**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-QSB**




(mark
      one)




**x** **QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**


**For
      the quarterly period ended September 30, 2007**




or




**o** **TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE**


**EXCHANGE
      ACT**




For
      the
      transition period from _______to_______




Commission
      File Number 000-51367




**OTTAWA
      SAVINGS BANCORP, INC.**


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




**United
                States**
              (State
                or other jurisdiction of incorporation ororganization)
            **20-3074627**
              (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
      changed since last report)




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 o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o 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 November 9, 2007**Common
                Stock, $0.01 par value
            
            2,224,911




Transitional
      Small Business Disclosure Format (check one): Yes oNo x









**OTTAWA
      SAVINGS BANCORP, INC.**





**FORM
      10-QSB**





**For
      the quarterly period ended September 30, 2007**





**INDEX**





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




2





**OTTAWA
      SAVINGS BANCORP, INC.**


**Consolidated
      Balance Sheets**


**September
      30, 2007 and December 31, 2006**


(Unaudited)


**September 30,**
              
              **December 31,****2007**
              
              **2006****Assets**Cash
                  and due from banks, including interest bearing deposits of $3,073,796
                  and
                  $7,859,993 at September 30, 2007 and December 31, 2006,
                  respectively
              
              $
              5,051,682
              
              $
              10,414,312Securities
                  held to maturity (fair value of $994,250 and $1,171,297 at September
                  30,
                  2007 and December 31, 2006, respectively)
              
              
              1,004,098
              
              
              1,182,853Securities
                  available for sale
              
              
              31,271,584
              
              
              36,786,248Non-marketable
                  equity securities, at cost
              
              
              2,534,952
              
              
              2,396,982Loans,
                  net of allowance for loan losses of $449,110 and $419,685 at September
                  30,
                  2007 and December 31, 2006, respectively
              
              
              156,230,684
              
              
              142,536,815Premises
                  and equipment, net
              
              
              7,796,960
              
              
              7,866,270Accrued
                  interest receivable
              
              
              1,111,460
              
              
              947,613Mortgage
                  servicing rights
              
              
              102,816
              
              
              102,155Foreclosed
                  real estate
              
              
              56,831
              
              
              -Deferred
                  tax asset
              
              
              1,127,755
              
              
              1,526,653Other
                  assets
              
              
              1,202,470
              
              
              1,105,258**Total
                  Assets**
              
              $
              207,491,292
              
              $
              204,865,159**Liabilities
                  and Stockholders' Equity****Liabilities**Deposits:Non-interest
                  bearing
              
              $
              2,417,076
              
              $
              2,460,289Interest
                  bearing
              
              
              181,387,356
              
              
              180,396,467Total
                  deposits
              
              
              183,804,432
              
              
              182,856,756Accrued
                  interest payable
              
              
              123,163
              
              
              138,630Other
                  liabilities
              
              
              1,905,575
              
              
              2,320,144**Total
                  Liabilities**
              
              
              185,833,170
              
              
              185,315,530**Commitments
                  and Contingencies**Redeemable
                  common stock held by ESOP plan
              
              
              167,892
              
              
              128,307**Stockholders'
                  Equity**Common
                  Stock, $.01 par value 12,000,000 shares authorized; 2,224,911 shares
                  issued
              
              
              22,249
              
              
              22,249Additional
                  Paid-in-Capital
              
              
              8,591,604
              
              
              8,536,872Retained
                  earnings
              
              
              14,488,715
              
              
              12,647,340Unallocated
                  ESOP shares
              
              
              (623,231
              )
              
              (661,388
              )Unearned
                  MRP shares
              
              
              (504,679
              )
              
              (579,449
              )Accumulated
                  other comprehensive (loss)
              
              
              (316,536
              )
              
              (415,995
              )21,658,122
              
              
              19,549,629Less:Maximum
                  cash obligation related to ESOP shares
              
              
              (167,892
              )
              
              (128,307
              )**Total
                  Stockholders' Equity**
              
              
              21,490,230
              
              
              19,421,322**Total
                  Liabilities and Stockholders' Equity**
              
              $
              207,491,292
              
              $
              204,865,159




See
      accompanying notes to these unaudited consolidated financial
      statements




3




**OTTAWA
      SAVINGS BANCORP, INC.**


**Consolidated
      Statements of Income**


**Three
      and Nine Months Ended September 30, 2007 and 2006**


(Unaudited)





**Three
                Months Ended**
            
            **Nine
                Months Ended****September
                30,**
            
            **September
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Interest
                and dividend income:Interest
                and fees on loans
            
            $
            2,598,251
            
            $
            2,098,627
            
            $
            7,427,938
            
            $
            5,997,432Securities:Mortgage-backed
                and related securities
            
            
            264,942
            
            
            258,282
            
            
            806,176
            
            
            780,370U.S.
                agency securities
            
            
            193,762
            
            
            175,682
            
            
            606,493
            
            
            505,380Dividends
                on non-marketable equity securities
            
            
            16,384
            
            
            30,125
            
            
            58,531
            
            
            91,382Interest-bearing
                deposits
            
            
            27,829
            
            
            65,202
            
            
            212,054
            
            
            139,798**Total
                interest and dividend income**
            
            
            3,101,168
            
            
            2,627,918
            
            
            9,111,192
            
            
            7,514,362Interest
                expense:Deposits
            
            
            1,968,201
            
            
            1,565,399
            
            
            5,783,033
            
            
            4,250,416Other
                borrowings
            
            
            8,542
            
            
            -
            
            
            8,542
            
            
            -**Total
                interest expense**
            
            
            1,976,743
            
            
            1,565,399
            
            
            5,791,575
            
            
            4,250,416**Net
                interest income**
            
            
            1,124,425
            
            
            1,062,519
            
            
            3,319,617
            
            
            3,263,946Provision
                for loan losses
            
            
            22,117
            
            
            73,300
            
            
            (2,020,503
            )
            
