##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-QSB



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(mark one)

|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------

For the quarterly period ended June 30, 2007

or



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- | ---------------------------------------------------------------

For the transition period from  to

Commission File Number 000-51367



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OTTAWA SAVINGS BANCORP, INC.

(Exact name of small business issuer specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|United States                                                  |  | 20-3074627                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)

925 LaSalle Street

Ottawa, Illinois 61350

(Address of principal executive offices)

(815) 433-2525

(Issuers telephone number)

Not Applicable

(Former name, former address and former fiscal year, if changes since last report)



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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x

State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date:



|                              |  |                                  
|----------------------------- |  | ---------------------------------
|Class                         |  | Outstanding as of August 13, 2007
|Common Stock, $0.01 par value |  | 2,224,911                        

Transitional Small Business Disclosure Format (check one):    Yes ̈No  x



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##### Table of Contents

OTTAWA SAVINGS BANCORP, INC.

FORM 10-QSB

For the quarterly period ended June 30, 2007

INDEX



|                               |  |            |  |                                                           |  |   
|------------------------------ |  | ---------- |  | --------------------------------------------------------- |  | --
|                               |  | PageNumber
|PART I  FINANCIAL INFORMATION |  |           
|                               |  |            | 
|                               |  | Item 1     |  | Consolidated Financial Statements (Unaudited)             |  | 3 
|                               |  | Item 2     |  | Managements Discussion and Analysis or Plan of Operation |  | 11
|                               |  | Item 3     |  | Controls and Procedures                                   |  | 19
|                               | 
|PART II  OTHER INFORMATION    |  |           
|                               |  |            | 
|                               |  | Item 1     |  | Legal Proceedings                                         |  | 20
|                               |  | Item 2     |  | Unregistered Sales of Securities and Use of Proceeds      |  | 20
|                               |  | Item 3     |  | Defaults upon Senior Securities                           |  | 20
|                               |  | Item 4     |  | Submission of Matters to a Vote of Security Holders       |  | 20
|                               |  | Item 5     |  | Other Information                                         |  | 20
|                               |  | Item 6     |  | Exhibits                                                  |  | 21
|                               | 
|SIGNATURES                     |  | 22        



2



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##### Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Consolidated Balance Sheets

June 30, 2007 and December 31, 2006

(Unaudited)



|                                                                                                                                               |  |               |             |   |                  |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                               |  | June 30, 2007 |             |   | December 31,2006 |  
|Assets                                                                                                                                         |  |               |             |   |                  |   |             |  
|Cash and due from banks, including interest bearing deposits of $1,690,024 and $7,859,993 at June 30, 2007 and December 31, 2006,
respectively |  | $             | 4,285,886   |   |                  | $ | 10,414,312  |  
|Securities held to maturity (fair value of $1,044,089 and $1,171,297 at June 30, 2007 and December 31, 2006,
respectively)                     |  |               | 1,051,495   |   |                  |   | 1,182,853   |  
|Securities available for sale                                                                                                                  |  |               | 37,661,098  |   |                  |   | 36,786,248  |  
|Non-marketable equity securities, at cost                                                                                                      |  |               | 2,534,952   |   |                  |   | 2,396,982   |  
|Loans, net of allowance for loan losses of $441,386 and $419,685 at June 30, 2007 and December 31, 2006,
respectively                          |  |               | 154,395,760 |   |                  |   | 142,536,815 |  
|Loans held for sale                                                                                                                            |  |               | 201,979     |   |                  |   |            |  
|Premises and equipment, net                                                                                                                    |  |               | 7,859,034   |   |                  |   | 7,866,270   |  
|Accrued interest receivable                                                                                                                    |  |               | 1,055,001   |   |                  |   | 947,613     |  
|Mortgage servicing rights                                                                                                                      |  |               | 101,502     |   |                  |   | 102,155     |  
|Deferred tax asset                                                                                                                             |  |               | 1,274,051   |   |                  |   | 1,526,653   |  
|Other assets                                                                                                                                   |  |               | 1,187,003   |   |                  |   | 1,105,258   |  
|                                                                                                                                               |  |               |             |   |                  |   |             |  
|Total assets                                                                                                                                   |  | $             | 211,607,761 |   |                  | $ | 204,865,159 |  
|                                                                                                                                               |  |               |             |   |                  |   |             |  
|Liabilities and Stockholders Equity                                                                                                           |  |               |             |   |                  |   |             |  
|Liabilities                                                                                                                                    |  |               |             |   |                  |   |             |  
|Deposits:                                                                                                                                      |  |               |             |   |                  |   |             |  
|Non-interest bearing                                                                                                                           |  | $             | 2,416,868   |   |                  | $ | 2,460,289   |  
|Interest bearing                                                                                                                               |  |               | 185,835,320 |   |                  |   | 180,396,467 |  
|                                                                                                                                               |  |               |             |   |                  |   |             |  
|Total deposits                                                                                                                                 |  |               | 188,252,188 |   |                  |   | 182,856,756 |  
|Accrued interest payable                                                                                                                       |  |               | 132,728     |   |                  |   | 138,630     |  
|Other liabilities                                                                                                                              |  |               | 2,165,407   |   |                  |   | 2,320,144   |  
|                                                                                                                                               |  |               |             |   |                  |   |             |  
|Total liabilities                                                                                                                              |  |               | 190,550,323 |   |                  |   | 185,315,530 |  
|                                                                                                                                               |  |               |             |   |                  |   |             |  
|Redeemable common stock held by ESOP plan                                                                                                      |  |               | 155,808     |   |                  |   | 128,307     |  
|                                                                                                                                               |  |               |             |   |                  |   |             |  
|Stockholders Equity                                                                                                                           |  |               |             |   |                  |   |             |  
|Common Stock, $.01 par value 12,000,000 shares authorized; 2,224,911 shares issued                                                             |  |               | 22,249      |   |                  |   | 22,249      |  
|Additional Paid-in-Capital                                                                                                                     |  |               | 8,574,321   |   |                  |   | 8,536,872   |  
|Retained earnings                                                                                                                              |  |               | 14,286,443  |   |                  |   | 12,647,340  |  
|Unallocated ESOP shares                                                                                                                        |  |               | (635,950    | ) |                  |   | (661,388    | )
|Unearned MRP shares                                                                                                                            |  |               | (529,376    | ) |                  |   | (579,449    | )
|Accumulated other comprehensive (loss)                                                                                                         |  |               | (660,249    | ) |                  |   | (415,995    | )
|                                                                                                                                               |  |               |             |   |                  |   |             |  
|                                                                                                                                               |  |               | 21,057,438  |   |                  |   | 19,549,629  |  
|Less:                                                                                                                                          |  |               |             |   |                  |   |             |  
|Maximum cash obligation related to ESOP shares                                                                                                 |  |               | (155,808    | ) |                  |   | (128,307    | )
|                                                                                                                                               |  |               |             |   |                  |   |             |  
|Total Stockholders Equity                                                                                                                     |  |               | 20,901,630  |   |                  |   | 19,421,322  |  
|                                                                                                                                               |  |               |             |   |                  |   |             |  
|Total liabilities and stockholders equity                                                                                                     |  | $             | 211,607,761 |   |                  | $ | 204,865,159 |  
|                                                                                                                                               |  |               |             |   |                  |   |             |  

See accompanying notes to these unaudited consolidated financial statements



3



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##### Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Consolidated Statements of Income

Three and Six Months Ended June 30,
2007 and 2006

(Unaudited)



