**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-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, 2006


**OR**


 ̈
            Transition
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934





For
      the
      transition period from _______________ to ______________________





**Commission
      File No. 000-33405**





**AJS
      Bancorp, Inc.**


(Exact
      name of registrant as specified in its charter)





**United
                States**
            
            **36-4485429**(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                Number)**14757
                S. Cicero Avenue, Midlothian, Illinois**
            
            **60445**(Address
                of Principal Executive Offices)
            
            Zip
                Code





**(708)
      687- 7400**


(Registrant’s
      telephone number)





Securities
                Registered Pursuant to Section 12(b) of the Act:
            **None**





Securities
                Registered Pursuant to Section 12(g) of the Act:
            **Common
                Stock, par value $.01 per
                share**


(Title
      of
      Class)





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


YES  ̈ NO x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.


YES  ̈ NO x





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





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of Registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. x





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





Large
                Accelerated Filer ̈
            Accelerated
                Filer ̈
            Non-Accelerated
                Filerx





Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


YES  ̈ NO x





As
      of
      March 9, 2007, there were issued and outstanding 2,134,204 shares of the
      Registrant’s Common Stock.





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the Registrant, computed by reference to the last sale price
      on June 30, 2006, as reported by the Over The Counter Bulletin Board, was
      approximately $16.6 million.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





(1)
            Proxy
                Statement for the 2007 Annual Meeting of Stockholders of the Registrant
                (Part III).
















**TABLEOF
      CONTENTS**




Item
                1.
            Business
            1Item
                1A.
            Risk
                factors
            29Item
                1.B
            Unresolved
                staff comments
            30Item
                2.
            Properties
            30Item
                3.
            Legal
                proceedings
            30Item
                4.
            Submission
                of matters to a vote of security
                holders
            31Item
                5.
            Market
                for registrant’s common stock and related
                stockholder matters
            31Item
                6.
            Selected
                financial data
            35Item
                7.
            Management’s
                discussion and analysis of financial condition
                and results of operations
            36Item
                7A.
            Quantitative
                and qualitative disclosures about market
                risk
            51Item
                8.
            Financial
                statements and supplementary
                data
            51Item
                9.
            Changes
                in and disagreements with accountants on accounting
                and financial disclosure
            51Item
                9a.
            Controls
                and procedures
            52Item
                9b.
            Other
                information
            52Item
                10.
            Directors
                and executive officers of the
                registrant
            52Item
                11.
            Executive
                compensation
            52Item
                12.
            Security
                ownership of certain beneficial owners and
                management
            52Item
                13.
            Certain
                relationships and related
                transactions
            52Item
                14.
            Principal
                accountant fees and services
            53Item
                15.
            Exhibits
                and financial statement
                schedules
            53




***Table
          of Contents***





**PART
      I**





**ITEM
      1.****BUSINESS**





**Forward
      Looking Statements**





This
      Annual Report contains certain “forward-looking statements” which may be
      identified by the use of words such as “believe,” “expect,” “anticipate,”
“should,” “planned,” “estimated” and “potential.” Examples of forward-looking
      statements include, but are not limited to, estimates with respect to our
      financial condition, results of operations and business that are subject to
      various factors which could cause actual results to differ materially from
      these
      estimates and most other statements that are not historical in nature. These
      factors include, but are not limited to, general and local economic conditions,
      changes in interest rates, deposit flows, demand for mortgage, commercial and
      other loans, real estate values, competition, changes in accounting principles,
      policies, or guidelines, changes in legislation or regulation, and other
      economic, competitive, governmental, regulatory, and technological factors
      affecting our operations, pricing products and services.





**General**





**AJS
      Bancorp, Inc.**





Following
      completion of our mutual holding company and stock offering on December 26,
      2001, AJS Bancorp, Inc. became the
      mid-tier stock holding company for A. J. Smith Federal Savings Bank (the “Bank”
or “A.J. Smith Federal”). The business of AJS Bancorp, Inc. consists of holding
      all of the outstanding common stock of A. J. Smith Federal Savings Bank. AJS
      Bancorp, Inc. is chartered under federal law .
      As part
      of our reorganization, we issued 1,227,544 shares of common stock to our mutual
      holding company parent, AJS Bancorp, MHC (“MHC”), and sold 1,179,406 shares to
      the public. Under federal regulations, so long as AJS Bancorp, MHC exists,
      it
      will own at least 50.1% of the voting stock of AJS Bancorp, Inc. At December
      31,
      2006, AJS Bancorp, Inc. had total consolidated assets of $266.5 million, total
      deposits of $202.2 million, and stockholders’ equity of $28.7 million. Our
      executive offices are located at 14757 South Cicero Avenue, Midlothian, Illinois
      60445, and our telephone number is (708) 687-7400.





Beginning
      with the first quarterly report, which we file in 2007, we intend to elect
      to
      comply with the reporting requirements applicable to small business filers
      pursuant to the Exchange Act of 1934 as amended and applicable SEC
      regulations.





**A.
      J. Smith Federal Savings Bank**





A.
      J.
      Smith Federal Savings Bank was founded in 1892 by Arthur J. Smith as a building
      and loan cooperative organization. In 1924 we were chartered as an Illinois
      savings and loan association, and in 1934 we converted to a federal charter.
      In
      1984 we amended our charter to become a federally chartered savings bank. We
      are
      a customer-oriented institution, operating from a main office in Midlothian,
      Illinois, and two branch offices in Orland Park, Illinois. Our primary business
      activity is the origination of one- to four-family real estate loans. To a
      lesser extent, we originate multi-family, commercial real estate and consumer
      loans. As part of our current business plan, we intend to develop our business
      banking by offering commercial loans and deposit products and services to
      business customers. We also invest in securities, primarily United States
      Government Agency securities and mortgage-backed securities. In addition, we
      offer insurance and investment products and services. During the past two years,
      as the interest yield cure flattened and then inverted, we allowed the overall
      composition of our assets to become more liquid. Investment securities and
      cash
      have become a larger percentage of our




1
 ***Table
              of
              Contents***
  assets
        in
        2006, while loans and mortgage-backed securities have become smaller portions
        of
        our assets than have historically been the case. We believe that the
        repositioning of our assets in this manner will position A.J. Smith Federal
        to
        take advantage of the changes in long-term interest rates while reducing
        our
        interest rate risk profile.




**Market
      Area**




A.
      J.
      Smith Federal has been, and continues to be, a community-oriented savings bank
      offering a variety of financial products and services to meet the needs of
      the
      communities we serve. Our lending and deposit-generating area is concentrated
      in
      the neighborhoods surrounding our three offices; our main office in Midlothian,
      Illinois, and two branch offices in Orland Park, Illinois. Our office locations
      are located in Cook County. However, we consider our market area to be the
      counties of Will and Cook. Midlothian is primarily a residential community,
      and
      its largest employers are state and local governments and automobile
      dealerships. Orland Park has more retail businesses, as well as light industrial
      companies. Our market area economy consists primarily of the services industry,
      wholesalers and retailers and manufacturing. Major employers in our market
      area
      include the Andrew Corporation, the Orland Park School District, the Village
      of
      Orland Park, and various retailers including J. C. Penney, Macy’s and Sears. The
      economy in our market area is not dependent on any single employer or type
      of
      business.





**Competition**





We
      face
      significant competition in both originating loans and attracting deposits.
      The
      Chicago metropolitan area has a high concentration of financial institutions,
      most of which are significantly larger institutions with greater financial
      resources than A. J. Smith Federal, and all of which are our competitors to
      varying degrees. Our competition for loans comes principally from commercial
      banks, savings banks, mortgage banking companies, credit unions, and other
      financial service companies. Our most direct competition for deposits has
      historically come from commercial banks, savings banks and credit unions. We
      face additional competition for deposits from non-depository competitors such
      as
      mutual funds, securities and brokerage firms, and insurance companies. The
      Gramm-Leach-Bliley Act, which permits affiliation among banks, securities firms
      and insurance companies, continues to increase competition among financial
      services companies.





**Lending
      Activities**





***General*** .
      Our
      loan portfolio is comprised mainly of one- to four-family residential real
      estate loans. The majority of these loans have fixed rates of interest. In
      addition to one- to four-family residential real estate loans, our loan
      portfolio consists primarily of multi-family loans and home equity lines of
      credit. At December 31, 2006, our gross loans totaled $138.4 million, of which
      $86.0 million, or 61.5%, were secured by one- to four-family residential real
      estate, $41.2 million, or 29.5%, were secured by multi-family residential and
      commercial real estate, $12.2 million, or 8.7%, were home equity loans, and
      $482,000, or 0.3%, were consumer loans. Our lending area is the Chicago
      metropolitan area, with an emphasis on lending in the south and southwest
      suburbs.





We
      try to
      reduce our interest rate risk by making our loan portfolio more interest rate
      sensitive. Accordingly, we offer adjustable rate mortgage loans, short-and
      medium-term mortgage loans, and three- and five-year balloon mortgages. In
      addition, we offer shorter-term consumer loans and home equity lines of credit
      with adjustable interest rates.




2
 ***Table
          of Contents***





***Loan
      Portfolio Composition*** .
      The
      following table shows the composition of our loan portfolio in dollar amounts
      and in percentages (before deductions for loans in process, deferred fees and
      allowances for losses) as of the dates indicated.




**At
                  December 31,****2006**
              
              **2005**
              
              **2004**
              
              **2003**
              
              **2002****Amount**
              
              **Percent**
              
              **Amount**
              
              **Percent**
              
              **Amount**
              
              **Percent**
              
              **Amount**
              
              **Percent**
              
              **Amount**
              
              **Percent****(Dollars
                  in thousands)**Real
                  estate loans:One-to
                  four-family residential(1)
              
              $
              86,024
              
              
              61.49
              %
              $
              101,325
              
              
              66.03
              %
              $
              115,598
              
              
              70.02
              %
              $
              120,810
              
              
              76.64
              %
              $
              115,880
              
              
              83.84
              %Multi-family
                  and commercial
              
              
              41,194
              
              
              29.45
              
              
              38,317
              
              
              24.97
              
              
              32,713
              
              
              19.82
              
              
              24,066
              
              
              15.27
              
              
              13,187
              
              
              9.54Total
                  real estate loans
              
              
              127,218
              
              
              
              
              
              139,642
              
              
              
              
              
              148,311
              
              
              
              
              
              144,876
              
              
              
              
              
              129,067Other
                  Loans:Consumer
                  loans
              
              
              482
              
              
              0.34
              
              
              502
              
              
              0.33
              
              
              649
              
              
              0.39
              
              
              696
              
              
              0.44
              
              
              782
              
              
              0.56Home
                  equity
              
              
              12,198
              
              
              8.72
              
              
              13,279
              
              
              8.67
              
              
              16,126
              
              
              9.77
              
              
              12,056
              
              
              7.65
              
              
              8,374
              
              
              6.06Total
                  loans
              
              
              139,898
              
              
              100.00
              %
              
              153,423
              
              
              100.00
              %
              
              165,086
              
              
              100.00
              %
              
              157,628
              
              
              100.00
              %
              
              138,223
              
              
              100.00
              %Less:Allowance
                  for loan losses
              
              
              (1,619
              )
              
              
              
              
              (1,701
              )
              
              
              
              
              (1,847
              )
              
              
              
              
              (1,962
              )
              
              
              
              
              (2,082
              )Deferred
                  loan (fees) costs
              
              
              107
              
              
              
              
              
              56
              
              
              
              
              
              69
              
              
              
              
              
              (16
              )
              
              
              
              
              24Deferred
                  gain on real estate contract
              
              
              (9
              )
              
              
              
              
              (10
              )
              
              
              
              
              (17
              )
              
              
              
              
              (22
              )
              
              
              
              
              (31
              )Total
                  loans receivable, net
              
              $
              138,377
              
              
              
              
              $
              151,768
              
              
              
              
              $
              163,291
              
              
              
              
              $
              155,628
              
              
              
              
              $
              136,134


________________


(1)
            Subprime
                real estate loans totaled $5.2 million, $7.8 million, $12.5 million,
                $18.3
                million and $31.2 million at December 31, 2006, 2005, 2004, 2003
                and 2002,
                respectively.


3
 ***Table
            of
            Contents***




***Maturity
      of Loan Portfolio*** The
      following table sets forth certain information regarding the dollar amounts
      maturing and the interest rate sensitivity of our loan portfolio at December
      31,
      2006. Mortgages which have adjustable or renegotiable interest rates are shown
      as maturing in the period during which the contract is due. The schedule does
      not reflect the effects of possible prepayments or enforcement of due-on-sale
      clauses.





**Multi-Family****One-
                to Four-Family**
            
            **and
                Commercial**
            
            **Consumer**
            
            **Home
                Equity**
            
            **Total****Weighted**
            
            
            
            **Weighted**
            
            
            
            **Weighted**
            
            
            
            **Weighted**
            
            
            
            **Weighted****Average**
            
            
            
            **Average**
            
            
            
            **Average**
            
            
            
            **Average**
            
            
            
            **Average****Amount**
            
            **Rate**
            
            **Amount**
            
            **Rate**
            
            **Amount**
            
            **Rate**
            
            **Amount**
            
            **Rate**
            
            **Amount**
            
            **Rate****(Dollars
                in thousands)**1
                year or less
            
            $
            710
            
            
            6.57
            %
            $
            7,099
            
            
            8.99
            %
            $
            145
            
            
            5.55
            %
            $
            1,084
            
            
            8.04
            %
            $
            9,038
            
            
            8.63
            %Greater
                than 1 to 3 years
            
            
            4,758
            
            
            6.30
            
            
            19,291
            
            
            6.52
            
            
            110
            
            
            6.16
            
            
            5,424
            
            
            8.10
            
            
            29,583
            
            
            6.77Greater
                than 3 to 5 years
            
            
            3,910
            
            
            6.77
            
            
            10,140
            
            
            6.95
            
            
            227
            
            
            5.59
            
            
            5,684
            
            
            7.99
            
            
            19,961
            
            
            7.20Greater
                than 5 to 10 years
            
            
            14,991
            
            
            5.78
            
            
            1,757
            
            
            6.72
            
            
            -
            
            
            -
            
            
            6
            
            
            8.00
            
            
            16,754
            
            
            5.88Greater
                than 10 to 20 years
            
            
            22,949
            
            
            5.45
            
            
            669
            
            
            6.08
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            23,618
            
            
            5.47More
                than 20 years
            
            
            38,706
            
            
            5.33
            
            
            2,238
            
            
            7.10
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            40,944
            
            
            5.43Total
            
            $
            86,024
            
            
            
            
            $
            41,194
            
            
            
            
            $
            482
            
            
            
            
            $
            12,198
            
            
            
            
            $
            139,898





The
      total
      amount of loans due after December 31, 2007 which have predetermined interest
      rates is $95.9 million, while the total amount of loans due after such date
      which have floating or adjustable interest rates is $35.0 million.





4
 ***Table
          of Contents***





***One-
      to four-family Residential Real Estate Loans*** .
      Our
      primary lending activity consists of originating one- to four-family,
      owner-occupied, first and second residential mortgage loans, virtually all
      of
      which are secured by properties located in our market area. At December 31,
      2006, these loans totaled $86.0 million, or 61.5% of our total loan portfolio.





We
      currently offer one- to four-family residential real estate loans with terms
      up
      to 40 years, although we emphasize the origination of one- to four-family
      residential loans with terms of 15 years or less. We offer our one- to
      four-family residential loans with adjustable or fixed interest rates. At
      December 31, 2006, $65.0 million, or 75.6% of our one- to four-family
      residential real estate loans had fixed rates of interest, and $21.0 million,
      or
      24.4% of our one- to four-family residential real estate loans, had adjustable
      rates of interest. Our fixed rate loans include loans that generally amortize
      on
      a monthly basis over periods between 7 to 30 years. We also offer loans which
      generally have balloon payment features after 3 or 5 years. Our balloon loans
      generally amortize over periods of 15 years or more. One- to four-family
      residential real estate loans often remain outstanding for significantly shorter
      periods than their contractual terms because borrowers have the right to
      refinance or prepay their loans.





We
      currently offer adjustable rate mortgage loans with an initial interest rate
      fixed for one, three, five or seven years, and annual adjustments thereafter
      based on changes in a designated market index. Our adjustable rate mortgage
      loans generally have an interest rate adjustment limit of 200 basis points
      per
      adjustment, with a maximum lifetime interest rate adjustment limit of 800 basis
      points and a floor of 500 basis points. Our adjustable rate mortgages are priced
      at a level tied to the one-year United States Treasury bill rate. We offer
      discounted or teaser rates on our adjustable rate mortgages. These loans carry
      initial rates that are lower than the rate would be if it were to adjust
      according to the adjustable rate note and rider. We do not offer adjustable
      rate
      mortgages that offer the possibility of negative amortization.





Regulations
      limit the amount that a savings association may lend relative to the appraised
      value of the real estate securing the loan, as determined by an appraisal of
      the
      property at the time the loan is originated. For loans greater than $175,000
      we
      utilize outside independent appraisers. For loans up to $175,000, in-house
      appraisers perform appraisals. For borrowers who do not obtain private mortgage
      insurance, our lending policies limit the maximum loan to value ratio on both
      fixed rate and adjustable rate mortgage loans to 80% of the appraised value
      of
      the property that is collateral for the loan (and up to 85% with respect to
      second fixed-rate mortgage loans). For one- to four-family residential real
      estate loans with loan to value ratios of between 80% and 97%, we require the
      borrower to obtain private mortgage insurance. For loans in excess of $75,000,
      we require the borrower to obtain title insurance. For first mortgage loan
      products under $75,000, we conduct a title search. For second mortgage type
      products in excess of $200,000, title insurance is required. For second mortgage
      type products under $200,000, we conduct a title search. We also require
      homeowners’ insurance and fire and casualty insurance on properties securing
      real estate loans. In the past, a more significant portion of our one-to-four
      family loans consisted of subprime loans. Beginning in 1998, management
      determined to reduce the risks inherent in our loan portfolio consistent with
      safety and soundness, and in this regard, we decided to reduce our reliance
      on
      subprime lending. Starting in 2001, management made the decision to broaden
      the
      scope of our loan products and services to enhance profitability, and expanded
      our commercial business lending and business banking services. There can be
      no
      assurances that we will successfully implement our strategy. At December 31,
      2006 $5.2 million of our one-to-four residential loans consisted of subprime
      loans. There were four non-performing subprime loans totaling $199,000 at
      December 31, 2006.




5
 ***Table
            of
            Contents***





***Multi-Family
      Loans and Commercial Lending*** .
      At
      December 31, 2006, $41.2 million, or 29.5% of our total loan portfolio,
      consisted of loans secured by multi-family and commercial real estate
      properties, virtually all of which are located in the state of Illinois. Our
      multi-family loans are secured by multi-family and mixed use properties. Our
      commercial real estate loans are secured by improved property such as offices,
      small business facilities, unimproved land, warehouses and other non-residential
      buildings. Our multi-family and commercial real estate loans are offered with
      fixed or floating rates based upon the prime rate. Our fixed rate multi-family
      and commercial real estate loans are offered with amortization schedules of
      up
      to 25 years, and generally have three- and five-year balloon features. At
      December 31, 2006, the average balance of our multi-family and commercial real
      estate loans was $330,000 **.** We
      generally will make multi-family and commercial real estate loans for up to
      80%
      of the lesser of cost or the appraised value of the property securing the
      loan.





Prior
      to
      funding a loan secured by multi-family, mixed use or commercial property, we
      generally obtain an environmental assessment from an independent, licensed
      environmental engineer to ascertain the existence of any environmental risks
      that may be associated with the property. The level of the environmental
      consultant’s evaluation of a property will depend on the facts and circumstances
      relating to the specific loan, but generally the environmental consultant’s
      actions will range from a Phase 1 Environmental Site Assessment to a Phase
      II
      environmental report. The underwriting process for multi-family and commercial
      real estate loans includes an analysis of the debt service coverage of the
      collateral property. We typically require a debt service coverage ratio of
      120%
      or higher. We also require personal guarantees by the principals of the borrower
      and a cash flow analysis when applicable.





Loans
      secured by multi-family residential or commercial real estate generally have
      larger loan balances and more credit risk than one- to four-family residential
      mortgage loans. This increased credit risk is a result of several factors,
      including the concentration of principal in a limited number of loans and
      borrowers, the impact of local and general economic conditions on the borrower’s
      ability to repay the loan, and the increased difficulty of evaluating and
      monitoring these types of loans. Furthermore, the repayment of loans secured
      by
      multi-family properties typically depends upon the successful operation of
      the
      real property securing the loan. If the cash flow from the property is reduced,
      the borrower’s ability to repay the loan may be impaired. However, multi-family
      and commercial real estate loans generally have higher interest rates than
      loans
      secured by one- to four-family residential real estate.





As
      part
      of our business plan, we are developing our commercial lending. This lending
      may
      include non-real estate based loans, although at this time our non-real estate
      commercial loans are not a significant part of our lending. We are actively
      marketing our commercial business lending capability to local businesses. In
      addition, we are advising our existing commercial real estate and multi-family
      borrowers of our commercial business lending capability. Commercial business
      loans are typically offered with fixed or floating rates **** with
      balloon features.





Our
      underwriting standards for commercial business loans include a review of the
      applicant’s tax returns, financial statements, credit history and an assessment
      of the applicant’s ability to meet existing obligations and payments on the
      proposed loan based on cash flows generated by the applicant’s business.





