Exhibit
13




AJS
BANCORP, INC.


Midlothian,
Illinois





CONSOLIDATED
FINANCIAL STATEMENTS


December
31, 2008 and 2007











AJS
BANCORP, INC.


Midlothian,
Illinois





CONSOLIDATED
FINANCIAL STATEMENTS


December
31, 2008 and 2007




















CONTENTS




















REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                      F-2CONSOLIDATED
      FINANCIAL STATEMENTSCONSOLIDATED
      STATEMENTS OF FINANCIAL CONDITION
                      F-3CONSOLIDATED
      STATEMENTS OF INCOME
                      F-4CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
      (LOSS)
                      F-5CONSOLIDATED
      STATEMENTS OF CASH FLOWS
                      F-6NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
                      F-8










logo 1Crowe
      Horwath LLPMember
      Horwath
International
 
 
 
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 Board of
Directors and shareholders
 AJS
Bancorp, Inc.
 Midlothian,
Illinois
 
 
 
 We have
audited the accompanying consolidated statements of financial condition of AJS
Bancorp, Inc. as of December 31, 2008 and 2007, and the related consolidated
statements of income, stockholders’ equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of AJS Bancorp, Inc. as of
December 31, 2008 and 2007, and the results of its operations and its cash flows
for the years then ended, in conformity with U.S. generally accepted accounting
principles.
 
 
 
 signature 1Crowe
      Horwath LLP
 
 
 
 Oak
Brook, Illinois
 March 16,
2009




F-2






CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION


December
31, 2008 and 2007


(Dollars
in thousands, except per share data)








2008
                
                
                2007ASSETSCash
      and cash equivalentsCash
      and due from banks (interest-earning: 2008 - $2,077;2007 -
      $3,625)
                
                $
                7,335
                
                
                $
                18,296Federal
      funds sold
                
                
                58
                
                
                
                77Total
      cash and cash equivalents
                
                
                7,393
                
                
                
                18,373Certificates
      of deposit
                
                
                6,797
                
                
                
                2,997Trading
      securities
                
                
                18
                
                
                
                -Securities
      available for sale
                
                
                89,490
                
                
                
                81,322Securities
      held to maturity (fair value: 2008 - $360;2007 - $125)
                
                
                367
                
                
                
                125Loans,
      net of allowance of $2,734 - 2008 and $1,539 - 2007
                
                
                126,395
                
                
                
                132,966Federal
      Home Loan Bank stock
                
                
                2,450
                
                
                
                2,450Premises
      and equipment
                
                
                4,262
                
                
                
                4,282Bank
      owned life insurance
                
                
                3,202
                
                
                
                3,054Accrued
      interest receivable
                
                
                1,027
                
                
                
                1,061Other
      assets
                
                
                2,569
                
                
                
                1,719Total
      assets
                
                $
                243,970
                
                
                $
                248,349LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilitiesDeposits
                
                $
                180,291
                
                
                $
                190,534Federal
      Home Loan Bank advances
                
                
                30,175
                
                
                
                23,350Advance
      payments by borrowers for taxes and insurance
                
                
                1,502
                
                
                
                1,551Other
      liabilities and accrued interest payable
                
                
                4,905
                
                
                
                4,986Total
      liabilities
                
                
                216,873
                
                
                
                220,421Commitments
      and contingent liabilities (note 14)Stockholders’
      equityPreferred
      stock, $.01 par value, 20,000,000 shares authorized; none
      issued
                
                
                -
                
                
                
                -Common
      stock, $.01 par value, 50,000,000 shares authorized; 2,444,521 shares
      issued
                
                
                24
                
                
                
                24Additional
      paid-in capital
                
                
                11,728
                
                
                
                11,079Treasury
      stock, at cost (2008 – 418,888 shares; 2007 – 407,649
    shares)
                
                
                (9,795
                )
                
                
                (9,598
                )Retained
      earnings
                
                
                23,764
                
                
                
                26,543Accumulated
      other comprehensive income (loss)
                
                
                1,376
                
                
                
                (120
                )Total
      stockholders’ equity
                
                
                27,097
                
                
                
                27,928Total
      liabilities and stockholders’ equity
                
                $
                243,970
                
                
                $
                248,349












F-3






CONSOLIDATED
STATEMENTS OF INCOME


Years
ended December 31, 2008 and 2007


(Dollars
in thousands, except per share data)










2008
                
                
                2007Interest
      and dividend incomeLoans
                
                $
                7,737
                
                
                $
                8,492Securities
                
                
                3,762
                
                
                
                3,791Interest-earning
      deposits and other
                
                
                447
                
                
                
                1,458Federal
      funds sold
                
                
                53
                
                
                
                149Total
      interest income
                
                
                11,999
                
                
                
                13,890Interest
      expenseDeposits
                
                
                4,635
                
                
                
                6,561Federal
      Home Loan Bank advances and other
                
                
                1,299
                
                
                
                1,139Total
      interest expense
                
                
                5,934
                
                
                
                7,700Net
      interest income
                
                
                6,065
                
                
                
                6,190Provision
      for loan losses
                
                
                4,328
                
                
                
                179Net
      interest income after provision for loan losses
                
                
                1,737
                
                
                
                6,011Non-interest
      incomeService
      fees
                
                
                410
                
                
                
                497Insurance
      commissions
                
                
                54
                
                
                
                143Rental
      income
                
                
                92
                
                
                
                120Earnings
      on bank owned life insurance
                
                
                148
                
                
                
                54Gain
      on the sale of securities available for sale
                
                
                17
                
                
                
                -Other
                
                
                44
                
                
                
                44Total
      non-interest income
                
                
                765
                
                
                
                858Non-interest
      expenseCompensation
      and employee benefits
                
                
                3,110
                
                
                
                3,255Occupancy
      expense
                
                
                849
                
                
                
                779Data
      processing expense
                
                
                375
                
                
                
                342Advertising
      and promotion
                
                
                282
                
                
                
                271Professional
                
                
                231
                
                
                
                217Postage
      and supplies
                
                
                142
                
                
                
                159Bank
      security
                
                
                147
                
                
                
                125Loss
      on the sale of other real estate
                
                
                -
                
                
                
                56Unrealized
      loss on security impairment
                
                
                -
                
                
                
                244Realized
      loss on the sale of trading securities
                
                
                192
                
                
                
                -Change
      in fair value of trading securities
                
                
                13
                
                
                
                -Other
                
                
                639
                
                
                
                587Total
      non-interest expense
                
                
                5,980
                
                
                
                6,035Income
      (loss) before income taxes
                
                
                (3,478
                )
                
                
                834Income
      tax expense (benefit)
                
                
                (1,407
                )
                
                
                275Net
      income (loss)
                
                $
                (2,071
                )
                
                $
                559Earnings
      (loss) per shareBasic
                
                $
                (1.02
                )
                
                $
                0.27Diluted
                
                
                (1.02
                )
                
                
                0.26












F-4






CONSOLIDATEDSTATEMENTS OF
STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)


Years
ended December 31, 2008 and 2007


(Dollars
in thousands, except per share data)










Common
      Stock
                          
                          
                          Additional
      Paid-In Capital
                          
                          
                          Treasury
      Stock
                          
                          
                          Retained
      Earnings
                          
                          
                          Accumulated
      Other Comprehensive Income
      (Loss)
                          
                          
                          TotalBalance
      at January 1, 2007
                          
                          $
                          24
                          
                          
                          $
                          10,428
                          
                          
                          $
                          (7,256
                          )
                          
                          $
                          26,368
                          
                          
                          $
                          (815
                          )
                          
                          $
                          28,749Purchase
      of 99,832 shares treasury stock
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (2,390
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (2,390
                          )Reclassification
      due to changes in fair value of common stock in ESOP subject to contingent
      repurchase obligation
                          
                          
                          -
                          
                          
                          
                          365
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          365Stock
      awards earned
                          
                          
                          -
                          
                          
                          
                          231
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          231Stock
      options exercised - 2,400 shares
                          
                          
                          -
                          
                          
                          
                          (3
                          )
                          
                          
                          48
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          45Stock
      option compensation expense
                          
                          
                          -
                          
                          
                          
                          58
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          58Cash
      dividend ($0.41 per share)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (384
                          )
                          
                          
                          -
                          
                          
                          
                          (384
                          )Comprehensive
      incomeNet
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          559
                          
                          
                          
                          -
                          
                          
                          
                          559Change
      in unrealized gain on securities available for sale, net of
      taxes
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          695
                          
                          
                          
                          695Total
      comprehensive income
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          1,254Balance
      at December 31, 2007
                          
                          
                          24
                          
                          
                          
                          11,079
                          
                          
                          
                          (9,598
                          )
                          
                          
                          26,543
                          
                          
                          
                          (120
                          )
                          
                          
                          27,928Purchase
      of 11,239 shares treasury stock
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (197
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (197
                          )Reclassification
      due to changes in fair value of common stock in ESOP subject to contingent
      repurchase obligation
                          
                          
                          -
                          
                          
                          
                          550
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          550Stock
      awards earned
                          
                          
                          -
                          
                          
                          
                          70
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          70Stock
      option compensation expense
                          
                          
                          -
                          
                          
                          
                          29
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          29Adjustment
      to initially apply Statement 159 net of tax
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          46
                          
                          
                          
                          (46
                          )
                          
                          
                          -Cash
      dividend (regular $0.44 per share; special dividend $0.50 per
      share)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (754
                          )
                          