|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|-------------------------------------------------------------- |  | -------------------------- | --------- | - | ------------------------- | - | --------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                               |  | Three Months EndedJune 30, |           |   | Six Months Ended June 30, |  
|                                                               |  | 2007                       |           |   | 2006                      |   |           | 2007 |  |   | 2006       |  
|Interest and dividend income:                                  |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Interest and fees on loans                                     |  | $                          | 2,479,196 |   |                           | $ | 1,969,086 |      |  | $ | 4,829,687  |   |  | $ | 3,898,805  |  
|Securities:                                                    |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Mortgage-backed and related securities                         |  |                            | 268,817   |   |                           |   | 253,674   |      |  |   | 541,234    |   |  |   | 522,088    |  
|U.S. agency securities                                         |  |                            | 215,175   |   |                           |   | 162,566   |      |  |   | 412,732    |   |  |   | 329,698    |  
|Dividends on non-marketable equity securities                  |  |                            | 16,204    |   |                           |   | 30,864    |      |  |   | 42,147     |   |  |   | 61,257     |  
|Interest-bearing deposits                                      |  |                            | 82,915    |   |                           |   | 45,994    |      |  |   | 184,225    |   |  |   | 74,596     |  
|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Total interest and dividend income                             |  |                            | 3,062,307 |   |                           |   | 2,462,184 |      |  |   | 6,010,025  |   |  |   | 4,886,444  |  
|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Interest expense:                                              |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Deposits                                                       |  |                            | 1,931,576 |   |                           |   | 1,366,727 |      |  |   | 3,814,832  |   |  |   | 2,685,017  |  
|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Total interest expense                                         |  |                            | 1,931,576 |   |                           |   | 1,366,727 |      |  |   | 3,814,832  |   |  |   | 2,685,017  |  
|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Net interest income                                            |  |                            | 1,130,731 |   |                           |   | 1,095,457 |      |  |   | 2,195,193  |   |  |   | 2,201,427  |  
|Provision for loan losses                                      |  |                            | (861,460  | ) |                           |   |          |      |  |   | (2,042,620 | ) |  |   | (1,307,778 | )
|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Net interest income after provision for loan losses            |  |                            | 1,992,191 |   |                           |   | 1,095,457 |      |  |   | 4,237,813  |   |  |   | 3,509,205  |  
|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Other income:                                                  |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Gain on sale of securities available for sale                  |  |                            |          |   |                           |   |          |      |  |   | 110        |   |  |   |           |  
|Gain on sale of loans                                          |  |                            | 14,003    |   |                           |   | 20,921    |      |  |   | 17,262     |   |  |   | 22,683     |  
|Amortization of mortgage servicing rights, net of originations |  |                            | (2,395    | ) |                           |   | (2,004    | )    |  |   | (653       | ) |  |   | (8,193     | )
|Customer service fees                                          |  |                            | 57,240    |   |                           |   | 43,701    |      |  |   | 108,346    |   |  |   | 77,713     |  
|Other                                                          |  |                            | 6,969     |   |                           |   | 51,587    |      |  |   | 14,555     |   |  |   | 59,134     |  
|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Total other income                                             |  |                            | 75,817    |   |                           |   | 114,205   |      |  |   | 139,620    |   |  |   | 151,337    |  
|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Other expenses:                                                |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Salaries and employee benefits                                 |  |                            | 451,882   |   |                           |   | 456,484   |      |  |   | 830,166    |   |  |   | 889,735    |  
|Directors fees                                                 |  |                            | 21,161    |   |                           |   | 21,292    |      |  |   | 42,321     |   |  |   | 42,584     |  
|Occupancy                                                      |  |                            | 134,622   |   |                           |   | 115,186   |      |  |   | 240,533    |   |  |   | 232,970    |  
|Deposit insurance premium                                      |  |                            | 5,519     |   |                           |   | 5,219     |      |  |   | 10,669     |   |  |   | 10,495     |  
|Legal and professional services                                |  |                            | 49,181    |   |                           |   | 150,567   |      |  |   | 103,215    |   |  |   | 238,505    |  
|Data processing                                                |  |                            | 59,492    |   |                           |   | 62,025    |      |  |   | 127,452    |   |  |   | 122,501    |  
|Other                                                          |  |                            | 134,292   |   |                           |   | 138,005   |      |  |   | 253,088    |   |  |   | 288,973    |  
|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Total other expenses                                           |  |                            | 856,149   |   |                           |   | 948,778   |      |  |   | 1,607,444  |   |  |   | 1,825,763  |  
|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Income before income taxes                                     |  |                            | 1,211,859 |   |                           |   | 260,884   |      |  |   | 2,769,989  |   |  |   | 1,834,779  |  
|Income tax expense (benefit)                                   |  |                            | 470,918   |   |                           |   | (63,908   | )    |  |   | 1,037,978  |   |  |   | 511,054    |  
|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Net income                                                     |  | $                          | 740,941   |   |                           | $ | 324,792   |      |  | $ | 1,732,011  |   |  | $ | 1,323,725  |  
|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Basic earnings per share                                       |  | $                          | 0.35      |   |                           | $ | 0.15      |      |  | $ | 0.82       |   |  | $ | 0.61       |  
|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Diluted earnings per share                                     |  | $                          | 0.35      |   |                           | $ | 0.15      |      |  | $ | 0.82       |   |  | $ | 0.61       |  
|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|Dividends per share                                            |  | $                          | 0.05      |   |                           | $ | 0.05      |      |  | $ | 0.10       |   |  | $ | 0.10       |  
|                                                               |  |                            |           |   |                           |   |           |      |  |   |            |   |  |   |            |  

See accompanying notes to these unaudited consolidated financial statements



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##### Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Consolidated Statements of Comprehensive Income

Three and Six Months Ended
June 30, 2007 and 2006

(Unaudited)



|                                                                                              |  |                             |          |   |                           |   |          |      |  |   |           |   |  |   |           |  
|--------------------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ------------------------- | - | -------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                                                              |  | Three Months Ended June 30, |          |   | Six Months Ended June 30, |  
|                                                                                              |  | 2007                        |          |   | 2006                      |   |          | 2007 |  |   | 2006      |  
|Comprehensive income:                                                                         |  |                             |          |   |                           |   |          |      |  |   |           |   |  |   |           |  
|Net income                                                                                    |  | $                           | 740,941  |   |                           | $ | 324,792  |      |  | $ | 1,732,011 |   |  | $ | 1,323,725 |  
|Other comprehensive income (loss), net of tax:                                                |  |                             |          |   |                           |   |          |      |  |   |           |   |  |   |           |  
|Unrealized (loss) on securities available for sale arising during period, net of income taxes |  |                             | (346,304 | ) |                           |   | (195,430 | )    |  |   | (244,181  | ) |  |   | (462,433  | )
|Reclassification adjustment for gains included in net income, net of tax expense              |  |                             |         |   |                           |   |         |      |  |   | (73       | ) |  |   |          |  
|                                                                                              |  |                             |          |   |                           |   |          |      |  |   |           |   |  |   |           |  
|Comprehensive income                                                                          |  | $                           | 394,637  |   |                           | $ | 129,362  |      |  | $ | 1,487,757 |   |  | $ | 861,292   |  
|                                                                                              |  |                             |          |   |                           |   |          |      |  |   |           |   |  |   |           |  

See accompanying notes to these unaudited consolidated financial statements



5



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##### Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2007 and
2006

(Unaudited)



|                                                                                            |  |                           |             |   |      |   |            |  
|------------------------------------------------------------------------------------------- |  | ------------------------- | ----------- | - | ---- | - | ---------- | -
|                                                                                            |  | Six Months Ended June 30, |            
|                                                                                            |  | 2007                      |             |   | 2006 |  
|Cash Flows from Operating Activities                                                        |  |                           |             |   |      |   |            |  
|Net income                                                                                  |  | $                         | 1,732,011   |   |      | $ | 1,323,725  |  
|Adjustments to reconcile net income to net cash (used in) provided by operating activities: |  |                           |             |   |      |   |            |  
|Depreciation                                                                                |  |                           | 136,270     |   |      |   | 130,635    |  
|Provision for loan losses                                                                   |  |                           | (2,042,620  | ) |      |   | (1,307,778 | )
|Provision for deferred income taxes                                                         |  |                           | 378,431     |   |      |   | 475,047    |  
|Net amortization of premiums and discounts on securities                                    |  |                           | 9,152       |   |      |   | 13,046     |  
|Gain on sale of securities available for sale                                               |  |                           | (110        | ) |      |   |           |  
|Origination of mortgage loans held for sale                                                 |  |                           | (1,388,006  | ) |      |   | (1,057,986 | )
|Proceeds from sale of mortgage loans held for sale                                          |  |                           | 1,203,289   |   |      |   | 968,368    |  
|Gain on sale of loans, net                                                                  |  |                           | (17,262     | ) |      |   | (22,683    | )
|Amortization of mortgage servicing rights, net of originations                              |  |                           | 653         |   |      |   | 8,193      |  
|ESOP compensation expense                                                                   |  |                           | 32,985      |   |      |   | 28,935     |  
|MRP compensation expense                                                                    |  |                           | 50,073      |   |      |   |           |  
|Compensation expense on stock options                                                       |  |                           | 29,902      |   |      |   |           |  
|Change in assets and liabilities:                                                           |  |                           |             |   |      |   |            |  
|(Increase) decrease in accrued interest receivable                                          |  |                           | (107,388    | ) |      |   | 3,525      |  
|(Increase) decrease in other assets                                                         |  |                           | (52,706     | ) |      |   | 763,490    |  
|(Decrease) increase in accrued interest payable and other liabilities                       |  |                           | (160,639    | ) |      |   | 110,756    |  
|                                                                                            |  |                           |             |   |      |   |            |  
|Net cash (used in) provided by operating activities                                         |  |                           | (195,965    | ) |      |   | 1,437,273  |  
|                                                                                            |  |                           |             |   |      |   |            |  
|Cash Flows from Investing Activities                                                        |  |                           |             |   |      |   |            |  
|Securities available for sale:                                                              |  |                           |             |   |      |   |            |  
|Purchases                                                                                   |  |                           | (5,466,691  | ) |      |   | (479,228   | )
|Sales, calls, maturities and paydowns                                                       |  |                           | 4,215,176   |   |      |   | 2,648,327  |  
|Securities held to maturity:                                                                |  |                           |             |   |      |   |            |  
|Maturities and paydowns                                                                     |  |                           | 128,898     |   |      |   | 99,302     |  
|(Purchase) sale of non-marketable equity securities                                         |  |                           | (137,970    | ) |      |   | 1,158,664  |  
|Net increase in loans                                                                       |  |                           | (9,847,864  | ) |      |   | (937,752   | )
|Proceeds from sale of repossessed assets                                                    |  |                           | 2,500       |   |      |   |           |  
|Purchase of premises and equipment                                                          |  |                           | (129,034    | ) |      |   | (31,832    | )
|                                                                                            |  |                           |             |   |      |   |            |  
|Net cash (used in) provided by investing activities                                         |  |                           | (11,234,985 | ) |      |   | 2,457,481  |  
|                                                                                            |  |                           |             |   |      |   |            |  
|Cash Flows from Financing Activities                                                        |  |                           |             |   |      |   |            |  
|Net increase (decrease) in deposits                                                         |  |                           | 5,395,432   |   |      |   | (3,278,499 | )
|Cash dividends paid                                                                         |  |                           | (92,908     | ) |      |   | (100,121   | )
|                                                                                            |  |                           |             |   |      |   |            |  
|Net cash provided by (used in) financing activities                                         |  |                           | 5,302,524   |   |      |   | (3,378,620 | )
|                                                                                            |  |                           |             |   |      |   |            |  
|Net (decrease) increase in cash and due from banks                                          |  |                           | (6,128,426  | ) |      |   | 516,134    |  
|Cash and due from banks:                                                                    |  |                           |             |   |      |   |            |  
|Beginning                                                                                   |  |                           | 10,414,312  |   |      |   | 5,039,518  |  
|                                                                                            |  |                           |             |   |      |   |            |  
|Ending                                                                                      |  | $                         | 4,285,886   |   |      | $ | 5,555,652  |  
|                                                                                            |  |                           |             |   |      |   |            |  
|Supplemental Disclosures of Cash Flow Information:                                          |  |                           |             |   |      |   |            |  
|Cash payments for:                                                                          |  |                           |             |   |      |   |            |  
|Interest paid to depositors                                                                 |  | $                         | 3,799,624   |   |      | $ | 2,713,547  |  
|Income taxes, net of refunds received                                                       |  |                           | 563,750     |   |      |   | (739,095   | )
|Supplemental Schedule of Noncash Investing and Financing Activities:                        |  |                           |             |   |      |   |            |  
|Real estate acquired through or in lieu of foreclosure                                      |  |                           |            |   |      |   | 126,506    |  
|Sale of OREO through loan origination                                                       |  |                           |            |   |      |   | 28,950     |  
|Other assets acquired in settlement of loans                                                |  |                           | 31,539      |   |      |   |           |  
|Increase in liability due to the recording of ESOP put options                              |  |                           | 27,501      |   |      |   |           |  