Commercial
      business loans generally have higher interest rates and shorter terms than
      one-
      to four-family residential loans, but they also may involve higher average
      balances, increased difficulty of loan monitoring and a higher risk of default
      since their repayment generally depends on the successful operation of the
      borrower’s business. We generally obtain personal guarantees from the borrower
      or a third party as a condition to originating a commercial business loan.




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***Home
      Equity Lines of Credit.*** We offer
      home equity lines of credit, the total of which amounted to $12.2 million,
      or
      8.7% of our total loan portfolio, as of December 31, 2006. Home equity lines
      of
      credit are generally made for owner-occupied homes, and are secured by first
      or
      second mortgages on residences. We generally offer these loans with a maximum
      loan to appraised value ratio of 90% (including senior liens on the collateral
      property). We currently offer these lines of credit for a period of 5 years,
      and
      generally at rates tied to the prevailing prime interest rate. Our home equity
      lines of credit are generally underwritten in the same manner as our one- to
      four-family residential loans.





***Consumer
      Loans*** **.** We are
      authorized to make loans for a variety of personal and consumer purposes. As
      of
      December 31, 2006, consumer loans totaled $482,000, and consisted primarily
      of
      automobile loans and loans secured by deposit accounts. Automobile loans
      accounted for $340,000 of our consumer loans and loans secured by deposit
      accounts were $139,000 at December 31, 2006. Our procedure for underwriting
      consumer loans includes an assessment of the applicant’s credit history and
      ability to meet existing obligations and payments of the proposed loan, as
      well
      as an evaluation of the value of the collateral security, if any. Consumer
      loans
      generally entail greater risk than residential mortgage loans, particularly
      in
      the case of loans that are unsecured or are secured by assets that tend to
      depreciate in value, such as automobiles. In these cases, repossessed collateral
      for a defaulted consumer loan may not provide an adequate source of repayment
      for the outstanding loan, and the remaining value often does not warrant further
      substantial collection efforts against the borrower.




***Loan
      Originations, Purchases, Sales and Servicing*** .
      Although we originate both fixed-rate and adjustable-rate loans, our ability
      to
      generate each type of loan depends upon borrower demand, market interest rates,
      borrower preference for fixed- versus adjustable-rate loans, and the interest
      rates offered on each type of loan by other lenders in our market area. These
      lenders include commercial banks, savings institutions, credit unions, and
      mortgage banking companies, as well as Wall Street conduits that also actively
      compete for local real estate loans. Our loan originations come from a number
      of
      sources, including real estate broker referrals, existing customers, borrowers,
      builders, attorneys, and “walk-in” customers.





Our
      loan
      origination activity may be affected adversely by a rising interest rate
      environment that typically results in decreased loan demand. Accordingly, the
      volume of loan originations and the profitability of this activity may vary
      from
      period to period. Historically, we have originated mortgage loans for sale
      in
      the secondary market, and we may do so in the future, although this is not
      a
      significant part of our business at this time.




The
      following table shows our loan origination and repayment activities for the
      periods indicated. We did not purchase any loans during the periods
      indicated.





**Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004****(In
                thousands)**Loans
                receivable, beginning of period
            
            $
            153,423
            
            $
            165,086
            
            $
            157,628Originations
                by type:Real
                estate- one to four-family
            
            
            11,137
            
            
            17,005
            
            
            22,405Multi-family
                and commercial
            
            
            14,487
            
            
            20,698
            
            
            17,337Non-real
                estate -consumer
            
            
            1,046
            
            
            445
            
            
            329Home
                equity
            
            
            8,532
            
            
            7,614
            
            
            12,280Total
                loans originated
            
            
            35,202
            
            
            45,762
            
            
            52,351Sales
            
            
            (3,310
            )
            
            (1,977
            )
            
            -Principal
                repayments:
            
            
            (45,417
            )
            
            (55,448
            )
            
            (44,893
            )Loans
                receivable, at end of period
            
            $
            139,898
            
            $
            153,423
            
            $
            165,086




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***Loan
      Approval Procedures and Authority.*** Our
      lending activities are subject to written, non-discriminatory underwriting
      standards and loan origination procedures adopted by management and the Board
      of
      Directors. A loan officer initially reviews all loans, regardless of size or
      type. Loans up to the Fannie Mae single family loan limit, currently $417,000,
      must be reviewed and approved by a loan underwriter, a Vice President or Senior
      Vice President of the loan department. All loans of $417,000 or less that do
      not
      meet our standard underwriting ratios and credit criteria must be reviewed
      by
      the Vice President or in their absence, a Senior Vice President, or the
      Officers’ Loan Committee. The Officers’ Loan Committee, which consists of
      Raymond Blake, Edward Milen, Lyn G. Rupich, Donna Manuel and W. Anthony Kopp,
      has the authority to approve all loans up to $750,000. The Chief Executive
      Officer and the Board of Directors must approve loans in excess of $750,000.





***Loans-to-One-Borrower*** .
      Federal
      savings banks are subject to the same loans-to-one-borrower limits as those
      applicable to national banks, which restrict loans to one borrower to an amount
      equal to 15% of unimpaired capital and unimpaired surplus on an unsecured basis,
      and an additional amount equal to 10% of unimpaired capital and unimpaired
      surplus if the loan is secured by readily marketable collateral (generally,
      financial instruments and bullion, but not real estate). At December 31, 2006,
      our lending limit was $4.5 million. At December 31, 2006, our largest lending
      relationship to one borrower totaled $4.1 million. At December 31, 2006, we
      had
      29 lending relationships in which the total amount outstanding exceeded
      $500,000. All of the loans under these large lending relationships were
      performing in accordance with their terms.





**Asset
      Quality**





***Loan
      Delinquencies and Collection Procedures*** .
      When a
      borrower fails to make required payments on a loan, we take a number of steps
      to
      induce the borrower to cure the delinquency and restore the loan to a current
      status. In the case of mortgage loans, a reminder notice is sent 15 days after
      an account becomes delinquent. After 15 days, we attempt to establish telephone
      contact with the borrower. If the borrower does not remit the entire payment
      due
      by the end of the month, then a letter that includes information regarding
      home-ownership counseling organizations is sent to the borrower. During the
      first 15 days of the following month, a second letter is sent, and we also
      attempt to establish telephone contact with the borrower. At this time, and
      after reviewing the cause of the delinquency and the borrower’s previous loan
      payment history, we may agree to accept repayment over a period of time, which
      will generally not exceed 60 days. However, should a loan become delinquent
      by
      two or more payments, and the borrower is either unwilling or unable to repay
      the delinquency over a period of time acceptable to us, we send a notice of
      default by both regular and certified mail. This notice will provide the
      borrower with the terms which must be met to cure the default, and will again
      include information regarding home-ownership counseling.





In
      the
      event the borrower does not cure the default within 30 days of the postmark
      of
      the notice of default, we may instruct our attorneys to institute foreclosure
      proceedings depending on the loan-to-value ratio or our relationship with the
      borrower. We hold property foreclosed upon as real estate owned. We carry
      foreclosed real estate at its fair market value less estimated selling costs
      or
      carrying value whichever is less. If a foreclosure action begins and the loan
      is
      not brought current or paid in full before the foreclosure sale, we will either
      sell the real property securing the loan at the foreclosure sale or sell the
      property as soon thereafter as practical.





In
      the
      case of consumer loans, customers are mailed delinquency notices when the loan
      is 15 days past due. We also attempt to establish telephone contact with the
      borrower. If collection efforts are unsuccessful, we may instruct our attorneys
      to take further action.





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Our
      policies require that management continuously monitor the status of the loan
      portfolio and report to the Board of Directors on a monthly basis. These reports
      include information on delinquent loans and foreclosed real estate and our
      actions and plans to cure the delinquent status of the loans and to dispose
      of
      any real estate acquired through foreclosure.





***Non-Performing
      Loans*** *.* All
      loans
      are reviewed on a regular basis and are placed on a non-accrual status when,
      in
      the opinion of management, there is reasonable probability of loss of principal
      or the collection of additional interest is deemed insufficient to warrant
      further accrual. Generally, we place all loans more than 90 days past due on
      non-accrual status. When a loan is placed on non-accrual status, total interest
      accrued and unpaid to date is reversed. Subsequent payments are either applied
      to the outstanding principal balance or recorded as interest income, depending
      on the assessment of the ultimate collectibility of the loan.





As
      of
      December 31, 2006, our total non-accrual loans were $540,000, compared to
      $394,000 at December 31, 2005, and $983,000 at December 31, 2004.




The
      following table sets forth our loan delinquencies by type, amount and percentage
      at December 31, 2006.





**Loans
                Delinquent For:****60-89
                Days**
            
            **90
                Days and Over**
            
            **Total
                Delinquent Loans****Number**
            
            **Amount**
            
            **Percent**
              **of
                Loan**
              **Category**
            
            **Number**
            
            **Amount**
            
            **Percent**
              **of
                Loan**
              **Category**
            
            **Number**
            
            **Amount**
            
            **Percent**
              **of
                Loan**
              **Category****(Dollars
                in thousands)**Real
                estate:One-
                to four-family
            
            
            3
            
            $
            408
            
            
            0.47
            %
            
            3
            
            $
            132
            
            
            0.15
            %
            
            6
            
            $
            540
            
            
            0.63
            %Multi-family
                and commercial
            
            
            1
            
            
            23
            
            
            0.06
            
            
            1
            
            
            278
            
            
            0.67
            
            
            2
            
            
            301
            
            
            0.73Consumer
                and other
            
            
            1
            
            
            3
            
            
            0.62
            
            
            1
            
            
            1
            
            
            -
            
            
            2
            
            
            4
            
            
            0.83Home
                equity
            
            
            1
            
            
            20
            
            
            0.16
            
            
            2
            
            
            129
            
            
            1.06
            
            
            3
            
            
            149
            
            
            1.22Total
            
            
            6
            
            $
            454
            
            
            0.32
            %
            
            7
            
            $
            540
            
            
            0.39
            %
            
            13
            
            $
            994
            
            
            0.71
            %




The
      table
      below sets forth the amounts and categories of non-performing assets in our
      loan
      portfolio. For all years presented, we had no troubled debt restructurings
      within the meaning of Statement of Financial Accounting Standards No. 15. For
      the periods presented, we had no accruing loans delinquent more than 90 days.
      Foreclosed assets include assets acquired in settlement of loans.





**At
                December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(Dollars
                In thousands)**Non-accruing
                loans:One-
                to four-family
            
            $
            132
            
            $
            326
            
            $
            981
            
            $
            1,116
            
            $
            860Multi-family
                and commercial
            
            
            278
            
            
            -
            
            
            -
            
            
            3
            
            
            113Consumer
                and other
            
            
            1
            
            
            1
            
            
            2
            
            
            17
            
            
            -Home
                equity
            
            
            129
            
            
            67
            
            
            -
            
            
            -
            
            
            79Total
                non-accruing loans
            
            
            540
            
            
            394
            
            
            983
            
            
            1,136
            
            
            1,052Total
                non-performing loans
            
            
            540
            
            
            394
            
            
            983
            
            
            1,136
            
            
            1,052Real
                estate owned
            
            
            -
            
            
            -
            
            
            -
            
            
            23
            
            
            43Total
                non-performing assets
            
            $
            540
            
            $
            394
            
            $
            983
            
            $
            1,159
            
            $
            1,095Total
                as a percentage of total assets
            
            
            0.20
            %
            
            0.15
            %
            
            0.36
            %
            
            0.49
            %
            
            0.49
            %Non-performing
                loans as percentage of gross loans receivable
            
            
            0.39
            %
            
            0.26
            %
            
            0.60
            %
            
            0.72
            %
            
            0.76
            %




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For
      the
      year ended December 31, 2006, gross interest income which would have been
      recorded had the non-accruing loans been current in accordance with their
      original terms amounted to $50,000. The amount that was included in interest
      income totaled $25,000 for the year ended December 31, 2006.





***Real
      Estate Owned*** *.* Real
      estate owned consists of property acquired through formal foreclosure or by
      deed
      in lieu of foreclosure, and is recorded at the lower of recorded investment
      or
      fair value. Write-downs from recorded investment to fair value, which are
      required at the time of foreclosure, are charged to the allowance for loan
      losses. After transfer, the property is carried at the lower of recorded
      investment or fair value, less estimated selling expenses. Adjustments to the
      carrying value of the properties that result from subsequent declines in value
      are charged to operations in the period in which the declines occur. At December
      31, 2006, we did not have any real estate owned.





***Classification
      of Assets*** .
      Consistent with regulatory guidelines, we provide for the classification of
      loans and other assets, such as securities, that are considered to be of lesser
      credit quality as substandard, special mention, doubtful or loss assets. An
      asset is considered substandard if it is inadequately protected by the current
      net worth and paying capacity of the obligor or of the collateral pledged,
      if
      any. Substandard assets include those characterized by the distinct possibility
      that the savings institution will sustain some loss if the deficiencies are
      not
      corrected. Assets classified as loss are those considered uncollectible and
      of
      such little value that their continuance as assets is not warranted. Doubtful
      assets are those that are past maturity and therefore require additional steps
      to protect our collateral. Assets that do not expose us to risk sufficient
      to
      warrant classification in one of the aforementioned categories, but which
      possess some weaknesses, are required to be designated as special mention by
      management.





When
      we
      classify assets as substandard, we allocate for analytical purposes a portion
      of
      our general valuation allowances or loss reserves to these assets as we consider
      prudent. General allowances represent loss allowances that have been established
      to recognize the inherent risk associated with lending activities, but which
      have not been allocated to particular problem assets. When we classify problem
      assets as loss, we establish a specific allowance for losses equal to 100%
      of
      the amount of the assets so classified, or we charge-off the amount. Our
      determination as to the classification of assets and the amount of valuation
      allowances is subject to review by regulatory agencies, which can order the
      establishment of additional loss allowances. Management regularly reviews our
      assets to determine whether any require reclassification.





On
      the
      basis of management’s review of our assets at December 31, 2006, we had
      classified $546,000 as substandard, and $515,000 as special mention.




10
 ***Table
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***Allowance
      for Loan Losses*** .
      The
      following table sets forth information regarding our allowance for loan losses
      and other ratios at or for the dates indicated.





**Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(Dollars
                In thousands)**Balance
                at beginning of period
            
            $
            1,701
            
            $
            1,847
            
            $
            1,962
            
            $
            2,082
            
            $
            2,508Charge-offs:One-
                to four-family
            
            
            (7
            )
            
            (70
            )
            
            (115
            )
            
            (110
            )
            
            (306
            )Multi-family
                and commercial
            
            
            (75
            )
            
            -
            
            
            -
            
            
            -
            
            
            (90
            )Consumer
                and other
            
            
            -
            
            
            (1
            )
            
            -
            
            
            -
            
            
            -Home
                equity
            
            
            -
            
            
            -
            
            
            -
            
            
            (10
            )
            
            (50
            )Total
                charge-offs
            
            
            (82
            )
            
            (71
            )
            
            (115
            )
            
            (120
            )
            
            (446
            )Recoveries:One-
                to four-family loans
            
            
            28
            
            
            55
            
            
            112
            
            
            61
            
            
            —Net
                charge-offs
            
            
            (54
            )
            
            (16
            )
            
            (3
            )
            
            (59
            )
            
            (446
            )Provisions
                for loan losses
            
            
            (28
            )
            
            (130
            )
            
            (112
            )
            
            (61
            )
            
            20Balance
                at end of period
            
            $
            1,619
            
            $
            1,701
            
            $
            1,847
            
            $
            1,962
            
            $
            2,082Net
                charge-offs during the period to average loans outstanding during
                the
                period
            
            
            .04
            %
            
            0.01
            %
            
            -
            %
            
            0.04
            %
            
            0.33
            %Net
                charge-offs during the period to non-performing loans
            
            
            10.00
            
            
            4.06
            
            
            0.31
            
            
            5.19
            
            
            42.40Non-performing
                assets to total assets at end of period
            
            
            0.20
            
            
            0.15
            
            
            0.36
            
            
            0.49
            
            
            0.49Allowance
                for loan losses to non-performing loans
            
            
            299.81
            
            
            431.73
            
            
            187.89
            
            
            172.71
            
            
            197.91Allowance
                for loan losses to loans receivable, gross
            
            
            1.16
            
            
            1.11
            
            
            1.12
            
            
            1.24
            
            
            1.51





The
      allowance for loan losses is a valuation account that reflects our evaluation
      of
      the losses known and inherent in our loan portfolio that are both probable
      and
      reasonable to estimate. We maintain the allowance through provisions for loan
      losses that we charge to income. We charge losses on loans against the allowance
      for loan losses when we believe the collection of loan principal is
      unlikely.





Our
      evaluation of risk in maintaining the allowance for loan losses includes the
      review of all loans on which the collectibility of principal may not be
      reasonably assured. We consider the following factors as part of this
      evaluation: our historical loan loss experience, known and inherent risks in
      the
      loan portfolio (particularly subprime real estate loans), the estimated value
      of
      the underlying collateral and current economic and market trends. There may
      be
      other factors that may warrant our consideration in maintaining an allowance
      at
      a level sufficient to provide for probable losses. This evaluation is inherently
      subjective as it requires estimates that are susceptible to significant
      revisions as more information becomes available or as future events change.
      Although we believe that we have established and maintained the allowance for
      loan losses at adequate levels, future additions may be necessary if economic
      and other conditions in the future differ substantially from the current
      operating environment.





In
      addition, the Office of Thrift Supervision, as an integral part of its
      examination process, periodically reviews our loan and foreclosed real estate
      portfolios and the related allowance for loan losses and valuation allowance
      for
      foreclosed real estate. The Office of Thrift Supervision may require us to
      increase the allowance for loan losses or the valuation allowance for foreclosed
      real estate based on its review of information available at the time of the
      examination, thereby adversely affecting our results of operations.





11
 ***Table
          of Contents***





***Allocation
      of the Allowance for Loan Losses*** **.** The
      following table presents our allocation of the allowance for loan losses by
      loan
      category and the percentage of loans in each category to total loans at the
      periods indicated.





**At
                December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****Amount
                of Loan Loss Allowance**
            
            **Loan
                Amounts by Category**
            
            **Percent
                of Loans in Each Category to Total Loans**
            
            **Amount
                of Loan Loss Allowance**
            
            **Loan
                Amounts by Category**
            
            **Percent
                of Loans in Each Category to Total Loans**
            
            **Amount
                of Loan Loss Allowance**
            
            **Loan
                Amounts by Category**
            
            **Percent
                of Loans in Each Category to Total Loans**
            
            **Amount
                of Loan Loss Allowance**
            
            **Loan
                Amounts by Category**
            
            **Percent
                of Loans in Each Category to Total Loans**
            
            **Amount
                of Loan Loss Allowance**
            
            **Loan
                Amounts by Category**
            
            **Percent
                of Loans in Each Category to Total Loans****(Dollars
                in thousands)**One-
                to four-family
            
            $
            786
            
            $
            86,024
            
            
            61.49
            %
            $
            949
            
            $
            101,325
            
            
            66.04
            %
            $
            1,098
            
            $
            115,598
            
            
            70.02
            %
            $
            1,450
            
            $
            120,800
            
            
            76.64
            %
            $
            1,655
            
            $
            115,880
            
            
            83.84
            %Multi-family
                and commercial
            
            
            561
            
            
            41,194
            
            
            29.45
            
            
            538
            
            
            38,317
            
            
            24.97
            
            
            353
            
            
            32,713
            
            
            19.82
            
            
            190
            
            
            24,066
            
            
            15.27
            
            
            58
            
            
            13,187
            
            
            9.54Consumer
                and other
            
            
            5
            
            
            482
            
            
            0.34
            
            
            8
            
            
            502
            
            
            .33
            
            
            7
            
            
            649
            
            
            0.39
            
            
            7
            
            
            696
            
            
            0.44
            
            
            3
            
            
            782
            
            
            0.56Home
                equity
            
            
            125
            
            
            12,198
            
            
            8.72
            
            
            145
            
            
            13,279
            
            
            8.66
            
            
            258
            
            
            16,126
            
            
            9.77
            
            
            227
            
            
            12,056
            
            
            7.65
            
            
            278
            
            
            8,374
            
            
            6.06Unallocated
            
            
            142
            
            
            -
            
            
            -
            
            
            61
            
            
            -
            
            
            -
            
            
            131
            
            
            -
            
            
            -
            
            
            88
            
            
            -
            
            
            -
            
            
            88
            
            
            -
            
            
            -Total
                loans
            
            $
            1,619
            
            $
            139,898
            
            
            100.00
            %
            $
            1,701
            
            $
            153,423
            
            
            100.00
            %
            $
            1,847
            
            $
            165,086
            
            
            100.00
            %
            $
            1,962
            
            $
            157,618
            
            
            100.00
            %
            $
            2,082
            
            $
            138,223
            
            
            100.00
            %





12
 ***Table
          of Contents***





Management
      evaluates the total balance of the allowance for loan losses based on several
      factors that are not loan specific but are reflective of the probable, incurred
      losses inherent in the loan portfolio. This includes management’s periodic
      review of loan collectibility in light of historical experience, the nature
      and
      volume of the loan portfolio, adverse situations that may affect the borrower’s
      ability to repay, estimated value of any underlying collateral, prevailing
      economic conditions such as housing trends, inflation rates and unemployment
      rates, geographic concentrations of loans within our immediate market area,
      and
      levels of allowance for loan losses. Generally, small balance, homogenous type
      loans, such as one- to four-family, mortgage, consumer and home equity loans
      are
      evaluated for impairment in total. The allowance related to these loans is
      established primarily by using loss experience data by general loan type.
      Nonperforming loans are evaluated individually, based primarily on the value
      of
      the underlying collateral securing the loan. Larger loans, such as multi-family
      mortgages, are also generally evaluated for impairment individually. The
      allowance is allocated to each loan type based on the results of the evaluation
      described above. Inherent credit risks that cannot be allocated to specific
      loan
      groups are presented as “unallocated” in the table.