                          
                          -
                          
                          
                          
                          (754
                          )Comprehensive
      lossNet
      loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (2,071
                          )
                          
                          
                          -
                          
                          
                          
                          (2,071
                          )Change
      in unrealized gain on securities available for sale, net of
      taxes
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,542
                          
                          
                          
                          1,542Total
      comprehensive loss
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (529
                          )Balance
      at December 31, 2008
                          
                          $
                          24
                          
                          
                          $
                          11,728
                          
                          
                          $
                          (9,795
                          )
                          
                          $
                          23,764
                          
                          
                          $
                          1,376
                          
                          
                          $
                          27,097













F-5






CONSOLIDATED
STATEMENTS OF CASH FLOWS


Years
ended December 31, 2008 and 2007


(Dollars
in thousands)










2008
                
                
                2007Cash
      flows from operating activitiesNet
      income (loss)
                
                $
                (2,071
                )
                
                $
                559Adjustments
      to reconcile net income to net cash provided by operating
      activitiesDepreciation
                
                
                260
                
                
                
                235Provision
      for loan losses
                
                
                4,328
                
                
                
                179Deferred
      income taxes
                
                
                (217
                )
                
                
                (90
                )Premium
      amortization on securities, net
                
                
                22
                
                
                
                (23
                )Stock
      award compensation expense
                
                
                70
                
                
                
                231Stock
      option compensation expense
                
                
                29
                
                
                
                58Earnings
      on bank owned life insurance
                
                
                (148
                )
                
                
                (54
                )Dividend
      reinvestments on trading securities
                
                
                (154
                )
                
                
                (579
                )Gain
      on sale of securities available for sale
                
                
                (17
                )
                
                
                -Realized
      loss on the sale of trading securities
                
                
                192
                
                
                
                -Loss
      on the sale of other real estate owned
                
                
                -
                
                
                
                56Unrealized
      loss on security impairment
                
                
                -
                
                
                
                244Changes
      inFair
      value of trading securities
                
                
                13
                
                
                
                -Accrued
      interest receivable and other assets
                
                
                (1,577
                )
                
                
                (103
                )Accrued
      interest payable and other liabilities
                
                
                469
                
                
                
                168Net
      cash provided by operating activities
                
                
                1,199
                
                
                
                881Cash
      flows from investing activitiesTrading
      securitiesPurchases
                
                
                (1,500
                )
                
                
                -Redemptions
                
                
                44
                
                
                
                -Proceeds
      from the sale of mutual fund
                
                
                11,400
                
                
                
                -Maturities
      and principal payments
                
                
                1,500
                
                
                
                -Securities
      available for salePurchases
                
                
                (46,427
                )
                
                
                (32,329
                )Sales
                
                
                1,020
                
                
                
                -Maturities
      and principal payments
                
                
                28,241
                
                
                
                21,275Securities
      held to maturityPurchases
                
                
                (320
                )
                
                
                -Maturities
      and principal payments
                
                
                78
                
                
                
                79Purchases
      of certificates of deposit, net
                
                
                (3,800
                )
                
                
                2,493Loan
      origination and repayments, net
                
                
                2,064
                
                
                
                5,050Proceeds
      from sale of other real estate
                
                
                179
                
                
                
                126Purchase
      of equipment
                
                
                (240
                )
                
                
                (175
                )Purchase
      of bank owned life insurance
                
                
                -
                
                
                
                (3,000
                )Net
      cash used in investing activities
                
                
                (7,761
                )
                
                
                (6,481
                )












F-6






CONSOLIDATED
STATEMENTS OF CASH FLOWS


Years
ended December 31, 2008 and 2007


(Dollars
in thousands)










2008
                
                
                2007Cash
      flows from financing activitiesDividends
      paid
                
                $
                (754
                )
                
                $
                (384
                )Net
      change in deposits
                
                
                (10,243
                )
                
                
                (11,642
                )Purchases
      of FHLB advances
                
                
                13,750
                
                
                
                -Maturities
      of FHLB advances
                
                
                (6,925
                )
                
                
                (5,400
                )Purchase
      of common stock
                
                
                (197
                )
                
                
                (2,390
                )Proceeds
      from exercise of stock options
                
                
                -
                
                
                
                45Net
      change in advance payments by borrowers for taxes and
      insurance
                
                
                (49
                )
                
                
                (104
                )Net
      cash used in financing activities
                
                
                (4,418
                )
                
                
                (19,875
                )Net
      change in cash and cash equivalents
                
                
                (10,980
                )
                
                
                (25,475
                )Cash
      and cash equivalents at beginning of year
                
                
                18,373
                
                
                
                43,848Cash and cash equivalents at
      end of year
                
                $
                7,393
                
                
                $
                18,373Supplemental
      disclosures of cash flow informationCash
      paid during the year forInterest
                
                $
                6,035
                
                
                $
                7,670Income
      taxes
                
                
                505
                
                
                
                427Supplemental
      noncash disclosuresTransfers
      from loans to real estate owned
                
                $
                179
                
                
                $
                261Securities
      transferred from available for sale to trading upon adoption of Statement
      159
                
                $
                11,513
                
                
                $
                -












F-7






















NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Principles of
Consolidation:  The consolidated financial statements include
the accounts of AJS Bancorp, Inc. (“the Company”) and its wholly owned
subsidiary, A. J. Smith Federal Savings Bank (“the Bank”).  All
significant intercompany balances and transactions have been
eliminated.  The Company is 60.6% owned by a mutual holding company,
AJS Bancorp, MHC.  These consolidated financial statements do not
include AJS Bancorp, MHC and its results or financial condition.





Nature of
Operations:  The only business of the Company is ownership of
the Bank.  The Bank is a federally chartered savings bank with
operations located in Midlothian and Orland Park, Illinois.  The Bank
provides single-family residential and home equity loans and commercial loans to
customers and accepts deposits from customers located in the southern suburbs of
Chicago, Illinois.  Substantially all of the loans are secured by
specific items of collateral including business assets, consumer assets, and
commercial and residential real estate.  Commercial loans are expected
to be repaid from cash flows from operations of businesses.  There are
no significant concentrations of loans to any one industry or
customer.  However, the ability of the customers to repay their loans
is dependent on the real estate and general economic conditions in the
area.  The Company’s exposure to credit risk is significantly affected
by changes in the economy of Chicago and its suburban areas.





Use of
Estimates:  To prepare financial statements in conformity with
U.S. generally accepted accounting principles, management makes estimates and
assumptions based on available information.  These estimates and
assumptions affect the amounts reported in the financial statements, and the
disclosures provided and future results could differ.  The allowance
for loan losses and fair values of financial instruments are particularly
subject to change.





Cash
Flows:  Cash and cash equivalents include cash, deposits with
other financial institutions with original maturities of less than 90 days, and
federal funds sold.  Net cash flows are reported for loans,
certificates of deposit with other financial institutions, and deposit
transactions.  Proceeds from sales of trading securities are reported
as an investing activity since they are classified as trading in accordance with
Financial Accounting Standard (FAS) 159 and not because of an intent to
sell.





Interest-Earning Deposits in
Other Financial Institutions:  Interest-earning deposits in
other financial institutions mature within one year and are carried at
cost.





Securities:  Debt
securities are classified as held to maturity and carried at amortized cost when
management has the positive intent and ability to hold them to
maturity.  Debt securities are classified as available for sale when
they might be sold before maturity.  Equity securities with readily
determinable fair values are classified as trading securities in accordance with
FAS 159.











F-8




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES





These
trading securities are carried at fair value with unrealized gains and losses
reported through earnings.  Securities available for sale are carried
at fair value, with unrealized holding gains and losses reported in other
comprehensive income, net of tax.





Interest
income includes amortization of purchase premium or
discount.  Premiums and discounts on securities are amortized on the
level-yield method without anticipating prepayments, except for mortgage backed
securities where prepayments are anticipated.  Gains and losses on
sales are based on the amortized cost of the security
sold.  Securities are written down to fair value when a decline in
fair value is not temporary.





Declines
in the fair value of securities below their cost that are other than temporary
are reflected as realized losses.  In estimating other-than-temporary
losses, management considers the length of time and extent that fair value has
been less than cost, the financial condition and near term prospects of the
issuer, and the Company’s ability and intent to hold the security for a period
sufficient to allow for any anticipated recovery in fair value.





Federal Home Loan Bank
(FHLB) Stock:  The Bank is a member of the FHLB
system.  Members are required to own a certain amount of stock based
on the level of borrowings and other factors, and may invest in additional
amounts.  FHLB stock is carried at cost, classified as a restricted
security, and periodically evaluated for impairment based on ultimate recovery
of par value.  Both cash and stock dividends are reported as
income.





Loans Held for
Sale:  Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of aggregate cost or market, as
determined by outstanding commitments from investors.  Net unrealized
losses, if any, are recorded as a valuation allowance and charged to
earnings.





Mortgage
loans held for sale are generally sold with servicing rights
retained.  The carrying value of mortgage loans sold is reduced by the
cost allocated to the servicing right.  Gains and losses on sales of
mortgage loans are based on the difference between the selling price and the
carrying value of the related loan sold.  At December 31, 2008 and
December 31, 2007, there were no loans held for sale.





Loans:  Loans
that management has the intent and ability to hold for the foreseeable future or
until maturity or payoff are reported at the principal balance outstanding, net
of unearned interest, deferred loan fees and costs, and an allowance for loan
losses.





