UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-Q**





**ý****QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d)****OF
                THE SECURITIES EXCHANGE ACT OF 1934**








For
      the
      quarterly period ended September 30, 2006


**Commission
      file number 000-33405**





**AJS
      BANCORP, INC.**


(Exact
      name of registrant specified in its charter)





**Federal**
            **36-4485429**(State
                of incorporation)
            (IRS
                Employer Identification No.)







**14757
      S. Cicero Avenue, Midlothian, Illinois 60445**


(Address
      of Principal Executive Offices)








**(708)
      687-7400**


(Issuer's
      telephone number, including area code)





**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 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 ý No o





Indicate
      by checkmark whether the registrant is a large accelerated filer, an accelerated
      filer or a non-accelerated filer. (as defined in Rule 12b-2 of the Exchange
      Act)





Large
                Accelerated Filero
            Accelerated
                Filero
            Non-Accelerated
                Filerý





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




As
      of
      October 31, 2006 2,135,572 shares of the issuer’s common stock were issued and
      outstanding








**AJS
      BANCORP, INC.**





Form
      10-Q
      Quarterly Report








Index





PagePART
                I - Financial InformationItem
                1.
            Financial
                Statements
            1Item
                2.
            Management's
                Discussion and Analysis of Financial Condition and
                Results of Operations
            8Item
                3.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            14Item
                4.
            Controls
                and Procedures
            16PART
                II - Other InformationItem
                1.
            Legal
                Proceedings
            16Item
                1A.
            Risk
                Factors
            16Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            17Item
                3.
            Defaults
                Upon Senior Securities
            17Item
                4.
            Submission
                of Matters to a Vote of Securities
                Holders
            17Item
                5.
            Other
                Information
            17Item
                6.
            Exhibits
            17SIGNATURES
            18








*Index*


**ITEM
      1.  FINANCIAL STATEMENTS**





**AJS
      Bancorp, Inc.**


**Consolidated
      Statements of Financial Condition**


**(in
      thousands of dollars, except share data)**


**(unaudited)**


**September
                30,**
            
            **December 31,****2006**
            
            **2005****ASSETS**Cash
                and cash equivalentsCash
                and due from banks (interest-earning: 2006 -$17,362;
                2005 - $11,477)
            
            $
            20,902
            
            $
            14,776Federal
                funds sold
            
            
            7,604
            
            
            454Total
                cash and cash equivalents
            
            
            28,506
            
            
            15,230Certificates
                of deposit
            
            
            5,587
            
            
            8,584Securities
                available-for-sale
            
            
            68,288
            
            
            71,239Securities
                held-to-maturity
            
            
            208
            
            
            295Loans,
                net
            
            
            147,070
            
            
            151,768Federal
                Home Loan Bank stock, at cost
            
            
            2,798
            
            
            3,416Premises
                and equipment
            
            
            4,403
            
            
            4,541Accrued
                interest receivable
            
            
            1,029
            
            
            960Other
                assets
            
            
            1,955
            
            
            1,872Total
                assets
            
            $
            259,844
            
            $
            257,905**LIABILITIES
                AND STOCKHOLDERS' EQUITY**LiabilitiesDeposits
            
            $
            196,149
            
            $
            190,407Federal
                Home Loan Bank advances
            
            
            29,250
            
            
            32,750Advance
                payments by borrowers for taxes and insurance
            
            
            855
            
            
            1,746Accrued
                interest payable and other liabilities
            
            
            4,993
            
            
            4,750Total
                liabilities
            
            
            231,247
            
            
            229,653Stockholders'
                equityPreferred
                stock, $.01 par value, 20,000,000 shares authorized,none
                issued
            
            
            -
            
            
            -Common
                stock, $.01 par value, 50,000,000 shares authorized;2,444,521
                shares issued at September 30, 2006 and December 31,
                2005
            
            
            24
            
            
            24Additional
                paid in capital
            
            
            10,449
            
            
            10,839Treasury
                stock (308,949 shares at September 30, 2006; 296,714shares
                at December 31, 2005)
            