**Investment
      Activities**





We
      are
      permitted under federal law to invest in various types of liquid assets,
      including United States Government obligations, securities of various federal
      agencies and of state and municipal governments, deposits at the Federal Home
      Loan Bank of Chicago (FHLB), certificates of deposit of federally insured
      institutions, certain bankers’ acceptances and federal funds. Within certain
      regulatory limits, we may also invest a portion of our assets in commercial
      paper and corporate debt securities. We are also required to maintain an
      investment in FHLB stock.





SFAS
      No.
      115, “Accounting for Certain Investments in Debt and Equity Securities,”
requires that securities be categorized as “held to maturity,” “trading
      securities” or “available for sale,” based on management’s intent as to the
      ultimate disposition of each security. SFAS No. 115 allows debt securities
      to be
      classified as “held to maturity” and reported in financial statements at
      amortized cost only if the reporting entity has the positive intent and ability
      to hold these securities to maturity. Securities that might be sold in response
      to changes in market interest rates, changes in the security’s prepayment risk,
      increases in loan demand, or other similar factors cannot be classified as
“held
      to maturity.”





We
      do not
      currently use or maintain a trading account. Debt and equity securities not
      classified as “held to maturity” are classified as “available for sale.” These
      securities are reported at fair value, and unrealized gains and losses on the
      securities are excluded from earnings and reported, net of deferred taxes,
      as a
      separate component of equity.





All
      of
      our securities carry market risk insofar as increases in market rates of
      interest may cause a decrease in their market value. Investments in securities
      are made based on certain considerations, which include the interest rate,
      tax
      considerations, yield, settlement date and maturity of the security, our
      liquidity position, and anticipated cash needs and sources. The effect that
      the
      proposed security would have on our credit and interest rate risk and risk-based
      capital is also considered. We purchase securities to provide necessary
      liquidity for day-to-day operations, and when investable funds exceed loan
      demand.





Generally,
      our investment policy is to invest funds in various categories of securities
      and
      maturities based upon our liquidity needs, asset/liability management policies,
      investment quality, marketability and performance objectives. The Board of
      Directors reviews our securities portfolio on a monthly basis.





13
 ***Table
            of
            Contents***





Securities
      classified as held to maturity, excluding mortgage-backed securities, totaled
      $130,000 at December 31, 2006. **** Our
      securities classified as available-for-sale, other than mortgage-backed
      securities, totaled $34.7 million at December 31, 2006, and consisted of Federal
      agency obligations, primarily Federal Farm Credit Bank notes and Federal Home
      Loan Bank obligations with maturities of one to five years, and an ARM mutual
      fund. At December 31, 2006, we had $10.9 million invested in an adjustable
      rate
      mortgage mutual fund that invests primarily in adjustable rate mortgage backed
      securities, and collateralized mortgage obligations.




We
      also
      have a $2.5 million investment in Federal Home Loan Bank stock at December
      31,
      2006. For further information regarding our securities portfolio, see Note
      2 to
      Consolidated Financial Statements.





14
 ***Table
          of Contents***





The
      following table sets forth the composition of our securities portfolio
      (excluding mortgage-backed securities) and other interest earning assets at
      the
      dates indicated.





**At
                December 31,****2006**
            
            **2005**
            
            **2004****Carrying
                Value**
            
            **%
                of**
              **Total**
            
            **Fair**
              **Value**
            
            **%
                of**
              **Total**
            
            **Carrying**
              **Value**
            
            **%
                of**
              **Total**
            
            **Fair**
              **Value**
            
            **%
                of**
              **Total**
            
            **Carrying
                Value**
            
            **%
                of**
              **Total**
            
            **Fair**
              **Value**
            
            **%
                of**
              **Total****(Dollars
                in thousands)**Securities
                classified as held tomaturity
                (at amortized cost):Municipal
                bonds
            
            $
            130
            
            
            0.35
            %
            $
            130
            
            
            0.35
            %
            $
            200
            
            
            0.52
            %
            $
            200
            
            
            0.52
            %
            $
            -
            
            
            -
            %
            $
            -
            
            
            -
            %Securities
                classified as available for sale (at fair value):Shay
                ARM mutual fund
            
            
            10,904
            
            
            29.24
            
            
            10,904
            
            
            29.24
            
            
            8,473
            
            
            21.88
            
            
            8,473
            
            
            21.88
            
            
            5,297
            
            
            13.68
            
            
            5,297
            
            
            13.68FHLB
            
            
            19,770
            
            
            53.01
            
            
            19,770
            
            
            53.01
            
            
            23,633
            
            
            61.03
            
            
            23,633
            
            
            61.03
            
            
            16,955
            
            
            43.80
            
            
            16,955
            
            
            43.80FFCB
            
            
            3,979
            
            
            10.67
            
            
            3,979
            
            
            10.67
            
            
            1,959
            
            
            5.06
            
            
            1,959
            
            
            5.06
            
            
            1,955
            
            
            5.05
            
            
            1,955
            
            
            5.05Fannie
                Mae
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            988
            
            
            2.55
            
            
            988
            
            
            2.55
            
            
            1,987
            
            
            5.13
            
            
            1,987
            
            
            5.13Other
                equity investments
            
            
            62
            
            
            0.16
            
            
            62
            
            
            0.16
            
            
            56
            
            
            0.14
            
            
            56
            
            
            0.14
            
            
            56
            
            
            0.14
            
            
            56
            
            
            0.14Subtotal
            
            
            34,845
            
            
            93.43
            
            
            34,845
            
            
            93.43
            
            
            35,309
            
            
            91.18
            
            
            35,309
            
            
            91.18
            
            
            26,250
            
            
            67.81
            
            
            26,250
            
            
            67.81FHLB
                stock
            
            
            2,450
            
            
            6.57
            
            
            2,450
            
            
            6.57
            
            
            3,416
            
            
            8.82
            
            
            3,416
            
            
            8.82
            
            
            12,459
            
            
            32.19
            
            
            12,459
            
            
            32.19Total
                securities and FHLB stock
            
            $
            37,295
            
            
            100.00
            %
            $
            37,295
            
            
            100.00
            %
            $
            38,725
            
            
            100.00
            %
            $
            38,725
            
            
            100.00
            %
            $
            38,709
            
            
            100.00
            %
            $
            38,709
            
            
            100.00
            %Average
                remaining life of securities
            
            10.9
                months
            
            
            
            
            
            
            13.2
                months
            
            
            
            
            
            
            13.3
                monthsOther
                interest-earning assets:Interest-earning
                deposits with banks
            
            $
            38,061
            
            
            84.03
            %
            $
            38,061
            
            
            84.03
            %
            $
            20,061
            
            
            97.79
            %
            $
            20,061
            
            
            97.79
            %
            $
            20,534
            
            
            86.10
            %
            $
            20,534
            
            
            86.10
            %Federal
                funds sold
            
            
            7,231
            
            
            15.97
            
            
            7,231
            
            
            15.97
            
            
            454
            
            
            2.21
            
            
            454
            
            
            2.21
            
            
            3,314
            
            
            13.90
            
            
            3,314
            
            
            13.90Total
            
            $
            45,292
            
            
            100.00
            %
            $
            45,292
            
            
            100.00
            %
            $
            20,515
            
            
            100.00
            %
            $
            20,515
            
            
            100.00
            %
            $
            23,848
            
            
            100.00
            %
            $
            23,848
            
            
            100.00
            %








15
 ***Table
          of Contents***





**Mortgage-Backed
      Securities**





Mortgage-backed
      securities represent a participation interest in a pool of one- to four-family
      or multi-family mortgages. The mortgage originators use intermediaries
      (generally United States Government agencies and government-sponsored
      enterprises) to pool and repackage the participation interests in the form
      of
      securities, with investors such as A. J. Smith Federal receiving the principal
      and interest payments on the mortgages. Such United States Government agencies
      guarantee the payment of principal and interest to investors.





Mortgage-backed
      securities are typically issued with stated principal amounts, and the
      securities are backed by pools of mortgages that have loans with interest rates
      that are within a specific range and have varying maturities. The
      characteristics of the underlying pool of mortgages, i.e., fixed-rate or
      adjustable-rate, as well as prepayment risk, are passed on to the certificate
      holder. The life of a mortgage-backed pass-through security thus approximates
      the life of the underlying mortgages. Our mortgage-backed securities consist
      primarily of Fannie Mae, Freddie Mac and Ginnie Mae securities.





At
      December 31, 2006, our mortgage-backed securities totaled $34.1 million, which
      represented 12.8% of our total assets at that date. At December 31, 2006, a
      majority of our mortgage-backed securities were classified as
      available-for-sale. At that date, virtually all of our mortgage-backed
      securities had fixed rates of interest. We purchased $4.7 million of
      mortgage-backed securities during the year ended December 31, 2006, and $9.6
      million during the year ended December 31, 2005.





Mortgage-backed
      securities generally yield less than the mortgage loans underlying such
      securities because of their payment guarantees or credit enhancements, which
      offer nominal credit risk to the security holder. In addition, mortgage-backed
      securities are more liquid than individual mortgage loans and we may use them
      to
      collateralize borrowings or other obligations of A. J. Smith
      Federal.




The
      following table sets forth the composition of our mortgage-backed securities
      at
      the dates indicated.




**At
                December 31,****2006**
            
            **2005**
            
            **2004****Carrying**
            
            **%
                of**
            
            **Carrying**
            
            **%
                of**
            
            **Carrying**
            
            **%
                of****Value**
            
            **Total**
            
            **Value**
            
            **Total**
            
            **Value**
            
            **Total****(Dollars
                in thousands)**Mortgage-backed
                securities classified as held to maturity (at amortized
                cost):Ginnie
                Mae
            
            $
            74
            
            
            0.22
            %
            $
            95
            
            
            0.26
            %
            $
            132
            
            
            0.37
            %Mortgage-backed
                securities classified as available for sale (at fair
                value):Fannie
                Mae
            
            
            29,310
            
            
            85.87
            
            
            30,300
            
            
            83.65
            
            
            29,685
            
            
            83.94Freddie
                Mac
            
            
            4,749
            
            
            13.91
            
            
            5,830
            
            
            16.09
            
            
            5,548
            
            
            15.69Total
            
            $
            34,133
            
            
            100.00
            %
            $
            36,225
            
            
            100.00
            %
            $
            35,365
            
            
            100.00
            %




16
 ***Table
            of
            Contents***





***Carrying
      Values, Yields and Maturities*** .
      The
      composition and maturities of our debt securities portfolio and of our
      mortgage-backed securities, excluding equity investments and FHLB stock, are
      indicated in the following table. Cost represents the amortized cost of the
      securities and mortgage-backed securities at December 31, 2006.





**At
                December 31, 2006****Less
                Than**
            
            **1
                to 5**
            
            **5
                to 10**
            
            **Over****1
                Year**
            
            **Years**
            
            **Years**
            
            **10
                Years**
            
            **Total
                Securities****Amortized**
            
            **Amortized**
            
            **Amortized**
            
            **Amortized**
            
            **Amortized****Cost**
            
            **Cost**
            
            **Cost**
            
            **Cost**
            
            **Cost**
            
            **Fair
                Value****(Dollars
                in thousands)**Securities
            
            $
            8,037
            
            $
            16,042
            
            $
            -
            
            $
            -
            
            $
            24,079
            
            $
            23,879Mortgage-backed
                securities
            
            
            -
            
            
            1,207
            
            
            17,451
            
            
            16,470
            
            
            35,128
            
            
            34,133Total
                securities
            
            $
            8,037
            
            $
            17,249
            
            $
            17,451
            
            $
            16,470
            
            $
            59,207
            
            $
            58,012Weighted
                average yield
            
            
            3.05
            %
            
            4.29
            %
            
            4.35
            %
            
            4.76
            %
            
            3.67
            %





**Sources
      of Funds**





***General*** .
      Deposits have been our primary source of funds for lending and other investment
      purposes. In addition to deposits, we derive funds primarily from principal
      and
      interest payments on loans. These loan repayments are a relatively stable source
      of funds, while deposit inflows and outflows are significantly influenced by
      general interest rates and money market conditions. Borrowings may be used
      on a
      short-term basis to compensate for reductions in the availability of funds
      from
      other sources, and may be used on a longer-term basis for general business
      purposes.





***Deposits*** .
      Our
      deposits are generated primarily from residents within our primary market area.
      Deposit account terms vary, with the principal differences being the minimum
      balance required, the time periods the funds must remain on deposit and the
      interest rate. We are not currently using, nor have we used in the past, brokers
      to obtain deposits. Our deposit products include demand, NOW, money market,
      savings, and term certificate accounts. We establish interest rates, maturity
      terms, service fees and withdrawal penalties on a periodic basis. Management
      determines the rates and terms based on rates paid by competitors, our need
      for
      funds or liquidity, growth goals and federal and state regulations.





***Deposit
      Activity*** .
      The
      following table sets forth our deposit flows during the periods indicated.





**Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004****(Dollars
                in thousands)**Opening
                balance
            
            $
            190,407
            
            $
            198,056
            
            $
            183,847Deposits
            
            
            408,178
            
            
            422,686
            
            
            464,289Withdrawals
            
            
            (400,369
            )
            
            (435,519
            )
            
            (453,205
            )Interest
                credited
            
            
            3,960
            
            
            5,184
            
            
            3,125Ending
                balance
            
            $
            202,176
            
            $
            190,407
            
            $
            198,056Net
                increase (decrease)
            
            $
            11,769
            
            $
            (7,649
            )
            $
            14,209Percent
                increase (decrease)
            
            $
            6.18
            %
            
            (3.86
            )%
            
            7.73
            %





17
 ***Table
            of
            Contents***





***Deposit
      Accounts*** .
      The
      following table sets forth the dollar amount of savings deposits in the various
      types of deposit programs we offered as of the dates indicated.




**At
                December 31,****2006**
            
            **2005**
            
            **2004****Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent****(Dollars
                in thousands)**Transactions
                and Savings Deposits:Checking
                accounts
            
            $
            4,152
            
            
            2.05
            %
            $
            3,273
            
            
            1.72
            %
            $
            3,879
            
            
            1.96
            %Passbook
                accounts
            
            
            40,463
            
            
            20.02
            
            
            46,854
            
            
            24.61
            
            
            50,651
            
            
            25.57NOW
                accounts
            
            
            18,946
            
            
            9.37
            
            
            18,947
            
            
            9.95
            
            
            19,905
            
            
            10.05Money
                market accounts
            
            
            9,336
            
            
            4.62
            
            
            8,446
            
            
            4.44
            
            
            10,575
            
            
            5.34Total
                non-certificates
            
            
            72,897
            
            
            36.06
            
            
            77,520
            
            
            40.72
            
            
            85,010
            
            
            42.91Certificates:0.00
                - 3.99%
            
            
            33,103
            
            
            16.37
            
            
            71,214
            
            
            37.40
            
            
            80,997
            
            
            40.904.00
                - 5.99%
            
            
            95,392
            
            
            47.18
            
            
            40,942
            
            
            21.50
            
            
            23,660
            
            
            11.956.00
                - 7.99%
            
            
            762
            
            
            0.37
            
            
            711
            
            
            0.37
            
            
            8,370
            
            
            4.238.00
                - 9.99%
            
            
            22
            
            
            0.02
            
            
            20
            
            
            0.01
            
            
            19
            
            
            0.01Total
                certificates
            
            
            129,279
            
            
            63.94
            
            
            112,887
            
            
            59.28
            
            
            113,046
            
            
            57.09Total
                deposits
            
            $
            202,176
            
            
            100.00
            %
            $
            190,407
            
            
            100.00
            %
            $
            198,056
            
            
            100.00
            %








***Deposit
      Maturity Schedule*** .
      The
      following table presents, by rate category, the remaining period to maturity
      of
      time deposit accounts outstanding as of December 31, 2006.





**0-3.99%**
            
            **4.00-5.99%**
            
            **6.00-7.99%**
            
            **8.00%-**
              **or
                greater**
            
            **Total**
            
            **Percent**
              **of
                Total****(Dollars
                in thousands)**Certificate
                accounts maturingin
                quarter ending:March
                31, 2007
            
            $
            15,413
            
            $
            19,236
            
            $
            67
            
            $
            -
            
            $
            34,716
            
            
            26.85
            %June
                30, 2007
            
            
            6,342
            
            
            28,553
            
            
            272
            
            
            -
            
            
            35,167
            
            
            27.20September
                30, 2007
            
            
            1,875
            
            
            18,851
            
            
            -
            
            
            -
            
            
            20,726
            
            
            16.03December
                31, 2007
            
            
            748
            
            
            9,362
            
            
            -
            
            
            -
            
            
            10,110
            
            
            7.82March
                31, 2008
            
            
            2,350
            
            
            3,247
            
            
            -
            
            
            6
            
            
            5,603
            
            
            4.33June
                30, 2008
            
            
            2,259
            
            
            1,275
            
            
            -
            
            
            -
            
            
            3,534
            
            
            2.73September
                30, 2008
            
            
            920
            
            
            936
            
            
            -
            
            
            -
            
            
            1,856
            
            
            1.44December
                31, 2008
            
            
            455
            
            
            1,171
            
            
            376
            
            
            -
            
            
            2,002
            
            
            1.55March
                31, 2009
            
            
            390
            
            
            2,207
            
            
            -
            
            
            16
            
            
            2,613
            
            
            2.02June
                30, 2009
            
            
            322
            
            
            1,529
            
            
            -
            
            
            -
            
            
            1,851
            
            
            1.43September
                30, 2009
            
            
            255
            
            
            1,050
            
            
            -
            
            
            -
            
            
            1,305
            
            
            1.01December
                31, 2009
            
            
            242
            
            
            823
            
            
            10
            
            
            -
            
            
            1,075
            
            
            0.83March
                31, 2010
            
            
            1,046
            
            
            1,713
            
            
            -
            
            
            -
            
            
            2,759
            
            
            2.13Thereafter
            
            
            486
            
            
            5,440
            
            
            36
            
            
            -
            
            
            5,962
            
            
            4.61Total
            
            $
            33,103
            
            $
            95,393
            
            $
            761
            
            $
            22
            
            $
            129,279
            
            
            100.00
            %Percent
                of total
            
            
            25.60
            %
            
            73.79
            %
            
            0.59
            %
            
            0.02
            %




18
 ***Table
            of
            Contents***





***Large
      Certificates*** .
      The
      following table indicates the amount of our certificates of deposit and other
      deposits by time remaining until maturity as of December 31, 2006.





**Maturity****3
                Months**
              **or
                Less**
            
            **Over
                3 to 6**
              **Months**
            
            **Over
                6 to 12**
              **Months**
            
            **Over
                12**
              **Months**
            
            **Total****(In
                thousands)**Certificates
                of deposit less than $100,000
            
            $
            24,889
            
            $
            26,760
            
            $
            20,260
            
            $
            21,309
            
            $
            93,218Certificates
                of deposit of $100,000 or more
            
            
            9,116
            
            
            8,308
            
            
            6,093
            
            
            7,250
            
            
            30,767Public
                funds (1)
            
            
            710
            
            
            100
            
            
            4,484
            
            
            -
            
            
            5,294Total
                certificates of deposit
            
            $
            34,715
            
            $
            35,168
            
            $
            30,837
            
            $
            28,559
            
            $
            129,279


______________________


(1)  Deposits
      from governmental and other public entities. The amounts shown under public
      funds include deposits of $100,000 or more totaling $5.1 million.





***Borrowings*** .
      We may
      obtain advances from the Federal Home Loan Bank of Chicago upon the security
      of
      the common stock we own in the Federal Home Loan Bank and our qualifying
      residential mortgage loans and mortgage-backed securities, provided certain
      standards related to creditworthiness are met. These advances are made pursuant
      to several credit programs, each of which has its own interest rate and range
      of
      maturities. Federal Home Loan Bank advances are generally available to meet
      seasonal and other withdrawals of deposit accounts and to permit increased
      lending.





The
      following table sets forth the maximum month-end balance and average balance
      of
      Federal Home Loan Bank advances for the periods indicated.








**Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004****(In
                thousands)**Maximum
                balance:FHLB
                advances
            
            $
            32,750
            
            $
            36,250
            
            $
            36,250Average
                balance:FHLB
                advances
            
            $
            29,963
            
            $
            34,167
            
            $
            27,358





The
      following table sets forth the balances of, and weighted average interest rate
      on, certain borrowings at the dates indicated.




**At
                December 31,****2006**
            
            **2005**
            
            **2004****(Dollars
                In thousands)**FHLB
                advances
            
            $
            28,750
            
            $
            32,750
            
            $
            36,250Weighted
                average interest rate of FHLB advances
            
            
            4.25
            %
            
            4.06
            %
            
            4.05
            %




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**Employees**





At
      December 31, 2006, we had a total of 53 full-time and 11 part-time employees.
      Our employees are not represented by any collective bargaining group. Management
      believes that we have good relationships with our employees.





**Regulations**





***Loans-to-One-Borrower.*** **** Federal
      savings banks generally may not make a loan or extend credit to a single or
      related group of borrowers in excess of 15% of unimpaired capital and unimpaired
      surplus on an unsecured basis. An additional amount may be lent, equal to 10%
      of
      unimpaired capital and unimpaired surplus, if the loan is secured by readily
      marketable collateral, which is defined to include certain securities and
      bullion, but generally does not include real estate. As of December 31, 2006,
      we
      were in compliance with our loans-to-one-borrower limitations.