Interest
income is reported on the interest method and includes amortization of net
deferred loan fees and costs over the contractual loan term.  Interest
income is accrued on the unpaid principal balance.  Loan origination
fees, net of certain direct origination costs, are deferred and





F-9




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





recognized
in interest income using the level-yield method without anticipating
prepayments. Interest income on mortgage and commercial loans is discontinued at
the time the loan is 90 days delinquent unless the loan is well-secured and in
process of collection.  Consumer loans are typically charged off no
later than 120 days past due.  Past due status is based on the
contractual terms of the loan.  In all cases, loans are placed on
nonaccrual or charged-off at an earlier date if collection of principal or
interest is considered doubtful.





Allowance for Loan
Losses:  The allowance for loan losses is a valuation allowance
for probable incurred credit losses, increased by the provision for loan losses
and decreased by charge-offs less recoveries.  Management estimates
the allowance balance required using past loan loss experience; known and
inherent losses in the nature and volume of the portfolio that are both probable
and estimable; information about specific borrower situations; and estimated
collateral values, economic conditions, and other
factors.  Allocations of the allowance may be made for specific loans,
but the entire allowance is available for any loan that, in management’s
judgment, should be charged off.  Loan losses are charged against the
allowance when management believes that the uncollectiblity of a loan balance is
confirmed.





The
allowance consists of specific and general components.  The specific
component relates to loans that are individually classified.  The
general component covers non-classified loans and is based on historical loss
experience adjusted for current factors.





Nonperforming
loans and impaired loans are defined differently.  A loan is impaired
when, based on current information and events, it is probable that a creditor
will be unable to collect all amounts due according to the contractual terms of
the loan agreement.  A loan is non performing when it is greater than
ninety days past due.  Some loans may be included in both categories,
whereas other loans may only be included in one category.  Specific
allocations are made for loans that are determined to be
impaired.  Company policy requires that all non-homogeneous loans past
due greater than ninety days be classified as impaired and
non-performing.  However, loans past due less than 90 days may also be
classified as impaired when management does not expect to collect all amounts
due according to the contractual terms of the loan
agreement.  Impairment is measured by determining the present value of
expected future cash flows or, for collateral-dependent loans, the fair value of
the collateral adjusted for market conditions and selling expenses as compared
to the loan carrying amount.





Premises and
Equipment:  Land is carried at cost.  Premises and
equipment are stated at cost less accumulated
depreciation.  Depreciation is calculated using primarily the
straight-line method and is provided over the estimated useful lives of 15 to 50
years for premises and 1 to 10 years for equipment.





Other Real Estate
Owned:  Real estate properties acquired through or in lieu of
loan foreclosure are recorded at fair value less estimated costs to
sell.  Costs relating to improvement of property are capitalized,
whereas costs relating to holding property are expensed.














F-10





AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
  NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES





Bank-Owned Life
Insurance:  The Company has purchased life insurance policies
on certain key executives.  In accordance with Emerging Issues Task
Force 06-5, bank-owned life insurance is recorded at the amount that can be
realized under the insurance contract at the balance sheet date,which is the cash surrender
value adjusted for other charges or other amounts due that are probable at
settlement.





Long-Term
Assets:Premises and equipment,
core deposit and other intangible assets, and other long-term assets are
reviewed for impairment when events indicate their carrying amount may not be
recoverable from future undiscounted cash flows.  If impaired, the
assets are recorded at fair value.





Income
Taxes:  Income tax expense is the total of the current year
income tax due or refundable and the change in deferred tax assets and
liabilities.  Deferred tax assets and liabilities are the expected
future tax amounts for the temporary differences between carrying amounts and
tax bases of assets and liabilities, computed using enacted tax
rates.  A valuation allowance, if needed, reduces deferred tax assets
to the amount expected to be realized.





The
Company adopted Financial Accounting Standards Board (FASB) Interpretation 48,
Accounting for Uncertainty in
Income Taxes (“FIN 48”), as of January 1, 2007.  A tax position
is recognized as a benefit only if it is “more likely than not” that the tax
position would be sustained in a tax examination, with a tax examination being
presumed to occur.  The amount recognized is the largest amount of tax
benefit that is greater than 50% likely of being realized on
examination.  For tax positions not meeting the “more likely than not”
test, no tax benefit is recorded.  The adoption had no affect on the
Company’s financial statements.





The
Company recognizes interest and/or penalties related to income tax matters in
income tax expense.





Loss
Contingencies:  Loss contingencies, including claims and legal
actions arising in the ordinary course of business, are recorded as liabilities
when the likelihood of loss is probable and an amount or range of loss can be
reasonably estimated.  Management does not believe there now are such
matters that will have a material effect on the financial
statements.





Loan Commitments and Related
Financial Instruments:  Financial instruments include
off-balance-sheet credit instruments, such as commitments to make loans and
commercial letters of credit, issued to meet customer financing
needs.  The face amount for these items represents the exposure to
loss, before considering customer collateral or ability to
repay.  Such financial instruments are recorded when they are
funded.





F-11





AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)


NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)





Fair Value of Financial
Instruments:  Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note.


Fair
value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments, and other factors,
especially in the absence of broad markets for particular
items.  Changes in assumptions or in market conditions could
significantly affect the estimates.





Earnings Per Common
Share:  Basic earnings per common share is net income divided
by the weighted average number of common shares outstanding during the
period.  Employee stock ownership plan shares are considered
outstanding for this calculation unless unearned.  Diluted earnings
per common share include the dilutive effect of additional potential common
shares issuable under stock options and the vesting of stock
awards.  Earnings and dividends per share are restated for all stock
splits and dividends through the date of issue of the financial
statements.





Comprehensive Income
(Loss):  Comprehensive income (loss) consists of net income
(loss) and other comprehensive income (loss).  Other comprehensive
income (loss) includes unrealized gains and losses on securities available for
sale, which are also recognized as separate components of stockholders’
equity.





Retirement
Plans:  Profit sharing plan expense is the amount of
discretionary Company contributions.  Deferred compensation is funded
by employee contributions. Supplemental retirement plan expense allocates the
benefits over years of service once eligible participants meet minimum
employment requirements.





Employee Stock Ownership
Plan (“ESOP”):  The ESOP was fully allocated in
2006.  Compensation expense was recorded based on the market price of
the shares as they were committed to be released for allocation to participant
accounts.  The difference between the market price and the cost of the
shares committed to be released was recorded as an adjustment to paid-in
capital.  Dividends on ESOP shares reduce retained
earnings.  Shares are considered outstanding in the earnings per share
calculations as they are committed to be released.  Because
participants may require the Company to purchase their ESOP shares upon
termination of their employment and certain predetermined dates according to the
ESOP plan document, the fair value of the putable allocated ESOP shares is
reclassified from stockholders’ equity and included in other
liabilities.














F-12





AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)


NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)





Stock-Based
Compensation:  Compensation cost is recognized for stock
options and restricted stock awards issued to employees, based on the fair value
of these awards at the date of grant. A Black-Scholes model is utilized to
estimate the fair value of stock options, while the market price of the
Corporation’s common stock at the date of grant is used for restricted stock
awards. Compensation cost is recognized over the required service period,
generally defined as the vesting period. For awards with graded vesting,
compensation cost is recognized on a straight-line basis over the requisite
service period for the entire award.





Dividend
Restriction:  Banking regulations require the maintenance of
certain capital levels and may limit the dividends paid by the Bank to the
holding company or by the holding company to the stockholders.





Operating Segment:
Internal financial information is primarily reported and aggregated in a single
line of business, banking.  Accordingly, all of the financial service
operations are considered by management to be aggregated in one reportable
operating segment.





Reclassifications:  Certain
items on the prior year financial statements have been reclassified with no
effect on net income to conform to the current year presentation.





Adoption of New Accounting
Standards: FASB Statement No. 157, Fair Value Measurements(“FAS
157”), defines fair
value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements.  FAS 157 establishes a fair value
hierarchy about the assumptions used to measure fair value and clarifies
assumptions about risk and the effect of a restriction on the sale or use of an
asset.  The standard is effective for fiscal years beginning after
November 15, 2007.  In February 2008, the FASB issued Staff Position
(FSP) 157-2,Effective Date of
FASB Statement No. 157.This FSP delays the effective date of
FAS 157 for all non-financial assets and non-financial liabilities, except those
that are recognized or disclosed at fair value on a recurring basis to fiscal
years beginning after November 15, 2008. In October 2008, the FASB issued FSP
157-3, Determining the Fair
Value of a Financial Asset when the Market for That Asset Is Not
Active.  This FSP clarifies the application of FAS 157 in a
market that is not active. The impact of adoption was not
material.





FASB
Statement No. 159, The Fair
Value Option for Financial Assets and Financial
Liabilities.  The standard provides companies with an option to
report selected financial assets and liabilities at fair value and establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types
of assets and liabilities.  The new standard was effective for the
Company on January 1, 2008.  On January 1, 2008 the Company elected
the fair value option for the Company’s marketable equity
securities.  Upon adoption, mutual fund and equity securities with
carrying values of approximately $11,513 were reclassified from available for
sale to trading.  Accumulated other





F-13




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES





comprehensive
income of approximately $46 was reclassified to retained
earnings.  Changes in fair value of the Company’s marketable equity
securities will be recognized through earnings in the future.