            
            (7,225
            )
            
            (6,931
            )Unearned
                stock awards
            
            
            -
            
            
            (486
            )Retained
                earnings
            
            
            26,297
            
            
            25,820Accumulated
                other comprehensive loss
            
            
            (948
            )
            
            (1,014
            )Total
                stockholders' equity
            
            
            28,597
            
            
            28,252Total
                liabilities and stockholders' equity
            
            $
            259,844
            
            $
            257,905








See
            notes
            to consolidated financial statements.
 1
 *Index*


**AJS
      Bancorp, Inc.**


**Consolidated
      Statements of Income**


**(in
      thousands of dollars, except share data)**


**(unaudited)**





**For
                the Three Months**
            
            **For
                the Nine Months Ended****Ended
                September 30,**
            
            **September
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Interest
                and dividend incomeLoans
            
            $
            2,379
            
            $
            2,266
            
            $
            6,967
            
            $
            6,891Securities
            
            
            705
            
            
            721
            
            
            2,093
            
            
            1,973Interest-earning
                deposits
            
            
            291
            
            
            246
            
            
            820
            
            
            831Federal
                funds sold
            
            
            85
            
            
            4
            
            
            144
            
            
            37Total
                interest income
            
            
            3,460
            
            
            3,237
            
            
            10,024
            
            
            9,732Interest
                expenseDeposits
            
            
            1,467
            
            
            1,174
            
            
            4,091
            
            
            3,379Federal
                Home Loan Bankadvances
                and other
            
            
            318
            
            
            346
            
            
            967
            
            
            1,075Total
                interest expense
            
            
            1,785
            
            
            1,520
            
            
            5,058
            
            
            4,454Net
                interest income
            
            
            1,675
            
            
            1,717
            
            
            4,966
            
            
            5,278Provision
                (reduction) for loan losses
            
            
            (16
            )
            
            (37
            )
            
            (28
            )
            
            (129
            )Net
                interest income after provision forloan
                losses
            
            
            1,691
            
            
            1,754
            
            
            4,994
            
            
            5,407Non-interest
                incomeService
                fees
            
            
            131
            
            
            121
            
            
            384
            
            
            384Insurance
                commissions
            
            
            42
            
            
            38
            
            
            150
            
            
            144Gain
                on sale of loans
            
            
            7
            
            
            10
            
            
            41
            
            
            19Other
            
            
            47
            
            
            59
            
            
            141
            
            
            159Total
                non-interest income
            
            
            227
            
            
            228
            
            
            716
            
            
            706Non-interest
                expenseCompensation
                and employee benefits
            
            
            867
            
            
            862
            
            
            2,584
            
            
            2,606Occupancy
                expense
            
            
            222
            
            
            211
            
            
            642
            
            
            627Data
                processing expense
            
            
            86
            
            
            95
            
            
            276
            
            
            2,94Advertising
                and promotion
            
            
            76
            
            
            94
            
            
            206
            
            
            317Other
            
            
            270
            
            
            232
            
            
            812
            
            
            747Total
                non-interest expense
            
            
            1,521
            
            
            1,494
            
            
            4,520
            
            
            4,591Income
                before income taxes
            
            
            397
            
            
            488
            
            
            1,190
            
            
            1,522Income
                taxes
            
            
            149
            
            
            235
            
            
            448
            
            
            569Net
                income
            
            $
            248
            
            $
            253
            
            $
            742
            
            $
            953Earnings
                per shareBasic
            
            $
            0.12
            
            $
            0.12
            
            $
            0.35
            
            $
            0.44Diluted
            
            
            0.12
            
            
            0.12
            
            
            0.35
            
            $
            0.43Weighted
                average shares - diluted
            
            
            2,137,327
            
            
            2,156,226
            
            
            2,137,037
            
            
            2,196,688Comprehensive
                income (loss)
            