See accompanying notes to these unaudited consolidated financial statements



6



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##### Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements



---

NOTE 1  NATURE OF BUSINESS

Ottawa Savings
Bancorp, Inc. (the Company) is the federally chartered savings and loan holding company of Ottawa Savings Bank (the Bank) and was formed upon completion of the Banks reorganization from a mutual to stock form of
organization on July 11, 2005.

NOTE 2  BASIS OF PRESENTATION

The consolidated financial statements presented in this quarterly report include the accounts of the Company and the Bank. The consolidated financial
statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and predominant practices followed by the financial services industry, and are unaudited. In the
opinion of the Companys management, all adjustments, consisting of normal recurring adjustments, which the Company considers necessary to fairly state the Companys financial position and the results of operations and cash flows have been
recorded. The interim financial statements should be read in conjunction with the audited financial statements and accompanying notes of the Company for the year ended December 31, 2006. The results of the Companys operations for any
interim period are not necessarily indicative of the results of the Companys operations for any other interim period or for a full fiscal year.

NOTE 3  USE OF ESTIMATES

The preparation of the financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect amounts reported in the consolidated financial statements. Changes in these estimates and assumptions are considered reasonably possible and may have a material impact on the consolidated financial
statements and, thus, actual results could differ from the amounts reported and disclosed herein.

At June 30, 2007, there were no
material changes in the Companys significant accounting policies or critical accounting estimates from those disclosed in the Form 10-KSB filed with the Securities and Exchange Commission in March 2007.

NOTE 4  CRITICAL ACCOUNTING POLICIES

We
consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or income to be critical accounting policies. We consider the allowance
for loan losses, market value of investment securities available for sale and the liability for post-retirement benefits to be our critical accounting policies.

Allowance for Loan Losses. The allowance for loan losses is an amount necessary to absorb known or inherent losses that are both probable and reasonably estimable and is established through a provision for loan
losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is
evaluated on a regular basis by management and is based upon managements periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect each
borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information
becomes available.



7



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##### Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

---



Market value of investment securities available for sale. Market values for investment
securities are provided monthly by a third party service provider. Management is also responsible for evaluating all investments with unrealized losses on a regular basis to determine whether investments with unrealized losses should be written down
to realizable amounts. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of
time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) our intent and ability to retain our investment in the issuer for a period of time sufficient
to allow for any anticipated recovery in fair value.

Liability for post retirement benefits. The liability for post retirement
benefits was estimated based upon an actuarial report obtained by Company management from an experienced, third party actuary. Assumptions used by the actuary in the calculation include discount rates, current and future health care costs, life
expectancies, and employee years of service.

NOTE 5  EARNINGS PER SHARE

Basic earnings per share is based on net income divided by the weighted average number of shares outstanding during the period, including allocated and
committed-to-be-released ESOP shares and vested stock awards. Diluted earnings per share show the dilutive effect, if any, of additional common shares issuable under stock options and awards. The Company had no common stock equivalents as of
June 30, 2006.



|                                                                  |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|----------------------------------------------------------------- |  | --------------------------- | --------- | - | ------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                                  |  | Three months ended June 30, |           |   | Six months ended June 30, |  
|                                                                  |  | 2007                        |           |   | 2006                      |   |           | 2007 |  |   | 2006      |  
|Net income available to common stockholders                       |  | $                           | 740,941   |   |                           | $ | 324,792   |      |  | $ | 1,732,011 |   |  | $ | 1,323,725 |  
|                                                                  |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Basic potential common shares:                                    |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Weighted average shares outstanding                               |  |                             | 2,224,911 |   |                           |   | 2,224,911 |      |  |   | 2,224,911 |   |  |   | 2,224,911 |  
|Weighted average unallocated Employee Stock Ownership Plan shares |  |                             | (64,429   | ) |                           |   | (69,524   | )    |  |   | (65,061   | ) |  |   | (70,149   | )
|Weighted average unvested MRP shares                              |  |                             | (43,608   | ) |                           |   |          |      |  |   | (43,608   | ) |  |   |          |  
|                                                                  |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Basic weighted average shares outstanding                         |  |                             | 2,116,874 |   |                           |   | 2,155,387 |      |  |   | 2,116,242 |   |  |   | 2,154,762 |  
|Dilutive potential common shares:                                 |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Weighted average unrecognized compensation on MRP shares          |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|Weighted average RRP options outstanding                          |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|                                                                  |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Dilutive weighted average shares outstanding                      |  |                             | 2,116,874 |   |                           |   | 2,155,387 |      |  |   | 2,116,242 |   |  |   | 2,154,762 |  
|                                                                  |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Basic earnings per share                                          |  | $                           | 0.35      |   |                           | $ | 0.15      |      |  | $ | 0.82      |   |  | $ | 0.61      |  
|                                                                  |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Diluted earnings per share                                        |  | $                           | 0.35      |   |                           | $ | 0.15      |      |  | $ | 0.82      |   |  | $ | 0.61      |  
|                                                                  |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  

NOTE 6  EMPLOYEE STOCK OWNERSHIP PLAN

On July 11, 2005, the Company adopted an employee stock ownership plan (ESOP) for the benefit of substantially all employees. The ESOP
borrowed $763,140 from the Company and used those funds to acquire 76,314 shares of the Companys stock in the initial public offering at a price of $10.00 per share.

Shares purchased by the ESOP with the loan proceeds are held in a suspense account and are allocated to ESOP participants on a pro rata basis as
principal and interest payments are made by the ESOP to the Company. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Companys discretionary contributions to the ESOP and
earnings on the ESOP assets. Annual principal payments of approximately $50,876, plus interest at 6.25%, are to be made by the ESOP.



8



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##### Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

---



As shares are released from collateral, the Company will report compensation expense equal to the
current market price of the shares, and the shares will become outstanding for earnings-per-share (EPS) computations. Dividends on allocated ESOP shares reduce retained earnings: dividends on unallocated ESOP shares reduce accrued interest.

A terminated participant or the beneficiary of a deceased participant who received a distribution of employer stock from the ESOP has the
right to require the Company to purchase such shares at their fair market value any time within 60 days of the distribution date. If this right is not exercised, an additional 60 day exercise period is available in the year following the year in
which the distribution is made and begins after a new valuation of the stock has been determined and communicated to the participant or beneficiary. At June 30, 2007, 12,719 shares at a fair value of $12.25 have been classified as mezzanine
capital.