On
November 5, 2007, the Security and Exchange Commission issued Staff Accounting
Bulletin No. 109, Written Loan
Commitments Recorded at Fair Value through Earnings(“SAB 109”).
Previously, SAB 105, Application of Accounting Principles to Loan
Commitments, stated that in measuring the fair value of a derivative loan
commitment, a company should not incorporate the expected net future cash flows
related to the associated servicing of the loan. SAB 109 supersedes SAB 105 and
indicates that the expected net future cash flows related to the associated
servicing of the loan should be included in measuring fair value for all written
loan commitments that are accounted for at fair value through
earnings.  SAB 105 also indicated that internally-developed intangible
assets should not be recorded as part of the fair value of a derivative loan
commitment, and SAB 109 retains that view.  SAB 109 was effective for
derivative loan commitments issued or modified in fiscal quarters beginning
after December 15, 2007. The impact of adoption was
not material.








NOTE
2 - SECURITIES





At
December 31, 2008 and 2007, the Company had trading securities, consisting of
equity securities, carried at fair value in accordance with FAS
159.  Trading securities had a carrying value of $18 and $0, and
unrealized losses of $13 and $0 at December 31, 2008 and 2007,
respectively.





The fair
value of securities available for sale and the related gross unrealized gains
and losses recognized in accumulated other comprehensive income (loss) were as
follows:





Fair
      Value
                      
                      
                      Gross
      Unrealized Gains
                      
                      
                      Gross
      Unrealized LossesDecember 31, 2008U.S.
      governmental agencies
                      
                      $
                      20,198
                      
                      
                      $
                      198
                      
                      
                      $
                      -Mortgage-backed
                      
                      
                      69,292
                      
                      
                      
                      2,077
                      
                      
                      
                      (25
                      )Total
                      
                      $
                      89,490
                      
                      
                      $
                      2,275
                      
                      
                      $
                      (25
                      )December 31, 2007U.S.
      governmental agencies
                      
                      $
                      26,644
                      
                      
                      $
                      191
                      
                      
                      $
                      (30
                      )Mortgage-backed
                      
                      
                      43,165
                      
                      
                      
                      128
                      
                      
                      
                      (560
                      )Mutual
      fund
                      
                      
                      11,437
                      
                      
                      
                      -
                      
                      
                      
                      -Equity
      investment
                      
                      
                      76
                      
                      
                      
                      75
                      
                      
                      
                      -Total
                      
                      $
                      81,322
                      
                      
                      $
                      394
                      
                      
                      $
                      (590
                      )





F-14





AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 2 - SECURITIES





The
amortized cost, unrecognized gains and losses, and fair values of securities
held to maturity follow:





Amortized
      Cost
                      
                      
                      Gross
      Unrecognized Gains
                      
                      
                      Gross
      Unrecognized Losses
                      
                      
                      Fair
      ValueDecember 31, 2008Mortgage-backed
                      
                      $
                      47
                      
                      
                      $
                      2
                      
                      
                      $
                      -
                      
                      
                      $
                      49State
      and municipal
                      
                      
                      320
                      
                      
                      
                      -
                      
                      
                      
                      (9
                      )
                      
                      
                      311$
                      367
                      
                      
                      $
                      2
                      
                      
                      $
                      (9
                      )
                      
                      $
                      360December 31, 2007Mortgage-backed
                      
                      $
                      60
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      60State
      and municipal
                      
                      
                      65
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      65$
                      125
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      125





Contractual
maturities of securities at December 31, 2008 were as
follows.  Securities not due at a single maturity date, primarily
mortgage-backed securities, are shown separately.





Available
      for Sale
                  
                  
                  Held
      to MaturityFair
      Value
                  
                  
                  Amortized
      Cost
                  
                  
                  Fair
      ValueDue
      in one year or less
                  
                  $
                  13,159
                  
                  
                  $
                  -
                  
                  
                  $
                  -Due
      after one year through five years
                  
                  
                  1,014
                  
                  
                  
                  -
                  
                  
                  
                  -Due
      after five year through ten years
                  
                  
                  3,016
                  
                  
                  
                  150
                  
                  
                  
                  147Due
      after ten years
                  
                  
                  3,009
                  
                  
                  
                  170
                  
                  
                  
                  164Mortgage-backed
      securities
                  
                  
                  69,292
                  
                  
                  
                  47
                  
                  
                  
                  49$
                  89,490
                  
                  
                  $
                  367
                  
                  
                  $
                  360





Securities
with a carrying value of approximately $11,258 and $10,566 at December 31, 2008
and 2007 were pledged to secure public deposits and for other purposes as
required or permitted by law.














F-15




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 2 - SECURITIES





Sales of
trading and available for sale securities were as follows:





2008
                  
                  
                  2007Proceeds
      from sale of securities available for sale
                  
                  $
                  1,020
                  
                  
                  $
                  -Proceeds
      from sale of trading securities
                  
                  
                  11,400
                  
                  
                  
                  -Gross
      gains from sale of securities available for sale
                  
                  
                  17
                  
                  
                  
                  -Gross
      losses from sale of trading securities
                  
                  
                  (192
                  )
                  
                  
                  -





Securities
with unrealized losses at year end not recognized in income, by length of time
that individual securities have been in a continuous unrealized loss position,
are as follows:





Less Than 12 Months
                    
                    
                    12 Months or More
                    
                    
                    TotalFair
      Value
                    
                    
                    Unrealized
      Loss
                    
                    
                    Fair
      Value
                    
                    
                    Unrealized
      Loss
                    
                    
                    Fair
      Value
                    
                    
                    Unrealized
      Loss2008Mortgage-backed
                    
                    $
                    15
                    
                    
                    $
                    (1
                    )
                    
                    $
                    2,926
                    
                    
                    $
                    (24
                    )
                    
                    $
                    2,941
                    
                    
                    $
                    (25
                    )State
      and municipal
                    
                    
                    311
                    
                    
                    
                    (9
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    311
                    
                    
                    
                    (9
                    )$
                    326
                    
                    
                    $
                    (10
                    )
                    
                    $
                    2,926
                    
                    
                    $
                    (24
                    )
                    
                    $
                    3,252
                    
                    
                    $
                    (34
                    )2007U.S.
      government agencies
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    5,970
                    
                    
                    $
                    (30
                    )
                    
                    $
                    5,970
                    
                    
                    $
                    (30
                    )Mortgage-backed
                    
                    
                    2,187
                    
                    
                    
                    (7
                    )
                    
                    
                    21,396
                    
                    
                    
                    (553
                    )
                    
                    
                    23,583
                    
                    
                    
                    (560
                    )Total
      temporarily impaired
                    
                    $
                    2,187
                    
                    
                    $
                    (7
                    )
                    
                    $
                    27,366
                    
                    
                    $
                    (583
                    )
                    
                    $
                    29,553
                    
                    
                    $
                    (590
                    )





Unrealized
losses have not been recognized into income because the issuers’ bonds are of
high credit quality and/or they are backed by the government, such as Fannie Mae
or Freddie Mac bonds and mortgage-backed securities.  In addition,
management has the intent and ability to hold them for the foreseeable future
and the decline in fair value is largely due to current market conditions and
illiquidity in our capital markets.  The fair value is expected to
recover as the securities approach their maturity date and/or market conditions
improve.














F-16




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 3 - LOANS


Loans
consist of:


2008
                                      
                                      
                                      2007Mortgage:Secured
      by one-to-four-family residences
                                      
                                      $
                                      84,411
                                      
                                      
                                      $
                                      85,803Multi-family
      and secured by commercial properties
                                      
                                      
                                      32,064
                                      
                                      
                                      
                                      33,888Home
      equity
                                      
                                      
                                      12,261
                                      
                                      
                                      
                                      14,406Consumer
      and other
                                      
                                      
                                      323
                                      
                                      
                                      
                                      258129,059
                                      
                                      
                                      
                                      134,355Allowance
      for loan losses
                                      
                                      
                                      (2,734
                                      )
                                      
                                      
                                      (1,539
                                      )Net
      deferred costs and other
                                      
                                      
                                      70
                                      
                                      
                                      
                                      150Loans,
      net
                                      
                                      $
                                      126,395
                                      
                                      
                                      $
                                      132,966Changes
      in the allowance for loan losses follow:2008
                                      
                                      
                                      2007Beginning
      balance
                                      
                                      $
                                      1,539
                                      
                                      
                                      $
                                      1,619Provision
      for loan losses
                                      
                                      
                                      4,328
                                      
                                      
                                      
                                      179Charge-offs
                                      
                                      
                                      (3,200
                                      )
                                      
                                      
                                      (280
                                      )Recoveries
                                      
                                      
                                      67
                                      
                                      
                                      
                                      21Ending
      balance
                                      
                                      $
                                      2,734
                                      
                                      
                                      $
                                      1,539Impaired
      loans were as follows:2008
                                      
                                      
                                      2007Impaired
      loans with allocated allowance for loan losses
                                      
                                      $
                                      6,464
                                      
                                      
                                      $
                                      -Impaired
      loans with no allocated allowance for loan losses
                                      
                                      
                                      4,116
                                      
                                      
                                      
                                      3,687Total
                                      
                                      $
                                      10,580
                                      
                                      
                                      $
                                      3,687Amount
      of the allowance for loan losses allocated
                                      
                                      $
                                      1,335
                                      
                                      
                                      $
                                      -Average
      of impaired loans during the year
                                      