            $
            734
            
            $
            (233
            )
            $
            808
            
            $
            290








See
          notes
          to consolidated financial statements.
 2
 *Index*


**AJS
      Bancorp, Inc.**


**Consolidated
      Statements of Cash Flows**


**(in
      thousands of dollars)**


**(unaudited)**


**Nine
                Months Ended****September
                30,****2006**
            
            **2005****Cash
                flows from operating activities**Net
                income
            
            $
            742
            
            $
            953Adjustments
                to reconcile net income to net cashprovided
                by operating activitiesDepreciation
            
            
            202
            
            
            225Reduction
                for loan losses
            
            
            (28
            )
            
            (129
            )Deferred
                income taxes
            
            
            (377
            )
            
            205Premium
                amortization, net
            
            
            62
            
            
            66Stock
                award compensation expense
            
            
            43
            
            
            148ESOP
                compensation expense
            
            
            150
            
            
            393Federal
                Home Loan Bank stock dividends
            
            
            -
            
            
            (397
            )Dividend
                Reinvestments
            
            
            (308
            )
            
            (205
            )Gain
                on sale of loans held for sale
            
            
            (41
            )
            
            (19
            )Changes
                inAccrued
                interest receivable and other assets
            
            
            156
            
            
            (280
            )Accrued
                interest payable and other liabilities
            
            
            131
            
            
            182Net
                cash from operating activities
            
            
            732
            
            
            1,142**Cash
                flows from investing activities**Securities
                available-for-salePurchases
            
            
            (8,000
            )
            
            (23,483
            )Maturities
                and principal payments
            
            
            11,332
            
            
            10,608Securities
                held-to-maturityPurchases
            
            
            -
            
            
            (200
            )Maturities
                and principal payments
            
            
            87
            
            
            29Net
                change in Certificates of Deposit
            
            
            2,997
            
            
            800Loan
                originations, net
            
            
            4,767
            
            
            9,311Purchase
                of equipment
            
            
            (64
            )
            
            (42
            )Sale
                of Federal Home Loan Bank stock
            
            
            618
            
            
            7,500Net
                cash from investing activities
            
            
            11,737
            
            
            4,523**Cash
                from financing activities**Net
                change in deposits
            
            
            5,742
            
            
            (5,292
            )Net
                change in Federal Home Loan Bank advances
            
            
            (3,500
            )
            
            (3,000
            )Net
                change in advance payments by borrowers for taxes and insurance
            
            
            (891
            )
            
            720Dividends
                paid
            
            
            (265
            )
            
            -Purchase
                of treasury stock
            
            
            (309
            )
            
            (2,661
            )Exercise
                of stock options
            
            
            30
            
            
            120Net
                cash from financing activities
            
            
            807
            
            
            (10,113
            )Net
                change in cash and cash equivalents
            
            
            13,276
            
            
            (4,448
            )Cash
                and cash equivalents at beginning of period
            
            
            15,230
            
            
            17,031**Cash
                and cash equivalents at end of period**
            
            $
            28,506
            
            $
            12,583








See
            notes
            to consolidated financial statements.
 3
 *Index*


**AJS
      Bancorp, Inc.**


**Consolidated
      Statements of Stockholders' Equity**


**Nine
      months ended September 30, 2006**


**(in
      thousands of dollars) (unaudited)**


Common
                  Stock
                
                Additional
                  Paid-in
                  Capital
                
                Treasury
                  Stock
                
                Unearned
                  Stock
                  Awards
                
                Unearned
                  ESOP
                  Shares
                
                Retained
                  Earnings
                
                Accumulated
                  Other
                  Comprehensive
                  Loss
                
                Total
                  Stockholders'
                  EquityBalance
                    at December 31, 2004
                
                $
                24
                
                $
                10,830
                
                $
                (4,075
                )
                $
                (682
                )
                $
                (189
                )
                $
                24,837
                
                $
                (215
                )
                $
                30,530Purchase
                    of 111,218 shares of treasury stock
                
                
                -
                
                
                -
                
                
                (2,661
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (2,661
                )Stock
                    options exercised from 6,000 shares ofTreasury
                    stock
                
                
                
                
                
                -
                
                
                120
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                120ESOP
                    shares earned
                