            (1,234,478
            )**Net
                interest income after provision for loan losses**
            
            
            1,102,308
            
            
            989,219
            
            
            5,340,120
            
            
            4,498,424Other
                income:Loss
                on sale of securities available for sale
            
            
            (372
            )
            
            -
            
            
            (261
            )
            
            -Gain
                on sale of loans
            
            
            11,812
            
            
            12,419
            
            
            29,075
            
            
            35,103Amortization
                of mortgage servicing rights, net of originations
            
            
            1,314
            
            
            (1,809
            )
            
            661
            
            
            (10,003
            )Customer
                service fees
            
            
            65,978
            
            
            52,038
            
            
            174,323
            
            
            129,751Other
            
            
            14,003
            
            
            11,422
            
            
            28,558
            
            
            70,556**Total
                other income**
            
            
            92,735
            
            
            74,070
            
            
            232,356
            
            
            225,407Other
                expenses:Salaries
                and employee benefits
            
            
            424,228
            
            
            419,657
            
            
            1,254,394
            
            
            1,309,392Directors
                fees
            
            
            21,161
            
            
            21,292
            
            
            63,482
            
            
            63,876Occupancy
            
            
            119,903
            
            
            115,082
            
            
            360,436
            
            
            348,052Deposit
                insurance premium
            
            
            5,307
            
            
            5,074
            
            
            15,977
            
            
            15,569Legal
                and professional services
            
            
            55,089
            
            
            56,881
            
            
            158,304
            
            
            295,386Data
                processing
            
            
            65,440
            
            
            64,292
            
            
            192,892
            
            
            186,793Other
            
            
            135,779
            
            
            148,943
            
            
            388,867
            
            
            437,916**Total
                other expenses**
            
            
            826,907
            
            
            831,221
            
            
            2,434,352
            
            
            2,656,984**Income
                before income taxes**
            
            
            368,136
            
            
            232,068
            
            
            3,138,124
            
            
            2,066,847Income
                tax expense
            
            
            120,064
            
            
            95,777
            
            
            1,158,042
            
            
            606,831**Net
                income**
            
            $
            248,072
            
            $
            136,291
            
            $
            1,980,082
            
            $
            1,460,016**Basic
                earnings per share**
            
            $
            0.12
            
            $
            0.06
            
            $
            0.94
            
            $
            0.68**Diluted
                earnings per share**
            
            $
            0.12
            
            $
            0.06
            
            $
            0.94
            
            $
            0.68**Dividends
                per share**
            
            $
            0.05
            
            $
            0.05
            
            $
            0.15
            
            $
            0.15




See
      accompanying notes to these unaudited consolidated financial
      statements




4




**OTTAWA
      SAVINGS BANCORP, INC.**


**Consolidated
      Statements of Comprehensive Income**


**Three
      and Nine Months Ended September 30, 2007 and 2006**


(Unaudited)





**Three
                Months Ended**
            
            **Nine
                Months Ended****September
                30,**
            
            **September
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Comprehensive
                income:Net
                income
            
            $
            248,072
            
            $
            136,291
            
            $
            1,980,082
            
            $
            1,460,016Other
                comprehensive income (loss), net of tax:Unrealized
                gain (loss) on securities available for sale arising during period,
                net of
                income taxes
            
            
            343,959
            
            
            424,139
            
            
            99,631
            
            
            (38,294
            )Reclassification
                  adjustment for losses included in net income, net of tax
                  expense
            
            
            (246
            )
            
            -
            
            
            (172
            )
            
            -Comprehensive
                income
            
            $
            591,785
            
            $
            560,430
            
            $
            2,079,541
            
            $
            1,421,722




See
      accompanying notes to these unaudited consolidated financial
      statements




5




**OTTAWA
      SAVINGS BANCORP, INC.**


**Consolidated
      Statements of Cash Flows**


**Nine
      Months Ended September 30, 2007 and 2006**


(Unaudited)


**Nine
                  Months Ended****September
                  30,****2007**
              
              **2006**Cash
                  Flows from Operating ActivitiesNet
                  income
              
              $
              1,980,082
              
              $
              1,460,016Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
              
              
              202,993
              
              
              195,952Provision
                  for loan losses
              
              
              (2,020,503
              )
              
              (1,234,478
              )Provision
                  for deferred income taxes
              
              
              347,662
              
              
              544,612Net
                  amortization of premiums and discounts on securities
              
              
              10,605
              
              
              19,007Loss
                  on sale of securities available for sale
              
              
              261
              
              
              -Origination
                  of mortgage loans held for sale
              
              
              (2,245,657
              )
              
              (1,663,578
              )Proceeds
                  from sale of mortgage loans held for sale
              
              
              2,274,732
              
              
              1,643,620Gain
                  on sale of loans, net
              
              
              (29,075
              )
              
              (35,103
              )Amortization
                  of mortgage servicing rights, net of originations
              
              
              (661
              )
              
              10,003Loss
                  on sale of OREO
              
              
              -
              
              
              1,302ESOP
                  compensation expense
              
              
              48,035
              
              
              43,834MRP
                  compensation expense
              
              
              74,770
              
              
              -Compensation
                  expense on stock options
              
              
              44,854
              
              
              -Change
                  in assets and liabilities:Increase
                  in accrued interest receivable
              
              
              (163,847
              )
              
              (34,694
              )(Increase)
                  decrease in other assets
              
              
              (51,712
              )
              
              721,224(Decrease)
                  increase in accrued interest payable and other liabilities
              
              
              (430,036
              )
              
              29,535**Net
                  cash provided by operating activities**
              
              
              42,503
              
              
              1,701,252Cash
                  Flows from Investing ActivitiesSecurities
                  available for sale:Purchases
              