                                      $
                                      4,053
                                      
                                      
                                      $
                                      2,364Interest
      income recognized during impairment, substantially all on a
      cash-basis
                                      
                                      
                                      190
                                      
                                      
                                      
                                      38Nonperforming
      loans were as follows:2008
                                      
                                      
                                      2007Nonaccrual
      loans
                                      
                                      $
                                      3,736
                                      
                                      
                                      $
                                      934Loans
      past due over 90 days still on accrual
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -














F-17




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 3 - LOANS





Certain
directors and executive officers of the Bank and companies with which they are
affiliated have obtained loans from the Bank on various occasions.  A
summary of such loans made by the Bank is as follows:





2008
                  
                  
                  2007Beginning
      balance
                  
                  $
                  1,517
                  
                  
                  $
                  1,495New
      loans
                  
                  
                  871
                  
                  
                  
                  91Effect
      of changes in related parties
                  
                  
                  (51
                  )
                  
                  
                  -Repayments
                  
                  
                  (822
                  )
                  
                  
                  (69
                  )Ending
      balance
                  
                  $
                  1,515
                  
                  
                  $
                  1,517





Mortgage
loans serviced for others are not included in the consolidated statements of
financial condition.  The unpaid principal balances of these loans
follow:





2008
                  
                  
                  2007Mortgage
      loan portfolios serviced for:Fannie
      Mae
                  
                  $
                  5,077
                  
                  
                  $
                  6,309Freddie
      Mac
                  
                  
                  78
                  
                  
                  
                  84Balance,
      end of year
                  
                  $
                  5,155
                  
                  
                  $
                  6,393





The
carrying value of mortgage servicing rights is $38 and $47 at December 31, 2008
and 2007.  Custodial escrow balances maintained in connection with the
foregoing loan servicing were approximately $164 and $209 at December 31, 2008
and 2007.








NOTE
4 - PREMISES AND EQUIPMENT





Premises
and equipment consist of:


2008
                  
                  
                  2007Land
                  
                  $
                  1,351
                  
                  
                  $
                  1,351Office
      buildings and improvements
                  
                  
                  5,342
                  
                  
                  
                  5,305Furniture,
      fixtures, and equipment
                  
                  
                  1,530
                  
                  
                  
                  1,6618,223
                  
                  
                  
                  8,317Less
      accumulated depreciation
                  
                  
                  3,961
                  
                  
                  
                  4,035$
                  4,262
                  
                  
                  $
                  4,282





F-18




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 5 - DEPOSITS





Certificates
of deposit in denominations of $100 or more were $32,972 and $35,648 at December
31, 2008 and 2007.





Deposit
accounts are summarized as follows:


2008
                  
                  
                  2007Passbook
      accounts
                  
                  $
                  38,952
                  
                  
                  $
                  38,103NOW
      and checking accounts
                  
                  
                  21,022
                  
                  
                  
                  22,383Money
      market accounts
                  
                  
                  13,006
                  
                  
                  
                  7,291Certificates
      of deposit
                  
                  
                  107,311
                  
                  
                  
                  122,757Total
      deposits
                  
                  $
                  180,291
                  
                  
                  $
                  190,534





Scheduled
maturities of time certificates at December 31, 2008 are as
follows:





2009
                      
                      $
                      80,9852010
                      
                      
                      12,8182011
                      
                      
                      5,1242012
                      
                      
                      3,6932013
                      
                      
                      4,244Thereafter
                      
                      
                      447$
                      107,311





Interest
expense on deposits is summarized as follows:





2008
                  
                  
                  2007NOW
                  
                  $
                  38
                  
                  
                  $
                  58Money
      market
                  
                  
                  159
                  
                  
                  
                  259Passbook
                  
                  
                  352
                  
                  
                  
                  448Certificates
      of deposit
                  
                  
                  4,086
                  
                  
                  
                  5,796$
                  4,635
                  
                  
                  $
                  6,561





Non-interest-bearing
deposits (NOW accounts) totaled $12,206 and $12,912 at December 31, 2008 and
2007.  Deposit accounts held by directors and executive officers
totaled $1,140 and $991 at December 31, 2008 and 2007.














F-19




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 6 - FEDERAL HOME LOAN BANK
ADVANCES





At year
end, advances from the FHLB were as follows:





Maturity Date
                                
                                Fixed
      Rate
                                
                                
                                2008
                                
                                
                                2007January
      23, 2008
                                
                                
                                3.21
                                %
                                
                                $
                                -
                                
                                
                                $
                                500January
      28, 2008
                                
                                
                                3.68
                                
                                
                                
                                -
                                
                                
                                
                                400March
      24, 2008
                                
                                
                                2.96
                                
                                
                                
                                -
                                
                                
                                
                                625April
      28, 2008
                                
                                
                                3.84
                                
                                
                                
                                -
                                
                                
                                
                                1,000May
      7, 2008
                                
                                
                                4.08
                                
                                
                                
                                -
                                
                                
                                
                                1,000June
      18, 2008
                                
                                
                                4.33
                                
                                
                                
                                -
                                
                                
                                
                                1,000July
      22, 2008
                                
                                
                                4.41
                                
                                
                                
                                -
                                
                                
                                
                                500November
      13, 2008
                                
                                
                                4.16
                                
                                
                                
                                -
                                
                                
                                
                                500November
      17, 2008
                                
                                
                                3.64
                                
                                
                                
                                -
                                
                                
                                
                                400November
      27, 2008
                                
                                
                                5.48
                                
                                
                                
                                -
                                
                                
                                
                                1,000March
      20, 2009
                                
                                
                                5.63
                                
                                
                                
                                3,000
                                
                                
                                
                                3,000March
      23, 2009
                                
                                
                                3.35
                                
                                
                                
                                625
                                
                                
                                
                                625June
      17, 2009
                                
                                
                                4.40
                                
                                
                                
                                1,000
                                
                                
                                
                                1,000June
      22, 2009
                                
                                
                                4.67
                                
                                
                                
                                1,000
                                
                                
                                
                                1,000June
      25, 2009
                                
                                
                                4.61
                                
                                
                                
                                1,000
                                
                                
                                
                                1,000July
      1, 2009
                                
                                
                                4.54
                                
                                
                                
                                1,000
                                
                                
                                
                                1,000August
      10, 2009
                                
                                
                                3.88
                                
                                
                                
                                650
                                
                                
                                
                                650September
      16, 2009
                                
                                
                                3.68
                                
                                
                                
                                600
                                
                                
                                
                                600September
      28, 2009
                                
                                
                                3.79
                                
                                
                                
                                2,000
                                
                                
                                
                                2,000January
      4, 2010
                                
                                
                                3.51
                                
                                
                                
                                1,750
                                
                                
                                
                                -February
      16, 2010
                                
                                
                                2.89
                                
                                
                                
                                3,000
                                
                                
                                
                                -March
      23, 2010
                                
                                
                                3.71
                                
                                
                                
                                250
                                
                                
                                
                                250July
      2, 2010
                                
                                
                                4.69
                                
                                
                                
                                1,000
                                
                                
                                
                                1,000October
      25, 2010
                                
                                
                                4.16
                                
                                
                                
                                1,000
                                
                                
                                
                                1,000February
      22, 2011
                                
                                
                                3.32
                                
                                
                                
                                2,000
                                
                                
                                
                                -March
      21, 2011
                                
                                
                                2.93
                                
                                
                                
                                3,000
                                
                                
                                
                                -July
      7, 2011
                                
                                
                                4.61
                                
                                
                                
                                800
                                
                                
                                
                                800October
      26, 2011
                                
                                
                                4.02
                                
                                
                                
                                400
                                
                                
                                
                                400November
      17, 2011
                                
                                
                                4.31
                                
                                
                                
                                1,100
                                
                                
                                
                                1,100January
      10, 2012
                                
                                
                                4.36
                                
                                
                                
                                1,000
                                
                                
                                
                                1,000February
      22, 2012
                                
                                
                                3.63
                                
                                
                                
                                2,000
                                
                                
                                
                                -February
      27, 2013
                                
                                
                                3.95
                                
                                
                                
                                2,000
                                
                                
                                
                                -$
                                30,175
                                
                                
                                $
                                23,350





F-20





AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 6 - FEDERAL HOME LOAN BANK
ADVANCES





The
advances are secured by a blanket lien on qualifying first mortgage loans in an
amount equal to at least 170% of the amount of outstanding
advances.  The advances are also subject to a prepayment penalty
equivalent to the unpaid interest cash flows at rates effective at the time of
the prepayment.





Maturities
over the next five years are as follows:





2009
                    
                    $
                    10,8752010
                    
                    
                    7,0002011
                    
                    
                    7,3002012
                    
                    
                    3,0002013
                    
                    
                    2,000$
                    30,175








NOTE
7 - INCOME TAXES





Income
tax expense was as follows:


2008
                  
                  
                  2007CurrentFederal
                  
                  $
                  (816
                  )
                  
                  $
                  422State
                  
                  
                  (20
                  )
                  
                  
                  10Deferred
                  
                  
                  (571
                  )
                  
                  
                  (157
                  )Total
                  
                  $
                  (1,407
                  )
                  
                  $
                  275





Effective
tax rates differ from federal statutory rates applied to financial statement
income due to the following.