                
                -
                
                
                243
                
                
                -
                
                
                -
                
                
                142
                
                
                -
                
                
                -
                
                
                385Stock
                    awards earned
                
                
                -
                
                
                -
                
                
                -
                
                
                148
                
                
                -
                
                
                -
                
                
                -
                
                
                148ESOP
                    put option
                
                
                -
                
                
                (239
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (239
                )Comprehensive
                    incomesNet
                    income
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                953
                
                
                -
                
                
                953Change
                    in unrealized gain on securities
                
                
                
                
                
                
                
                
                
                
                
                -Available-for-sale,
                    net of taxes
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (663
                )
                
                (663
                )Total
                    comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                290Balance
                    at September 30, 2005
                
                $
                24
                
                $
                10,834
                
                $
                (6,616
                )
                $
                (534
                )
                $
                (47
                )
                $
                25,790
                
                $
                (878
                )
                $
                28,573
  Common
                    Stock
                  
                  Additional
                    Paid-in
                    Capital
                  
                  Treasury
                    Stock
                  
                  Unearned
                      StockAwards
                  
                  Retained
                    Earnings
                  
                  Accumulated
                    Other
                      ComprehensiveLoss
                  
                  Total
                    Stockholders'
                    EquityBalance
                      at December 31, 2005
                  
                  $
                  24
                  
                  $
                  10,839
                  
                  $
                  (6,931
                  )
                  $
                  (486
                  )
                  $
                  25,820
                  
                  $
                  (1,014
                  )
                  $
                  28,252Transfer
                      to additional paid in capital
                  
                  
                  
                  
                  
                  (486
                  )
                  
                  
                  
                  
                  486
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Purchase
                      of 13,235 shares of treasury stock
                  
                  
                  
                  
                  
                  -
                  
                  
                  (309
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (309
                  )ESOP
                      put option
                  
                  
                  
                  
                  
                  (112
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (112
                  )Stock
                      awards earned
                  
                  
                  
                  
                  
                  150
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  150Stock
                      options compensation
                  
                  
                  
                  
                  
                  43
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  43Forfeit
                      of stock awards (1,200 shares)
                  
                  
                  
                  
                  
                  28
                  
                  
                  (28
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Stock
                      awards granted (600 shares)
                  
                  
                  
                  
                  
                  (11
                  )
                  
                  11
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Stock
                      options exercised (1,600 shares)
                  
                  
                  
                  
                  
                  (2
                  )
                  
                  32
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  30Cash
                      dividend ($0.30 per share)
                  
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (265
                  )
                  
                  -
                  
                  
                  (265
                  )Comprehensive
                      loss:Net
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  -
                  
                  
                  742
                  
                  
                  -
                  
                  
                  742Change
                      in unrealized loss on securitiesavailable
                      for sale, net of taxes
                  
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  66
                  
                  
                  66Total
                      comprehensive income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  808Balance
                      at September 30, 2006
                  
                  $
                  24
                  
                  $
                  10,449
                  
                  $
                  (7,225
                  )
                  $
                  -
                  
                  $
                  26,297
                  
                  $
                  (948
                  )
                  $
                  28,597




See
              notes
              to consolidated financial statements.
 4
 *Index*


AJS
      BANCORP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


September 30,
      2006








Note
      1 -
      Basis of Presentation





Principles
      of Consolidation :
      The
      accompanying consolidated interim financial statements include the accounts
      of
      AJS Bancorp, Inc. ("the Company") and its wholly owned subsidiary, A. J. Smith
      Federal Savings Bank ("the Bank"). All significant intercompany balances and
      transactions have been eliminated.





The
      accompanying interim consolidated financial statements have been prepared
      pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly,
      certain disclosures required by U.S. generally accepted accounting principles
      are not included herein. These interim statements should be read in conjunction
      with the Company's Annual Report on Form 10-K. The December 31, 2005
      balance sheet presented herein has been derived from the audited consolidated
      financial statements included in the Company's Annual Report on Form 10-K,
      but
      does not include all of the disclosures required by U. S. generally accepted
      accounting principles.