***Qualified
      Thrift Lender Test.*** **** As
      a
      federal savings bank, we are required to satisfy a qualified thrift lender
      test
      whereby we must maintain at least 65% of our “portfolio assets” in “qualified
      thrift investments.” These consist primarily of residential mortgages and
      related investments, including mortgage-backed and related securities.
“Portfolio assets” generally means total assets less specified liquid assets up
      to 20% of total assets, goodwill and other intangible assets, and the value
      of
      property used to conduct business. A savings bank that fails the qualified
      thrift lender test must either convert to a bank charter or operate under
      specified restrictions. As of December 31, 2006, we maintained 78.29% of our
      portfolio assets in qualified thrift investments and, therefore, we met the
      qualified thrift lender test.





***Capital
      Distributions.*** **** Office
      of
      Thrift Supervision regulations govern capital distributions by savings
      institutions, which include cash dividends, stock repurchases and other
      transactions charged to the capital account of a savings institution. A savings
      institution must file an application for Office of Thrift Supervision approval
      of the capital distribution if either (1) the total capital distributions for
      the applicable calendar year exceed the sum of the institution’s net income for
      that year to date plus the institution’s retained net income for the preceding
      two years that is still available for distribution, (2) the institution would
      not be at least adequately capitalized following the distribution, (3) the
      distribution would violate any applicable statute, regulation, agreement or
      Office of Thrift Supervision-imposed condition, or (4) the institution is not
      eligible for expedited review of its filings. If an application is not required
      to be filed, savings institutions, which are a subsidiary of a holding company,
      as well as certain other institutions, must still file a notice with the Office
      of Thrift Supervision at least 30 days before the board of directors declares
      a
      dividend or approves a capital distribution.





Any
      additional capital distributions would require prior regulatory approval. In
      the
      event our capital falls below the adequately capitalized requirement or the
      Office of Thrift Supervision notifies us that we are in need of more than normal
      supervision, our ability to make capital distributions could be restricted.
      In
      addition, the Office of Thrift Supervision could prohibit a proposed capital
      distribution by any institution, which would otherwise be permitted by the
      regulation, if it determines that the distribution would constitute an unsafe
      or
      unsound practice.




***Community
      Reinvestment Act and Fair Lending Laws.*** **** Federal
      savings banks have a responsibility under the Community Reinvestment Act and
      related regulations of the Office of Thrift Supervision to help meet the credit
      needs of their communities, including low- and moderate-income neighborhoods.
      In
      addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit
      lenders from discriminating in their lending practices on the basis of
      characteristics specified in those statutes. An institution’s failure to comply
      with the provisions of the Community Reinvestment Act could, at a minimum,
      result in regulatory restrictions on its activities, and failure to comply
      with
      the Equal Credit




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  Opportunity
        Act and the Fair Housing Act could result in enforcement actions by the Office
        of Thrift Supervision, as well as other federal regulatory agencies and the
        Department of Justice. We received a Satisfactory Community Reinvestment
        Act
        rating in our most recent examination by the Office of Thrift
        Supervision. ****


***Transactions
      with Related Parties.*** Our
      authority to engage in transactions with related parties or “affiliates” or to
      make loans to specified insiders, is limited by Sections 23A and 23B of the
      Federal Reserve Act and its implementing regulations. The term “affiliate” for
      these purposes generally means any company that controls or is under common
      control with an institution, including AJS Bancorp, Inc. and its non-savings
      institution subsidiaries, if any. The regulation limits the aggregate amount
      of
      certain “covered” transactions with any individual affiliate to 10% of the
      capital and surplus of the savings institution and also limits the aggregate
      amount of covered transactions with all affiliates to 20% of the savings
      institution’s capital and surplus. Covered transactions with affiliates are
      required to be secured by collateral in an amount and of a type described in
      the
      regulation, and purchasing low quality assets from affiliates is generally
      prohibited. The regulation also provides that covered transactions with
      affiliates, including loans and asset purchases, must be on terms and under
      circumstances, including credit standards, that are substantially the same
      or at
      least as favorable to the institution as those prevailing at the time for
      comparable transactions with non-affiliated companies. In addition, savings
      institutions are prohibited from lending to any affiliate that is engaged in
      activities that are not permissible for bank holding companies and no savings
      institution may purchase the securities of any affiliate other than a
      subsidiary.




Our
      authority to extend credit to executive officers, directors and 10%
      stockholders, as well as entities controlled by these persons, is currently
      governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and its
      implementing regulation, Regulation O. Among other things, this regulation
      generally requires these loans to be made on terms substantially the same as
      those offered to unaffiliated individuals and do not involve more than the
      normal risk of repayment. However, the regulation permits executive officers
      and
      directors to receive the same terms through benefit or compensation plans that
      are widely available to other employees, as long as the director or executive
      officer is not given preferential treatment compared to other participating
      employees. Regulation O also places individual and aggregate limits on the
      amount of loans we may make to these persons based, in part, on our capital
      position, and requires approval procedures to be followed. At December 31,
      2006,
      we were in compliance with these regulations.





***Enforcement.*** The
      Office of Thrift Supervision has primary enforcement responsibility over savings
      institutions and has the authority to bring enforcement action against all
      “institution-related parties,” including stockholders, attorneys, appraisers and
      accountants who knowingly or recklessly participate in wrongful action likely
      to
      have an adverse effect on an insured institution. Formal enforcement action
      may
      range from the issuance of a capital directive or cease and desist order to
      removal of officers and/or directors of the institution, receivership,
      conservatorship or the termination of deposit insurance. Civil penalties cover
      a
      wide range of violations and actions, and range up to $25,000 per day, unless
      a
      finding of reckless disregard is made, in which case penalties may be as high
      as
      $1.0 million per day. The Federal Deposit Insurance Corporation also has
      the authority to recommend to the Director of the Office of Thrift Supervision
      that enforcement action be taken with respect to a particular savings
      institution. If action is not taken by the Director, the Federal Deposit
      Insurance Corporation has authority to take action under specified
      circumstances.





***Standards
      for Safety and Soundness.*** **** Federal
      law requires each federal banking agency to prescribe for all insured depository
      institutions standards relating to, among other things, internal controls,
      information systems and audit systems, loan documentation, credit underwriting,
      interest rate risk exposure, asset growth, compensation, and other operational
      and managerial standards as the agency




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  deems
        appropriate. The federal banking agencies adopted Interagency Guidelines
        Prescribing Standards for Safety and Soundness to implement the safety and
        soundness standards required under the Federal law. The guidelines set forth
        the
        safety and soundness standards that the federal banking agencies use to identify
        and address problems at insured depository institutions before capital becomes
        impaired. The guidelines address internal controls and information systems,
        internal audit systems, credit underwriting, loan documentation, interest
        rate
        risk exposure, asset growth, and compensation, fees and benefits. If the
        appropriate federal banking agency determines that an institution fails to
        meet
        any standard prescribed by the guidelines, the agency may require the
        institution to submit to the agency an acceptable plan to achieve compliance
        with the standard. If an institution fails to meet these standards, the
        appropriate federal banking agency may require the institution to submit
        a
        compliance plan.




***Regulatory
      Guidance Relating to Subprime Lending*** **.** The
      Federal bank regulatory agencies have issued regulatory guidance relating to
      the
      examination of financial institutions that are engaged in significant subprime
      lending activities. The purpose of the guidance is to provide regulatory
      agencies with expanded guidelines when examining savings institutions that
      have
      significant subprime lending programs.





The
      regulatory guidance emphasizes that the federal banking agencies believe that
      responsible subprime lending can expand credit access for consumers and offer
      attractive returns for the savings institution. The guidance is applicable
      to
      savings institutions that have subprime lending programs greater than or equal
      to 25% of core capital. As part of the regulatory guidance, examiners must
      provide greater scrutiny of (i) an institution’s ability to administer its
      higher risk subprime portfolio, (ii) the allowance for loan losses to ensure
      that the portion of the allowance allocated to the subprime portfolio is
      sufficient to absorb the estimated credit losses for the portfolio, and (iii)
      the level of risk-based capital that the savings institution has to ensure
      that
      such capital levels are adequate to support the savings institution’s subprime
      lending activities. The Office of Thrift Supervision has not required us to
      restrict our subprime lending activities, nor has it required us to maintain
      specific levels in our allowance for loan losses or risk based capital as a
      result of our subprime lending activities. In addition, we have significantly
      reduced our subprime lending activities at this time, and do not expect to
      resume material originations of subprime lending in the foreseeable
      future.





**Capital
      Requirements**





Office
      of
      Thrift Supervision capital regulations require savings institutions to meet
      three minimum capital standards: a 1.5% tangible capital ratio, a 4% leverage
      ratio (3% for institutions receiving the highest rating on the CAMELS rating
      system) and an 8% risk-based capital ratio. In addition, the prompt corrective
      action standards discussed below also establish, in effect, a minimum 2%
      tangible capital standard, a 4% leverage ratio (3% for institutions receiving
      the highest rating on the CAMELS financial institution rating system), and,
      together with the risk-based capital standard itself, a 4% Tier 1 risk-based
      capital standard. Office of Thrift Supervision regulations also require that
      in
      meeting the tangible, leverage and risk-based capital standards, institutions
      must generally deduct investments in and loans to subsidiaries engaged in
      activities as principal that are not permissible for a national
      bank.





The
      risk-based capital standard for savings institutions requires the maintenance
      of
      Tier 1 (core) and total capital (which is defined as core capital and
      supplementary capital) to risk-weighted assets of at least 4% and 8%,
      respectively. In determining the amount of risk-weighted assets, all assets,
      including certain off-balance sheet assets, are multiplied by a risk-weight
      factor of 0% to 100%, assigned by the Office of Thrift Supervision capital
      regulation based on the risks believed inherent in the type of asset. Core
      capital is defined as common stockholders’ equity (including retained earnings),
      certain noncumulative perpetual preferred stock and related surplus and minority
      interests in equity accounts of consolidated subsidiaries, less intangibles
      other than certain mortgage servicing rights and credit card




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relationships.
      The components of supplementary capital currently include cumulative preferred
      stock, long-term perpetual preferred stock, mandatory convertible securities,
      subordinated debt and intermediate preferred stock, the allowance for loan
      and
      lease losses limited to a maximum of 1.25% of risk-weighted assets, and up
      to
      45% of unrealized gains on available-for-sale equity securities with readily
      determinable fair market values. Overall, the amount of supplementary capital
      included as part of total capital cannot exceed 100% of core
      capital.




The
      capital regulations also incorporate an interest rate risk component. Savings
      institutions with “above normal” interest rate risk exposure are subject to a
      deduction from total capital for purposes of calculating their risk-based
      capital requirements. For the present time, the Office of Thrift Supervision
      has
      deferred implementation of the interest rate risk capital charge. At December
      31, 2006, A. J. Smith Federal met each of its capital requirements.





**Prompt
      Corrective Regulatory Action**





Under
      its
      Prompt Corrective Action regulations, the Office of Thrift Supervision is
      required to take supervisory actions against undercapitalized institutions,
      the
      severity of which depends upon the institution’s level of capital. Generally, a
      savings institution that has total risk-based capital of less than 8.0%, or
      a
      leverage ratio or a Tier 1 core capital ratio that is less than 4.0%, is
      considered to be undercapitalized. A savings institution that has total
      risk-based capital less than 6.0%, a Tier 1 core risk-based capital ratio
      of less than 3.0% or a leverage ratio that is less than 3.0% is considered
      to be
“significantly undercapitalized.” A savings institution that has a tangible
      capital to assets ratio equal to or less than 2.0% is deemed to be “critically
      undercapitalized.” Generally, the banking regulator is required to appoint a
      receiver or conservator for an institution that is “critically
      undercapitalized.” The regulation also provides that a capital restoration plan
      must be filed with the Office of Thrift Supervision within 45 days of the date
      an institution receives notice that it is “undercapitalized,” “significantly
      undercapitalized” or “critically undercapitalized.” In addition, numerous
      mandatory supervisory actions become immediately applicable to the institution,
      including, but not limited to, restrictions on growth, investment activities,
      capital distributions, and affiliate transactions. The Office of Thrift
      Supervision may also take any one of a number of discretionary supervisory
      actions against undercapitalized institutions, including the issuance of a
      capital directive and the replacement of senior executive officers and
      directors.





**Insurance
      of Deposit Accounts**





Deposit
      accounts in A. J. Smith Federal are insured by the Federal Deposit Insurance
      Corporation generally up to a maximum of $100,000 per separately insured
      depositor and up to a maximum of $250,000 for self-directed retirement accounts.
      A. J. Smith’s deposits, therefore, are subject to Federal Deposit Insurance
      Corporation deposit insurance assessments.





On
      February 15, 2006, federal legislation to reform federal deposit insurance
      was
      enacted. This new legislation required, among other things, that the Federal
      Deposit Insurance Corporation adopt regulations increasing the maximum amount
      of
      federal deposit insurance coverage per separately insured depositor beginning
      in
      2010 (with a cost of living adjustment to become effective in five years) and
      modifying the deposit fund’s reserve ratio for a range between 1.15% and 1.50%
      of estimated insured deposits.





On
      November 2, 2006, the Federal Deposit Insurance Corporation adopted final
      regulations establishing a risk-based assessment system that will enable the
      Federal Deposit Insurance Corporation to more closely tie each financial
      institution’s premiums to the risk it poses to the deposit insurance fund. Under
      the new risk-based assessment system, which becomes effective in the beginning
      of 2007, the Federal Deposit Insurance Corporation will evaluate the risk of
      each financial institution based on three




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primary
      sources of information: (1) its supervisory rating, (2) its financial ratios,
      and (3) its long-term debt issuer rating, if the institution has one. The new
      rates for nearly all of the financial institution industry will vary between
      five and seven cents for every $100 of domestic deposits. At the same time,
      the
      Federal Deposit Insurance Corporation also adopted final regulations designating
      the reserve ratio for the deposit insurance fund during 2007 at 1.25% of
      estimated insured deposits.




Effective
      March 31, 2006, the Federal Deposit Insurance Corporation merged the Bank
      Insurance Fund and the Savings Association Insurance Fund into a single
      insurance fund called the Deposit Insurance Fund. The merger of the two separate
      insurance funds did not affect the authority of the Financing Corporation,
      a
      mixed-ownership government corporation, to impose and collect, with approval
      of
      the Federal Deposit Insurance Corporation, assessments for anticipated payments,
      insurance costs and custodial fees on bonds issued by the Financing Corporation
      in the 1980s to recapitalize the Federal Savings and Loan Insurance Corporation.
      The bonds issued by the Financing Corporation are due to mature in 2017 through
      2019. For the quarter ended December 31, 2006, the Financing Corporation
      assessment was equal to 1.24 basis points for each $100 in domestic deposits
      maintained at an institution.





**Federal
      Home Loan Bank System**





We
      are a
      member of the Federal Home Loan Bank System, which consists of 12 regional
      Federal Home Loan Banks. The Federal Home Loan Bank System provides a central
      credit facility primarily for member institutions. As a member of the Federal
      Home Loan Bank of Chicago (FHLB), we are required to acquire and hold shares
      of
      capital stock in the Federal Home Loan Bank in an amount equal to at least
      1% of
      the aggregate principal amount of our unpaid residential mortgage loans and
      similar obligations at the beginning of each year, or 1/20 of our borrowings
      from the FHLB, whichever is greater. As of December 31, 2006, we were in
      compliance with this requirement. The Federal Home Loan Banks are required
      to
      provide funds for the resolution of insolvent thrifts and to contribute funds
      for affordable housing programs. These requirements could reduce the amount
      of
      dividends that the Federal Home Loan Banks pay to their members and could also
      result in the Federal Home Loan Banks imposing a higher rate of interest on
      advances to their members. On February 10, 2005 the FHLB announced that the
      Federal Housing Finance Board, the regulator for the FHLB, accepted their
      business plan. Included in the business plan were guidelines for a new dividend
      policy requiring its dividend payout ratio in a given quarter not to exceed
      90%
      of Adjusted Core Net Income for that quarter. In addition, quarterly dividends
      of greater than 5.5%, on an annualized basis, will require regulatory approval.
      On October 18, 2005 the Federal Home Loan Bank of Chicago announced a policy
      to
      discontinue excess capital stock redemptions or “voluntary” stock redemptions.
      Voluntary stock is stock held by members beyond the amount required as a
      condition of membership or to support advance borrowings.





**Federal
      Reserve System**





Federal
      Reserve Board regulations require savings institutions to maintain
      noninterest-earning reserves against their transaction accounts, such as
      negotiable order of withdrawal and regular checking accounts. At December 31,
      2006, we were in compliance with these reserve requirements. The balances
      maintained to meet the reserve requirements imposed by the Federal Reserve
      Board
      may be used to satisfy liquidity requirements imposed by the Office of Thrift
      Supervision.





**Holding
      Company Regulation**





***General*** .
      AJS
      Bancorp, MHC and AJS Bancorp, Inc. are non-diversified savings and loan holding
      companies within the meaning of the Home Owners’ Loan Act. As such, AJS Bancorp,
      MHC and AJS Bancorp, Inc. are registered with the Office of Thrift Supervision
      and are subject to Office of Thrift Supervision regulations, examinations,
      supervision and reporting requirements. In addition, the




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  Office
        of
        Thrift Supervision has enforcement authority over AJS Bancorp, Inc. and AJS
        Bancorp, MHC and their subsidiaries. Among other things, this authority permits
        the Office of Thrift Supervision to restrict or prohibit activities that
        are
        determined to be a serious risk to the subsidiary savings institution. As
        federal corporations, AJS Bancorp, Inc. and AJS Bancorp, MHC are generally
        not
        subject to state business organization laws.




***Permitted
      Activities*** .
      Pursuant to Section 10(o) of the Home Owners’ Loan Act and Office of Thrift
      Supervision regulations and policy, a mutual holding company, such as AJS
      Bancorp, MHC, and a federally chartered mid-tier holding company such as AJS
      Bancorp, Inc. may engage in the following activities: (i) investing in the
      stock of a savings association; (ii) acquiring a mutual association through
      the merger of such association into a savings association subsidiary of such
      holding company or an interim savings association subsidiary of such holding
      company; (iii) merging with or acquiring another holding company, one of
      whose subsidiaries is a savings association; (iv) investing in a
      corporation, the capital stock of which is available for purchase by a savings
      association under federal law or under the law of any state where the subsidiary
      savings association or associations share their home offices;
      (v) furnishing or performing management services for a savings association
      subsidiary of such company; (vi) holding, managing or liquidating assets
      owned or acquired from a savings subsidiary of such company; (vii) holding
      or managing properties used or occupied by a savings association subsidiary
      of
      such company; (viii) acting as trustee under deeds of trust; (ix) any
      other activity (A) that the Federal Reserve Board, by regulation, has
      determined to be permissible for bank holding companies under Section 4(c)
      of the Bank Holding Company Act of 1956, unless the Director, by regulation,
      prohibits or limits any such activity for savings and loan holding companies;
      or
      (B) in which multiple savings and loan holding companies were authorized
      (by regulation) to directly engage on March 5, 1987; (x) any activity
      permissible for financial holding companies under Section 4(k) of the Bank
      Holding Company Act, including securities and insurance underwriting; and
      (xi) purchasing, holding, or disposing of stock acquired in connection with
      a qualified stock issuance if the purchase of such stock by such savings and
      loan holding company is approved by the Director. If a mutual holding company
      acquires or merges with another holding company, the holding company acquired
      or
      the holding company resulting from such merger or acquisition may only invest
      in
      assets and engage in activities listed in (i) through (xi) above, and
      has a period of two years to cease any nonconforming activities and divest
      of
      any nonconforming investments.





The
      Home
      Owners’ Loan Act prohibits a savings and loan holding company, including AJS
      Bancorp, Inc. and AJS Bancorp, MHC, directly or indirectly, or through one
      or
      more subsidiaries, from acquiring another savings institution or holding company
      thereof, without prior written approval of the Office of Thrift Supervision.
      It
      also prohibits the acquisition or retention of, with certain exceptions, more
      than 5% of a non-subsidiary savings institution, a non-subsidiary holding
      company, or a non-subsidiary company engaged in activities other than those
      permitted by the Home Owners’ Loan Act; or acquiring or retaining control of an
      institution that is not federally insured. In evaluating applications by holding
      companies to acquire savings institutions, the Office of Thrift Supervision
      must
      consider the financial and managerial resources, future prospects of the company
      and institution involved, the effect of the acquisition on the risk to the
      insurance fund, the convenience and needs of the community and competitive
      factors.





The
      Office of Thrift Supervision is prohibited from approving any acquisition that
      would result in a multiple savings and loan holding company controlling savings
      institutions in more than one state, subject to two exceptions: (i) the
      approval of interstate supervisory acquisitions by savings and loan holding
      companies, and (ii) the acquisition of a savings institution in another
      state if the laws of the state of the target savings institution specifically
      permit such acquisitions. The states vary in the extent to which they permit
      interstate savings and loan holding company acquisitions.