The following table reflects the status of the shares held by the plan:



|                                 |  |               |         |                   |   |        
|-------------------------------- |  | ------------- | ------- | ----------------- | - | -------
|                                 |  | June 30, 2007 |         | December 31, 2006
|                                 | 
|Shares allocated                 |  |               | 12,719  |                   |   | 10,176 
|Unallocated shares               |  |               | 63,595  |                   |   | 66,138 
|                                 |  |               |         |                   |   |        
|Total ESOP shares                |  |               | 76,314  |                   |   | 76,314 
|                                 |  |               |         |                   |   |        
|Fair value of unallocated shares |  | $             | 779,039 |                   | $ | 834,000
|                                 |  |               |         |                   |   |        

NOTE 7  INVESTMENT SECURITIES

The following table reflects securities with gross unrealized losses at June 30, 2007:



|                              |  |                     |            |                   |   |            |  |                   |            |            |   |                   |  |   |            |  |   |        
|----------------------------- |  | ------------------- | ---------- | ----------------- | - | ---------- |  | ----------------- | ---------- | ---------- | - | ----------------- |  | - | ---------- |  | - | -------
|                              |  | Less than 12 Months |            | 12 Months or More |   | Total     
|                              |  | Fair Value          |            | Unrealized Losses |   | Fair Value |  | Unrealized Losses |            | Fair Value |   | Unrealized Losses
|                              |  |                     |            |                   |  
|Securities Available for Sale |  |                     |            |                   |   |            |  |                   |            |            |   |                   |  |   |            |  |   |        
|Debt securities:              |  |                     |            |                   |   |            |  |                   |            |            |   |                   |  |   |            |  |   |        
|U.S. agency securities        |  | $                   | 7,117,465  |                   | $ | 4,080      |  | $                 | 8,570,212  |            | $ | 115,009           |  | $ | 15,687,677 |  | $ | 119,089
|Mortgage-backed securities    |  |                     | 4,078,580  |                   |   | 94,328     |  |                   | 16,088,607 |            |   | 773,843           |  |   | 20,167,187 |  |   | 868,171
|                              |  |                     |            |                   |   |            |  |                   |            |            |   |                   |  |   |            |  |   |        
|                              |  | $                   | 11,196,045 |                   | $ | 98,408     |  | $                 | 24,658,819 |            | $ | 888,852           |  | $ | 35,854,864 |  | $ | 987,260
|                              |  |                     |            |                   |   |            |  |                   |            |            |   |                   |  |   |            |  |   |        
|Securities Held to Maturity   |  |                     |            |                   |   |            |  |                   |            |            |   |                   |  |   |            |  |   |        
|Mortgage-backed securities    |  | $                   |           |                   | $ |           |  | $                 | 633,037    |            | $ | 13,254            |  | $ | 633,037    |  | $ | 13,254 
|                              |  |                     |            |                   |   |            |  |                   |            |            |   |                   |  |   |            |  |   |        

The unrealized losses at June 30, 2007 relate principally to interest rates relative to the
market. In analyzing an issuers financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts
reports. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other than temporary.



9



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##### Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

---



NOTE 8  ASSET QUALITY

The following is a summary of information pertaining to impaired and non-accrual loans:



|                                                                     |  |                  |           |                      |   |          
|-------------------------------------------------------------------- |  | ---------------- | --------- | -------------------- | - | ---------
|                                                                     |  | At June 30, 2007 |           | At December 31, 2006
|                                                                     | 
|Impaired loans with a valuation allowance                            |  | $                | 1,675     |                      | $ | 7,134    
|                                                                     |  |                  |           |                      |   |          
|Total impaired loans                                                 |  | $                | 1,675     |                      | $ | 7,134    
|                                                                     |  |                  |           |                      |   |          
|Valuation allowance related to impaired loans                        |  | $                | 838       |                      | $ | 1,736    
|                                                                     |  |                  |           |                      |   |          
|Total non-accrual loans                                              |  | $                | 1,621,398 |                      | $ | 1,069,954
|                                                                     |  |                  |           |                      |   |          
|Total loans past due ninety days or more and still accruing interest |  | $                | 116,051   |                      | $ | 44,859   
|                                                                     |  |                  |           |                      |   |          

On the basis of managements review of its assets at June 30, 2007 and December 31,
2006, we had classified $550,863 and $927,769, respectively, of our assets as special mention and $455,378 and $1,301,719, respectively, of our assets as substandard and $1,675 and $1,904, respectively, of our assets as doubtful.

The loan portfolio is reviewed on a regular basis to determine whether any loans require classification in accordance with applicable regulations. Not
all non-performing assets are classified assets.

Following is a summary of activity in the allowance for loan losses for the six months
ended June 30, 2007 and 2006.



|                                           |  |      |            |   |      |   |            |  
|------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                           |  | 2007 |            |   | 2006 |  
|Balance at beginning of year               |  | $    | 419,685    |   |      | $ | 390,994    |  
|Provision credited to income               |  |      | (2,042,620 | ) |      |   | (1,307,778 | )
|Loans charged off                          |  |      | (22,405    | ) |      |   | (27,681    | )
|Recoveries of loans previously charged off |  |      | 2,086,726  |   |      |   | 1,331,829  |  
|                                           |  |      |            |   |      |   |            |  
|Balance at end of period                   |  | $    | 441,386    |   |      | $ | 387,364    |  
|                                           |  |      |            |   |      |   |            |  

NOTE 9  STOCK COMPENSATION

The total stock-based compensation expense was approximately $80,000 for the six months ended June 30, 2007 and none for the same period in 2006. In
accordance with Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment, compensation expense is recognized on a straight-line basis over the grantees vesting period or to the grantees retirement
eligible date, if earlier. For the six months ended June 30, 2007, the Company did not grant additional options or shares under the Management Recognition Plan.

NOTE 10  RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

The Company adopted the provisions of
Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB No. 109 (FIN 48), effective January 1, 2007. No adjustment was
recognized for uncertain tax positions. The Company is subject to U.S. Federal income taxes, as well as State of Illinois income taxes. Tax years ending December 31, 2003 through December 31, 2006 remain open to examination by these
jurisdictions. The Company recognizes interest and penalties related to tax positions in income tax expense. At June 30, 2007, there was no accrual for uncertain tax positions or related interest.



10



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##### Table of Contents

OTTAWA SAVINGS BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(continued)

---



NOTE 11  RECENT ACCOUNTING DEVELOPMENTS

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.This Statement defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in
the market in which the reporting entity transacts. This Statement does not require any new fair value measurements, but rather, it provides enhanced guidance to other pronouncements that require or permit assets or liabilities to be measured at
fair value. This Statement is effective for fiscal years beginning after November 15, 2007, with earlier adoption permitted. The Company is currently evaluating the impact that the adoption of this Statement will have on its financial position,
results of operation and cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities  Including an amendment of FASB Statement No. 115,which provides all entities, including not-for-profit organizations, with an option to report selected financial assets and liabilities at fair
value. The objective of the Statement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in earnings caused by measuring related assets and liabilities differently without having to apply the
complex provisions of hedge accounting. Certain specified items are eligible for the irrevocable fair value measurement option as established by Statement No. 159. Statement No. 159 is effective as of the beginning of an
entitys first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007 provided the entity also elects to apply the provisions of
Statement No. 157, Fair Value Measurements. The Company is currently evaluating the impact that the adoption of this Statement will have on its financial position, results of operation and cash flows.



|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|------- | ---------------------------------------------------------

Managements discussion and analysis of the financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of Ottawa Savings Bancorp, Inc. The information
contained in this section should be read in conjunction with the Unaudited Consolidated Financial Statements and footnotes appearing in Part I, Item 1 of this document.

FORWARD-LOOKING INFORMATION

Statements contained in this report that are not historical facts may
constitute forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended), which involve significant risks and uncertainties. The Company intends such forward-looking statements to be covered
by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Forward-looking statements, which
are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by the use of the words believe, expect, intend, anticipate,
estimate, project, plan, or similar expressions. The Companys ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ from those
predicted. The Company undertakes no obligation to update these forward-looking statements in the future. The Company cautions readers of this report that a number of important factors could cause the Companys actual results subsequent to
June 30, 2007 to differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from those predicted and could affect the future prospects of the Company include, but are not limited to,
fluctuations in market rates of interest and loan and deposit pricing, changes in the securities or financial market, a deterioration of general economic conditions either nationally or in our market areas, delays in obtaining the necessary
regulatory approvals, our ability to consummate proposed transactions in a timely manner, legislative or regulatory changes that adversely affect our business, adverse developments or changes in the composition of our loan or investment portfolios,
significant increases in competition, changes in real estate values, difficulties in identifying attractive acquisition opportunities or strategic partners to complement our Companys approach and the products and services the Company offers,
the possible dilutive effect of potential acquisitions or expansion, and our ability to raise new capital as needed and the timing, amount and type of such capital raises. These risks and uncertainties should be considered in evaluating
forward-looking statements.



11



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##### Table of Contents

GENERAL

The
Bank is a community and customer oriented savings bank. The Banks business has historically consisted of attracting deposits from the general public and using those funds to originate one-to-four family residential loans, consumer loans and
other loans. The Bank completed its plan of conversion on July 11, 2005, upon which the Bank converted from an Illinois-chartered mutual savings bank to a federally-chartered mutual savings bank. The Bank completed its reorganization on that
same date, pursuant to which the Bank converted from a federally-chartered mutual savings bank to a federally-chartered stock savings bank, all of the outstanding stock of which was issued to Ottawa Savings Bancorp, Inc. As part of the
reorganization, Ottawa Savings Bancorp, Inc. issued 1,001,210 shares to the public and 1,223,701 shares to Ottawa Savings Bancorp, MHC.

During the period from March 2000 until April 2004, as part of our investment activities, the Bank purchased loan participations from Commercial Loan Corporation of Oak Brook, Illinois (CLC). In April 2004, the Bank was informed
by its regulators, the FDIC and Illinois Office of Banks and Real Estate (OBRE), that CLC had misappropriated funds from loans it was servicing for others. At that time, the Bank had 39 outstanding loan participations with CLC in the
aggregate amount of approximately $15.0 million. In May 2004, CLC filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. In December 2004, CLCs remaining assets were transferred to the CLC Creditors Trust.