Interim
      statements are subject to possible adjustment in connection with the annual
      audit of the Company for the year ending December 31, 2006. In the opinion
      of the management of the Company, the accompanying unaudited interim
      consolidated financial statements reflect all of the adjustments (consisting
      of
      normal recurring adjustments) necessary for a fair presentation of the
      consolidated financial position and consolidated results of operations for
      the
      periods presented. The results of operations for interim periods are not
      necessarily indicative of the results to be expected for the full
      year.




Note
      2 -
      Earnings Per Share





Basic
      earnings per share for the three and nine months ended September 30, 2006 and
      2005 were computed by dividing net income by the weighted average number of
      shares outstanding. Diluted earnings per share for the three months ended
      September 30, 2006 and 2005 were computed by dividing net income by the
      weighted average number of shares outstanding, adjusted for the dilutive effect
      of the outstanding stock options and stock awards. Computations for basic and
      diluted earnings per share are provided below.





**For
                the Three Months**
            
            **For
                the Nine Months****Ended
                September 30,**
            
            **Ended
                September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**(in
                thousands, except
            
            (in
                thousands, exceptper
                share data)
            
            per
                share data)**Basic**Net
                income
            
            $
            248
            
            $
            253
            
            $
            742
            
            $
            953Weighted
                average common sharesoutstanding
            
            
            2,117
            
            
            2,131
            
            
            2,118
            
            
            2,170Basic
                earnings per common share
            
            $
            0.12
            
            $
            0.12
            
            $
            0.35
            
            $
            0.44




5
 *Index*





**For
                the Three Months**
            
            **For
                the Nine Months****Ended
                September 30,**
            
            **Ended
                September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**(in
                thousands, except
            
            (in
                thousands, exceptper
                share data)
            
            per
                share data)**Diluted**Net
                income
            
            $
            248
            
            $
            253
            
            $
            742
            
            $
            953Weighted
                average common sharesOutstanding
            
            
            2,117
            
            
            2,131
            
            
            2,118
            
            
            2,170Dilutive
                effect of stock awards
            
            
            17
            
            
            21
            
            
            16
            
            
            22Dilutive
                effect of stock options
            
            
            3
            
            
            4
            
            
            3
            
            
            4Diluted
                average common shares
            
            
            2,137
            
            
            2,156
            
            
            2,137
            
            
            2,196Diluted
                earnings per common share
            
            $
            0.12
            
            $
            0.12
            
            $
            0.35
            
            $
            0.43





There
      were no shares that were anti-dilutive for the period ended September 30, 2006
      and 2005.





Note
      3 -
      Stock Plans and Stock Based Compensation





At
      September 30, 2006 the Company had a stock option plan and a recognition and
      retention plan.





Under
      the
      stock option plan, certain key employees are granted options to purchase shares
      of the Company's Common Stock at fair value at the date of the grant. All stock
      options have an exercise price that is at least equal to the fair market value
      of the Company's stock on the date the options were granted.  The Company
      adopted the stock plan in May 2003 under the terms of which options for 114,685
      shares of the Company's common stock were granted to directors, officers, and
      employees. The options generally become exercisable in equal installments over
      a
      five-year period from the date of grant, and they expire ten years from the
      date
      of grant. No option may be exercised if such exercise would cause the mutual
      holding company to own fewer than a majority of the total number of shares
      outstanding. There were 1,200 options granted, 1,600 options exercised, and
      2,400 options forfeited during the nine months ended September 30, 2006. There
      were no options granted, 6,000 options exercised, and 1,000 options forfeited
      during the nine months ended September 30, 2005.





Effective
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      ("SFAS") No. 123R, "Share Based Payment." The Company elected to utilize
      the modified prospective transition method; therefore, prior period results
      were
      not restated. Prior to the adoption of SFAS 123R, stock-based compensation
      expense was not recognized in the results of operations if the exercise price
      was at least equal to the market value of the common stock on the grant
      date.





