| Name and    Age             | Offices and Positions with      Waterstone Financial and Subsidiaries*                                        | ExecutiveOfficerSince |
|-----------------------------|---------------------------------------------------------------------------------------------------------------|-----------------------|
| Douglas      S. Gordon, 51  | Chief      Executive Officer and President of Waterstone Financial and of WaterStone      Bank                | 2005                  |
| Richard      C. Larson, 51  | Chief      Financial Officer and Senior Vice President of Waterstone Financial and of      WaterStone Bank    | 1990      (1)         |
| William      F. Bruss, 39   | General      Counsel, Senior Vice President and Secretary of Waterstone Financial and      of WaterStone Bank | 2005                  |
| Rebecca      M. Arndt, 41   | Vice      President – Retail Operations of WaterStone Bank                                              | 2006                  |
| Eric      J. Egenhoefer, 33 | President      of Waterstone Mortgage Corporation                                                             | 2008                  |

| * | Excluding      directorships and excluding positions with Bank subsidiary positions which      do not constitute a substantial part of the officers’    duties. |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (1) | Indicates      date when individual first held an executive officer position with the      Bank.  These individuals became executive officers of Waterstone      Financial upon its organization asnoted. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Table of Contents

Item11.          ExecutiveCompensation

Item12.          Security Ownership ofCertain Beneficial Owners and Management

|    Plan                |   | Number      of shares to be issued upon exercise of outstanding options and      rights |      |   | Weighted      average option exercise price |   |   | Number      of securities remaining available for issuance under plan |   |
|---------------------------------------|--------|-----------------------------------------------------------------------------------------|-----------|--------|---------------------------------------------|--------|--------|-----------------------------------------------------------------------|--------|
|  2006      Equity Incentive Plan |   |                                                                                    | 1,494,298 | (1)    |                                        | $      | 17.59  |                                                                  |   |   | 476,298 |   |

| (1)   | Consists      of 1,067,356 shares reserved for grants of stock options and 426,942      shares reserved for grants of restricted stock.  On December 31,      2008, 767,500 options are outstanding with a weighted average exercise      price of $17.59 of which 115,000 were exercisable as of that      date. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Item13.          Certain Relationships andRelated Transactions and Director Independence

Item14.          Principal Accountant Feesand Services

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Item15.          Exhibits and FinancialStatement Schedules

|              (b). | Exhibits.  See      Exhibit Index following the signature page of this report, which is      incorporated herein by reference.  Each management contract or      compensatory plan or arrangement required to be filed as an exhibit to      this report is identified in the Exhibit Index by an asterisk following      its exhibit number. |
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SIGNATURES

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POWER OF ATTORNEY

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|                                                                           |   |                                              |
|--------------------------------------------------------------------------------|--------|---------------------------------------------------|
|                                                                           |   |                                              |
| /s/Douglas      S. Gordon                                                      |   | /s/Patrick      S. Lawton                         |
| Douglas      S. Gordon,                                                        |   | Patrick      S. Lawton, Chairman      andDirector |
| Chief      Executive Officer and Director                                      |   |                                              |
| (Principal      Executive Officer)                                             |   |                                              |
|                                                                           |   |                                              |
| /s/Richard      C. Larson                                                      |   | /s/Thomas      E. Dalum                           |
| Richard      C. Larson, Senior Vice      PresidentChief      Financial Officer |   | Thomas      E. Dalum, Director                    |
| (Principal      Financial and Accounting Officer)                              |   |                                              |
|                                                                           |   |                                              |
|                                                                           |   | /s/Michael      L. Hansen                         |
|                                                                           |   | Michael      L. Hansen, Director                  |
|                                                                           |   |                                              |
|                                                                           |   |                                              |
|                                                                           |   | /s/Stephen      J. Schmidt                        |
|                                                                           |   | Stephen      J. Schmidt, Director                 |
|                                                                           |   |                                              |

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|  Exhibit |  Description                                                                                                                                                                                                           | Incorporated      HereinBy Reference      To                                                                                              | FiledHerewith |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------|---------------|
|          |                                                                                                                                                                                                                        |                                                                                                                                      |          |
| 2.1           | Plan      of Reorganization from Mutual Savings Bank to Mutual Holding Company of      Wauwatosa Savings Bank (the “Bank”), as adopted on May 17,2005 and amended      on June 3, 2005 (the “Plan”) | Exhibit      2.1 to the Company’s Registration Statement on Form S-1, Registration No.      333-125715 (the “2005 S-1”) |          |
|          |                                                                                                                                                                                                                        |                                                                                                                                      |          |
| 3.1           | Articles      of Incorporation of the Company                                                                                                                                                                               | Exhibit      3.1 to 2005 S-1                                                                                                              |          |
|          |                                                                                                                                                                                                                        |                                                                                                                                      |          |
| 3.2           | Proposed      Bylaws of the Company                                                                                                                                                                                         | Exhibit      3.1 to 2005 S-1                                                                                                              |          |
|          |                                                                                                                                                                                                                        |                                                                                                                                      |          |
| 10.1*         | Wauwatosa      Savings Bank Employee Stock Ownership Plan and Trust                                                                                                                                                         | Exhibit      10.1 to 2005 S-1                                                                                                             |          |
|          |                                                                                                                                                                                                                        |                                                                                                                                      |          |
|          |                                                                                                                                                                                                                        |                                                                                                                                      |          |
| 10.4*         | Stock      Compensation Plans                                                                                                                                                                                               | Exhibit      10.1 to the company’s Current Report on Form 8-K filed on May 22,      2006                                            |          |
|          |                                                                                                                                                                                                                        |                                                                                                                                      |          |
|          |                                                                                                                                                                                                                        |                                                                                                                                      |          |
| 11.1          | Statement      re: Computation of Per Share Earnings                                                                                                                                                                        | See      Note 13 in Part II Item 8                                                                                                        |          |
|          |                                                                                                                                                                                                                        |                                                                                                                                      |          |
| 21.1          | List of Subsidiaries                                                                                                                                                                                                        |                                                                                                                                      | X             |
|          |                                                                                                                                                                                                                        |                                                                                                                                      |          |
| 23.1          | Consent of Independent Registered Public Accounting      Firm                                                                                                                                                               |                                                                                                                                      | X             |
|          |                                                                                                                                                                                                                        |                                                                                                                                      |          |
| 24.1          | Powers of Attorney                                                                                                                                                                                                          | Signature      Page                                                                                                                       |          |
|          |                                                                                                                                                                                                                        |                                                                                                                                      |          |
| 31.1          | Sarbanes-Oxley Act Section 302 Certification signed      by the Chief Executive Officer of Waterstone Financial                                                                                                             |                                                                                                                                      | X             |
|          |                                                                                                                                                                                                                        |                                                                                                                                      |          |
| 31.2          | Sarbanes-Oxley Act Section 302 Certification signed      by the Chief Financial Officer of Waterstone Financial                                                                                                             |                                                                                                                                      | X             |
|          |                                                                                                                                                                                                                        |                                                                                                                                      |          |
| 32.1          | Certification pursuant to 18 U.S. C. Section 1350,      as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002      signed by the Chief Executive Officer of Waterstone      Financial                        |                                                                                                                                      | X             |
|          |                                                                                                                                                                                                                        |                                                                                                                                      |          |
| 32.2          | Certification pursuant to 18 U.S. C. Section 1350,      as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002      signed by the Chief Financial Officer of Waterstone      Financial                        |                                                                                                                                      | X             |

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