In December 2004, the Bank received a payment of $5.6 million in cash and loans from the CLC Creditors Trust. This payment included $784,000 in
residential condominium loans, $2.5 million in commercial real estate loans, $518,000 in commercial lines of credit, $153,000 in residential real estate loans and $1.6 million in cash. Although the Bank has retained certain unsecured claims against
the CLC Creditors Trust, the Bank has charged off the remaining $9.5 million of the Banks investment in the CLC loan participations. The Banks financial results reflect these losses in the years in which they occurred. In October
2005, March 2006, March 2007 and June 2007, the Company received net settlements of $190,000, $1.3 million, $1.2 million and $902,000, respectively, from the CLC Creditors Trust on previously charged-off loan participations with CLC. Any
future recoveries of amounts previously charged off will be recorded as a recovery to the allowance for loan losses.

COMPARISON OF FINANCIAL CONDITION AT
JUNE 30, 2007 AND DECEMBER 31, 2006

The Companys total assets increased $6.7 million, or 3.29%, to $211.6 million at June 30,
2007, from $204.9 million at December 31, 2006. The increase reflects an increase in loans including loans held for sale of $12.1 million, an increase in securities available for sale of $875,000, and an increase in non-marketable equity
securities of $138,000, an increase in accrued interest receivable of $107,000 and an increase in other assets of $82,000, offset by decreases in cash and due from banks of $6.1 million and deferred tax assets of $253,000.

Cash and cash equivalents decreased $6.1 million, or 58.85%, to $4.3 million at June 30, 2007 from $10.4 million at December 31, 2006. The
decrease in cash is primarily due to the purchase of securities available for sale, and loan originations, partially offset by funds received as deposits and the $2.1 million in recoveries from the CLC Creditors Trust on previously charged off loan
participations.

Securities available for sale increased $875,000 or 2.38%, to $37.7 million at June 30, 2007 from $36.8 million at
December 31, 2006. The increase was primarily the result of $5.5 million in purchases, offset by maturities, pay-downs, and sales of $4.2 million.

Non-marketable equity securities are equity securities for which sales prices are not currently available on a national securities exchange or in the over-the-counter market. The Company holds Federal Home Loan Bank
(FHLB) stock, Bankers Bank of Wisconsin stock, and stock in the Upper Illinois River Valley Development Corporation (U.I.R.V.D.C). Non-marketable equity securities increased $138,000, or 5.76%, to $2.5 million at
June 30, 2007, from $2.4 million at December 31, 2006, due to the purchase of Bankers Bank of Wisconsin stock.



12



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##### Table of Contents

Loans including loans held for sale increased $12.1 million, or 8.46%, to $154.6 million at June 30,
2007, from $142.5 million at December 31, 2006. The increase in loans was primarily due to the origination of 1-4 family loans and construction loans, the origination and the purchase of non-residential real estate loans, and the origination of
commercial loans, offset by pay-offs on multi-family purchased loans and principal reductions on lines of credit.

The deferred tax asset
decreased $253,000, or 16.55%, to $1.3 million at June 30, 2007, from $1.5 million at December 31, 2006. The decrease is primarily due to tax carry-forwards from prior year losses applied against current income taxes, and changes in
deferred taxes on unrealized losses on available for sale securities.

Other assets, comprised primarily of prepaid expenses, deferred
director compensation accounts, and auto loan repossessions, increased $82,000, or 7.40%, to $1.2 million at June 30, 2007, from $1.1 million at December 31, 2006. The increase is due to an increase in auto loan repossessions, net of
proceeds from sales totaling $29,000, an increase in deferred director compensation accounts of $46,000, and insurance pre-payments of $11,000.

Total deposits increased $5.4 million, or 2.95%, to $188.3 million at June 30, 2007, from $182.9 million at December 31, 2006. The increase reflects the addition of new accounts and deposits to existing accounts, offset by a
slight decrease in non-interest bearing checking accounts.

Other liabilities decreased $155,000, or 6.67%, to $2.2 million at
June 30, 2007, from $2.3 million at December 31, 2006. The decrease was primarily due to an outstanding payable at December 31, 2006 of $587,000 to complete the purchase of MRP shares, which was made during the first quarter of 2007.
In addition, employee incentives payable decreased $25,000 and accrued exam and accounting decreased $30,000. The decreases were offset by increases in escrow payable of $211,000, property taxes payable of $58,000, federal taxes payable of $96,000,
accrued retirement payments payable of $60,000, deferred director compensation payable of $36,000, and the addition of Supplemental Executive Retirement Plan (SERP) expenses of $28,000.

Equity increased $1.5 million, or 7.62%, to $20.9 million at June 30, 2007, from $19.4 million at December 31, 2006. The increase in equity
reflects net income for the six months ended June 30, 2007 of $1.7 million, offset by dividends of $93,000 paid to stockholders and an increase in other comprehensive loss, net of taxes of $244,000, due to decreases in the market value of the
available for sale securities portfolio. The remaining changes to equity include increases of $113,000 from the allocation and amortization of ESOP shares, MRP shares, and RRP options, offset by a decrease to equity of $27,000 to increase the cash
obligation related to redeemable common stock held by the ESOP.



13



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##### Table of Contents

COMPARISON OF RESULTS OF OPERATION FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND 2006

Net Income. The Company had net income of $741,000 for the three months ended June 30, 2007, compared to net income of $325,000 for the three
months ended June 30, 2006.

Net Interest Income.The following table summarizes interest and dividend income and
interest expense for the three months ended June 30, 2007 and 2006.



|                                              |  |                             |       |      |   |          |  |   |          |   |  |        |  
|--------------------------------------------- |  | --------------------------- | ----- | ---- | - | -------- |  | - | -------- | - |  | ------ | -
|                                              |  | Three Months Ended June 30, |      
|                                              |  | 2007                        |       | 2006 |   | $ change |  |   | % change |  
|                                              |  | (Dollars in thousands)      |      
|Interest and dividend income:                 |  |                             |       |      |   |          |  |   |          |   |  |        |  
|Interest and fees on loans                    |  | $                           | 2,479 |      | $ | 1,969    |  | $ | 510      |   |  | 25.90  | %
|Securities:                                   |  |                             |       |      |   |          |  |   |          |   |  |        |  
|Mortgage-backed and related securities        |  |                             | 269   |      |   | 254      |  |   | 15       |   |  | 5.91   |  
|U.S. agency securities                        |  |                             | 215   |      |   | 162      |  |   | 53       |   |  | 32.72  |  
|Dividends on non-marketable equity securities |  |                             | 16    |      |   | 31       |  |   | (15      | ) |  | (48.39 | )
|Interest-bearing deposits                     |  |                             | 83    |      |   | 46       |  |   | 37       |   |  | 80.43  |  
|                                              |  |                             |       |      |   |          |  |   |          |   |  |        |  
|Total interest and dividend income            |  |                             | 3,062 |      |   | 2,462    |  |   | 600      |   |  | 24.37  |  
|                                              |  |                             |       |      |   |          |  |   |          |   |  |        |  
|Interest expense:                             |  |                             |       |      |   |          |  |   |          |   |  |        |  
|Deposits                                      |  |                             | 1,931 |      |   | 1,367    |  |   | 564      |   |  | 41.26  |  
|                                              |  |                             |       |      |   |          |  |   |          |   |  |        |  
|Total interest expense                        |  |                             | 1,931 |      |   | 1,367    |  |   | 564      |   |  | 41.26  |  
|                                              |  |                             |       |      |   |          |  |   |          |   |  |        |  
|Net interest income                           |  | $                           | 1,131 |      | $ | 1,095    |  | $ | 36       |   |  | 3.29   |  
|                                              |  |                             |       |      |   |          |  |   |          |   |  |        |  

The following table summarizes average balances and annualized average yield or cost for the three
months ended June 30, 2007 and 2006.