              
              (5,466,691
              )
              
              (2,961,317
              )Sales,
                  calls, maturities and paydowns
              
              
              11,124,363
              
              
              3,398,796Securities
                  held to maturity:Maturities
                  and paydowns
              
              
              175,576
              
              
              171,259(Purchase)
                  sale of non-marketable equity securities
              
              
              (137,970
              )
              
              1,158,664Net
                  increase in loans
              
              
              (11,788,197
              )
              
              (7,057,311
              )Proceeds
                  from sale of repossessed assets
              
              
              12,500
              
              
              30,865Purchase
                  of premises and equipment
              
              
              (133,683
              )
              
              (36,147
              )**Net
                  cash used in investing activities**
              
              
              (6,214,102
              )
              
              (5,295,191
              )Cash
                  Flows from Financing ActivitiesNet
                  increase in deposits
              
              
              947,676
              
              
              5,853,813Proceeds
                  from Federal Home Loan Bank advances
              
              
              2,500,000
              
              
              -Principal
                  reduction of Federal Home Loan Bank advances
              
              
              (2,500,000
              )
              
              -Cash
                  dividends paid
              
              
              (138,707
              )
              
              (150,182
              )**Net
                  cash provided by financing activities**
              
              
              808,969
              
              
              5,703,631**Net
                  (decrease) increase in cash and due from banks**
              
              
              (5,362,630
              )
              
              2,109,692Cash
                  and due from banks:Beginning
                  of period
              
              
              10,414,312
              
              
              5,039,518End
                  of period
              
              $
              5,051,682
              
              $
              7,149,210Supplemental
                  Disclosures of Cash Flow Information:Cash
                  payments for:Interest
                  paid to depositors
              
              $
              5,766,834
              
              $
              4,227,587Interest
                  paid on other borrowings
              
              
              8,542
              
              
              -Income
                  taxes, net of refunds received
              
              
              718,750
              
              
              (809,226
              )Supplemental
                  Schedule of Noncash Investing and Financing Activities:Real
                  estate acquired through or in lieu of foreclosure
              
              
              56,831
              
              
              126,506Sale
                  of OREO through loan origination
              
              
              -
              
              
              62,379Other
                  assets acquired in settlement of loans
              
              
              58,000
              
              
              -Increase
                  in liability due to the recording of ESOP put options
              
              
              39,585
              
              
              106,836





See
      accompanying notes to these unaudited consolidated financial
      statements




6







**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. Certain amounts in the accompanying financial
      statements and footnotes for 2006 have been reclassified with no effect on
      net
      income to be consistent with the 2007 classifications. 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
      September 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


**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 MRP shares. 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 September 30, 2006.





**Three months ended**
            
            **Nine months ended****September 30,**
            
            **September 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Net
                income available to common stockholders
            
            $
            248,072
            
            $
            136,291
            
            $
            1,980,082
            
            $
            1,460,016Basic
                potential common shares:Weighted
                average shares outstanding
            
            
            2,224,911
            
            
            2,224,911
            
            
            2,224,911
            
            
            2,224,911Weighted
                average unallocated Employee Stock Ownership Plan shares
            
            
            (63,162
            )
            
            (68,996
            )
            
            (64,421
            )
            
            (69,509
            )Weighted
                average unvested MRP shares
            
            
            (43,608
            )
            
            -
            
            
            (43,608
            )
            
            -Basic
                weighted average shares outstanding
            
            
            2,118,141
            
            
            2,155,915
            
            
            2,116,882
            
            
            2,155,402Dilutive
                potential common shares:Weighted
                average unrecognized compensation on MRP shares
            
            
            -
            
            
            -
            
            
            -
            
            
            -Weighted
                average RRP options outstanding
            
            
            -
            
            
            -
            
            
            -
            
            
            -Dilutive
                weighted average shares outstanding
            
            
            2,118,141
            
            
            2,155,915
            
            
            2,116,882
            
            
            2,155,402Basic
                earnings per share
            
            $
            0.12
            
            $
            0.06
            
            $
            0.94
            
            $
            0.68Diluted
                earnings per share
            
            $
            0.12
            
            $
            0.06
            
            $
            0.94
            
            $
            0.68





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. Upon adoption of the ESOP, 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 and interest payments of approximately $77,000 are
      to
      be made by the ESOP.


8


**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 September
      30,
      2007, 13,991 shares at a fair value of $12.00 have been classified as mezzanine
      capital.





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


**September 30,**
            
            **December 31,****2007**
            
            **2006**Shares allocated
            
            
            13,991
            
            
            10,176Unallocated
                shares
            
            
            62,323
            
            
            66,138Total
                ESOP shares
            
            
            76,314
            
            
            76,314Fair
                value of unallocated shares
            
            $
            747,876
            
            $
            834,000





NOTE
      7 – INVESTMENT SECURITIES





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





Less than 12 Months
            
            12 Months or More
            
            TotalFair
            
            Unrealized
            
            Fair
            
            Unrealized
            
            Fair
            
            UnrealizedValue
            
            Losses
            
            Value
            
            Losses
            
            Value
            
            LossesSecurities
                Available for SaleDebt
                securities:U.S.
                agency securities
            
            $
            -
            
            $
            -
            
            $
            4,159,385
            
            $
            26,925
            
            $
            4,159,385
            
            $
            26,925Mortgage-backed
                securities
            
            
            4,017,995
            
            
            23,667
            
            
            14,633,353
            
            
            455,236
            
            
            18,651,348
            
            
            478,903$
            4,017,995
            
            $
            23,667
            
            $
            18,792,738
            
            $
            482,161
            
            $
            22,810,733
            
            $
            505,828Securities
                Held to Maturity Mortgage-backed securities
            