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***Waivers
      of Dividends by AJS Bancorp, MHC*** .
      Office
      of Thrift Supervision regulations require AJS Bancorp, MHC to notify the Office
      of Thrift Supervision of any proposed waiver of its receipt of dividends from
      AJS Bancorp, Inc. The Office of Thrift Supervision reviews dividend waiver
      notices on a case-by-case basis, and, in general, does not object to any such
      waiver if: (i) the mutual holding company’s board of directors determines that
      such waiver is consistent with such directors’ fiduciary duties to the mutual
      holding company’s members; (ii) for as long as the savings association
      subsidiary is controlled by the mutual holding company, the dollar amount of
      dividends waived by the mutual holding company are considered as a restriction
      on the retained earnings of the savings association, which restriction, if
      material, is disclosed in the public financial statements of the savings
      association as a note to the financial statements; (iii) the amount of any
      dividend waived by the mutual holding company is available for declaration
      as a
      dividend solely to the mutual holding company, and, in accordance with SFAS
      5,
      where the savings association determines that the payment of such dividend
      to
      the mutual holding company is probable, an appropriate dollar amount is recorded
      as a liability; and (iv) the amount of any waived dividend is considered as
      having been paid by the savings association in evaluating any proposed dividend
      under Office of Thrift Supervision capital distribution regulations. AJS
      Bancorp, MHC may waive dividends paid by AJS Bancorp, Inc. Under Office of
      Thrift Supervision regulations, our public stockholders would not be diluted
      because of any dividends waived by AJS Bancorp, MHC (and waived dividends would
      not be considered in determining an appropriate exchange ratio) in the event
      AJS
      Bancorp, MHC converts to stock form. On November 25, 2005 the Company paid
      an
      initial quarterly dividend of $0.10 cents per share to stockholders of record
      on
      November 10, 2005. In conjunction with Office of Thrift Supervision’s approval,
      AJS Bancorp, MHC waived 80% of the quarterly dividend due on its 1,227,554
      shares. During the twelve months ended 2006 the Company paid three regular
      quarterly dividends of $0.10 per share and one regular quarterly dividend of
      $0.11 per share to stockholders of record. In conjunction with the Office of
      Thrift Supervision approval, AJS Bancorp, MHC waived 100% of the dividends
      due
      on its 1,227,554 shares. The Company anticipates that AJS Bancorp, MHC will
      waive 100% of dividends in the foreseeable future.





***Conversion
      of AJS Bancorp, MHC to Stock Form*** .
      Office
      of Thrift Supervision regulations permit AJS Bancorp, MHC to convert from the
      mutual form of organization to the capital stock form of organization (a
“Conversion Transaction”). There can be no assurance when, if ever, a Conversion
      Transaction will occur, and the Board of Directors has no current intention
      or
      plan to undertake a Conversion Transaction. In a Conversion Transaction a new
      holding company would be formed as the successor to AJS Bancorp, Inc. (the
“New
      Holding Company”), AJS Bancorp, MHC’s corporate existence would end, and certain
      depositors of A. J. Smith Federal would receive the right to subscribe for
      additional shares of the New Holding Company. In a Conversion Transaction,
      each
      share of common stock held by stockholders other than AJS Bancorp, MHC
      (“Minority Stockholders”) would be automatically converted into a number of
      shares of common stock of the New Holding Company determined pursuant an
      exchange ratio that ensures that Minority Stockholders own the same percentage
      of common stock in the New Holding Company as they owned in AJS Bancorp, Inc.
      immediately prior to the Conversion Transaction. Under Office of Thrift
      Supervision regulations, Minority Stockholders would not be diluted because
      of
      any dividends waived by AJS Bancorp, MHC (and waived dividends would not be
      considered in determining an appropriate exchange ratio), in the event AJS
      Bancorp, MHC converts to stock form. The total number of shares held by Minority
      Stockholders after a Conversion Transaction also would be increased by any
      purchases by Minority Stockholders in the stock offering conducted as part
      of
      the Conversion Transaction.





**The
      USA PATRIOT Act**





In
      response to the events of September 11, 2001, the Uniting and Strengthening
      America by Providing Appropriate Tools Required to Intercept and Obstruct
      Terrorism Act of 2001, or the USA PATRIOT Act, was signed into law on October
      26, 2001. The USA PATRIOT Act gave the Federal




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  Government
        new powers to address terrorist threats through enhanced domestic security
        measures, expanded surveillance powers, increased information sharing and
        broadened anti-money laundering requirements. The USA PATRIOT Act has no
        material impact on the Bank’s operations.




**Sarbanes-Oxley
      Act of 2002**





The
      Sarbanes-Oxley Act of 2002 was enacted in response to public concerns regarding
      corporate accountability in connection with recent accounting scandals. The
      stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility,
      to provide for enhanced penalties for accounting and auditing improprieties
      at
      publicly traded companies, and to protect investors by improving the accuracy
      and reliability of corporate disclosures pursuant to the securities laws. The
      Sarbanes-Oxley Act generally applies to all companies that file or are required
      to file periodic reports with the SEC, under the Securities Exchange Act of
      1934.





The
      Sarbanes-Oxley Act includes very specific additional disclosure requirements
      and
      new corporate governance rules requiring the SEC and securities exchanges to
      adopt extensive additional disclosure, corporate governance and other related
      rules, and mandates further studies of certain issues by the SEC. The
      Sarbanes-Oxley Act represents significant federal involvement in matters
      traditionally left to state regulatory systems, such as the regulation of the
      accounting profession, and to state corporate law, such as the relationship
      between a board of directors and management and between a board of directors
      and
      its committees. Recently, the SEC created a committee to evaluate Sarbanes-Oxley
      issues that may affect small public companies. Specifically being reviewed
      are
      the requirements under Sarbanes-Oxley section 404, which require significant
      oversight of a public company’s internal control over the financial statements.
      On December 15, 2006 the SEC issued a final rule to further extend the
      Sarbanes-Oxley Section 404 compliance dates for nonaccelerated filers. The
      final
      rule now requires nonaccelerated filers to provide management’s report on
      internal control over financial reporting for the first fiscal year ending
      on or
      after December 15, 2007. The rule further extends the deadline for the external
      auditor’s attestation report on internal control over financial reporting to be
      required for the first fiscal year ending on or after December 15, 2008. The
      Company cannot accurately predict what additional expenses may be incurred
      in
      complying with the provisions of the Sarbanes-Oxley Act





**TAXATION**





*Federal
      Taxation*  For
      federal income tax purposes, AJS Bancorp, Inc. and A. J. Smith Federal file
      separate federal income tax returns on a calendar year basis using the accrual
      method of accounting.





As
      a
      result of the enactment of the Small Business Job Protection Act of 1996, all
      savings banks and savings associations may convert to a commercial bank charter,
      diversify their lending, or merge into a commercial bank without having to
      recapture any of their pre-1988 tax bad debt reserve accumulations. However,
      transactions which would require recapture of the pre-1988 tax bad debt reserve
      include redemption of A. J. Smith Federal’s stock, payment of dividends or
      distributions in excess of earnings and profits, or failure by the institution
      to qualify as a bank for federal income tax purposes. At December 31, 2006,
      A.
      J. Smith Federal had approximately $2.4 million of pre-1988 tax bad debt
      reserves. A deferred tax liability has not been provided on this amount, as
      management does not intend to make distributions, redeem stock or fail certain
      bank tests that would result in recapture of the reserve.





Deferred
      income taxes arise from the recognition of items of income and expense for
      tax
      purposes in years different from those in which they are recognized in the
      consolidated financial statements. AJS Bancorp, Inc. will account for deferred
      income taxes by the asset and liability method, applying the enacted statutory
      rates in effect at the balance sheet date to differences between the
      book




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  basis
        and
        the tax basis of assets and liabilities. The resulting deferred tax liabilities
        and assets will be adjusted to reflect changes in the tax
        laws.




AJS
      Bancorp, Inc. is subject to the corporate alternative minimum tax to the extent
      it exceeds AJS Bancorp, Inc.’s regular income tax for the year. The alternative
      minimum tax will be imposed at the rate of 20% of a specially computed tax
      base.
      Included in this base are a number of preference items, including interest
      on
      certain tax-exempt bonds issued after August 7, 1986, and an “adjusted current
      earnings” computation which is similar to a tax earnings and profits
      computation. In addition, for purposes of the alternative minimum tax, the
      amount of alternative minimum taxable income that may be offset by net operating
      losses is limited to 90% of alternative minimum taxable income.





A.
      J.
      Smith Federal’s income tax returns have not been audited by the Internal Revenue
      Service within the past five years.





***Illinois
      State Taxation.*** AJS
      Bancorp, Inc. is required to file Illinois income tax returns and pay tax at
      an
      effective tax rate of 7.3% of Illinois taxable income. For these purposes,
      Illinois taxable income generally means federal taxable income subject to
      certain modifications, primarily the exclusion of interest income on United
      States obligations. During 2005, the Illinois Department of Revenue (IDOR)
      audited the Company’s and the Bank’s Illinois tax returns for the years ended
      2004, 2003 and 2002. IDOR recommended the Company file unitary tax returns,
      or
      consolidated returns with the Bank and MHC, for the years audited and for future
      filings. This change resulted in no effect for 2002 and an immaterial refund
      for
      2003 and 2004, respectively. We expect this change to minimally decrease the
      Company’s Illinois revenue taxes in the future.





**MANAGEMENT**





***Executive
      Officers of AJS Bancorp, Inc.*** The
      following individuals hold the following executive officer positions of AJS
      Bancorp, Inc.





**Name**
            
            **Age**
            
            **Position**Thomas
                R. Butkus
            
            59
            
            Chairman
                of the Board and Chief Executive OfficerLyn
                G. Rupich
            
            44
            
            PresidentW.
                Anthony Kopp
            
            56
            
            Senior
                Vice PresidentPamela
                N. Favero
            
            43
            
            Chief
                Financial Officer





**Availability
      of Annual Report on Form 10-K**





Our
      Annual Report on Form 10-K may be accessed on our website at www.ajsmithbank.com .





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**Item
      1A.****Risk
      Factors**





**Changing
      Interest Rates May Cause Net Earnings to Decline.**





In
      the
      event that interest rates rise, our net interest margin and interest rate spread
      will be adversely affected by the high level of assets with fixed rates of
      interest which we retain in our portfolio. As market interest rates rise, we
      will have competitive pressures to increase the rates we pay on deposits, which
      will result in a decrease of our net interest income. Furthermore, the value
      of
      our loans will be less should we choose to sell such loans in the secondary
      market. Since as a general matter our interest-bearing liabilities reprice
      or
      mature more quickly than our interest-earning assets, an increase in interest
      rates generally would result in a decrease in our average interest rate spread
      and net interest income.





**If
      Our Allowance for Loan Losses is Not Sufficient to Cover Actual Loan Losses,
      Our
      Earnings Could Decrease.**





Our
      loan
      customers may not repay their loans according to their terms, and the collateral
      securing the payment of these loans may be insufficient to pay any remaining
      loan balance. We may experience significant loan losses, which could have a
      material adverse effect on our operating results. We make various assumptions
      and judgments about the collectibility of our portfolio, including the
      creditworthiness of our borrowers and the value of the real estate and other
      assets serving as collateral for the repayment of many of our
      loans.





In
      determining the amount of the allowance for loan losses, we review individual
      delinquent multi-family and commercial real estate loans for potential
      impairments in their carrying value. Additionally, we apply a factor to the
      loan
      portfolio principally based on historical loss experience applied to the
      composition of the loan portfolio and integrated with our perception of risk
      in
      the economy. Since we must use assumptions regarding individual loans and the
      economy, our current allowance for loan losses may not be sufficient to cover
      actual loan losses, and increases in the allowance may be necessary.
      Consequently, we may need to significantly increase our provision for losses
      on
      loans, particularly if one or more of our larger loans or credit relationships
      becomes delinquent of if we expand our non-residential, multi-family or
      commercial business lending. In addition, federal and state regulators
      periodically review our allowance for loan losses and may require us to increase
      our provision for loan losses or recognize loan charge-offs.





**If
      Economic Conditions Deteriorate, Our Earnings Could be Adversely Impacted as
      Borrowers’ Ability to Repay Loans Declines and the Value of the Collateral
      Securing Our Loans Decreases.**





Our
      financial results may be adversely affected by changes in prevailing economic
      conditions, including decreases in real estate values, changes in interest
      rates
      which may cause a decrease in interest rate spreads, adverse employment
      conditions, the monetary and fiscal policies of the federal government and
      other
      significant external events. Since we have a significant amount of real estate
      loans, decreases in real estate values could adversely affect the value of
      property used as collateral. Advance changes in the economy may also have a
      negative effect on the ability of our borrowers to make timely repayments of
      their loans, which would have an adverse impact on our earnings.





**Our
      Public Shareholders Do Not Exercise Voting Control Over AJS Bancorp,
      Inc.**





A
      majority of the voting stock of AJS Bancorp, Inc. is owned by AJS Bancorp,
      MHC.
      AJS Bancorp, MHC is controlled by its board of directors, which consist of
      those
      persons who are members of the board of directors of AJS Bancorp, Inc. and
      A. J.
      Smith Federal Savings Bank. AJS Bancorp, MHC elects all members of the board
      of
      directors of AJS Bancorp, Inc., and, as a general matter, will
      control




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  the
        outcome of all matters presented to the stockholders of AJS Bancorp, Inc.
        for
        resolution by vote, except for matters that require a vote greater than a
        majority vote. Consequently, AJS Bancorp, MHC, acting through its board of
        directors, is able to control the business and operations of AJS Bancorp,
        Inc.
        and may be able to prevent any challenge to the ownership or control of AJS
        Bancorp, Inc. by stockholders other than AJS Bancorp, MHC. There is no assurance
        that AJS Bancorp, MHC will not take actions that the public stockholders
        believe
        are against their interests.





**Strong
      Competition Within Our Market Area May Limit Our Growth and
      Profitability.**





Competition
      in the banking and financial services industry is intense. In our market area,
      we compete with commercial banks, savings institutions, mortgage brokerage
      firms, credit unions, finance companies, mutual funds, and brokerage and
      investment banking firms operating locally and elsewhere. Many of these
      competitors have substantially greater resources and lending limits than we
      do
      and may offer certain services that we do not or cannot provide. Our
      profitability depends upon our continued ability to successfully compete in
      our
      market area.





**We
      Operate in a Highly Regulated Environment and May be Adversely Affected by
      Changes in Laws and Regulations.**





We
      are
      subject to extensive regulation, supervision and examination by the Office
      of
      Thrift Supervision, our chartering authority, and by the Federal Deposit
      Insurance Corporation, as insurer of deposits. As federally chartered holding
      companies, AJS Bancorp, Inc. and AJS Bancorp, MHC are subject to regulation
      and
      oversight by the Office of Thrift Supervision. Such regulation and supervision
      govern the activities in which an institution and its holding companies may
      engage and are intended primarily for the protection of the insurance fund
      and
      depositors. Regulatory authorities have extensive discretion in connection
      with
      their supervisory and enforcement activities, including the imposition of
      restrictions on the operation of an institution, the classification of assets
      by
      the institution and the adequacy of an institution’s allowance for loan losses.
      Any change in such regulation and oversight, whether in the form of regulatory
      policy, regulations, or legislation, including changes in the regulations
      governing mutual holding companies, could have a material impact on A. J. Smith
      Federal Savings Bank, AJS Bancorp, Inc., and our operations.





**Item
      1.B****Unresolved
      Staff Comments**





None.





**ITEM
      2.****PROPERTIES**





**Properties**





At
      December 31, 2006, we conducted our business from our main office at 14757
      South
      Cicero, Midlothian, Illinois, a branch office located at 8000 West
      159 th Street,
      Orland Park, Illinois and a branch office located at 11275 W. 143 rd Street,
      Orland Park, Illinois. We own all of our branch locations. At December 31,
      2006,
      the net book value of our office locations was $4.2 million.





**ITEM
      3.** **LEGAL
      PROCEEDINGS**





We
      are
      involved, from time to time, as plaintiff or defendant in various legal actions
      arising in the normal course of our business. At December 31, 2006, we were
      not
      involved in any legal proceedings, the outcome of which would be material to
      our
      financial condition or results of operations.





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**ITEM
      4.** **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





None.





**PART
      II**





**ITEM
      5.** **MARKETFOR
      REGISTRANT’S COMMON STOCK AND RELATED
      STOCKHOLDER MATTERS**





The
      Company’s Common Stock is quoted on the electronic bulletin board under the
      symbol “AJSB.”





The
      following table sets forth the range of the high and low bid prices of the
      Company’s Common Stock for the prior eight calendar quarters and is based upon
      information set forth on the over the counter electronic bulletin board. During
      the twelve months ended 2006 the Company paid three regular quarterly dividends
      of $0.10 cents per share, and one regular quarterly dividend of $0.11 cents
      per
      share to stockholders of record. In conjunction with Office of Thrift
      Supervision approval, AJS Bancorp, MHC (the “MHC”) waived 100% of the quarterly
      dividends due on its 1,227,554 shares. The Company paid an initial quarterly
      dividend of $0.10 cents per share on November 25, 2005, to stockholders of
      record on November 10, 2005, of which the MHC waived 80% of the quarterly
      dividend due on it’s 1,227,554 shares.





**Prices
                of Common Stock****High**
            
            **Low****Calendar
                Quarter Ended**March
                31, 2005
            
            $
            24.40
            
            $
            23.75June
                30, 2005
            
            
            24.25
            
            
            23.30September
                30, 2005
            
            
            25.00
            
            
            23.00December
                31, 2005
            
            
            23.60
            
            
            22.50March
                31, 2006
            
            
            23.90
            
            
            23.00June
                30, 2006
            
            
            25.00
            
            
            23.55September
                30, 2006
            
            
            25.00
            
            
            23.50December
                31, 2006
            
            
            26.50
            
            
            24.60








As
      of
      December 31, 2006, the Company had 382 stockholders of record.





The
      Company's second repurchase plan was announced on May 18, 2004 and allowed
      for
      the repurchase of 117,000 shares of the Company's stock, which represented
      approximately 5% of the Company's outstanding shares. Subsequently, the Company
      announced increases in the repurchase plan of 100,000 and 50,000 shares on
      March
      22, 2005 and October 18, 2005, respectively. As of December 31, 2006 there
      are 58,037 shares remaining to be purchased under the current repurchase
      plan.





The
      following table sets forth the issuer purchases of equity securities during
      the
      prior three months.





Total
                number
              shares
                purchased
            
            Average
                price
              paid
                per share
            
            Total
                number of shares purchased under publicly announced plan
            
            Maximum
                number of shares that may be purchased under the repurchase
                planOctober
                1-October 31
            
            
            -
            
            $
            -
            
            
            207,695
            
            
            267,000November
                1-November 30
            
            
            1,268
            
            
            24.25
            
            
            208,963
            
            
            267,000December
                1- December 31
            
            
            -
            
            
            -
            
            
            208,963
            
            
            267,000





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Set
      forth
      below is certain information as of December 31, 2006 regarding equity
      compensation to directors and executive officers of the Company approved by
      stockholders. Other than the employee stock ownership plan, the Company did
      not
      have any equity plans in place that were not approved by stockholders.




**Plan**
            **Number
                of securities to be issued upon exercise of outstanding options and
                rights**
            **Weighted
                average**
              **exercise
                price**
            **Number
                of securities remaining available for issuance under
                plan**Equity
                compensation plans approved by stockholders
            102,885
                options
              20,868
                nonvested restricted stock
            $
                18.81(1)
            7,456
                (options)/900 (restricted stock)Equity
                compensation plans not approved by stockholders
            -
            -
            -Total
            123,753
            $
                18.81(1)
            7,456
                (options)/900 (restricted stock)


(1) Represents
      the exercise price of options awarded under the stock option plan.





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**Stock
      Performance Graph**





Set
      forth
      hereunder is a performance graph comparing (a) the total return on the
      common stock of the Company for the period beginning on December 31, 2001
      through December 31, 2006, (b) the cumulative total return on stocks
      included in the United States Nasdaq Composite Index over such period, and
      (c) the cumulative total return on stocks included in the SNL Over the
      Counter-Bulletin Board and pink sheet traded thrifts with total assets between
      $100 million up to $500 million over such period, and (d) the cumulative total
      return on stocks included in the SNL Mutual Holding Company Thrifts Index over
      such period. The graph assumes that the value of the investment in each index
      was $100 on December 26, 2001 and that all dividends were
      reinvested.




Assuming
      an initial investment in the common stock of the Company of $100.00 on
      December 31, 2001, the cumulative total value of the investment on December
      31, 2006 would be $203.15. There can be no assurance that the Company’s stock
      performance will continue in the future with the same or similar trend depicted
      in the graph. The Company will not make or endorse any predictions as to future
      stock performance.





Total Return Performance





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***Period
                Ending******Index***
            
            **12/31/01**
            
            **12/31/02**
            
            **12/31/03**
            
            **12/31/04**
            
            **12/31/05**
            
            **12/31/06**AJS
                Bancorp, Inc.
            
            
            100.00
            
            
            132.32
            
            
            174.90
            
            
            182.51
            
            
            175.67
            
            
            203.15NASDAQ
                Composite
            
            
            100.00
            
            
            68.76
            
            
            103.67
            
            
            113.16
            
            
            115.57
            
            
            127.58SNL
                Thrift Pink
            
            
            100.00
            
            
            124.49
            
            
            184.21
            
            
            196.23
            
            
            205.20
            
            
            254.86SNL
                Thrift MHCs
            
            
            100.00
            
            
            143.59
            
            
            242.83
            
            
            274.86
            
            
            282.40
            
            
            386.74




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**ITEM
      6.****SELECTED
      FINANCIAL DATA**





The
      following tables set forth selected consolidated historical financial and other
      data of AJS Bancorp, Inc. for the periods and at the dates indicated. The
      information is derived in part from, and should be read together with, the
      Consolidated Financial Statements and Notes thereto of AJS Bancorp, Inc.
      contained elsewhere in this Annual Report.