2008
                  
                  
                  2007Income
      tax at federal statutory rate
                  
                  $
                  (1,182
                  )
                  
                  $
                  286Effect
      ofState
      taxes, net of federal benefit
                  
                  
                  (208
                  )
                  
                  
                  (11
                  )Other,
      net
                  
                  
                  (17
                  )
                  
                  
                  -Total
                  
                  $
                  (1,407
                  )
                  
                  $
                  275Effective
      tax rate
                  
                  
                  (40.5
                  )%
                  
                  
                  32.7
                  %














F-21




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 7 - INCOME TAXES





The net
deferred tax assets included in other assets in the consolidated statements of
financial condition are as follows:





2008
                  
                  
                  2007Deferred
      tax assetsAllowance
      for loan losses
                  
                  $
                  1,061
                  
                  
                  $
                  720Accrued
      expenses
                  
                  
                  916
                  
                  
                  
                  846Unrealized
      loss on securities available for sale
                  
                  
                  -
                  
                  
                  
                  76Security
      impairment
                  
                  
                  -
                  
                  
                  
                  95Reserve
      for uncollectible interest
                  
                  
                  117
                  
                  
                  
                  15Other
                  
                  
                  122
                  
                  
                  
                  -2,216
                  
                  
                  
                  1,752Deferred
      tax liabilitiesPremises
      and equipment
                  
                  
                  (334
                  )
                  
                  
                  (302
                  )Federal
      Home Loan Bank stock dividends
                  
                  
                  (186
                  )
                  
                  
                  (186
                  )Deferred
      loan fees
                  
                  
                  (117
                  )
                  
                  
                  (118
                  )Unrealized
      gain on securities available for sale
                  
                  
                  (874
                  )
                  
                  
                  -Other
                  
                  
                  -
                  
                  
                  
                  (34
                  )(1,511
                  )
                  
                  
                  (640
                  )Net
      deferred tax asset
                  
                  $
                  705
                  
                  
                  $
                  1,112





Federal
income tax laws provided additional bad debt deductions through 1987 totaling
$2,372.  Accounting standards do not require a deferred tax liability
to be recorded on this amount, which liability otherwise would total $921 at
December 31, 2008.  If the Bank were liquidated or otherwise ceased to
be a bank or if tax laws were to change, this amount would be
expensed.  The Company files income tax returns in the U.S. federal
jurisdiction and in Illinois.  The Company is no longer subject to
examination by the U.S. federal tax authorities and by Illinois tax authorities
for years prior to 2005.








NOTE
8 - EMPLOYEE BENEFITS





The Bank
maintains a contributory profit sharing plan for its employees.  To be
eligible to participate, an employee must have completed one year of service, be
credited with 1,000 hours of service during that period, and have attained the
age of 18.  Bank contributions to the plan are discretionary and
determined by the Board of Directors.  Profit sharing expense was $100
for the years ended December 31, 2008 and 2007.














F-22




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 8 - EMPLOYEE BENEFITS





The Bank
offers a deferred compensation plan to its officers and
directors.  Participants can defer (i) twenty percent (20%) of such
Participant’s Base Salary; (ii) fifty percent (50%) of such Participant’s annual
Bonus; (iii) and one hundred percent (100%) of such Participant’s Director’s
Fees.  Deferred compensation balances earn a rate equal to two
percentage points above the prime rate, as published in The Wall Street
Journal.  The Bank’s liability for the deferred compensation plan
totaled $669 and $561 at December 31, 2008 and 2007.  Expenses related
to the plan were $48 and $58 at December 31, 2008 and 2007, and are reflected as
a part of compensation expense.   The assets of the plan are
subject to claim of the general creditors of the Bank.





The Bank
sponsors nonqualified unfunded retirement plans for certain directors, which
provide annual benefit payments upon their retirement.  The Bank’s
liability for the plans totaled $1,555 and $1,499 at December 31, 2008 and
2007.  Expense related to the plans totaled $56 and $55 for the years
ended December 31, 2008 and 2007.








NOTE
9 - EMPLOYEE STOCK OWNERSHIP PLAN





As part
of the conversion transaction, the Company established an ESOP for the benefit
of substantially all employees.  The ESOP originally borrowed $944
from the Company and used those funds to acquire 94,352 shares of the Company’s
stock at $10 per share.





Shares
issued to the ESOP are allocated to ESOP participants based on principal and
interest repayments made by the ESOP on the loan from the
Company.  The loan was secured by shares purchased with the loan
proceeds and was repaid by the ESOP with funds from the Company’s discretionary
contributions to the ESOP and earnings on the ESOP’s
assets.  Principal payments were scheduled to occur over a ten-year
period; however, the ESOP elected to prepay the loan and as of December 31,
2005, the loan was paid in full.  There are no plans to adopt another
Employee Stock Option Plan at this time.





Participants
receive the shares at the end of employment.  A participant may
require stock received to be repurchased unless the stock is traded on an
established market.














F-23




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 9 - EMPLOYEE STOCK OWNERSHIP
PLAN





At
December 31, 2008, all ESOP shares were allocated.  Shares held by the
ESOP at December 31 are as follows:





2008
                  
                  
                  2007Allocated
      shares
                  
                  
                  71,974
                  
                  
                  
                  78,626Shares
      distributed from plan
                  
                  
                  22,378
                  
                  
                  
                  15,726Total
      ESOP shares
                  
                  
                  94,352
                  
                  
                  
                  94,352Fair
      value of allocated shares subject to repurchase obligation recorded in
      other liabilities
                  
                  $
                  1,267
                  
                  
                  $
                  1,816








NOTE
10 - EMPLOYEE STOCK BENEFITS





The
Company has a stock option plan and a recognition and retention
plan.





Stock Option Plan:
Under the stock
option plan, certain key employees are granted options to purchase shares of the
Company’s Common Stock at fair value at the date of the grant.  All
stock options have an exercise price that is at least equal to the fair market
value of the Company’s stock on the date the options were
granted.  The Company adopted the stock plan in May 2003 under the
terms of which options for 114,685 shares of the Company’s common stock were
granted to directors, officers, and employees.  The options generally
become exercisable in equal installments over a five-year period from the date
of grant, and they expire ten years from the date of grant.  No option
may be exercised if such exercise would cause the mutual holding company to own
fewer than a majority of the total number of shares
outstanding.  There are a total of 17,456 options available for future
grant under the stock option plan.





The fair
value of each option award is estimated on the date of grant using a closed form
option valuation (Black-Scholes) model that uses the assumptions noted in the
table below.  Expected volatilities are based on historical
volatilities of the Company’s common stock.  The Company uses
historical data to estimate option exercise and post-vesting termination
behavior.  (Employee and management options are tracked
separately.)  The expected term of options granted is based on
historical data and represents the period of time that optionsgranted are expected to
be outstanding, which takes into account that the options are not
transferable.  The risk-free interest rate for the expected term of
the option is based on the U.S. Treasury yield curve in effect at the time of
the grant.














F-24




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 10 - EMPLOYEE STOCK BENEFITS





There
were no stock options granted during 2008 or 2007.





A summary
of the activity in the stock option plan for 2008 follows:





Shares
                  
                  
                  Weighted
      Average Exercise Price
                  
                  
                  Weighted
      Average Remaining Contractual TermOutstanding
      at beginning of year
                  
                  
                  100,485
                  
                  
                  $
                  18.81Granted
                  
                  
                  -
                  
                  
                  
                  -Exercised
                  
                  
                  -
                  
                  
                  
                  -Forfeited
      or expired
                  
                  
                  (10,000
                  )
                  
                  
                  18.75Outstanding
      at end of year
                  
                  
                  90,485
                  
                  
                  $
                  18.82
                  
                  
                  
                  4.4Exercisable
      at end of year
                  
                  
                  90,485
                  
                  
                  $
                  18.82
                  
                  
                  
                  4.4





Aggregate
intrinsic value is zero at December 31, 2008 as the weighted average exercise
price exceeds the December 31, 2008 quoted stock price.





Information
related to the stock option plan during each year follows:





2008
                  
                  
                  2007Intrinsic
      value of options exercised
                  
                  $
                  -
                  
                  
                  $
                  13Cash
      received from option exercises
                  
                  
                  -
                  
                  
                  
                  45Tax
      benefit realized from option exercises
                  
                  
                  -
                  
                  
                  
                  4





As of
December 31, 2008, there was no unrecognized compensation cost, as all
outstanding options granted under the plan are fully vested.





Share Award
Plan:  Pursuant to its 2003 stock-based incentive plan, the
Company awarded 58,971 shares of restricted stock in May 2003.  These
shares normally vest over a five-year period, unless certain circumstances occur
that trigger earlier vesting according to the approved Recognition and Retention
Plan (“RRP”).  The unamortized cost of shares not yet earned (vested)
is reported as a reduction of stockholders’ equity.





F-25




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 10 - EMPLOYEE STOCK BENEFITS





A summary
of the activity in the RRP is as follows:





Nonvested Shares
                        
                        Shares
                        
                        
                        Weighted-Average
      Grant-Date Fair ValueNonvested
      at January 1, 2008
                        
                        
                        10,434
                        
                        
                        $
                        18.85Granted
                        
                        
                        -
                        
                        
                        
                        -Vested
                        
                        
                        10,434
                        
                        
                        
                        18.85Forfeited
                        
                        
                        -
                        
                        
                        
                        -Nonvested
      at December 31, 2008
                        
                        
                        -
                        
                        
                        $
                        -





As of
December 31, 2008, there was no unrecognized compensation cost related to
non-vested shares granted under the Plan.  The total fair value of
shares vested during the years ended December 31, 2008 and 2007 was $70 and
$231.