            $
            77,658
            
            $
            91
            
            $
            601,784
            
            $
            14,607
            
            $
            679,442
            
            $
            14,698





The
      unrealized losses at September 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


**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 September 30,
            
            At December 31,2007
            
            2006Impaired
                loans with a valuation allowance
            
            $
            1,675
            
            $
            7,134Total
                impaired loans
            
            $
            1,675
            
            $
            7,134Valuation
                allowance related to impaired loans
            
            $
            838
            
            $
            1,736Total
                non-accrual loans
            
            $
            1,500,765
            
            $
            1,069,954Total
                loans past due ninety days or more and still accruing
                interest
            
            $
            152,968
            
            $
            44,859





On
      the
      basis of management’s review of its assets at September 30, 2007 and December
      31, 2006, we had classified $414,026 and $927,769, respectively, of our assets
      as special mention and $642,693 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 nine months
      ended September 30, 2007 and 2006.





2007
            
            2006Balance
                at beginning of year
            
            $
            419,685
            
            $
            390,994Provision
                credited to income
            
            
            (2,020,503
            )
            
            (1,234,478
            )Loans
                charged off
            
            
            (42,103
            )
            
            (38,903
            )Recoveries
                of loans previously charged off
            
            
            2,092,031
            
            
            1,332,666Balance
                at end of period
            
            $
            449,110
            
            $
            450,279





NOTE
      9 – STOCK COMPENSATION





The
      total
      stock-based compensation expense was approximately $120,000 for the nine months
      ended September 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
      nine months ended September 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 September 30, 2007, there was no accrual for uncertain tax positions
      or related interest.


10


**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.  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 September 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


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 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 and recorded as recoveries,
      distributions 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.





SUBSEQUENT
      EVENT





On
      October 29, 2007 the Company received and recorded as a recovery to the
      allowance for loan losses, a cash distribution in the amount of $281,000 from
      the CLC Creditors Trust.





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





The
      Company's total assets increased $2.6 million, or 1.28%, to $207.5 million
      at
      September 30, 2007, from $204.9 million at December 31, 2006. The increase
      reflects an increase in loans of $13.7 million, an increase in non-marketable
      equity securities of $138,000, an increase in accrued interest receivable of
      $164,000 and an increase in other assets of $97,000, offset by decreases in
      securities available for sale of $5.5 million, cash and due from banks of $5.4
      million and deferred tax assets of $399,000.





Cash
      and
      cash equivalents decreased $5.4 million, or 51.49%, to $5.0 million at September
      30, 2007 from $10.4 million at December 31, 2006. The decrease in cash is
      primarily due to loan originations, offset by sales and maturities of securities
      available for sale, 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 decreased $5.5 million or 14.99%, to $31.3 million at
      September 30, 2007 from $36.8 million at December 31, 2006. The decrease was
      primarily the result of maturities, pay-downs, and sales of $11.1 million,
      offset by $5.5 million in purchases. The proceeds from the sales and maturities
      were primarily used to fund loan growth.





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 September 30, 2007, from $2.4 million
      at
      December 31, 2006, due to the purchase of Bankers Bank of Wisconsin stock.


12





Accrued
      interest receivable increased $164,000, or 17.29%, to $1.1 million at September
      30, 2007, from $948,000 at December 31, 2006. The increase was primarily due
      to
      an increase in accrued interest on loans of $152,000, due to loan growth and
      higher interest rates. Additionally accrued interest on securities increased
      $28,000, due to increased market rates. The increase was offset by an increase
      in the reserve for uncollected interest on non-accrual loans of $16,000.





Loans
      increased $13.7 million, or 9.61%, to $156.2 million at September 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, the origination and the purchase of
      non-residential real estate loans, and the origination of commercial loans,
      offset by pay-offs on multi-family loans and principal reductions on lines
      of
      credit and consumer loans.





The
      deferred tax asset decreased $399,000, or 26.13%, to $1.1 million at September
      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 $97,000, or 8.80%, to $1.2
      million at September 30, 2007, from $1.1 million at December 31, 2006. The
      increase is primarily due to an increase in auto loan repossessions, net of
      proceeds from sales, totaling $45,000, an increase in the deferred director
      compensation investment accounts of $62,000, the presence of prepaid FDIC
      insurance and OTS assessments of $21,000, an increase in maintenance and
      insurance pre-payments of $13,000, and an increase in due from ESOP trustee
      of
      $11,000. The increase in auto loan repossessions is primarily due to increased
      defaults on auto loans originated and purchased due to adverse economic trends.
      The increase in the deferred director compensation investment accounts is
      primarily due to the transfer of deferred compensation to the investment
      accounts, and earnings on the investments. The increase was partially offset
      by
      a decrease in prepaid dealer reserve on purchased auto loans of $30,000 and
      a
      decrease in other charges due on loans of $27,000.





Total
      deposits increased $948,000, or 0.52%, to $183.8 million at September 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 $415,000, or 17.87%, to $1.9 million at September 30,
      2007, from $2.3 million at December 31, 2006. The decrease was primarily due
      to
      the absence of an outstanding payable that existed 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, escrow payable decreased $88,000, employee
      incentives payable decreased $12,000, accrued exam and accounting decreased
      $22,000. The decreases were offset by increases in federal taxes payable of
      $91,000 due to higher pre-tax income, accrued retirement payments payable of
      $87,000, deferred director compensation investment accounts payable of $62,000,
      and the addition of an accrual for Supplemental Executive Retirement Plan (SERP)
      expenses of $56,000. The increase in retirement payments payable is due to
      continued but decreased accruals for the defined benefit plan which was
      terminated, effective April 1, 2007, in anticipation of overall costs associated
      with withdrawing from the defined benefit plan and the absence of quarterly
      payments to fund the defined benefit plan. The increase in the deferred director
      compensation investment accounts payable is primarily due to the transfer of
      deferred compensation to the investment accounts, and earnings on the
      investments. The SERP plan covers Gary L. Ocepek, Jon Kranov, and Philip B.
      Devermann, with the respective agreements attached as exhibits 10.1, 10.2,
      and
      10.3.