|                                                                                 |  |                             |         |          |      |                     |  |        |                 |  |          |         |                     |   |       |  |        |  
|-------------------------------------------------------------------------------- |  | --------------------------- | ------- | -------- | ---- | ------------------- |  | ------ | --------------- |  | -------- | ------- | ------------------- | - | ----- |  | ------ | -
|                                                                                 |  | Three Months Ended June 30, |        
|                                                                                 |  | 2007                        |         |          | 2006 |                    
|                                                                                 |  | AVERAGE BALANCE             |         | INTEREST |      | AVERAGE YIELD/ COST |  |        | AVERAGE BALANCE |  | INTEREST |         | AVERAGE YIELD/ COST |  
|                                                                                 |  |                             |         |          |     
|                                                                                 |  |                             |         |          |     
|                                                                                 |  | (Dollars in thousands)      |        
|Interest-earning assets                                                          |  |                             |         |          |      |                     |  |        |                 |  |          |         |                     |   |       |  |        |  
|Securities, net                                                                  |  | $                           | 38,943  |          | $    | 484                 |  | 4.97   | %               |  | $        | 36,559  |                     | $ | 416   |  | 4.55   | %
|Loans receivable, net (1)                                                        |  |                             | 151,376 |          |      | 2,479               |  | 6.55   | %               |  |          | 125,751 |                     |   | 1,969 |  | 6.26   | %
|Non-marketable equity securities                                                 |  |                             | 2,535   |          |      | 16                  |  | 2.56   | %               |  |          | 3,652   |                     |   | 31    |  | 3.37   | %
|Other investments                                                                |  |                             | 4,343   |          |      | 83                  |  | 7.64   | %               |  |          | 2,621   |                     |   | 46    |  | 7.02   | %
|                                                                                 |  |                             |         |          |      |                     |  |        |                 |  |          |         |                     |   |       |  |        |  
|Total interest-earning assets                                                    |  |                             | 197,197 |          |      | 3,062               |  | 6.21   | %               |  |          | 168,583 |                     |   | 2,462 |  | 5.84   | %
|Interest-bearing liabilities                                                     |  |                             |         |          |      |                     |  |        |                 |  |          |         |                     |   |       |  |        |  
|Money Market accounts                                                            |  | $                           | 8,077   |          | $    | 50                  |  | 2.49   | %               |  | $        | 9,565   |                     | $ | 57    |  | 2.39   | %
|Passbook accounts                                                                |  |                             | 11,784  |          |      | 14                  |  | 0.50   | %               |  |          | 11,667  |                     |   | 15    |  | 0.50   | %
|Certificates of Deposit accounts                                                 |  |                             | 155,217 |          |      | 1,852               |  | 4.77   | %               |  |          | 127,790 |                     |   | 1,281 |  | 4.01   | %
|Checking                                                                         |  |                             | 11,172  |          |      | 15                  |  | 0.53   | %               |  |          | 9,916   |                     |   | 14    |  | 0.57   | %
|                                                                                 |  |                             |         |          |      |                     |  |        |                 |  |          |         |                     |   |       |  |        |  
|Total interest-bearing liabilities                                               |  |                             | 186,250 |          |      | 1,931               |  | 4.15   | %               |  |          | 158,938 |                     |   | 1,367 |  | 3.44   | %
|                                                                                 |  |                             |         |          |      |                     |  |        |                 |  |          |         |                     |   |       |  |        |  
|NET INTEREST INCOME                                                              |  |                             |         |          | $    | 1,131               |  |        |                 |  |          |         |                     | $ | 1,095 |  |        |  
|                                                                                 |  |                             |         |          |      |                     |  |        |                 |  |          |         |                     |   |       |  |        |  
|NET INTEREST RATE SPREAD(2)                                                      |  |                             |         |          |      |                     |  | 2.06   | %               |  |          |         |                     |   |       |  | 2.40   | %
|                                                                                 |  |                             |         |          |      |                     |  |        |                 |  |          |         |                     |   |       |  |        |  
|NET INTEREST MARGIN(3)                                                           |  |                             |         |          |      |                     |  | 2.29   | %               |  |          |         |                     |   |       |  | 2.60   | %
|                                                                                 |  |                             |         |          |      |                     |  |        |                 |  |          |         |                     |   |       |  |        |  
|RATIO OF AVERAGE INTEREST-EARNING ASSETS TO AVERAGE INTEREST-BEARING LIABILITIES |  |                             |         |          |      |                     |  | 105.88 | %               |  |          |         |                     |   |       |  | 106.07 | %
|                                                                                 |  |                             |         |          |      |                     |  |        |                 |  |          |         |                     |   |       |  |        |  

---

|(1) | Net of loans in process, deferred loan costs (fees), and allowance for loan losses.
|--- | -----------------------------------------------------------------------------------

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

|(3) | The net interest margin represents net interest income as a percent of average interest-earning assets.
|--- | -------------------------------------------------------------------------------------------------------



14



---

##### Table of Contents

Net interest income increased $36,000, or 3.29%, to $1.1 million for the three months ended June 30,
2007, from $1.1 million for the three months ended June 30, 2006. Interest and dividend income increased due to an increase in the average yield on interest earning assets to 6.21% from 5.84% due to increased market rates, and an increase of
$28.6 million in average interest earning assets to $197.2 million from $168.6 million for the three months ended June 30, 2007, compared to the same period in 2006. Interest expense increased due to an increase of $27.3 million in average
deposits, and an increase in the cost of deposits to 4.15% from 3.44% for the three months ended June 30, 2007, compared to the same period in 2006. The increase in average deposits and the increase in the cost of deposits were primarily due to
increased market rates resulting in additional funds placed in certificates of deposit, offset by decreases in money market accounts.

Provision for Loan Losses.Management recorded a negative loss provision of $861,000 for the three months ended June 30, 2007, compared to no loss provision for the three months ended June 30, 2006. The negative loss
provision was due to a recovery from the CLC Creditors Trust on previously charged off loans. Based on a general review of the loans that were in the loan portfolio at June 30, 2007 and 2006, management believes that the allowance is maintained
at a level that represents its best estimate of inherent losses in the loan portfolio that were both probable and reasonably estimable.

Other Income. The following table summarizes other income for the three months ended June 30, 2007 and 2006.



|                                                               |  |                             |    |   |      |   |     |          |  |   |          |   |  |        |   
|-------------------------------------------------------------- |  | --------------------------- | -- | - | ---- | - | --- | -------- |  | - | -------- | - |  | ------ | --
|                                                               |  | Three Months Ended June 30, |   
|                                                               |  | 2007                        |    |   | 2006 |   |     | $ change |  |   | % change |  
|                                                               |  | (Dollars in thousands)      |   
|Other income:                                                  |  |                             |    |   |      |   |     |          |  |   |          |   |  |        |   
|Gain on sale of loans                                          |  | $                           | 14 |   |      | $ | 21  |          |  | $ | (7       | ) |  | (33.33 | )%
|Amortization of mortgage servicing rights, net of originations |  |                             | (2 | ) |      |   | (2  | )        |  |   |         |   |  |       |   
|Customer service fees                                          |  |                             | 57 |   |      |   | 44  |          |  |   | 13       |   |  | 29.55  |   
|Other                                                          |  |                             | 7  |   |      |   | 51  |          |  |   | (44      | ) |  | (86.27 | ) 
|                                                               |  |                             |    |   |      |   |     |          |  |   |          |   |  |        |   
|Total other income                                             |  | $                           | 76 |   |      | $ | 114 |          |  | $ | (38      | ) |  | (33.33 | ) 
|                                                               |  |                             |    |   |      |   |     |          |  |   |          |   |  |        |   

The decrease in other income was primarily due to the 2006 receipt of approximately $46,000 in
interest on tax refunds, and reduced gains on sales of loans, offset by increased customer service fees.

Other Expenses. The
following table summarizes other expenses for the three months ended June 30, 2007 and 2006.



|                                |  |                             |       |   |      |   |       |          |  |   |          |   |  |        |   
|------------------------------- |  | --------------------------- | ----- | - | ---- | - | ----- | -------- |  | - | -------- | - |  | ------ | --
|                                |  | Three Months Ended June 30, |      
|                                |  | 2007                        |       |   | 2006 |   |       | $ change |  |   | % change |  
|                                |  | (Dollars in thousands)      |      
|Other expenses:                 |  |                             |       |   |      |   |       |          |  |   |          |   |  |        |   
|Salaries and employee benefits  |  | $                           | 452   |   |      | $ | 457   |          |  | $ | (5       | ) |  | (1.09  | )%
|Directors fees                  |  |                             | 21    |   |      |   | 21    |          |  |   |         |   |  |       |   
|Occupancy                       |  |                             | 135   |   |      |   | 115   |          |  |   | 20       |   |  | 17.39  |   
|Deposit insurance premium       |  |                             | 6     |   |      |   | 5     |          |  |   | 1        |   |  | 20.00  |   
|Legal and professional services |  |                             | 49    |   |      |   | 151   |          |  |   | (102     | ) |  | (67.55 | ) 
|Data processing                 |  |                             | 59    |   |      |   | 62    |          |  |   | (3       | ) |  | (4.84  | ) 
|Other                           |  |                             | 134   |   |      |   | 138   |          |  |   | (4       | ) |  | (2.90  | ) 
|                                |  |                             |       |   |      |   |       |          |  |   |          |   |  |        |   
|Total other expenses            |  | $                           | 856   |   |      | $ | 949   |          |  | $ | (93      | ) |  | (9.80  | ) 
|                                |  |                             |       |   |      |   |       |          |  |   |          |   |  |        |   
|Efficiency ratio (1)            |  |                             | 70.96 | % |      |   | 78.43 | %        |  |   |          |   |  |        |   

---

|(1) | Computed as other expenses divided by the sum of net interest income and other income.
|--- | --------------------------------------------------------------------------------------



15



---

##### Table of Contents

The decrease in other expenses was primarily due to a decrease of $102,000 in legal and professional fees
for the three months ended June 30, 2007 as compared to the three months ended June 30, 2006, as a result of reduced time spent by outside legal and audit professionals on the review of the Companys quarterly reports and fewer
filings with the SEC for the period ending June 30, 2007, as compared to the same period in 2006. The Companys decision to change its legal counsel also reduced legal expenses. The decrease in salaries and employee benefits was the result
of decreases in the cost of the Defined Benefit Retirement Plan, offset by the addition of compensation expense for the Management Recognition Plan (MRP) stock awards, the Recognition and Retention Plan (RRP) stock options, and the Supplemental
Executive Retirement Plan (SERP).

Income Taxes.Income tax expense was $471,000 for the three months ended June 30, 2007,
compared to an income tax benefit of $64,000 for the same period in 2006. The income tax expense is a direct result of the pre-tax income for the applicable period. For the period ending June 30, 2006 this amount was adjusted due to
managements re-evaluation of the deferred tax accounts. The effective tax rates for the three months ended June 30, 2007 and 2006 were 38.86% and (24.50)%, respectively.