NOTE
11 - FAIR VALUES OF FINANCIAL INSTRUMENTS





FAS 157
defines fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date.  FAS 157 also establishes
a fair value hierarchy, which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value. The standard describes three levels of inputs that may be used to
measure fair value:





Level 1:
Quoted prices (unadjusted) for identical assets or liabilities in active markets
that the entity has the ability to access as of the measurement
date.





Level 2:
Significant other observable inputs other than Level 1 prices such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data.





Level 3:
Significant unobservable inputs that reflect a company’s own assumptions about
the assumptions that market participants would use in pricing an asset or
liability.














F-26




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 11 - FAIR VALUES OF FINANCIAL
INSTRUMENTS





The
Company used the following methods and significant assumptions used to estimate
the fair value of items:





The fair
values of trading securities and securities available for sale are determined by
obtaining quoted prices on nationally recognized securities exchanges (Level 1
inputs), or matrix pricing, which is a mathematical technique widely used in the
industry to value debt securities without relying exclusively on quoted prices
for the specific securities, but rather by relying on the securities’
relationship to other benchmark quoted securities (Level 2 inputs).




Impaired
loans are evaluated for impairment at the time the loan is identified as
impaired and each subsequent reporting date thereafter.  Fair value is
measured based on present value of estimated future cash flows or at the fair
value of collateral if repayment is expected solely from the
collateral.  Collateral is primarily real estate and its fair value is
generally determined based on real estate appraisals or other evaluations by
qualified professionals.





Assets
measured at fair value on a recurring basis are summarized below:





Fair Value Measurements at December 31, 2008
      UsingDecember
      31, 2008
                      
                      
                      Quoted
      Prices in Active Markets for Identical Assets Level (1)
                      
                      
                      Significant
      Other Observable Inputs Level
      (2)
                      
                      
                      Significant
      Unobservable Inputs Level
      (3)Assets:Trading
      securities
                      
                      $
                      18
                      
                      
                      $
                      18
                      
                      
                      $
                      -
                      
                      
                      $
                      -SecuritiesAvailable
      for sale
                      
                      
                      89,490
                      
                      
                      
                      -
                      
                      
                      
                      89,490
                      
                      
                      
                      -





The
following table sets forth the Company’s assets that were measured at fair value
on a non-recurring basis:





Impaired
      loans
                
                $
                5,129
                
                
                $
                -
                
                
                $
                -
                
                
                $
                5,129





Impaired
loans, which are measured for impairment using the fair value of the collateral
for collateral dependent loans, had a carrying amount of $6,464, with a
valuation allowance of $1,335, resulting in an additional provision for loan
losses of $1,335 for the period.





At
December 31, 2008 there were no liabilities measured on a recurring or
non-recurring basis.














F-27




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 11 - FAIR VALUES OF FINANCIAL
INSTRUMENTS





The
carrying amount and estimated fair value of financial instruments were as
follows.





December 31, 2008
                  
                  
                  December 31, 2007Carrying
      Amount
                  
                  
                  Fair
      Value
                  
                  
                  Carrying
      Amount
                  
                  
                  Fair
      ValueFinancial
      assetsCash
      and cash equivalents
                  
                  $
                  7,393
                  
                  
                  $
                  7,393
                  
                  
                  $
                  18,373
                  
                  
                  $
                  18,373Certificates
      of deposit
                  
                  
                  6,797
                  
                  
                  
                  6,797
                  
                  
                  
                  2,997
                  
                  
                  
                  2,997Trading
      securities
                  
                  
                  18
                  
                  
                  
                  18
                  
                  
                  
                  -
                  
                  
                  
                  -Securities
      available for sale
                  
                  
                  89,490
                  
                  
                  
                  89,490
                  
                  
                  
                  81,322
                  
                  
                  
                  81,322Securities
      held to maturity
                  
                  
                  367
                  
                  
                  
                  360
                  
                  
                  
                  125
                  
                  
                  
                  125Loans,
      net
                  
                  
                  126,395
                  
                  
                  
                  131,173
                  
                  
                  
                  132,966
                  
                  
                  
                  133,276Federal
      Home Loan Bank stock
                  
                  
                  2,450
                  
                  
                  
                  N/A
                  
                  
                  
                  2,450
                  
                  
                  
                  N/AAccrued
      interest receivable
                  
                  
                  1,027
                  
                  
                  
                  1,027
                  
                  
                  
                  1,061
                  
                  
                  
                  1,061Financial
      liabilitiesDeposits
                  
                  
                  (180,291
                  )
                  
                  
                  (181,505
                  )
                  
                  
                  (190,534
                  )
                  
                  
                  (191,164
                  )FHLB
      advances
                  
                  
                  (30,175
                  )
                  
                  
                  (31,031
                  )
                  
                  
                  (23,350
                  )
                  
                  
                  (23,506
                  )Advances
      from borrowers for taxes and insurance
                  
                  
                  (1,502
                  )
                  
                  
                  (1,502
                  )
                  
                  
                  (1,551
                  )
                  
                  
                  (1,551
                  )Accrued
      interest payable
                  
                  
                  (330
                  )
                  
                  
                  (330
                  )
                  
                  
                  (431
                  )
                  
                  
                  (431
                  )





The
methods and assumptions used to estimate fair value are described as
follows.





Carrying
amount is the estimated fair value for cash and cash equivalents, short-term
borrowings, accrued interest receivable and payable, demand deposits, short-term
debt, and variable rate loans or deposits that reprice frequently and fully. It
was not practicable to determine the fair value of FHLB stock due to
restrictions placed on its transferability.





For fixed
rate loans or deposits and for variable rate loans or deposits with infrequent
repricing or repricing limits, fair value is based on discounted cash flows
using current market rates applied to the estimated life and credit
risk.  Fair value of FHLB advances are based on current rates for
similar financing.  The fair value of off-balance-sheet items is not
considered material.








NOTE
12 - REGULATORY CAPITAL





The Bank
is subject to regulatory capital requirements administered by federal banking
agencies.  Capital adequacy guidelines and, additionally for banks,
prompt corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet  items calculated under
regulatory accounting practices.  Capital amounts and classifications
are also subject to qualitative judgments by regulators.  Failure to
meet capital requirements can initiate regulatory action.





F-28




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 12 - REGULATORY CAPITAL





Prompt
corrective action regulations provide five classifications:  well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition.  If adequately
capitalized, regulatory approval is required to accept brokered
deposits.  If undercapitalized, capital distributions are limited, as
is asset growth and expansion, and capital restoration plans are
required.  The Bank’s actual and required capital amounts and ratios
are presented below:





Actual
                    
                    
                    For
      Capital Adequacy
    Purposes
                    
                    
                    To
      Be Well Capitalized Under Prompt Corrective Action ProvisionsAmount
                    
                    
                    Ratio
                    
                    
                    Amount
                    
                    
                    Ratio
                    
                    
                    Amount
                    
                    
                    RatioAs of December 31, 2008Total
      risk-based capital to risk-weighted assets
                    
                    $
                    25,946
                    
                    
                    
                    22.51
                    %
                    
                    $
                    9,222
                    
                    
                    
                    8.0
                    %
                    
                    $
                    11,528
                    
                    
                    
                    10.0
                    %Tier
      I (core) capital to risk-weighted assets
                    
                    
                    24,658
                    
                    
                    
                    21.39
                    
                    
                    
                    4,611
                    
                    
                    
                    4.0
                    
                    
                    
                    6,917
                    
                    
                    
                    6.0Tier
      I (core) capital to adjusted total assets
                    
                    
                    24,658
                    
                    
                    
                    10.20
                    
                    
                    
                    9,672
                    
                    
                    
                    4.0
                    
                    
                    
                    12,090
                    
                    
                    
                    5.0As of December 31, 2007Total
      risk-based capital to risk-weighted assets
                    
                    $
                    30,588
                    
                    
                    
                    24.96
                    %
                    
                    $
                    9,802
                    
                    
                    
                    8.0
                    %
                    
                    $
                    12,253
                    
                    
                    
                    10.0
                    %Tier
      I (core) capital to risk-weighted assets
                    
                    
                    29,225
                    
                    
                    
                    23.85
                    
                    
                    
                    4,901
                    
                    
                    
                    4.0
                    
                    
                    
                    7,352
                    
                    
                    
                    6.0Tier
      I (core) capital to adjusted total assets
                    
                    
                    29,225
                    
                    
                    
                    11.75
                    
                    
                    
                    9,946
                    
                    
                    
                    4.0
                    
                    
                    
                    12,432
                    
                    
                    
                    5.0





The
Qualified Thrift Lender test requires that at least 65% of assets be maintained
in housing-related finance and other specified areas.  If this test is
not met, limits are placed on growth, branching, new investments, Federal Home
Loan Bank advances, and dividends or the Bank must convert to a commercial bank
charter.  Management believes that this test is met.





As of
December 31, 2008, the most recent notification from the Office of Thrift
Supervision (“the OTS”) categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action.  There are no
conditions or events since that notification that management believes have
changed the Bank’s category.





During
2008, the Company paid a regular cash dividend of $0.11 per share for each
quarter of the year, and a one-time only special dividend of $0.50 per
share.  During 2007, the Company paid a cash dividend of $0.11 per
share during for each quarter of the year.  The OTS approved a waiver
of dividends on the shares held by the mutual holding company.  The
amount of dividends waived, totaling $1,154 for 2008, and $540 for 2007, is a
restriction on retained earnings of the Company.