SFAS
      123R
      requires all share-based payments to employees, including grants of employee
      stock options, to be recognized as compensation expense over the service period
      (generally the vesting period) in the consolidated financial statements based
      on
      their fair values. Under the modified prospective method, unvested awards,
      awards that were granted, modified, or settled on or after January 1, 2006
      are
      measured and accounted for in accordance with SFAS 123R.


6
 *Index*


**A
      summary of the status of the Company's stock option plan and changes during
      the
      nine months ended September 30, 2006 and 2005 is presented below:**





**For
                the Nine Months****Ended
                September 30,****2006**
            
            **2005**Weighted-
            
            
            
            Weighted-Average
            
            
            
            AverageExercise
            
            
            
            ExerciseShares
            
            Price
            
            Shares
            
            PriceOutstanding
                at beginning of period
            
            
            105,685
            
            $
            18.75
            
            
            112,685
            
            $
            18.75Granted
            
            
            1,200
            
            
            23.75
            
            
            -
            
            
            -Exercised
            
            
            (1,600
            )
            
            18.75
            
            
            (6,000
            )
            
            18.75Forfeited
            
            
            (2,400
            )
            
            18.75
            
            
            (1,000
            )
            
            18.75Outstanding
                at end of period
            
            
            102,885
            
            $
            18.81
            
            
            105,685
            
            $
            18.75




2006
            
            2005Options
                exercisable at end of period
            
            
            61,411
            
            
            42,274Intrinsic
                value of options outstanding
            
            $
            611,000
            
            $
            513,000Intrinsic
                value of options exercisable
            
            $
            365,000
            
            $
            205,000Average
                remaining option term
            
            
            6.6
                years
            
            
            7.6
                years





The
      fair
      value of each stock option granted is estimated on the date of grant using
      the
      Black-Scholes based stock option valuation model.  This model requires the
      input of subjective assumptions that will have an impact on the fair value
      estimate. Expected volatilities are based on historical volatility of the
      Company's stock, and other factors.  Expected dividends are based on
      dividend trends and the market price of the Company's stock price at
      grant.  The Company uses historical data to estimate option exercises and
      employee terminations within the valuation model.  Estimated forfeitures
      are based on historical forfeiture rates of approximately 4.7%. The risk-free
      rate for periods within the contractual life of the option is based on the
      U.S.
      Treasury yield curve in effect at the time of grant.





The
      following assumptions were used for options granted during the period ended
      September 30, 2006:


2006Risk-free
                interest rate
            
            
            4.71
            %Expected
                option life
            
            
            2.167
                yearsExpected
                stock price volatility
            
            
            10.11
            %Dividend
                yield
            
            
            1.68
            %




The
      intrinsic value for stock options is calculated based on the exercise price
      of
      the underlying awards and the market price of our common stock as of the
      reporting date. The intrinsic value of options exercised during the nine months
      ended September 30, 2006 was $8,000. There were no options exercised during
      the
      third quarter of 2006. The Company recorded $43,000 in stock option compensation
      expense during the nine months ended September 30, 2006 to salaries and employee
      benefits.




As
      a
      result of adoptiong SFAS 123R on January 1, 2006, the Company's basic and
      diluted earnings per share were $0.01 lower than if the Company had continued
      to
      account for stock-based compensation under Accounting Principles Board ("APB")
      Opinion 25 for stock option grants. Prior to 2006, the Company applied
      Accounting Principles Board ("APB") Opinion 25 and related Interpretations
      in
      accounting for its stock option plan. Accordingly, no compensation cost was
      recognized at the date of grant. Had


7
 *Index*


compensation
      cost been determined based on the fair value at the grant dates for awards
      under
      the plan consistent with the method of Statement of Financial Accounting
      Standards ("SFAS") No. 123, *Accounting
      for Stock-Based Compensation* ,
      the
      Company's net income and earnings per share for the three months and nine months
      ended September 30, 2005 would have been reduced to the pro forma amounts
      in the table below. For purposes of pro forma disclosure, the estimated fair
      value of the options is amortized to expense over the option's vesting
      period.