**At
                December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(Dollars
                in thousands)****Selected
                Financial Condition Data:**Total
                assets
            
            $
            266,513
            
            $
            257,905
            
            $
            270,869
            
            $
            238,384
            
            $
            222,570Loans
                receivable, net
            
            
            138,377
            
            
            151,768
            
            
            163,291
            
            
            155,628
            
            
            136,134Mortgage-backed
                securities:Held
                to maturity
            
            
            74
            
            
            95
            
            
            132
            
            
            177
            
            
            269Available
                for sale
            
            
            34,059
            
            
            36,130
            
            
            35,233
            
            
            13,854
            
            
            15,770Securities:Held
                to maturity
            
            
            130
            
            
            200
            
            
            -
            
            
            -
            
            
            91Available
                for sale
            
            
            34,715
            
            
            35,109
            
            
            26,250
            
            
            28,621
            
            
            36,133Deposits
            
            
            202,176
            
            
            190,407
            
            
            198,056
            
            
            183,847
            
            
            169,008Total
                borrowings
            
            
            28,750
            
            
            32,750
            
            
            36,250
            
            
            17,000
            
            
            16,000Equity
            
            
            28,749
            
            
            28,252
            
            
            30,530
            
            
            32,105
            
            
            33,646




**Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(Dollars
                in thousands)****Selected
                Operations Data:**Total
                interest income
            
            $
            13,589
            
            $
            12,948
            
            $
            12,737
            
            $
            12,347
            
            $
            13,113Total
                interest expense
            
            
            7,017
            
            
            6,023
            
            
            5,178
            
            
            5,069
            
            
            5,426Net
                interest income
            
            
            6,572
            
            
            6,925
            
            
            7,559
            
            
            7,278
            
            
            7,687Provision
                for loan losses
            
            
            (28
            )
            
            (130
            )
            
            (112
            )
            
            (61
            )
            
            20Net
                interest income after provision for loan losses
            
            
            6,600
            
            
            7,055
            
            
            7,671
            
            
            7,339
            
            
            7,667Noninterest
                income
            
            
            939
            
            
            936
            
            
            933
            
            
            1,091
            
            
            1,599Noninterest
                expense
            
            
            6,088
            
            
            6,200
            
            
            6,191
            
            
            6,255
            
            
            5,855Income
                before income taxes
            
            
            1,451
            
            
            1,791
            
            
            2,413
            
            
            2,175
            
            
            3,411Income
                taxes
            
            
            540
            
            
            694
            
            
            833
            
            
            782
            
            
            1,296Net
                income
            
            $
            911
            
            $
            1,097
            
            $
            1,580
            
            $
            1,393
            
            $
            2,115Earnings
                per shareBasic
            
            $
            0.43
            
            $
            0.51
            
            $
            0.70
            
            $
            0.60
            
            $
            0.90Diluted
            
            
            0.43
            
            
            0.50
            
            
            0.69
            
            
            0.60
            
            
            0.90




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**Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****Selected
                Financial Ratios and Other Data:****Performance
                Ratios:**Return
                on assets (ratio of net income to average total assets)
            
            
            0.36
            %
            
            0.42
            %
            
            0.61
            %
            
            0.58
            %
            
            0.98
            %Return
                on equity (ratio of net income to average equity)
            
            
            3.40
            
            
            3.75
            
            
            5.07
            
            
            4.15
            
            
            6.50Interest
                rate spread information:Average
                during period
            
            
            2.29
            
            
            2.41
            
            
            2.78
            
            
            2.93
            
            
            3.39Net
                interest margin (1)
            
            
            2.62
            
            
            2.71
            
            
            3.03
            
            
            3.20
            
            
            3.78Ratio
                of operating expense to average total assets
            
            
            2.43
            
            
            2.35
            
            
            2.39
            
            
            2.62
            
            
            .72Efficiency
                ratio (2)
            
            
            81.05
            
            
            78.87
            
            
            72.90
            
            
            74.74
            
            
            73.04Ratio
                of average interest-earning assets to average interest-bearing
                liabilities
            
            
            111.96
            
            
            112.45
            
            
            112.29
            
            
            112.29
            
            
            14.49**Asset
                Quality Ratios:**Non-performing
                assets to total assets at end of period
            
            
            0.20
            
            
            0.15
            
            
            0.36
            
            
            0.49
            
            
            0.49Allowance
                for loan losses to non-performing loans
            
            
            299.81
            
            
            431.73
            
            
            187.89
            
            
            172.71
            
            
            197.91Allowance
                for loan losses to loans receivable, gross
            
            
            1.16
            
            
            1.11
            
            
            1.12
            
            
            1.24
            
            
            1.51**Capital
                Ratios:**Equity
                to total assets at end of period
            
            
            10.79
            
            
            10.95
            
            
            11.27
            
            
            13.47
            
            
            15.12Average
                equity to average assets
            
            
            10.68
            
            
            11.08
            
            
            12.06
            
            
            14.02
            
            
            15.14**Other
                Data:**Number
                of full-service offices
            
            
            3
            
            
            3
            
            
            3
            
            
            3
            
            
            3







(1)
            Net
                interest income divided by average interest earning
                assets.


(2)
            Efficiency
                ratio represents noninterest expense as a percentage of net interest
                income plus noninterest income.







**ITEM
      7.** **MANAGEMENT’SDISCUSSION
      AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Forward
      Looking Statements**





This
      Annual Report contains certain “forward-looking statements” which may be
      identified by the use of words such as “believe,” “expect,” “anticipate,”
“should,” “planned,” “estimated,” and “potential.” Examples of forward-looking
      statements include, but are not limited to, estimates with respect to our
      financial condition, results of operations and business that are subject to
      various factors which could cause actual results to differ materially from
      these
      estimates and most other statements that are not historical in nature. These
      factors include, but are not limited to, general and local economic conditions,
      changes in interest rates, deposit flows, demand for mortgage, commercial and
      other loans, real estate values, competition, changes in accounting principles,
      policies, or guidelines, changes in legislation or regulation, and other
      economic, competitive, governmental, regulatory, and technological factors
      affecting our operations, pricing products and services.





**General**





Our
      results of operations depend primarily on our net interest income. Net interest
      income is the difference between the interest income we earn on our
      interest-earning assets, consisting primarily of loans, investment securities
      and interest-earnings deposits with other financial institutions, and the
      interest we pay on our interest-bearing liabilities, consisting primarily of
      savings accounts, time deposits and borrowings. Our results of operations are
      also affected by our provisions for loans losses, other income and other
      expense. Other income consists primarily of insurance commissions and service
      charges on deposit accounts. Other expense consists primarily of noninterest
      expense, including salaries




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  and
        employee benefits, occupancy, equipment, data processing and deposit insurance
        premiums. Our results of operations may also be affected significantly by
        general and local economic and competitive conditions, changes in market
        interest rates, governmental policies and actions of regulatory
        authorities.




**Business
      Strategy**





Our
      business strategy is to operate as a well-capitalized, profitable,
      community-oriented savings bank dedicated to providing quality customer service.
      In the past, we implemented our business strategy by emphasizing the origination
      of one-to-four family loans and other loans secured by real estate. We will
      continue to be primarily a one-to-four family lender. Management, however,
      has
      determined to broaden the scope of our loan products and services to enhance
      profitability and reduce the risks inherent in our loan portfolio, consistent
      with safety and soundness. In this regard, we have determined to reduce our
      reliance on subprime lending and to expand our commercial business lending
      and
      business banking services. There can be no assurances that we will successfully
      implement our strategy.





Highlights
      of our business strategy are as follows:





•
            *Continuing
                One-to-Four Family Residential Real Estate Lending*.
                Historically, we have emphasized one-to-four family residential lending
                within our market area. As of December 31, 2006, $86.0 million, or
                61.5%,
                of our total loan portfolio consisted of one- to four-family residential
                real estate loans. During the year ended December 31, 2006, we
                originated $11.1 million of one-to-four family residential real estate
                loans. We intend to continue to originate one-to-four family loans
                because
                of our expertise with this type of
                lending.




•
            *Commercial
                and Multi-Family Real Estate Lending*.
                We intend to originate more commercial business and multi-family
                loans to
                complement our one- to four-family residential real estate lending.
                These
                loans will most likely encumber business real estate whenever possible,
                however, we may use non-real estate based liens when necessary. As
                of
                December 31, 2006 commercial real estate and multi-family loans
                represented $41.2 million or 29.5% of our loan portfolio. We continue
                to
                be committed to developing our commercial business and multi-family
                lending and our commercial business banking services. We believe
                that
                expanding our commercial and multi-family business lending will enable
                us
                to improve the yield on our loan portfolio and diversify our assets
                while
                continuing to meet the needs of our community.





*•*
            *Establishing
                Our Commercial Business Banking*.
                We are committed to meeting the financial needs of the communities
                in
                which we operate. In particular, we have increased our emphasis on
                business banking, and we now offer commercial deposit products, such
                as
                transaction accounts, to our business customers. Our objective is
                to
                actively market our business banking products and services to our
                existing
                customers, as well as new businesses within our market
                area.




**Comparison
      of Financial Condition at December 31, 2006 and December 31,
      2005**





Total
      assets as of December 31, 2006 were $266.5 million, an increase of $8.6 million
      or 3.3% from $257.9 million at December 31, 2005. The increase was primarily
      due
      to an increase in cash and cash equivalents offset by decreases in certificates
      of deposit, securities, loans receivable, and Federal Home Loan Bank (FHLB)
      stock. Deposits at other financial institutions consisting of certificates
      of
      deposit decreased $3.1 million or 36.0% to $5.5 million at December 31, 2006
      from $8.6 million at December 31, 2005. The decrease was due to the certificates
      maturing. Securities decreased $2.5 million




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  or
        3.6%
        to $69.0 million at December 31, 2006 from $71.5 million at December 31,
        2005.
        Loans receivable decreased $13.4 million or 8.8% to $138.4 million at December
        31, 2006 from $151.8 million at December 31, 2005. Federal Home Loan Bank
        stock
        decreased $966,000 or 28.3% to $2.4 million at December 31, 2006 from $3.4
        million at December 31, 2005. The Company continued to decrease its investment
        in Federal Home Loan Bank stock due to liquidity and dividend policy changes
        at
        the Federal Home Loan Bank. There was no gain or loss on the sale of the
        Federal
        Home Loan Bank stock. The change in our asset composition reflects management’s
        decision to have a more liquid asset mix during the current inverted interest
        rate environment.




Total
      deposits increased $11.8 million or 6.2% to $202.2 million at December 31,
      2006
      from $190.4 million at December 31, 2005. The increase was primarily in
      certificates of deposit, offset by a decrease in passbook savings accounts.
      Certificates of deposit increased to $129.3 million at December 31, 2006
      from $112.9 million at December 31, 2005. Passbook savings accounts decreased
      $6.4 million to $40.5 million at December 31, 2006 compared to $46.9 million
      at
      December 31, 2005.





FHLB
      advances decreased to $28.8 million at December 31, 2006 from $32.8 million
      at
      December 31, 2005. The decrease was due to the advances maturing and not being
      replaced.





At
      December 31, 2006 our securities available for sale portfolio had gross
      unrealized losses of $1.4 million compared to gross unrealized losses of $1.8
      million at December 31, 2005. Our available for sale mortgage-backed securities
      accounted for $1.0 million of the gross unrealized losses at December 31, 2006,
      while our available for sale U.S. governmental agency securities had $215,000
      gross unrealized losses at December 31, 2006. Our mutual fund, which holds
      adjustable rate mortgage securities and mortgage-backed securities, had gross
      unrealized losses of $201,000 at December 31, 2006 compared to gross unrealized
      losses of $183,000 at December 31, 2005. We have reviewed and analyzed our
      available for sale portfolio to determine if any security within the portfolio
      may have suffered an other-than-temporary impairment. Staff Accounting Bulletin
      topic 5M provides guidance on making other-than-temporary impairment decisions,
      and requires an evidence-based evaluation when an investment declines below
      cost. It references the length of time that market value has been less than
      cost
      (duration of impairment) and the extent to which market value has been less
      than
      cost (severity of impairment). We concluded that the cause of the unrealized
      loss was interest-rate driven and does not reflect any impairment related to
      the
      financial condition and near-term prospects of the issuer that could effect
      the
      earnings potential of the investment. In addition, we also have the intent
      and
      ability to hold the securities through the expected recovery period. Therefore,
      we anticipate leveling or declining interest rates will result in the recovery
      of the available for sale securities market value.





We
      had
      non-performing assets, all nonaccrual loans, of $540,000 as of December 31,
      2006
      and $394,000 as of December 31, 2005. The allowance for loan losses totaled
      $1.6
      million at December 31, 2006 and $1.7 million at December 31, 2005. This
      represents a ratio of the allowance for loan losses to gross loans receivable
      of
      1.16% at December 31, 2006 and 1.11% at December 31, 2005. The allowance for
      loan losses to non-performing loans was 299.8% at December 31, 2006 and 431.7%
      at December 31, 2005. We had four non-performing subprime loans totaling
      $199,000 at December 31, 2006.





Total
      stockholders’ equity increased $497,000 to $28.7 million at December 31, 2006
      from $28.3 million at December 31, 2005. The increase in stockholders’ equity
      during the past twelve months primarily resulted from net income of $911,000,
      as
      well as an increase in other comprehensive income due to the increased market
      value of the available for sale securities portfolio. These increases were
      partially offset by the repurchase of shares of our stock during the twelve
      months ended December 31, 2006. Stock compensation and ESOP related transactions
      increased equity a net total of $90,000. In addition, during the year we
      declared and paid three quarterly dividends of $0.10 cents per share, and one
      quarterly dividend of $0.11 cents per share totaling $363,000. With the
      non-objection of the Office of




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  Thrift
        Supervision (“OTS”) AJS Bancorp, MHC (the “MHC”) waived 100% of the quarterly
        dividend due on its 1,227,544 shares. The Company has requested and received
        a
        non-objection letter from the OTS on the waiver of the quarterly dividend
        payments due on the MHC shares through the quarter ended September 30,
        2007.




**Comparison
      of Financial Condition at December 31, 2005 and December 31, 2004**





Total
      assets decreased by $13.0 million, or 4.8%, to $257.9 million at December 31,
      2005 from $270.9 million at December 31, 2004. The decrease was primarily due
      to
      decreases in loans receivable, Federal Home Loan Bank (FHLB) stock, federal
      funds sold, and earning deposits, offset by an increase in securities. Loans
      receivable decreased $11.5 million or 7.1% to $151.8 at December 31, 2005 from
      $163.3 million at December 31, 2004. FHLB stock decreased $9.1 million or 72.6%
      to $3.4 million at December 31, 2005 from $12.5 million at December 31, 2004.
      Federal funds sold decreased $2.8 million or 86.3% to $454,000 at December
      31,
      2005 from $3.3 million at December 31, 2004. Certificates of deposit held at
      other financial institutions decreased $1.2 million or 12.3% to $8.6 million
      at
      December 31, 2005, from $9.8 million at December 31, 2004. Securities
      increased $9.9 million or 16.1% to $71.5 million at December 31, 2005 from
      $61.6
      million at December 31, 2004. The Company decreased its investment in FHLB
      stock
      due to uncertainty regarding the payment and level of the FHLB dividend. There
      was no gain or loss on the sale of the FHLB stock. The Company invests in
      federal funds sold in the event that there is no more profitable, highly liquid
      investment available or if the Company anticipates an increase in funding needs
      within the near future. Therefore, the balance in federal funds sold can and
      does fluctuate. Certificates of deposit held at other financial institutions
      decreased as maturities were not being reinvested. Securities increased
      due  to
      purchases of fixed-rate government-backed notes and bonds, an additional
      investment in the adjustable-rate ARM fund, and mortgage-backed securities.
      The
      notes and bonds mature in three years or less, the ARM fund can be redeemed
      at
      any time and reprices on average every six months to a year, and the
      mortgage-backed securities are expected to mature in less than ten years,
      however prepayments may cause them to pay down at a faster pace .





Total
      deposits decreased $7.6 million, or 3.9%, to $190.4 million at December 31,
      2005
      from $198.1 million at December 31, 2004. Transaction and savings accounts
      decreased to $77.5 million at December 31, 2005 from $85.0 million at December
      31, 2004; certificate of deposit accounts decreased to $112.9 million at
      December 31, 2005 from $113.0 million at December 31, 2004.




Federal
      Home Loan Bank advances decreased to $32.8 million at December 31, 2005 from
      $36.3 million at December 31, 2004. The decrease in FHLB advances was due to
      maturing advances that were not renewed or replaced.





At
      December 31, 2005 the Company’s available for sale portfolio had gross
      unrealized losses of $1.8 million compared to gross unrealized losses of
      $232,000 at December 31, 2004. The Company’s available for sale mortgage-backed
      securities accounted for $1.2 million of the gross unrealized losses at December
      31, 2005, while the Company’s available for sale U.S. governmental agency
      securities had $410,000 gross unrealized losses at December 31, 2005. The
      Company has reviewed and analyzed its available for sale portfolio to determine
      if any security within the portfolio may have suffered an other-than-temporary
      impairment. SAB topic 5M provides guidance on making other-than-temporary
      impairment decisions, and requires an evidence-based evaluation when an
      investment declines below cost. It references the length of time that market
      value has been less than cost (duration of impairment) and the extent to which
      market value has been less than cost (severity of impairment). We concluded
      that
      the cause of the unrealized loss was interest-rate driven and does not reflect
      any impairment related to the financial condition and near-term prospects of
      the
      issuer that could effect the earnings potential of the investment. In addition,
      the Company also has the intent and ability to hold the securities through
      the




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  expected
        recovery period. Therefore, the Company anticipates leveling or declining
        interest rates will result in the recovery of the available for sale securities
        market value.




At
      December 31, 2005 the Company had non-performing assets of $394,000 compared
      to
      $983,000 as of December 31, 2004. The allowance for loan losses was $1.7 million
      at December 31, 2005, and $1.8 million at December 31, 2004. This represents
      a
      ratio of allowance for loan losses to gross loans receivable of 1.11% at
      December 31, 2005 and 1.12% at December 31, 2004. The allowance for loan losses
      to non-performing loans was 431.7% at December 31, 2005 and 187.9% at December
      31, 2004. Total stockholders’ equity decreased $2.3 million to $28.3 million at
      December 31, 2005 from $30.5 million at December 31, 2004. The decrease in
      stockholders’ equity during the past twelve months primarily resulted from the
      repurchase of shares of the Company’s stock, as well as a decrease in other
      comprehensive income due to the decreased market value of the available for
      sale
      securities portfolio. These decreases were offset by net income of $1.1 million
      for the twelve months ended December 31, 2005. In addition, the Company declared
      an initial quarterly dividend of $0.10 cents per share, payable on November
      25,
      2005, to stockholders of record on November 10, 2005. With the approval of
      the
      Office of Thrift Supervision AJS Bancorp, MHC waived 80% of the quarterly
      dividend due on its 1,227,554 shares.





**Comparison
      of Operating Results for the Years Ended December 31, 2006 and December 31,
      2005**





**General.** Net
      income decreased $186,000, or 17.0%, to $911,000 for the year ended
      December 31, 2006, from $1.1 million for the year ended December 31, 2005.
      The decrease in net income resulted primarily from a decrease in net interest
      income. The 2005 to 2006 changes in provision, non-interest income, non-interest
      expense and income taxes were only a net $134,000. Non-interest expense
      decreased slightly during 2006 and non-interest income remained relatively
      stable.




**Interest
      Income.** Total
      interest income increased to $13.6 million for the twelve months ended December
      31, 2006, up $641,000 or 5.0% from $12.9 million for the same period in 2005.
      The increase in our interest income is primarily due to a higher average yield
      earned on all categories of our interest-earning assets.





Interest
      income from loans increased by $123,000 to $9.3 million for the year ended
      December 31, 2006, from $9.1 million for the year ended December 31, 2005.
      The increase in interest income from loans was due to an increase in interest
      rates earned on the loans during the year. The average yield on loans increased
      to 6.2% during 2006 from 5.8% during 2005. Average loan balances were $149.4
      million during the year ended December 31, 2006 compared to average loan
      balances of $156.8 million during the year ended December 31, 2005.





Interest
      income from securities increased by $192,000 to $2.9 million for the year ended
      December 31, 2006 compared to $2.7 million for the year ended December 31,
      2005.
      The increase was due to an increase in interest rates earned on the securities
      during the year. The average yield on securities increased to 4.1% during 2006
      from 3.7% during 2005. Average securities balances were $70.3 million during
      the
      year ended December 31, 2006 compared to average securities balances of $72.3
      million during the year ended December 31, 2005.





Interest
      income from interest-earning deposits increased $152,000, or 14.1%, to $1.2
      million for the year ended December 31, 2006, from $1.1 million for the year
      ended December 31, 2005. The increase resulted from increases in the average
      balances and an increase in the interest rate earned on the deposits. Average
      balances increased to $26.2 million from $24.6 million, while the average yield
      increased to 4.7% from 4.4% for the comparable twelve-month periods. The
      increase in the average balance of interest earning deposits was caused
      primarily by an increase in money market account




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  balances
        at one financial institution, offset by a decrease in our of certificates
        of
        deposit balances held at other financial institutions and a decrease in our
        investment in FHLB stock. The average investment in the money market account
        was
        $14.5 million during the twelve months ended December 31, 2006 with an average
        yield of 5.2% for the period ended December 31, 2006 compared to a balance
        investment of $5.8 million with an average yield of 3.4% for the same period
        in
        2005. Our certificates of deposit with other financial institutions had an
        average balance of $6.7 million with an average yield of 3.8% for the period
        ended December 31, 2006 compared to an average balance of $9.5 million with
        an
        average yield of 3.4% for the same period in 2005. The average balance of
        FHLB
        stock decreased to $3.0 million during the year ended December 31, 2006,
        while
        the average balance was $6.7 million during the year ended December 31, 2005.
        The average yield for the investment in FHLB stock was 3.3% for the twelve
        months ended December 31, 2006 while the average yield for the comparable
        period
        in 2005 was 6.8%.