F-29




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 13 - EARNINGS PER COMMON
SHARE





A
reconciliation of the numerator and denominator of the earnings per common share
computation for the year ended December 31 follows:





2008
                      
                      
                      2007BasicNet
      income (loss)
                      
                      $
                      (2,071
                      )
                      
                      $
                      559Weighted
      average common shares outstanding
                      
                      
                      2,031,909
                      
                      
                      
                      2,101,898Basic
      earnings (loss) per common share
                      
                      $
                      (1.02
                      )
                      
                      $
                      0.27DilutedNet
      income (loss)
                      
                      $
                      (2,071
                      )
                      
                      $
                      559Weighted
      average common shares outstanding for basic earnings per common
      share
                      
                      
                      2,031,909
                      
                      
                      
                      2,101,898Add:
      dilutive effects of assumed exercises of stock options and stock
      awards
                      
                      
                      1,224
                      
                      
                      
                      22,518Average
      shares and dilutive potential common shares
                      
                      
                      2,033,133
                      
                      
                      
                      2,124,416Diluted
      earnings (loss) per common share
                      
                      $
                      (1.02
                      )
                      
                      $
                      0.26





At
December 31, 2008 and 2007, there were no antidilutive shares.





F-30




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 14 - OFF-BALANCE-SHEET
ACTIVITIES





Some
financial instruments, such as loan commitments, credit lines, letters of
credit, and overdraft protection, are issued to meet customer financing
needs.  These are agreements to provide credit or to support the
credit of others, as long as conditions established in the contract are met, and
usually have expiration dates.  Commitments may expire without being
used.  Off-balance-sheet risk to credit loss exists up to the face
amount of these instruments, although material losses are not
anticipated.  The same credit policies are used to make such
commitments as are used for loans, including obtaining collateral at exercise of
the commitment.





The
contractual amount of financial instruments with off-balance-sheet risk was as
follows at year end:





2008
                  
                  
                  2007Fixed
      Rate
                  
                  
                  Variable
      Rate
                  
                  
                  Fixed
      Rate
                  
                  
                  Variable
      RateCommitments
      to make loans
                  
                  $
                  3,744
                  
                  
                  $
                  855
                  
                  
                  $
                  5,645
                  
                  
                  $
                  410Unused
      lines of credit and letters of credit
                  
                  
                  -
                  
                  
                  
                  14,453
                  
                  
                  
                  -
                  
                  
                  
                  14,734





Commitments
to make loans are generally made for periods of 120 days or less.  The
fixed rate loan commitments have interest rates ranging from 3.00% to 7.75% and
the commitments are to extend credit ranging from 10 to 30 years.





The Bank
has previously sold fixed rate mortgages to Fannie Mae and Freddie Mac with and
without recourse.  Recourse obligations on sold loans are recorded at
fair value.





2008
                  
                  
                  2007Contract
      Amount
                  
                  
                  Carrying
      Value
                  
                  
                  Contract
      Amount
                  
                  
                  Carrying
      ValueLoans
      sold with recourse
                  
                  $
                  74
                  
                  
                  $
                  74
                  
                  
                  $
                  108
                  
                  
                  $
                  108





In the
normal course of business, there are various outstanding contingent liabilities,
such as claims and legal actions that are not reflected in the financial
statements.  In the opinion of management, no material losses are
anticipated as a result of these actions or claims.














F-31




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 15 - OTHER COMPREHENSIVE
INCOME





Other
comprehensive income components and related taxes were as follows:





2008
                  
                  
                  2007Unrealized
      holding gains and losses on securities available for sale
                  
                  $
                  2,713
                  
                  
                  $
                  893Less
      reclassification adjustments for losses later recognized in
      income
                  
                  
                  (192
                  )
                  
                  
                  (244
                  )Net
      unrealized gains and losses
                  
                  
                  2,521
                  
                  
                  
                  1,137Tax
      effect
                  
                  
                  (979
                  )
                  
                  
                  (442
                  )Other
      comprehensive income
                  
                  $
                  1,542
                  
                  
                  $
                  695








NOTE
16 - PARENT COMPANY CONSOLIDATED FINANCIAL STATEMENTS





The
following are the condensed balance sheets and statements of income and cash
flows for AJS Bancorp, Inc. without subsidiary.





CONDENSED
BALANCE SHEETS


December
31, 2008 and 2007





2008
                  
                  
                  2007ASSETSCash
      and cash equivalents
                  
                  $
                  2,250
                  
                  
                  $
                  619Investment
      in bank subsidiary
                  
                  
                  26,038
                  
                  
                  
                  29,106$
                  28,288
                  
                  
                  $
                  29,725LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilities
                  
                  $
                  1,191
                  
                  
                  $
                  1,797Stockholders’
      equity
                  
                  
                  27,097
                  
                  
                  
                  27,928$
                  28,288
                  
                  
                  $
                  29,725





F-32




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 16 - PARENT COMPANY CONSOLIDATED
FINANCIAL STATEMENTS


(Continued)





CONDENSED
STATEMENTS OF INCOME


For the
years ended December 31, 2008 and 2007





2008
                
                
                2007IncomeDeposits
      in financial institutions
                
                $
                48
                
                
                $
                128Dividends
      from subsidiary
                
                
                2,700
                
                
                
                -2,748
                
                
                
                128Other
      expensesOther
      operating expenses
                
                
                148
                
                
                
                150Income
      (loss) before income taxes and equity in undistributed
      earnings
                
                
                2,600
                
                
                
                (22
                )Income
      tax benefit
                
                
                (39
                )
                
                
                (8
                )Income
      (loss) before equity in undistributed earnings of bank
      subsidiary
                
                
                2,639
                
                
                
                (14
                )Dividends
      in excess of earnings
                
                
                (4,710
                )
                
                
                573Net
      income (loss)
                
                $
                (2,071
                )
                
                $
                559














F-33




AJS BANCORP,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2008 and 2007
 (Dollars in
thousands, except per share data)
  
   NOTE 16 - PARENT COMPANY CONSOLIDATED
FINANCIAL STATEMENTS


(Continued)





CONDENSED
STATEMENTS OF CASH FLOWS


For the
years ended December 31, 2008 and 2007





2008
                
                
                2007Operating
      activitiesNet
      income (loss)
                
                $
                (2,071
                )
                
                $
                559Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Equity
      in undistributed earnings of bank subsidiary
                
                
                4,710
                
                
                
                (573
                )Change
      in other assets and liabilities
                
                
                (57
                )
                
                
                (1
                )Net
      cash provided by (used in) operating activities
                
                
                2,582
                
                
                
                (15
                )Financing
      activitiesDividends
      paid
                
                
                (754
                )
                
                
                (384
                )Purchase
      of common stock
                
                
                (197
                )
                
                
                (2,390
                )Proceeds
      for exercising stock options
                
                
                -
                
                
                
                45Net
      cash used in financing activities
                
                
                (951
                )
                
                
                (2,729
                )Net
      change in cash and cash equivalents
                
                
                1,631
                
                
                
                (2,744
                )Cash
      and cash equivalents at beginning of year
                
                
                619
                
                
                
                3,363Cash
      and cash equivalents at end of year
                
                $
                2,250
                
                
                $
                619








NOTE
17 - QUARTERLY FINANCIAL DATA (UNAUDITED)





2008
                    
                    Interest
                    
                    
                    Net
      Interest
                    
                    
                    Net
      Income
                    
                    
                    Earnings
      (Loss) Per
                    
                    
                    Earnings
      (Loss) Per ShareIncome
                    
                    
                    Income
                    
                    
                    (Loss)
                    
                    
                    Share Basic
                    
                    
                    DilutedFirst
      quarter
                    
                    $
                    3,189
                    
                    
                    $
                    1,501
                    
                    
                    $
                    88
                    
                    
                    $
                    0.04
                    
                    
                    $
                    0.04Second
      quarter
                    
                    
                    3,058
                    
                    
                    
                    1,558
                    
                    
                    
                    192
                    
                    
                    
                    0.09
                    
                    
                    
                    0.09Third
      quarter
                    
                    
                    2,943
                    
                    
                    
                    1,539
                    
                    
                    
                    173
                    
                    
                    
                    0.09
                    
                    
                    
                    0.09Fourth
      quarter
                    
                    
                    2,809
                    
                    
                    
                    1,467
                    
                    
                    
                    (2,524
                    )
                    
                    
                    (1.24
                    )
                    
                    
                    (1.24
                    )2007First
      quarter
                    
                    $
                    3,578
                    
                    
                    $
                    1,638
                    
                    
                    $
                    251
                    
                    
                    $
                    0.12
                    
                    
                    $
                    0.12Second
      quarter
                    
                    
                    3,526
                    
                    
                    
                    1,566
                    
                    
                    
                    159
                    
                    
                    
                    0.08
                    
                    
                    
                    0.07Third
      quarter
                    
                    
                    3,472
                    
                    
                    
                    1,530
                    
                    
                    
                    245
                    
                    
                    
                    0.12
                    
                    
                    
                    0.12Fourth
      quarter
                    
                    
                    3,314
                    
                    
                    
                    1,456
                    
                    
                    
                    (96
                    )
                    
                    
                    (0.05
                    )
                    
                    
                    (0.05
                    )





F-34