COMPARISON OF RESULTS OF OPERATION FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

Net Income. The
Company had net income of $1.7 million for the six months ended June 30, 2007, compared to net income of $1.3 million for the six months ended June 30, 2006.

Net Interest Income.The following table summarizes interest and dividend income and interest expense for the six months ended June 30, 2007
and 2006.



|                                              |  |                           |       |      |   |          |  |   |          |   |  |        |  
|--------------------------------------------- |  | ------------------------- | ----- | ---- | - | -------- |  | - | -------- | - |  | ------ | -
|                                              |  | Six Months Ended June 30, |      
|                                              |  | 2007                      |       | 2006 |   | $ change |  |   | % change |  
|                                              |  | (Dollars in thousands)    |      
|Interest and dividend income:                 |  |                           |       |      |   |          |  |   |          |   |  |        |  
|Interest and fees on loans                    |  | $                         | 4,830 |      | $ | 3,899    |  | $ | 931      |   |  | 23.88  | %
|Securities:                                   |  |                           |       |      |   |          |  |   |          |   |  |        |  
|Mortgage-backed and related securities        |  |                           | 541   |      |   | 522      |  |   | 19       |   |  | 3.64   |  
|U.S. agency securities                        |  |                           | 413   |      |   | 330      |  |   | 83       |   |  | 25.15  |  
|Dividends on non-marketable equity securities |  |                           | 42    |      |   | 61       |  |   | (19      | ) |  | (31.15 | )
|Interest-bearing deposits                     |  |                           | 184   |      |   | 74       |  |   | 110      |   |  | 148.65 |  
|                                              |  |                           |       |      |   |          |  |   |          |   |  |        |  
|Total interest and dividend income            |  |                           | 6,010 |      |   | 4,886    |  |   | 1,124    |   |  | 23.00  |  
|                                              |  |                           |       |      |   |          |  |   |          |   |  |        |  
|Interest expense:                             |  |                           |       |      |   |          |  |   |          |   |  |        |  
|Deposits                                      |  |                           | 3,815 |      |   | 2,685    |  |   | 1,130    |   |  | 42.09  |  
|                                              |  |                           |       |      |   |          |  |   |          |   |  |        |  
|Total interest expense                        |  |                           | 3,815 |      |   | 2,685    |  |   | 1,130    |   |  | 42.09  |  
|                                              |  |                           |       |      |   |          |  |   |          |   |  |        |  
|Net interest income                           |  | $                         | 2,195 |      | $ | 2,201    |  | $ | (6       | ) |  | (0.27  | )
|                                              |  |                           |       |      |   |          |  |   |          |   |  |        |  



16



---

##### Table of Contents

The following table summarizes average balances and annualized average yield or cost for the six months
ended June 30, 2007 and 2006.



|                                                                                 |  |                           |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|-------------------------------------------------------------------------------- |  | ------------------------- | ------- | -------- | ---- | ----------------- |  | ------ | -------------- |  | -------- | ------- | ----------------- | - | ----- |  | ------ | -
|                                                                                 |  | Six Months Ended June 30, |        
|                                                                                 |  | 2007                      |         |          | 2006 |                  
|                                                                                 |  | AVERAGEBALANCE            |         | INTEREST |      | AVERAGEYIELD/COST |  |        | AVERAGEBALANCE |  | INTEREST |         | AVERAGEYIELD/COST |  
|                                                                                 |  | (Dollars in thousands)    |        
|Interest-earning assets                                                          |  |                           |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Securities, net                                                                  |  | $                         | 38,969  |          | $    | 954               |  | 4.90   | %              |  | $        | 37,210  |                   | $ | 852   |  | 4.58   | %
|Loans receivable, net (1)                                                        |  |                           | 147,621 |          |      | 4,830             |  | 6.54   | %              |  |          | 124,930 |                   |   | 3,899 |  | 6.24   | %
|Non-marketable equity securities                                                 |  |                           | 2,535   |          |      | 42                |  | 3.33   | %              |  |          | 3,845   |                   |   | 61    |  | 3.17   | %
|Other investments                                                                |  |                           | 6,412   |          |      | 184               |  | 5.75   | %              |  |          | 2,897   |                   |   | 74    |  | 5.18   | %
|                                                                                 |  |                           |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Total interest-earning assets                                                    |  |                           | 195,537 |          |      | 6,010             |  | 6.15   | %              |  |          | 168,882 |                   |   | 4,886 |  | 5.79   | %
|Interest-bearing liabilities                                                     |  |                           |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Money Market accounts                                                            |  | $                         | 8,503   |          | $    | 102               |  | 2.41   | %              |  | $        | 9,773   |                   | $ | 118   |  | 2.40   | %
|Passbook accounts                                                                |  |                           | 11,329  |          |      | 28                |  | 0.50   | %              |  |          | 11,329  |                   |   | 32    |  | 0.57   | %
|Certificates of Deposit accounts                                                 |  |                           | 154,665 |          |      | 3,657             |  | 4.73   | %              |  |          | 128,871 |                   |   | 2,505 |  | 3.89   | %
|Checking                                                                         |  |                           | 10,081  |          |      | 28                |  | 0.55   | %              |  |          | 9,570   |                   |   | 30    |  | 0.63   | %
|                                                                                 |  |                           |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Total interest-bearing liabilities                                               |  |                           | 184,578 |          |      | 3,815             |  | 4.13   | %              |  |          | 159,543 |                   |   | 2,685 |  | 3.37   | %
|                                                                                 |  |                           |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|NET INTEREST INCOME                                                              |  |                           |         |          | $    | 2,195             |  |        |                |  |          |         |                   | $ | 2,201 |  |        |  
|                                                                                 |  |                           |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|NET INTEREST RATE SPREAD (2)                                                     |  |                           |         |          |      |                   |  | 2.02   | %              |  |          |         |                   |   |       |  | 2.42   | %
|                                                                                 |  |                           |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|NET INTEREST MARGIN (3)                                                          |  |                           |         |          |      |                   |  | 2.25   | %              |  |          |         |                   |   |       |  | 2.61   | %
|                                                                                 |  |                           |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|RATIO OF AVERAGE INTEREST-EARNING ASSETS TO AVERAGE INTEREST-BEARING LIABILITIES |  |                           |         |          |      |                   |  | 105.94 | %              |  |          |         |                   |   |       |  | 105.85 | %
|                                                                                 |  |                           |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  

---

|(1) | Net of loans in process, deferred loan costs (fees), and allowance for loan losses.
|--- | -----------------------------------------------------------------------------------

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

|(3) | The net interest margin represents net interest income as a percent of average interest-earning assets.
|--- | -------------------------------------------------------------------------------------------------------

Net interest income decreased $6,000, or 0.27% for the six months ended June 30, 2007 compared to the six months ended June 30, 2006. Interest
and dividend income increased due to an increase in the average yield on interest earning assets to 6.15% from 5.79% due to increased market rates, and an increase of $26.6 million in average interest earning assets to $195.5 million from $168.9
million for the six months ended June 30, 2007, compared to the same period in 2006. Interest expense increased due to an increase of $25.0 million in average deposits, and an increase in the cost of deposits to 4.13% from 3.37% for the six
months ended June 30, 2007, compared to the same period in 2006. The increase in average deposits and the increase in the cost of deposits were primarily due to increased market rates resulting in additional funds placed in certificates of
deposit, offset by decreases in money market accounts.

Provision for Loan Losses.Management recorded a negative loss provision of
$2.0 million for the six months ended June 30, 2007, compared to a negative loss provision of $1.3 million for the six months ended June 30, 2006. The negative loss provisions were due to recoveries from the CLC Creditors Trust on
previously charged off loans. Based on a general review of the loans that were in the loan portfolio at June 30, 2007 and 2006, management believes that the allowance is maintained at a level that represents its best estimate of inherent losses
in the loan portfolio that were both probable and reasonably estimable.



17



---

##### Table of Contents

Other Income. The following table summarizes other income for the six months ended June 30,
2007 and 2006.



|                                                               |  |                           |     |   |      |   |     |          |  |   |          |   |  |        |   
|-------------------------------------------------------------- |  | ------------------------- | --- | - | ---- | - | --- | -------- |  | - | -------- | - |  | ------ | --
|                                                               |  | Six Months Ended June 30, |    
|                                                               |  | 2007                      |     |   | 2006 |   |     | $ change |  |   | % change |  
|                                                               |  | (Dollars in thousands)    |    
|Other income:                                                  |  |                           |     |   |      |   |     |          |  |   |          |   |  |        |   
|Gain on sale of loans                                          |  | $                         | 17  |   |      | $ | 22  |          |  | $ | (5       | ) |  | (22.73 | )%
|Amortization of mortgage servicing rights, net of originations |  |                           | (1  | ) |      |   | (8  | )        |  |   | 7        |   |  | (87.50 | ) 
|Customer service fees                                          |  |                           | 108 |   |      |   | 78  |          |  |   | 30       |   |  | 38.46  |   
|Other                                                          |  |                           | 15  |   |      |   | 59  |          |  |   | (44      | ) |  | (74.58 | ) 
|                                                               |  |                           |     |   |      |   |     |          |  |   |          |   |  |        |   
|Total other income                                             |  | $                         | 139 |   |      | $ | 151 |          |  | $ | (12      | ) |  | (7.95  | ) 
|                                                               |  |                           |     |   |      |   |     |          |  |   |          |   |  |        |   

The decrease in other income was primarily due to the 2006 receipt of approximately $46,000 in
interest on tax refunds, and reduced gains on sales of loans, offset by increased customer service fees. The increase in customer service fees is partially due to the bank increasing the amount it charges for overdrafts, effective March 1,
2006.