Equity
      increased $2.1 million, or 10.65%, to $21.5 million at September 30, 2007,
      from
      $19.4 million at December 31, 2006. The increase in equity reflects net income
      for the nine months ended September 30, 2007 of approximately $2.0 million
      and a
      decrease in other comprehensive loss, net of taxes of $99,000, due to increases
      in the market value of the available for sale securities portfolio, offset
      by
      dividends of $139,000 paid to stockholders. The remaining changes to equity
      include increases of $168,000 from the allocation and amortization of ESOP
      shares, MRP shares, and RRP options, offset by a decrease to equity of $40,000
      to increase the cash obligation related to redeemable common stock held by
      the
      ESOP.


13


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




*Net
      Income* .
      The
      Company had net income of $248,000 for the three months ended September 30,
      2007, compared to net income of $136,000 for the three months ended September
      30, 2006.





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





**Three
                Months Ended****September
                30,****2007**
            
            **2006**
            
            **$
                change**
            
            **%
                change****(Dollars
                in thousands)**Interest
                and dividend income:Interest
                and fees on loans
            
            $
            2,598
            
            $
            2,099
            
            $
            499
            
            
            23.77
            %Securities:Mortgage-backed
                and related securities
            
            
            265
            
            
            258
            
            
            7
            
            
            2.71U.S.
                agency securities
            
            
            194
            
            
            176
            
            
            18
            
            
            10.23Non-marketable
                equity securities
            
            
            16
            
            
            30
            
            
            (14
            )
            
            (46.67
            )Interest-bearing
                deposits
            
            
            28
            
            
            65
            
            
            (37
            )
            
            (56.92
            )**Total
                interest and dividend income**
            
            
            3,101
            
            
            2,628
            
            
            473
            
            
            18.00Interest
                expense:Deposits
            
            
            1,968
            
            
            1,565
            
            
            403
            
            
            25.75Other
                borrowings
            
            
            9
            
            
            -
            
            
            9
            
            
            100.00**Total
                interest expense**
            
            
            1,977
            
            
            1,565
            
            
            412
            
            
            26.33**Net
                interest income**
            
            $
            1,124
            
            $
            1,063
            
            $
            61
            
            
            5.74
            %





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





**Three
                Months Ended September 30,****2007**
            
            **2006****AVERAGE**
            
            
            
            
            
            **AVERAGE****AVERAGE**
            
            
            
            **YIELD/**
            
            **AVERAGE**
            
            
            
            **YIELD/****BALANCE**
            
            **INTEREST**
            
            **COST**
            
            **BALANCE**
            
            **INTEREST**
            
            **COST****(Dollars
                in thousands)**Interest-earning
                assetsSecurities,
                net
            
            $
            35,075
            
            $
            459
            
            
            5.23
            %
            $
            37,103
            
            $
            434
            
            
            4.68
            %Loans
                receivable, net(1)
            
            
            153,260
            
            
            2,598
            
            
            6.78
            %
            
            131,867
            
            
            2,099
            
            
            6.37
            %Non-marketable
                equity securities
            
            
            2,535
            
            
            16
            
            
            2.59
            %
            
            2,929
            
            
            30
            
            
            4.11
            %Other
                investments
            
            
            2,781
            
            
            28
            
            
            4.00
            %
            
            4,681
            
            
            65
            
            
            5.57
            %Total
                interest-earning assets
            
            
            193,651
            
            
            3,101
            
            
            6.41
            %
            
            176,580
            
            
            2,628
            
            
            5.95
            %Interest-bearing
                liabilitiesMoney
                Market accounts
            
            $
            8,514
            
            $
            52
            
            
            2.47
            %
            $
            8,711
            
            $
            54
            
            
            2.47
            %Passbook
                accounts
            
            
            10,893
            
            
            14
            
            
            0.51
            %
            
            10,766
            
            
            14
            
            
            0.51
            %Certificates
                of Deposit accounts
            
            
            153,751
            
            
            1,889
            
            
            4.91
            %
            
            138,083
            
            
            1,485
            
            
            4.30
            %Checking
            
            
            9,144
            
            
            13
            
            
            0.59
            %
            
            8,447
            
            
            12
            
            
            0.58
            %Advances
                from Federal Home Loan Bank
            
            
            833
            
            
            9
            
            
            4.10
            %
            
            -
            
            
            -
            
            
            0.00
            %Total
                interest-bearing liabilities
            
            
            183,135
            
            
            1,977
            
            
            4.32
            %
            
            166,007
            
            
            1,565
            
            
            3.77
            %**NET
                INTEREST INCOME**
            
            
            
            
            $
            1,124
            
            
            
            
            
            
            
            $
            1,063**NET
                INTEREST RATE SPREAD**(2)
            
            
            
            
            
            
            
            
            2.09
            %
            
            
            
            
            
            
            
            2.18
            %**NET
                INTEREST MARGIN**(3)
            
            
            
            
            
            
            
            
            2.32
            %
            
            
            
            
            
            
            
            2.41
            %**RATIO
                  OF AVERAGE INTEREST-EARNING ASSETS TOAVERAGE INTEREST-BEARING
                  LIABILITIES**
            
            
            
            
            105.74
            %
            
            
            
            
            
            
            
            106.37
            %





(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 annualized net interest income as
                a percent
                of average interest-earning assets.


14


The
      following table summarizes the changes in average balances due to rate and
      volume for the three months ended September 30, 2007 and 2006.