**Interest
      Expense.** Interest
      expense on deposits increased by $1.1 million, or 24.5% to $5.7 million for
      the
      year ended December 31, 2006, from $4.6 million for 2005. The increase in our
      cost of deposits reflected the higher short term market interest rates, and
      certificates of deposit maturing and renewing at higher rates during 2006,
      as
      well as an increase in average deposit balances during the year. Average
      deposits increased to $194.0 million for the year ended December 31, 2006,
      from
      $193.4 million for 2005. Our average cost of deposits increased to 3.0% from
      2.4% for the respective periods. Interest expense on borrowings decreased to
      $1.3 million for the twelve months ended December 31, 2006, from $1.4 million
      for the same period during 2005, which was due to a decrease in the average
      Federal Home Loan Bank borrowings.





Net
      interest income decreased by $353,000 or 5.1% to $6.6 million for the year
      ended
      December 31, 2006 from $6.9 million for the same period in 2005. Average
      interest earning assets were $250.7 million and $256.0 million during the
      comparative 2006 and 2005 twelve-month periods while the average yield was
      5.42%
      and 5.06%, respectively. Our net interest rate spread decreased 12 basis points
      to 2.29% from 2.41% while our net interest margin decreased 9 basis points
      to
      2.62% from 2.71%. The ratio of average interest-earning assets to average
      interest-bearing liabilities decreased to 111.96% for the year ended 2006 from
      112.45% for the year ended December 31, 2005. The decrease in our net interest
      rate spread and net interest margin reflects the fact that during the year
      ended
      December 31, 2006 the cost of average interest-bearing liabilities increased
      at
      a faster pace than the yield earned on interest-earning assets.




**Provision
      for Loan Losses.** We
      establish provisions for loan losses, which are charged to operations, at a
      level management believes is appropriate to absorb probable incurred credit
      losses in the loan portfolio. In evaluating the level of the allowance for
      loan
      losses, management considers historical loss experience, the types of loans
      and
      the amount of loans in the loan portfolio, adverse situations that may affect
      the borrower’s ability to repay, estimated value of any underlying collateral,
      and prevailing economic conditions. This evaluation is inherently subjective
      as
      it requires estimates that are susceptible to significant revision as more
      information becomes available or as future events change. Based on our
      evaluation of these factors, we made a negative provision of $28,000 for the
      year ended December 31, 2006 and a negative $130,000 provision for the same
      period in 2005. The negative provision decreased due to concerns related to
      market risk that may be imbedded in the loan portfolio as real estate values
      stabilize or trend slightly downwards. Our balance of subprime loan balances
      continued to decrease to $5.2 million for the year ended December 31, 2006,
      from
      $7.8 million for the year ended December 31, 2005. We used the same methodology
      while updating credit risk assumptions in assessing the adequacy of the
      allowance. The allowance for loan losses was $1.6 million or 1.16% of loans
      outstanding at December 31, 2006 compared to $1.7 million, or 1.11%, of loans
      outstanding at December 31, 2005. The non-performing assets to total assets
      at
      December 31, 2006 was 0.20% as compared to 0.15% at December 31, 2005. The
      level
      of the allowance is based on estimates and the ultimate losses may vary from
      the
      estimates. ****





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Management
      assesses the allowance for loan losses on a quarterly basis and makes provisions
      for loan losses as necessary in order to maintain the adequacy of the allowance.
      While management uses available information to recognize losses on loans, future
      loan loss provisions may be necessary based on changes in economic conditions.
      In addition, various regulatory agencies, as an integral part of their
      examination process, periodically review the allowance for loan losses and
      may
      require us to recognize additional provisions based on their judgment of
      information available to them at the time of their examination. The allowance
      for loan losses as of December 31, 2006 is maintained at a level that represents
      management’s best estimate of inherent losses in the loan portfolio, and such
      losses were both probable and reasonably estimable.





**Non-interest
      Income.** Non-interest
      income remained relatively stable totaling $939,000 for the year ended December
      31, 2006, compared to $936,000 for the comparable period in 2005. The $3,000
      increase was the result of increases in rental income and gain on loan sales,
      offset by decreases in insurance commissions and service charges on accounts.





**Non-interest
      Expense.** Non-interest
      expense decreased $112,000 to $6.1 million for the year ended December 31,
      2006
      compared to $6.2 million for the same period in 2005. The decrease was primarily
      due to an $82,000 decrease in advertising and promotion costs, a $47,000
      decrease in occupancy costs and a $24,000 decrease in data processing costs.
      These decreases were offset by a $62,000 increase in other non-interest expense
      items.





Advertising
      and promotion costs decreased due to a reduction in budgeted spending in this
      area for the 2006 year compared to the 2005 year. Occupancy costs decreased
      primarily due to lower real estate taxes from successful challenges of property
      tax assessment and decreases in depreciation costs as assets reached their
      fully
      depreciated status during the twelve months ended December 31, 2006. In
      addition, other office building expenses decreased due to the cost of real
      estate appraisals performed in 2005.





Data
      processing costs decreased primarily due to the Company using a lower-cost
      provider for the coding of checks, as well as the Company realizing a one-time
      savings on bundled purchases of software packages. Other non-interest expenses
      increased primarily due to an increase in cash station expenses, bank service
      charges and auto expenses. Cash station expenses increased due to increases
      in
      the billings received from our cash station provider. Bank service charges
      increased due to the Company’s decision to reduce its excess cash held at our
      correspondent bank. This allowed the Company to invest those funds in higher
      yielding investments, but also caused the increase in service charges. Auto
      expense increased in conjunction with the approval of the auto lease coverage
      for the President of the Company.





**Provision
      for Income Taxes.** The
      provision for income taxes decreased to $540,000, or 37.2% of income before
      income taxes for the year ended December 31, 2006 from $694,000 or 38.7% of
      income before taxes for the year ended December 31, 2005. The decrease was
      primarily due to a decrease in pretax earnings.





**Comparison
      of Operating Results for the Years Ended December 31, 2005 and December 31,
      2004**





**General.** Net
      income decreased $483,000, or 30.6%, to $1.1 million for the year ended December
      31, 2005, from $1.6 million for the year ended December 31, 2004. The decrease
      in net income resulted from a decrease in net interest income, while
      non-interest income and non-interest expense remained relatively stable.





**Interest
      Income.** Total
      interest income increased to $12.9 million for the twelve months ended December
      31, 2005, up $211,000 or 1.7% from $12.7 million for the same period in 2004.
      The increase




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  in
        interest income resulted primarily from increases in the average balances
        outstanding for securities and interest-earning deposits offset by decreases
        in
        average balances in loans receivable and federal funds.




Interest
      income from loans decreased by $278,000 to $9.1 million for the year ended
      December 31, 2005, from $9.4 million for the year ended December 31, 2004.
      The decrease in interest income from loans was due to a decrease in average
      outstanding loan balances during the year. Average loan balances were $156.8
      million during the year ended December 31, 2005 compared to average loan
      balances of $163.5 million during the year ended December 31, 2004. The average
      yield on loans remained stable at 5.8% during 2005 and 2004. We expect the
      average yield on loans to remain stable or trend slightly higher during 2006.





Interest
      income from securities increased by $456,000 to $2.7 million for the year ended
      December 31, 2005 compared to $2.2 million for the year ended December 31,
      2004.
      The increase was due to higher average outstanding securities balances during
      the year. Average securities balances were $72.3 million during the year ended
      December 31, 2005 compared to average securities balances of $56.8 million
      during the year ended December 31, 2004. Our average yield was 3.7% during
      the
      year ended December 31, 2005, compared to an average yield of 3.9% for 2004.





Interest
      income from interest-earning deposits increased $38,000, or 3.7%, to $1.1
      million for the year ended December 31, 2005, from $1.0 million for the year
      ended December 31, 2004. The increase resulted from an increase in the average
      outstanding balance to $24.6 million from $23.5 million, while the average
      yield
      remained stable at 4.4% for the comparable twelve-month periods. The increase
      in
      the average balance of interest earning deposits is caused primarily by
      investments in certificates of deposit and money market accounts at other
      financial institutions, offset by a decrease in the investment in FHLB stock.
      The certificates of deposit portfolio had an average yield of 3.4% for the
      period ended December 31, 2005 compared to an average yield of 3.1% for the
      same period in 2004. The money market account had an average yield of 3.4%
      for
      the period ended December 31, 2005 compared to an average yield of 2.0% for
      the
      same period in 2004. The average investment in FHLB stock decreased to $6.7
      million during the year ended December 31, 2005, while the average investment
      was $13.6 million during the year ended December 31, 2004. The average yield
      for
      the investment in FHLB stock was 6.8% for the twelve months ended December
      31,
      2005 while the average yield for the comparable period in 2004 was 6.2%. The
      Company decreased its investment in FHLB stock due to uncertainty regarding
      the
      payment and level of the FHLB dividend. On October 18, 2005 the Federal Home
      Loan Bank of Chicago announced a policy to discontinue excess capital stock
      redemptions or “voluntary” stock redemptions. Voluntary stock is stock held by
      members beyond the amount required as a condition of membership or to support
      advance borrowings. The most recent fourth quarter Federal Home Loan Bank of
      Chicago dividend announced on January 18, 2006 was at an annualized rate of
      3.00%.





**Interest
      Expense.** Interest
      expense on deposits increased by $560,000, or 13.8% to $4.6 million for the
      year
      ended December 31, 2005, from $4.0 million for 2004. The increase in our cost
      of
      deposits was due to the increase in short term market interest rates and
      certificates of deposit maturing and renewing at higher rates during 2005.
      Average deposits decreased to $193.4 million for the year ended December 31,
      2005, from $194.8 million for 2004. Our average cost of deposits increased
      to
      2.4% from 2.1% for the respective periods. Interest expense on borrowings
      increased to $1.4 million for the twelve months ended December 31, 2005, from
      $1.1 million for the same period during 2004. This was due to an increase in
      the
      average Federal Home Loan Bank borrowings.





**Net
      Interest Income.** Net
      interest income decreased by $634,000 or 8.4% to $6.9 million for the twelve
      months ended December 31, 2005, from $7.6 million for the same period in 2004.
      Our net interest rate spread decreased 37 basis points to 2.41% from 2.78%,
      while our net interest margin decreased 32 basis points to 2.71% from 3.03%.
      The
      ratio of average interest-earning assets to average
      interest-bearing




43
 ***Table
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  liabilities
        increased to 112.45% for the year ended December 31, 2005 compared to 112.29%
        for the same period in 2004.




**Provision
      for Loan Losses.** We
      establish provisions for loan losses, which are charged to operations, at a
      level management believes is appropriate to absorb probable incurred credit
      losses in the loan portfolio. In evaluating the level of the allowance for
      loan
      losses, management considers historical loss experience, the types of loans
      and
      the amount of loans in the loan portfolio, adverse situations that may affect
      the borrower’s ability to repay, estimated value of any underlying collateral,
      and prevailing economic conditions. This evaluation is inherently subjective
      as
      it requires estimates that are susceptible to significant revision as more
      information becomes available or as future events change. Based on our
      evaluation of these factors, we made a negative provision of $130,000 for the
      year ended December 31, 2005 and a negative $112,000 provision for the same
      period in 2004. The provision decreased due to an overall improvement in the
      quality of our assets as our subprime loan balances continued to decrease to
      $7.8 million at December 31, 2005, from $12.5 million at December 31, 2004.
      We
      used the same methodology and generally similar assumptions in assessing the
      adequacy of the allowance for both periods. The allowance for loan losses was
      $1.7 million, or 1.11%, of loans outstanding at December 31, 2005, as compared
      with $1.8 million, or 1.12%, of loans outstanding at December 31, 2004. The
      non-performing assets to total assets at December 31, 2005 was 0.15% as compared
      to 0.36% at December 31, 2004. The level of the allowance is based on estimates
      and the ultimate losses may vary from the estimates.





Management
      assesses the allowance for loan losses on a quarterly basis and makes provisions
      for loan losses as necessary in order to maintain the adequacy of the allowance.
      While management uses available information to recognize losses on loans, future
      loan loss provisions may be necessary based on changes in economic conditions.
      In addition, various regulatory agencies, as an integral part of their
      examination process, periodically review the allowance for loan losses and
      may
      require us to recognize additional provisions based on their judgment of
      information available to them at the time of their examination. The allowance
      for loan losses as of December 31, 2005 is maintained at a level that represents
      management’s best estimate of inherent losses in the loan portfolio, and such
      losses were both probable and reasonably estimable.





**Non-interest
      Income.** Non-interest
      income remained relatively stable at $936,000 for the year ended December 31,
      2005, compared to $933,000 for the comparable period in 2004. The $3,000
      increase was the result of increases in service fees and other non-interest
      income items. The other non-interest items included primarily rental income,
      gain on the sale of loans, and gain on the sale of fixed assets. A decrease
      in
      insurance commissions and other non-interest income items, primarily
      correspondent fees, offset these increases.





Service
      fees increased due to increases in collection of NOW account fees and debit
      card
      fees. NOW account service fees did not individually increase, however, the
      Company did not waive service fees due as regularly as was done during 2004.
      The
      increase in debit card revenues is due to the Company’s customer base becoming
      more familiar with and using the debit cards more often since their inception
      in
      September of 2003.





Rental
      income increased due to the leasing during the twelve-months ended December
      31,
      2005 of a previously vacant unit in one of the branch offices. Gain on the
      sale
      of loans increased $27,000 during the twelve-month period ended December 31,
      2005 due to the Company’s sale of fixed-rate mortgage loans. The loans were sold
      servicing-retained and we intend to continue to sell fixed-rate mortgage loans
      in the future. There were no loan sales during 2004. The gain on the sale of
      fixed assets occurred due to the sale of a Company-owned automobile. The Company
      recognized a $13,000 gain on the sale.





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Insurance
      commission income fell $37,000 due to lower sales of annuity products during
      the
      twelve-month period ended December 31, 2005, when compared to the same period
      in
      2004. Correspondent fees declined $11,000 for the twelve-month period ended
      2005
      when compared to the same period ended 2004. The decrease was due to fewer
      loans
      being originated with the intention to have them funded through our
      correspondent sources during 2005 then were originated as correspondent loans
      in
      2004. Correspondent loans are typically loans that do not qualify under the
      Company’s underwriting guidelines and, as such, the Company does not make an
      underwriting decision on them.





**Non-interest
      Expense.** Non-interest expense remained constant at $6.2 million for the year ended
      December 31, 2005 and 2004. Occupancy costs increased $116,000, advertising
      and
      promotion costs increased $32,000, and data processing cost increased $14,000.
      These increases were offset by a decrease in salaries and employee benefits
      of
      $140,000, and a decrease in other non-interest expense items of $13,000.





Occupancy
      costs increased during the year ended December 31, 2005 primarily due to
      increased real estate tax expense when compared with the previous year. Real
      estate tax assessments were higher than the Company originally estimated.





Advertising
      costs increased during 2005 as we continued to promote our newer branch facility
      in Orland Park, as well as several promotion specials that took place during
      the
      year ended December 31, 2005.




Salaries
      and employee benefits decreased primarily due to a reduction in the number
      of
      full time equivalent employees to 64 at December 31, 2005 from 66 at December
      31, 2004. In addition, the recognition and retention plan (“RRP”) expense
      decreased $44,000 during the twelve-months ended 2005 when compared to the
      same
      period in 2004.





During
      2004, FASB Statement 123R, *Accounting
      for Stock-Based Compensation,* was
      approved. This statement will require the expensing of stock options beginning
      January 1, 2006. The future adoption of this standard is not expected to
      materially affect the Company's operating results .





**Provision
      for Income Taxes.** The
      provision for income taxes decreased to $694,000, or 38.7%, of income before
      income taxes for the year ended December 31, 2005 from $833,000 or 34.5% of
      income before taxes for the year ended December 31, 2004. The decrease was
      primarily due to a decrease in pretax earnings. The taxes due as a percentage
      of
      pretax earnings increased due to the Company increasing its tax accrual based
      on
      revisions to certain estimated deferred and permanent tax items from what had
      been previously estimated.





45
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**Average
      Balance Sheets**





The
      following tables present for the periods indicated the total dollar amount
      of
      interest income on average interest-earning assets and the resultant yields,
      the
      interest expense on average interest-bearing liabilities, expressed both in
      dollars and rates, as well as yields and costs at December 31, 2006. No tax
      equivalent adjustments were made. All average balances are monthly average
      balances. Non-accruing loans have been included in the table as loans carrying
      a
      zero yield.





**Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004****Average**
            
            **Interest**
            
            
            
            **Average**
            
            **Interest**
            
            
            
            **Average**
            
            **Interest****Outstanding**
            
            **Earned/**
            
            
            
            **Outstanding**
            
            **Earned/**
            
            
            
            **Outstanding**
            
            **Earned/****Balance**
            
            **Paid**
            
            **Yield/Rate**
            
            **Balance**
            
            **Paid**
            
            **Yield/Rate**
            
            **Balance**
            
            **Paid**
            
            **Yield/Rate****(Dollars
                in thousands)**Interest-earning
                assets:Loans
                receivable
            
            $
            149,394
            
            $
            9,250
            
            
            6.19
            %
            $
            156,832
            
            $
            9,127
            
            
            5.82
            %
            $
            163,468
            
            $
            9,405
            
            
            5.75
            %Securities
            
            
            70,338
            
            
            2,874
            
            
            4.09
            
            
            72,301
            
            
            2,682
            
            
            3.71
            
            
            56,801
            
            
            2,226
            
            
            3.92Interest-earning
                depositsand
                other
            
            
            26,156
            
            
            1,227
            
            
            4.69
            
            
            24,613
            
            
            1,075
            
            
            4.36
            
            
            23,506
            
            
            1,037
            
            
            4.41Federal
                funds
            
            
            4,859
            
            
            238
            
            
            4.90
            
            
            2,230
            
            
            64
            
            
            3.00
            
            
            5,702
            
            
            69
            
            
            1.21Total
                interest-earningassets
            
            $
            250,747
            
            
            13,589
            
            
            5.42
            
            $
            255,976
            
            
            12,948
            
            
            5.06
            
            $
            249,477
            
            
            12,737
            
            
            5.11Interest-bearing
                liabilities:Passbook
                savings
            
            $
            42,686
            
            
            468
            
            
            1.10
            
            $
            48,713
            
            
            487
            
            
            1.00
            
            $
            51,421
            
            
            407
            
            
            0.79NOW
                accounts
            
            
            22,005
            
            
            69
            
            
            0.31
            
            
            22,958
            
            
            77
            
            
            0.34
            
            
            23,946
            
            
            58
            
            
            0.24Money
                market accounts
            
            
            8,717
            
            
            246
            
            
            2.82
            
            
            8,347
            
            
            170
            
            
            2.04
            
            
            9,238
            
            
            80
            
            
            0.87Time
                deposits
            
            
            120,588
            
            
            4,953
            
            
            4.11
            
            
            113,424
            
            
            3,872
            
            
            3.41
            
            
            110,200
            
            
            3,501
            
            
            3.18Total
                deposits
            
            
            193,996
            
            
            5,736
            
            
            2.96
            
            
            193,442
            
            
            4,606
            
            
            2.38
            
            
            194,805
            
            
            4,046
            
            
            2.08FHLB
                advances
            
            
            29,963
            
            
            1,281
            
            
            4.28
            
            
            34,184
            
            
            1,416
            
            
            4.14
            
            
            27,358
            
            
            1,132
            
            
            4.14Total
                interest-bearingliabilities
            
            $
            223,959
            
            
            7,017
            
            
            3.13
            
            $
            227,626
            
            
            6,023
            
            
            2.65
            
            $
            222,163
            
            
            5,178
            
            
            2.33Net
                interest income
            
            
            
            
            $
            6,572
            
            
            
            
            
            
            
            $
            6,925
            
            
            
            
            
            
            
            $
            7,559Net
                interest rate spread
            
            
            
            
            
            
            
            
            2.29
            %
            
            
            
            
            
            
            
            2.41
            %
            
            
            
            
            
            
            
            2.78
            %Net
                earning assets
            
            $
            26,788
            
            
            
            
            
            
            
            $
            28,350
            
            
            
            
            
            
            
            $
            27,314Net
                yield on average interest- earning assets
            
            
            
            
            
            
            
            
            2.62
            %
            
            
            
            
            
            
            
            2.71
            %
            
            
            
            
            
            
            
            3.03
            %Average
                interest-earning assets to average interest-bearing
                liabilities
            
            
            
            
            
            
            
            
            111.96
            %
            
            
            
            
            
            
            
            112.45
            %
            
            
            
            
            
            
            
            112.29
            %




46
 ***Table
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**Rate/Volume
      Analysis**





The
      following table presents the dollar amount of changes in interest income and
      interest expense for major components of interest-earning assets and
      interest-bearing liabilities. It distinguishes between the changes related
      to
      outstanding balances and those due to the changes in interest rates. For each
      category of interest-earning assets and interest-bearing liabilities,
      information is provided on changes attributable to (i) changes in volume (i.e.,
      changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
      changes in rate multiplied by old volume). For purposes of this table, changes
      attributable to both rate and volume, which cannot be segregated, have been
      allocated proportionately to the change due to volume and the change due to
      rate.