Other Expenses. The following table summarizes other expenses for the six months ended June 30, 2007 and 2006.



|                                |  |                           |       |   |      |   |       |          |  |   |          |   |  |        |   
|------------------------------- |  | ------------------------- | ----- | - | ---- | - | ----- | -------- |  | - | -------- | - |  | ------ | --
|                                |  | Six Months Ended June 30, |      
|                                |  | 2007                      |       |   | 2006 |   |       | $ change |  |   | % change |  
|                                |  | (Dollars in thousands)    |      
|Other expenses:                 |  |                           |       |   |      |   |       |          |  |   |          |   |  |        |   
|Salaries and employee benefits  |  | $                         | 830   |   |      | $ | 890   |          |  | $ | (60      | ) |  | (6.74  | )%
|Directors fees                  |  |                           | 42    |   |      |   | 43    |          |  |   | (1       | ) |  | (2.33  | ) 
|Occupancy                       |  |                           | 241   |   |      |   | 233   |          |  |   | 8        |   |  | 3.43   |   
|Deposit insurance premium       |  |                           | 11    |   |      |   | 10    |          |  |   | 1        |   |  | 10.00  |   
|Legal and professional services |  |                           | 103   |   |      |   | 239   |          |  |   | (136     | ) |  | (56.90 | ) 
|Data processing                 |  |                           | 127   |   |      |   | 122   |          |  |   | 5        |   |  | 4.10   |   
|Other                           |  |                           | 253   |   |      |   | 289   |          |  |   | (36      | ) |  | (12.46 | ) 
|                                |  |                           |       |   |      |   |       |          |  |   |          |   |  |        |   
|Total other expenses            |  | $                         | 1,607 |   |      | $ | 1,826 |          |  | $ | (219     | ) |  | (11.99 | ) 
|                                |  |                           |       |   |      |   |       |          |  |   |          |   |  |        |   
|Efficiency ratio (1)            |  |                           | 68.85 | % |      |   | 77.60 | %        |  |   |          |   |  |        |   

---

|(1) | Computed as other expenses divided by the sum of net interest income and other income.
|--- | --------------------------------------------------------------------------------------

The decrease in other expenses was primarily due to a decrease of $136,000 in legal and professional fees for the six months ended June 30, 2007 as compared to the six months ended June 30, 2006, as a result
of reduced time spent by outside legal and audit professionals on the review of the Companys quarterly reports and fewer filings with the SEC for the period ending June 30, 2007, as compared to the same period in 2006. The Companys
decision to change its legal counsel also reduced legal expenses. The decrease in salaries and employee benefits was the result of decreases in the cost of the Defined Benefit Retirement Plan, offset by the addition of compensation expense for the
Management Recognition Plan (MRP) stock awards, the Recognition and Retention Plan (RRP) stock options, and the Supplemental Executive Retirement Plan (SERP). Other miscellaneous expenses decreased primarily due to decreases in supervisory fees.

Income Taxes.Income tax expense was $1.0 million for the six months ended June 30, 2007, compared to $511,000 for the same
period in 2006. The income tax expense is a direct result of the pre-tax income for the applicable period. For the period ending June 30, 2006 this amount was adjusted due to managements re-evaluation of the deferred tax accounts. The
effective tax rates for the six months ended June 30, 2007 and 2006 were 37.47% and 27.85%, respectively.



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##### Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Liquidity. Liquidity management for the Bank is measured and monitored on both a short and long-term basis, allowing management to better understand and react to emerging balance sheet trends. After assessing
actual and projected cash flow needs, management seeks to obtain funding at the most economical cost to the Bank. Our primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans and mortgage-backed and
related securities, and other short term investments, and funds provided from operations. While scheduled payments from amortization of loans and mortgage-backed related securities and maturing investment securities and short-term investments are
relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. We invest excess funds in short-term interest-earning assets, which enable us to meet
lending requirements. We utilize Federal Home Loan Bank advances as needed. There were no Federal Home Loan Bank advances at June 30, 2007 or at December 31, 2006.

At June 30, 2007 the Bank had outstanding commitments to originate $2.8 million in loans, unfunded lines of credit of $8.9 million, unfunded
commitments on construction loans of $3.1 million, and unfunded standby letters of credit of $84,000. In addition, as of June 30, 2007, the total amount of certificates of deposit that were scheduled to mature in the following 12 months was
$137.2 million. The Bank believes that it has adequate resources to fund all of its commitments and that it can adjust the rate on certificates of deposit to retain deposits in changing interest rate environments. If the Bank requires funds beyond
its internal funding capabilities, advances from the Federal Home Loan Bank of Chicago are available as an additional source of funds. As of June 30, 2007, the Bank had $46.9 million of available credit from the Federal Home Loan Bank of
Chicago.

From December 31, 2006 through June 30, 2007, we received proceeds of $4.3 million from maturities, calls, paydowns,
and sales of available for sale and held to maturity securities. These proceeds were primarily used to purchase securities available for sale.

Capital. The Bank is required to maintain regulatory capital sufficient to meet Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios of at least 4.0%, 4.0% and 8.0%, respectively. The Bank exceeded each of its
capital requirements with ratios at June 30, 2007 of 9.46%, 16.71% and 17.08%, respectively, and with ratios at December 31, 2006 of 8.59%, 15.92%, and 16.30%, respectively.

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of operations, we engage in a variety of financial
transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are
used primarily to manage customers requests for funding and take the form of loan commitments and lines of credit.

For the six
months ended June 30, 2007, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.



|ITEM 3. | CONTROLS AND PROCEDURES
|------- | -----------------------

Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of the
Companys principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures. Based on this evaluation, the Companys principal executive
officer and principal financial officer concluded that the Companys disclosure controls and procedures are effective in timely alerting them to material information to be included in the Companys periodic SEC reports. It should be noted
that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.

In addition, there have been no changes in the Companys internal control over financial
reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

Part II  Other Information

ITEM 1 - LEGAL PROCEEDINGS

The Company is not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business that, in the aggregate, are believed by management to be immaterial to the financial condition and results of operations of the Company.

ITEM 2 - UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its annual meeting of
shareholders on May 3, 2007. At the meeting, two items were put to a vote of the shareholders. The shareholders voted to approve the ratification of McGladrey & Pullen LLP as independent registered public accountants for the Company
for the fiscal year ending December 31, 2007. The shareholders also voted to approve the election of Messrs. James A. Ferrero and Keith Johnson as directors of the Company for a three year term.

The matters approved by the shareholders at the meeting and the number of votes cast for, against or withheld (as well as the number of abstentions) as
to each matter are set forth below:



|1. | To approve the ratification of McGladrey & Pullen LLP as the Companys independent registered public accountants for the fiscal year ending December 31, 2007:
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



|          |  |          |  |        
|--------- |  | -------- |  | -------
|FOR       |  | WITHHELD |  | ABSTAIN
|1,965,062 |  | 10,000   |  | 6,175  



|2. | For the election of (2) directors of the Company:
|-- | -------------------------------------------------



|                 |  |           |  |         
|---------------- |  | --------- |  | --------
|                 |  | FOR       |  | WITHHELD
|James A. Ferrero |  | 1,971,237 |  | 10,000  
|Keith Johnson    |  | 1,949,537 |  | 31,700  

ITEM 5 - OTHER INFORMATION

Not applicable.



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##### Table of Contents

ITEM 6 - EXHIBITS



|            |  |                                                                                                                                                                                                           
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                               
|3.1         |  | Certificate of Incorporation of Ottawa Savings Bancorp, Inc. (incorporated by reference to Exhibit 3.1 to Companys Registration Statement on Form SB-2, No. 333-123455, filed on May 3,
2005, as amended)
|            | 
|3.2         |  | Bylaws of Ottawa Savings Bancorp, Inc. (incorporated by reference to Exhibit 3.2 to Companys Registration Statement on Form SB-2, No. 333-123455, filed on May 3, 2005, as
amended)                      
|            | 
|31.1        |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                       
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                       
|            | 
|32.1        |  | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                 



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##### Table of Contents

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.



|                      |  |  |  |                                                  
|--------------------- |  |  |  | -------------------------------------------------
|                      |  |  |  | OTTAWA SAVINGS BANCORP, INC.                     
|                      |  |  |  | Registrant                                       
|                      |  | 
|Date: August 13, 2007 |  |  |  | /s/ Gary L. Ocepek                               
|                      |  |  |  | Gary L. Ocepek                                   
|                      |  |  |  | President and Chief Executive Officer            
|                      |  |  |  | (Principal Executive Officer)                    
|                      |  | 
|Date: August 13, 2007 |  |  |  | /s/ Jon L. Kranov                                
|                      |  |  |  | Jon L. Kranov                                    
|                      |  |  |  | Senior Vice President and Chief Financial Officer
|                      |  |  |  | (Principal Accounting and Financial Officer)     



22