**Three Months Ended September 30,****2007 COMPARED TO 2006****INCREASE (DECREASE) DUE TO****VOLUME**
            
            **RATE**
            
            **NET****(Dollars
                in Thousands)**Interest
                and dividends earned onSecurities,
                net
            
            $
            (95
            )
            $
            120
            
            $
            25Loans
                receivable, net
            
            
            1,362
            
            
            (863
            )
            
            499Non-marketable
                equity securities
            
            
            (68
            )
            
            54
            
            
            (14
            )Other
                investments
            
            
            (106
            )
            
            69
            
            
            (37
            )Total
                interest-earning assets
            
            $
            1,093
            
            $
            (620
            )
            $
            473Interest
                expense onMoney
                Market accounts
            
            $
            (5
            )
            $
            3
            
            $
            (2
            )Passbook
                accounts
            
            
            -
            
            
            -
            
            
            -Certificates
                of Deposit accounts
            
            
            232
            
            
            172
            
            
            404Checking
            
            
            4
            
            
            (3
            )
            
            1Advances
                from Federal Home Loan Bank
            
            
            -
            
            
            9
            
            
            9Total
                interest-bearing liabilities
            
            
            231
            
            
            181
            
            
            412Change
                in net interest income
            
            $
            862
            
            $
            (801
            )
            $
            61





Net
      interest income increased $61,000, or 5.74%, to $1.1 million for the three
      months ended September 30, 2007, from $1.1 million for the three months ended
      September 30, 2006.  Interest
      and dividend income increased due to an increase in the average yield on
      interest earning assets to 6.41% from 5.95% due to increased market rates,
      and
      an increase of $17.1 million in average interest earning assets to $193.7
      million from $176.6 million for the three months ended September 30, 2007,
      compared to the same period in 2006. Interest expense increased due to an
      increase of $17.1 million in average interest bearing liabilities, and an
      increase in the cost of interest bearing liabilities to 4.32% from 3.77% for
      the
      three months ended September 30, 2007, compared to the same period in 2006.
      The
      increase in average interest bearing liabilities and the increase in the cost
      of
      interest bearing liabilities were primarily due to increased market rates
      resulting in additional funds placed in certificates of deposit. Interest
      expense on advances from the Federal Home Loan Bank of approximately $9,000
      for
      the three months ended September 30, 2007 was due to the short term borrowing
      of
      $2.5 million during July 2007, which was paid in August 2007, to meet funding
      obligations.




*Provision
      for Loan Losses.* **** Management
      recorded a loss provision of $22,000 for the three months ended September 30,
      2007, compared to a provision of $73,000 for the three months ended September
      30, 2006. Based on a general review of the loans that were in the loan portfolio
      at September 30, 2007, 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 September
      30,
      2007 and 2006.





**Three Months Ended****September 30,****2007**
            
            **2006**
            
            **$ change**
            
            **% change****(Dollars in thousands)**Other
                income:Gain
                on sale of loans
            
            $
            12
            
            $
            12
            
            $
            -
            
            
            -
            %Amortization
                of mortgage servicing rights, net of originations
            
            
            1
            
            
            (2
            )
            
            3
            
            
            (150.00
            )Customer
                service fees
            
            
            66
            
            
            52
            
            
            14
            
            
            26.92Other
            
            
            14
            
            
            12
            
            
            2
            
            
            16.67**Total
                other income**
            
            $
            93
            
            $
            74
            
            $
            19
            
            
            25.68
            %


15





The
      increase in other income was primarily due to increased customer service fees,
      which was the result of an increase in the number of checking accounts with
      overdraft and ATM activity.




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




**Three
                Months Ended****September
                30,****2007**
            
            **2006**
            
            **$
                change**
            
            **%
                change****(Dollars
                in thousands)**Other
                expenses:Salaries
                and employee benefits
            
            $
            424
            
            $
            420
            
            $
            4
            
            
            0.95
            %Directors
                fees
            
            
            21
            
            
            21
            
            
            -
            
            
            -Occupancy
            
            
            120
            
            
            115
            
            
            5
            
            
            4.35Deposit
                insurance premium
            
            
            5
            
            
            5
            
            
            -
            
            
            -Legal
                and professional services
            
            
            55
            
            
            57
            
            
            (2
            )
            
            (3.51
            )Data
                processing
            
            
            66
            
            
            64
            
            
            2
            
            
            3.13Other
            
            
            136
            
            
            149
            
            
            (13
            )
            
            (8.72
            )**Total
                other expenses**
            
            $
            827
            
            $
            831
            
            $
            (4
            )
            
            (0.48
            )%Efficiency
                ratio (1)
            
            
            67.94
            %
            
            73.13
            %





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





Operating
      procedures and related expenses for the period ending September 30, 2007 were
      consistent with the same period in 2006.





*Income
      Taxes.*  ** Income
      tax expense was $120,000 for the three months ended September 30, 2007, compared
      to $96,000 for the same period in 2006. The income tax expense is a direct
      result of the pre-tax income for the applicable period. The effective tax rates
      for the three months ended September 30, 2007 and 2006 were 32.61% and 41.27%,
      respectively.





COMPARISON
      OF RESULTS OF OPERATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND
      2006




*Net
      Income* .
      The
      Company had net income of approximately $2.0 million for the nine months ended
      September 30, 2007, compared to net income of approximately $1.5 million for
      the
      nine months ended September 30, 2006.