**Years
                Ended December 31,****2006
                vs. 2005**
            
            **2005
                vs. 2004****Increase/(Decrease)**
            
            **Total**
            
            **Increase/(Decrease)**
            
            **Total****Due
                to**
            
            **Increase**
            
            **Due
                to**
            
            **Increase****Volume**
            
            **Rate**
            
            **(Decrease)**
            
            **Volume**
            
            **Rate**
            
            **(Decrease)****(In
                thousands)**Interest-earning
                assetsLoans
                receivable
            
            $
            (445
            )
            $
            568
            
            $
            123
            
            $
            (385
            )
            $
            107
            
            $
            (278
            )Securities
            
            
            (74
            )
            
            266
            
            
            192
            
            
            580
            
            
            (124
            )
            
            456Interest-earning
                deposits and other
            
            
            70
            
            
            83
            
            
            153
            
            
            48
            
            
            (12
            )
            
            36Federal
                funds
            
            
            109
            
            
            65
            
            
            174
            
            
            (60
            )
            
            58
            
            
            (2
            )Total
                interest-earning assets
            
            $
            (340
            )
            $
            986
            
            $
            642
            
            $
            183
            
            $
            29
            
            $
            212Interest-bearing
                liabilitiesTransaction
                and savings deposits
            
            
            (59
            )
            
            108
            
            
            49
            
            
            (32
            )
            
            221
            
            
            189Certificate
                accounts
            
            
            245
            
            
            836
            
            
            1,081
            
            
            102
            
            
            269
            
            
            371Borrowings
            
            
            (175
            )
            
            40
            
            
            (135
            )
            
            282
            
            
            2
            
            
            284Total
                interest-bearing liabilities
            
            $
            11
            
            $
            984
            
            $
            995
            
            $
            352
            
            $
            492
            
            $
            844Net
                interest income
            
            $
            (351
            )
            $
            (2
            )
            $
            (353
            )
            $
            (169
            )
            $
            (463
            )
            $
            (634
            )





**Management
      of Market Risk**




***General.*** The
      majority of our assets and liabilities are monetary in nature. Consequently,
      our
      most significant form of market risk is interest rate risk. Our assets,
      consisting primarily of mortgage loans, have longer maturities than our
      liabilities, consisting primarily of deposits. As a result, a principal part
      of
      our business strategy is to manage interest rate risk and reduce the exposure
      of
      our net interest income to changes in market interest rates. Accordingly, our
      Board of Directors has established an Asset/Liability Management Committee
      which
      is responsible for evaluating the interest rate risk inherent in our assets
      and
      liabilities, for determining the level of risk that is appropriate, given our
      business strategy, operating environment, capital, liquidity and performance
      objectives, and for managing this risk consistent with the guidelines approved
      by the Board of Directors. Senior management monitors the level of interest
      rate
      risk on a regular basis and the Asset/Liability Management Committee, which
      consists of senior management operating under a policy adopted by the Board
      of
      Directors, meets as needed to review our asset/liability policies and interest
      rate risk position.





We
      have
      sought to manage our interest rate risk by more closely matching the maturities
      of our interest rate sensitive assets and liabilities. In particular, we offer
      one, three-, five- and seven-year adjustable rate mortgage loans, and three
      and
      five-year balloon loans. Furthermore, our experience with subprime loans has
      been that these loans remain a part of our portfolio for a significantly shorter
      period of time than other one- to four-family loans. In a low interest rate
      environment, borrowers typically prefer fixed-rate loans to adjustable-rate
      mortgages. We intend to sell into the secondary market our originations of
      longer-term fixed-rate loans. We do not solicit high-rate jumbo certificates
      of
      deposit or brokered funds.





47
 ***Table
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***Net
      Portfolio Value.*** In past
      years, many savings associations have measured interest rate sensitivity by
      computing the “gap” between the assets and liabilities which are expected to
      mature or reprice within certain time periods based on assumptions regarding
      loan prepayment and deposit decay rates formerly provided by the Office of
      Thrift Supervision. However, the Office of Thrift Supervision now requires
      the
      computation of amounts by which the net present value of an institution’s cash
      flow from assets, liabilities and off-balance-sheet items (the institution’s net
      portfolio value or “NPV”) would change in the event of a range of assumed
      changes in market interest rates. The Office of Thrift Supervision provides
      all
      institutions that file a Consolidated Maturity/Rate Schedule as a part of their
      quarterly Thrift Financial Report with an interest rate sensitivity report
      of
      net portfolio value. The Office of Thrift Supervision simulation model uses
      a
      discounted cash flow analysis and an option-based pricing approach to measuring
      the interest rate sensitivity of net portfolio value. The Office of Thrift
      Supervision model estimates the economic value of each type of asset, liability
      and off-balance-sheet contract under the assumption that the United States
      Treasury yield curve increases or decreases instantaneously by 100 to 300 basis
      points in 100 basis point increments. A basis point equals one-hundredth of
      one
      percent, and 100 basis points equals one percent. An increase in interest rates
      from 7% to 8% would mean, for example, a 100 basis point increase in the “Change
      in Interest Rates” column below. The Office of Thrift Supervision provides us
      the results of the interest rate sensitivity model, which is based on
      information we provide to the Office of Thrift Supervision to estimate the
      sensitivity of our net portfolio value.





The
      table
      below sets forth, as of December 31, 2006 (the latest date for which information
      is available), the estimated changes in our net portfolio value that would
      result from the designated instantaneous changes in the United States Treasury
      yield curve.




**Net
                Portfolio Value as****a
                % of Present Value of****Net
                Portfolio Value**
            
            **Assets/Liabilities****Change
                in****Interest
                Rates**
            
            **Estimated**
            
            **Amount
                of****(Basis
                Points)**
            
            **NPV**
            
            **Change**
            
            **Percent**
            
            **NPV
                Ratio**
            
            **Change****(1)****(Dollars
                in thousands)**+300
            
            $
            27,958
            
            $
            (8,610
            )
            
            (24
            )%
            
            10.69
            %
            
            (263
            )+200
            
            
            30,930
            
            
            (5,638
            )
            
            (15
            )
            
            11.63
            
            
            (169
            )+100
            
            
            33,841
            
            
            (2,727
            )
            
            (7
            )
            
            12.52
            
            
            (80
            )0
            
            
            36,568
            
            
            -
            
            
            -
            
            
            13.32
            
            
            --100
            
            
            38,678
            
            
            2,110
            
            
            6
            
            
            13.90
            
            
            58-200
            
            
            39,754
            
            
            3,186
            
            
            9
            
            
            14.15
            
            
            84


(1)  Expressed in basis points.





The
      table
      above indicates that at December 31, 2006, in the event of a 200 basis point
      decrease in interest rates, we would experience a 9% increase in net portfolio
      value. In the event of a 200 basis point increase in interest rates, we would
      experience a 15% decrease in net portfolio value.





Certain
      shortcomings are inherent in the methodology used in the above interest rate
      risk measurement. Modeling changes in net portfolio value require making certain
      assumptions that may or may not reflect the manner in which actual yields and
      costs respond to changes in market interest rates. In this regard, the net
      portfolio value table presented assumes that the composition of our
      interest-sensitive assets and liabilities existing at the beginning of a period
      remains constant over the period being measured and assumes that a particular
      change in interest rates is reflected uniformly across the yield curve,
      regardless of the duration or repricing of specific assets and liabilities.
      Accordingly, although the net portfolio value table provides an indication
      of
      our interest rate risk exposure at a particular point in time, such measurements
      are not intended to and do not provide a precise forecast of the effect of
      changes in market interest rates on our net interest income, and will differ
      from actual results.




48
 ***Table
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**Critical
      Accounting Policies and Estimates**




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. By their nature, changes in these assumptions
      and
      estimates could significantly affect the Company's financial position or results
      of operations. Actual results could differ from those estimates. Discussed
      below
      are selected critical accounting policies that are of particular significance
      to
      the Company.





**Allowance
      for Loan Losses.** The
      allowance for loan losses represents management's estimate of probable credit
      losses inherent in the loan portfolio. Estimating the amount of the allowance
      for loan losses requires significant judgment and the use of estimates related
      to the amount and timing of expected future cash flows on impaired loans,
      estimated losses on pools of homogeneous loans based on historical loss
      experience, and consideration of current economic trends and conditions, all
      of
      which may be susceptible to significant change. The loan portfolio also
      represents the largest asset type on the consolidated balance sheet. Loan losses
      are charged off against the allowance, while recoveries of amounts previously
      charged off are credited to the allowance. A provision for loan losses is
      charged to operations based on management's periodic evaluation of the factors
      previously mentioned, as well as other pertinent factors.





The
      allowance for loan losses consists of specific allocations on impaired loans
      under Statement of Financial Accounting Standards (SFAS) 114 and general
      allocation for inherent credit risks under SFAS 5. The SFAS 114 component of
      the
      allowance for loan losses reflects expected losses resulting from analyses
      developed through specific credit allocations for individual loans. The SFAS
      5
      component of the allowance reflects historical loss experience for each loan
      category adjusted for trends and credit risks. The specific credit allocations
      are based on analyses involving a high degree of judgment in estimating the
      amount of loss associated with specific loans, including estimating the amount
      and timing of future cash flows and collateral values. The historical loss
      analysis is performed quarterly and loss factors are updated regularly based
      on
      actual experience and trends and credit risk.





The
      allowance reflects management's estimate of probable inherent but undetected
      losses within the portfolio due to uncertainties in economic conditions, delays
      in obtaining information, including unfavorable information about a borrower's
      financial condition, the difficulty in identifying triggering events that
      correlate perfectly to subsequent loss rates, and risk factors that have not
      yet
      manifested themselves in loss allocation factors. In addition, the unallocated
      allowance includes a component that accounts for the inherent imprecision in
      loan loss models. Uncertainty surrounding the strength and timing of economic
      cycles also affects estimates of loss. The historical losses used in the
      migration analysis may not be representative of actual unrealized losses
      inherent in the portfolio.





There
      are
      many factors affecting the allowance for loan losses; some are quantitative
      while others require qualitative judgment. Although management believes its
      process for determining the allowance adequately considers all of the potential
      factors that could potentially result in credit losses, the process includes
      subjective elements and may be susceptible to significant change. To the extent
      actual outcomes differ from management estimates, additional provision for
      credit losses could be required that could adversely affect earnings or
      financial position in future periods.





49
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**Liquidity
      and Capital Resources**





We
      maintain liquid assets at levels we consider adequate to meet our liquidity
      needs. Our liquidity ratio averaged 22.1% and 19.1% for the years ended December
      31, 2006 and 2005. We adjust our liquidity levels to fund deposit outflows,
      pay
      real estate taxes on mortgage loans, repay our borrowings and to fund loan
      commitments. We also adjust liquidity as appropriate to meet asset and liability
      management objectives.





Our
      primary sources of liquidity are deposits, amortization and prepayment of loans
      and mortgage-backed securities, maturities of investment securities and other
      short-term investments, and earnings and funds provided from operations. While
      scheduled principal repayments on loans and mortgage-backed securities are
      a
      relatively predictable source of funds, deposit flows and loan prepayments
      are
      greatly influenced by general interest rates, economic conditions, and
      competition. We set the interest rates on our deposits to maintain a desired
      level of total deposits. In addition, we invest excess funds in short-term
      interest-earning investments and other assets, which provide liquidity to meet
      lending requirements. Short-term interest-earning deposits with the Federal
      Home
      Loan Bank of Chicago amounted to $1.6 million at December 31, 2006 and $2.1
      million at December 31, 2005. For additional information about cash flows from
      our operating, financing, and investing activities, see Consolidated Statements
      of Cash Flows included in the consolidated financial statements.





A
      significant portion of our liquidity consists of securities classified as
      available-for-sale and cash and cash equivalents, which are a product of our
      operating, investing and financing activities, and of government-backed
      securities classified as available-for-sale. Our primary sources of cash are
      net
      income, principal repayments on loans and mortgage-backed securities, and
      increases in deposit accounts, along with advances from the Federal Home Loan
      Bank of Chicago.





Liquidity
      management is both a daily and long-term function of business management. If
      we
      require funds beyond our ability to generate them internally, borrowing
      agreements exist with the Federal Home Loan Bank of Chicago which provide an
      additional source of funds. At December 31, 2006, we had $28.8 million in
      advances from the Federal Home Loan Bank of Chicago. Of this amount, $5.4
      million is due within one year, $17.8 million is due between one and three
      years, $4.6 million is due between four and five years and $1.0 million is
      due
      after five years.





At
      December 31, 2006, we had outstanding commitments of $5.0 million to originate
      loans. This amount does not include the unfunded portion of loans in process.
      At
      December 31, 2006, certificates of deposit scheduled to mature in less than
      one year totaled $100.7 million. Based on prior experience, management believes
      that a significant portion of such deposits will remain with us, although there
      can be no assurance that this will be the case. In addition, the cost of such
      deposits may be significantly higher upon renewal in a rising interest rate
      environment. We intend to utilize our high levels of liquidity to fund our
      lending activities.




***Liquidity.*** We are
      required to maintain liquid assets in an amount that would ensure our safe
      and
      sound operation. Our liquidity ratio at December 31, 2006 was
      27.1%.





50
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The
      following table sets forth our contractual obligations and commercial
      commitments at December 31, 2006.




**Total**
            
            **Less
                than**
              **1
                year**
            
            **1-3
                Years**
            
            **4-5
                years**
            
            **After
                5 Years****(In
                thousands)**FHLB
                advances
            
            $
            28,750
            
            $
            5,400
            
            $
            17,800
            
            $
            4,550
            
            $
            1,000Time
                deposits
            
            
            129,279
            
            
            100,719
            
            
            19,839
            
            
            8,721
            
            
            -





**Total
                Amounts Committed**
            
            **Less
                than**
              **1
                year**
            
            **1-3
                Years**
            
            **4-5
                years**
            
            **Over
                5 Years****(In
                thousands)**Lines
                of credit
            
            $
            15,580
            
            $
            1,980
            
            $
            7,012
            
            $
            6,339
            
            $
            249Standby
                letters of credit (1)
            
            
            150
            
            
            60
            
            
            90
            
            
            -
            
            
            -Other
                commitments to extend credit (1)
            
            
            4,953
            
            
            4,953
            
            
            -
            
            
            -
            
            
            -Total
            
            $
            20,683
            
            $
            6,993
            
            $
            7,102
            
            $
            6,339
            
            $
            249


___________________


(1)
            Represents
                amounts committed to customers.





**Impact
      of Inflation and Changing Prices**





The
      consolidated financial statements and related notes of AJS Bancorp, Inc. have
      been prepared in accordance with accounting principles generally accepted in
      the
      United States of America (“GAAP”). GAAP generally requires the measurement of
      financial position and operating results in terms of historical dollars without
      consideration for changes in the relative purchasing power of money over time
      due to inflation. The impact of inflation is reflected in the increased cost
      of
      our operations. Unlike industrial companies, our assets and liabilities are
      primarily monetary in nature. As a result, changes in market interest rates
      have
      a greater impact on performance than the effect of inflation.





**ITEM
      7A.** **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





See
      ITEM
      7 “Management’s Discussion and Analysis of Financial Consolidation and Results
      of Operations—Management of Market Risk.”





**ITEM
      8.** **FINANCIALSTATEMENTS
      AND SUPPLEMENTARY
      DATA**





The
      financial statements identified in Item 15(a)(1) hereof are incorporated by
      reference hereunder.





**ITEM
      9.** **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON****ACCOUNTING
      AND FINANCIAL DISCLOSURE**





None.





**ITEM
      9A.** **CONTROLS
      AND PROCEDURES**





(a) Evaluation
      of disclosure controls and procedures.





Under
      the
      supervision and with the participation of our management, including our Chief
      Executive Officer, President and Chief Financial Officer, we evaluated the
      effectiveness of the design and operation of our disclosure controls and
      procedures (as defined in Rule 13a-15(e)) under the




51
 ***Table
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              Contents***
  Exchange
        Act) as of the end of the fiscal year (the “Evaluation Date”). Based upon that
        evaluation, the Chief Executive Officer, President and Chief Financial Officer
        concluded that, as of the Evaluation Date, our disclosure controls and
        procedures were effective in timely alerting them to the material information
        relating to us (or our consolidated subsidiaries) required to be included
        in our
        periodic SEC filings.




(b) Changes
      in internal controls.





There
      were no significant changes made in our internal controls during the period
      covered by this report or, to our knowledge, in other factors that could
      significantly affect these controls subsequent to the date of their
      evaluation.





See
      the
      Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.





**ITEM
      9B.** **OTHER
      INFORMATION**





None.





**PART
      III**





**ITEM
      10.** **DIRECTORS
      AND EXECUTIVE OFFICERS OF THE REGISTRANT**





Information
      concerning Directors of the Company is incorporated herein by reference from
      the
      Company’s definitive Proxy Statement (the “Proxy Statement”), specifically the
      section captioned “Proposal I—Election of Directors.” In addition, see
“Executive Officers of AJS Bancorp, Inc.” in Item 1 for information
      concerning the Company’s executive officers.





The
      Board
      of Directors has adopted a Code of Ethics, applicable to the Chief Executive
      Officer, President and Chief Financial Officer. The Code of Ethics may be
      accessed through our website at www.ajsmithbank.com and is
      filed as Exhibit 14 hereto.





**ITEM
      11.** **EXECUTIVE
      COMPENSATION**




Information
      concerning executive compensation is incorporated herein by reference from
      the
      Company’s Proxy Statement, specifically the section captioned “Executive
      Compensation.”





**ITEM
      12.** **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**





Information
      concerning security ownership of certain owners and management is incorporated
      herein by reference from the Company’s Proxy Statement, specifically the section
      captioned “Voting Securities and Principal Holder Thereof.”





**ITEM
      13.** **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**





Information
      concerning relationships and transactions is incorporated herein by reference
      from the Company’s Proxy Statement, specifically the section captioned
“Transactions with Certain Related Persons.”




52
 ***Table
          of Contents***





**ITEM14.** **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**





Information
      concerning principal accountant fees and services is incorporated herein by
      reference from the Company’s Proxy Statement.





**PART
      IV**





**ITEM
      15.** **EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES**





The
      exhibits and financial statement schedules filed as a part of this Form 10-K
      are
      as follows:





(a)(1) Financial
      Statements





•
            Report
                of Independent Registered Public Accounting
                Firm


•
            Consolidated
                Statements of Financial Condition at December 31, 2006 and
                2005


•
            Consolidated
                Statements of Income for the Years
                Ended


December
                31, 2006, 2005 and 2004


•
            Consolidated
                Statements of Stockholders’ Equity for
                the


Years
                Ended December 31, 2006, 2005 and
                2004


•
            Consolidated
                Statements of Cash Flows for the


Years
                Ended December 31, 2006, 2005 and
                2004


•
            Notes
                to Consolidated Financial
                Statements.





(a)(2) Financial
      Statement Schedules





No
      financial statement schedules are filed because the required information is
      not
      applicable or is included in the consolidated financial statements or related
      notes.





(a)(3) Exhibits





10.1
            Employment
                Agreement with Thomas R. Butkus(1)


10.2
            Employment
                Agreement with Lyn G. Rupich(2)


10.3
            AJS
                Bancorp, Inc. 2003 Stock Option Plan(3)


10.4
            AJS
                Bancorp, Inc. 2003 Recognition and Retention Plan(3)


10.5
            Amendments
                to 2003 Stock Option Plan(4)


13
            Financial
                Statements


14
            Code
                of Ethics(1)


21
            Subsidiaries
                of the Registrant


23
            Consent
                of Auditors to incorporate financial statements into Form
                S-8


31.1
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002


31.2
            Certification
                of President pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002


31.3
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002


32
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act of
                2002


(b)
            The
                exhibits listed under (a)(3) above are filed
                herewith.


(c)
            Not
                applicable.


___________________


(1)
            Incorporated
                by reference to the Company’s Annual Report on Form 10-K for the year
                ended December 31, 2003.


(2)
            Incorporated
                by reference to the Company’s Current Report on Form 8-K filed on October
                25, 2005.


(3)
            Incorporated
                by reference to the Company’s registration statement on Form S-8
                (commission file number 333-105598, filed on May 28,
                2003).


(4)
            Incorporated
                by reference to the Company’s Annual Report on Form 10-K for the year
                ended December 31, 2005.





53
 ***Table
          of Contents***





**SIGNATURES**





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





**AJS
                Bancorp, Inc.**Date:
                March 22, 2007
            By:
            /s/
                Thomas R. ButkusThomas
                R. Butkus,Chairman
                of the Board andChief
                Executive Officer





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.





By:
            /s/
                Thomas R. Butkus
            
            By:
            /s/
                Lyn G. RupichThomas
                R. Butkus, Chairman of the Board
            
            
            Lyn
                G. Rupich, Presidentand
                Chief Executive Officer
            
            
            (Principal
                Executive Officer)Date:
            March
                22, 2007
            
            Date:
            March
                22, 2007By:
            /s/
                Pamela N. Favero
            
            By:
            /s/
                Roger L. AurelioPamela
                N. Favero, Chief Financial Officer
            
            
            Roger
                L. Aurelio, DirectorDate:
            March
                22, 2007
            
            Date:
            March
                22, 2007By:
            /s/
                Raymond J. Blake
            
            By:
            /s/
                Richard J. NogalRaymond
                J. Blake, Director
            
            
            Richard
                J. Nogal, DirectorDate:
            March
                22, 2007
            
            Date:
            March
                22, 2007By:
            /s/
                Edward S. MilenEdward
                S. Milen, DirectorDate:
            March
                22, 2007






54