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





**Nine
                Months Ended****September
                30,****2007**
            
            **2006**
            
            **$
                change**
            
            **%
                change****(Dollars
                in thousands)**Interest
                and dividend income:Interest
                and fees on loans
            
            $
            7,428
            
            $
            5,997
            
            $
            1,431
            
            
            23.86
            %Securities:Mortgage-backed
                and related securities
            
            
            806
            
            
            780
            
            
            26
            
            
            3.33U.S.
                agency securities
            
            
            606
            
            
            506
            
            
            100
            
            
            19.76Non-marketable
                equity securities
            
            
            59
            
            
            91
            
            
            (32
            )
            
            (35.16
            )Interest-bearing
                deposits
            
            
            212
            
            
            140
            
            
            72
            
            
            51.43**Total
                interest and dividend income**
            
            
            9,111
            
            
            7,514
            
            
            1,597
            
            
            21.25Interest
                expense:Deposits
            
            
            5,783
            
            
            4,250
            
            
            1,533
            
            
            36.07Other
                borrowings
            
            
            9
            
            
            -
            
            
            9
            
            
            100.00**Total
                interest expense**
            
            
            5,792
            
            
            4,250
            
            
            1,542
            
            
            36.28**Net
                interest income**
            
            $
            3,319
            
            $
            3,264
            
            $
            55
            
            
            1.69
            %


16




The
      following table summarizes average balances and annualized average yield or
      cost
      of funds for the nine months ended September 30, 2007 and 2006.





**Nine
                Months Ended September 30,****2007**
            
            **2006****AVERAGE**
            
            
            
            
            
            **AVERAGE****AVERAGE**
            
            
            
            **YIELD/**
            
            **AVERAGE**
            
            
            
            **YIELD/****BALANCE**
            
            **INTEREST**
            
            **COST**
            
            **BALANCE**
            
            **INTEREST**
            
            **COST****(Dollars
                in thousands)**Interest-earning
                assetsSecurities,
                net
            
            $
            37,671
            
            $
            1,412
            
            
            5.00
            %
            $
            37,174
            
            $
            1,286
            
            
            4.61
            %Loans
                receivable, net(1)
            
            
            149,501
            
            
            7,428
            
            
            6.62
            %
            
            127,242
            
            
            5,997
            
            
            6.28
            %Non-marketable
                equity securities
            
            
            2,535
            
            
            59
            
            
            3.10
            %
            
            3,573
            
            
            91
            
            
            3.41
            %Other
                investments
            
            
            5,201
            
            
            212
            
            
            5.44
            %
            
            3,492
            
            
            140
            
            
            5.34
            %Total
                interest-earning assets
            
            
            194,908
            
            
            9,111
            
            
            6.23
            %
            
            171,481
            
            
            7,514
            
            
            5.84
            %Interest-bearing
                liabilitiesMoney
                Market accounts
            
            $
            8,506
            
            $
            155
            
            
            2.43
            %
            $
            9,419
            
            $
            171
            
            
            2.42
            %Passbook
                accounts
            
            
            11,183
            
            
            42
            
            
            0.50
            %
            
            11,141
            
            
            46
            
            
            0.55
            %Certificates
                of Deposit accounts
            
            
            154,360
            
            
            5,545
            
            
            4.79
            %
            
            131,942
            
            
            3,991
            
            
            4.03
            %Checking
            
            
            9,769
            
            
            41
            
            
            0.56
            %
            
            9,196
            
            
            42
            
            
            0.62
            %Advances
                from Federal Home Loan Bank
            
            
            278
            
            
            9
            
            
            4.10
            %
            
            -
            
            
            -
            
            
            0.00
            %Total
                interest-bearing liabilities
            
            
            184,096
            
            
            5,792
            
            
            4.19
            %
            
            161,698
            
            
            4,250
            
            
            3.50
            %**NET
                INTEREST INCOME**
            
            
            
            
            $
            3,319
            
            
            
            
            
            
            
            $
            3,264**NET
                INTEREST RATE SPREAD**(2)
            
            
            
            
            
            
            
            
            2.04
            %
            
            
            
            
            
            
            
            2.34
            %**NET
                INTEREST MARGIN**(3)
            
            
            
            
            
            
            
            
            2.27
            %
            
            
            
            
            
            
            
            2.54
            %**RATIO
                OF AVERAGE INTEREST-EARNING ASSETS TO AVERAGE INTEREST-BEARING
                LIABILITIES**
            
            
            
            
            
            105.87
            %
            
            
            
            
            
            
            
            
            
            
            106.05
            %





(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 annualized net interest income as
                a percent
                of average interest-earning assets.





The
      following table summarizes the changes in average balances due to rate and
      volume for the nine months ended September 30, 2007 and 2006.


**Nine
                  Months Ended September 30,****2007
                  COMPARED TO 2006****INCREASE
                  (DECREASE) DUE TO****VOLUME**
              
              **RATE**
              
              **NET****(Dollars
                  in Thousands)**Interest
                  and dividends earned onSecurities,
                  net
              
              $
              23
              
              $
              103
              
              $
              126Loans
                  receivable, net
              
              
              1,399
              
              
              32
              
              
              1,431Non-marketable
                  equity securities
              
              
              (35
              )
              
              3
              
              
              (32
              )Other
                  investments
              
              
              91
              
              
              (19
              )
              
              72Total
                  interest-earning assets
              
              $
              1,478
              
              $
              119
              
              $
              1,597Interest
                  expense onMoney
                  Market accounts
              
              $
              (22
              )
              $
              6
              
              $
              (16
              )Passbook
                  accounts
              
              
              -
              
              
              (4
              )
              
              (4
              )Certificates
                  of Deposit accounts
              
              
              904
              
              
              650
              
              
              1,554Checking
              
              
              4
              
              
              (5
              )
              
              (1
              )Advances
                  from Federal Home Loan Bank
              
              
              -
              
              
              9
              
              
              9Total
                  interest-bearing liabilities
              
              
              886
              
              
              656
              
              
              1,542Change
                  in net interest income
              
              $
              592
              
              $
              (537
              )
              $
              55


17





Net
      interest income increased $55,000, or 1.69% for the nine months ended September
      30, 2007 compared to the nine months ended September 30, 2006.  Interest
      and dividend income increased due to an increase in the average yield on
      interest earning assets to 6.23% from 5.84% due to increased market rates,
      and
      an increase of $23.4 million in average interest earning assets to $194.9
      million from $171.5 million for the nine months ended September 30, 2007,
      compared to the same period in 2006. Interest expense increased due to an
      increase of $22.4 million in average interest bearing liabilities, and an
      increase in the cost of interest bearing liabilities to 4.19% from 3.50% for
      the
      nine months ended September 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 nine months ended
      September 30, 2007, compared to a negative loss provision of $1.2 million for
      the nine months ended September 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
      September 30, 2007, 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 nine months ended September
      30,
      2007 and 2006.


**Nine
                Months Ended****September
                30,****2007**
            
            **2006**
            
            **$
                change**
            
            **%
                change****(Dollars
                in thousands)**Other
                income:Gain
                on sale of loans
            
            $
            29
            
            $
            35
            
            $
            (6
            )
            
            (17.14
            )%Amortization
                of mortgage servicing rights, net of originations
            
            
            1
            
            
            (10
            )
            
            11
            
            
            (110.00
            )Customer
                service fees
            
            
            174
            
            
            130
            
            
            44
            
            
            33.85Other
            
            
            28
            
            
            70
            
            
            (42
            )
            
            (60.00
            )**Total
                other income**
            
            $
            232
            
            $
            225
            
            $
            7
            
            
            3.11
            %





The
      increase in other income was primarily due to increased customer service fees
      offset by the 2006 receipt of approximately $46,000 in interest on tax refunds,
      and reduced gains on sales of loans. The increase in customer service fees
      is
      primarily due to an increase in the number of checking accounts with overdraft
      and ATM activity and 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 nine months ended September
      30, 2007 and 2006.





**Nine
                Months Ended****September
                30,****2007**
            
            **2006**
            
            **$
                change**
            
            **%
                change****(Dollars
                in thousands)**Other
                expenses:Salaries
                and employee benefits
            
            $
            1,254
            
            $
            1,309
            
            $
            (55
            )
            
            (4.20
            )%Directors
                fees
            
            
            64
            
            
            64
            
            
            -
            
            
            -Occupancy
            
            
            360
            
            
            348
            
            
            12
            
            
            3.45Deposit
                insurance premium
            
            
            16
            
            
            16
            
            
            -
            
            
            -Legal
                and professional services
            
            
            158
            
            
            295
            
            
            (137
            )
            
            (46.44
            )Data
                processing
            
            
            193
            
            
            187
            
            
            6
            
            
            3.21Other
            
            
            389
            
            
            438
            
            
            (49
            )
            
            (11.19
            )**Total
                other expenses**
            
            $
            2,434
            
            $
            2,657
            
            $
            (223
            )
            
            (8.39
            )%Efficiency
                ratio (1)
            
            
            68.54
            %
            
            76.15
            %





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


18





The
      decrease in other expenses was primarily due to a decrease of $137,000 in legal
      and professional fees for the nine months ended September 30, 2007 as compared
      to the nine months ended September 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 September
      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
      MRP stock awards, the RRP stock options, and the SERP. Other miscellaneous
      expenses decreased primarily due to decreases in supervisory fees and decreases
      in advertising expenses.





*Income
      Taxes.*  ** Income
      tax expense was $1.2 million for the nine months ended September 30, 2007,
      compared to $607,000 for the same period in 2006. The income tax expense is
      a
      direct result of the pre-tax income for the applicable period. During the period
      ending June 30, 2006, management re-evaluated the Company’s deferred tax
      accounts and, accordingly, adjusted that periods’ tax expense. The effective tax
      rates for the nine months ended September 30, 2007 and 2006 were 36.90% and
      29.36%, respectively. The Company utilized all of its federal net operating
      loss
      carryover and began paying federal taxes during 2007.





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.





At
      September 30, 2007 the Bank had outstanding commitments to originate
      $1.3 million in loans, unfunded lines of credit of $8.7 million, unfunded
      commitments on construction loans of $3.7 million, and unfunded standby letters
      of credit of $84,000. In addition, as of September 30, 2007, the total amount
      of
      certificates of deposit that were scheduled to mature in the following 12 months
      was $116.2 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
      September 30, 2007, the Bank had $46.9 million of available credit from the
      Federal Home Loan Bank of Chicago. There were no Federal Home Loan Bank advances
      outstanding at September 30, 2007 or at December 31, 2006.





From
      December 31, 2006 through September 30, 2007, we received proceeds of $11.3
      million from maturities, calls, paydowns, and sales of available for sale and
      held to maturity securities. These proceeds were primarily used to fund the
      origination of one-to four family mortgage loans and the origination and
      purchase of non-residential real estate loans.





*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 September 30, 2007 of 9.86%, 17.17% and 17.55%,
      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.


19





For
      the
      nine months ended September 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.





**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





Not
      applicable.





ITEM
      5 -
      OTHER INFORMATION





Not
      applicable.


20





ITEM
      6 -
      EXHIBITS





Exhibit No.
            
            Description3.1
            
            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)10.1
            
            Salary
                continuation agreement between Ottawa Savings Bank and Gary L.
                Ocepek10.2
            
            Salary
                continuation agreement between Ottawa Savings Bank and Jon
                Kranov10.3
            
            Salary
                continuation agreement between Ottawa Savings Bank and Phillip B.
                Devermann31.1
            
            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.  21
  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.RegistrantDate:
                November 9, 2007
            /s/
                Gary L. OcepekGary
                L. OcepekPresident
                and Chief Executive Officer(Principal
                Executive Officer)Date:
                November 9, 2007
            /s/
                Jon L. KranovJon
                L. KranovSenior
                Vice President and Chief Financial Officer(Principal
                Accounting and Financial Officer)





22