**For
                the Three Months**
            
            **For
                the Nine Months****Ended
                September 30,**
            
            **Ended
                September 30,****2005**
            
            **2005**(in
                thousands, except
            
            (in
                thousands, exceptper
                share data)
            
            per
                share data)Net
                income as reported
            
            $
            253
            
            $
            953Pro
                forma net income
            
            
            247
            
            
            935Earnings
                per share as reportedBasic
                and diluted
            
            
            0.12
            
            
            0.44Diluted
            
            
            0.12
            
            
            0.43Pro
                forma earnings per shareBasic
            
            
            0.12
            
            
            0.43Diluted
            
            
            0.11
            
            
            0.43





Unrecognized
      stock option compensation expense related to unvested awards for the remainder
      of 2006 and beyond is estimated in the table below. These figures represent
      gross expense forfeitures are expected to reduce this cost. We estimate our
      forfeiture rate for the stock option plan to be 4.7%.





Year
            *(in
                thousands**)*October
                2006 - December 2006
            
            $
            152007
            
            
            582008
            
            
            22Total
            
            $
            95








Pursuant
      to its 2003 stock-based incentive plan, the Company awarded 58,971 shares of
      restricted stock in May 2003. These shares vest over a five-year period. The
      unamortized cost of shares not yet earned (vested) is reported as a reduction
      of
      stockholders' equity. Compensation  expense
      for restricted stock awards totaled $150,000 and $148,000 for the nine months
      ended September 30, 2006 and 2005, respectively. Compensation  expense
      for restricted stock awards is reported net of forfeitures. We estimate our
      forfeiture rate of the restricted stock awards to be 3.0%





**ITEM
      2.****MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND****RESULTS
      OF OPERATIONS**





SAFE
      HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
      1995





This
      report contains certain forward-looking statements within the meaning of Section
      27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
      Exchange Act of 1934, as amended. 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
      as
      amended and is including this statement for purposes of these safe harbor
      provisions. Forward-looking statements, which are based on


8
 *Index*


certain
      assumptions and describe future plans, strategies, and expectations of the
      Company, are generally identifiable by use of the words "believe," "expect,"
      "intend," "anticipate," "estimate," "project," or similar expressions. The
      Company's ability to predict results or the actual effect of future plans or
      strategies is inherently uncertain. Factors that could have a material adverse
      affect on the operations and future prospects of the Company and its wholly
      owned subsidiaries include, but are not limited to, changes in: interest rates;
      general economic conditions; legislative/regulatory provisions; monetary and
      fiscal policies of the U.S. Government, including policies of the U.S. Treasury
      and the Federal Reserve Board; the quality or composition of the loan or
      investment portfolios; demand for loan products; deposit flows; competition;
      demand for financial services in the Company's market area; and accounting
      principles, policies, and guidelines. These risks and uncertainties should
      be
      considered in evaluating forward-looking statements, and undue reliance should
      not be placed on such statements. Further information concerning the Company
      and
      its business, including additional factors that could materially affect the
      Company's financial results, is included in the Company's filings with the
      Securities and Exchange Commission.





The
      following discussion compares the financial condition of the Company at
      September 30, 2006 to its financial condition at December 31, 2005 and
      the results of operations for the three- and nine-month periods ended
      September 30, 2006 to the same periods in 2005. This discussion should be
      read in conjunction with the interim financial statements and footnotes included
      herein.





FINANCIAL
      CONDITION





Total
      assets at September 30, 2006 were $259.8 million compared to $257.9 million
      at December 31, 2005, a increase of $1.9 million, or 0.8%. The increase in
      total consolidated assets primarily reflects an increase in cash and cash
      equivalents, offset by decreases in certificates of deposit, securities, loans
      receivable and Federal Home Loan Bank (“FHLB”) stock. Cash and cash equivalents
      increased $13.3 million or 87.2% to $28.5 million at September 30, 2006 from
      $15.2 million at December 31, 2005. Certificates of deposit decreased $3.0
      million or 34.9% to $5.6 million at September 30, 2006 compared to $8.6 million
      at December 31, 2005. Securities decreased $3.0 million or 4.3% to $68.5 million
      at September 30, 2006 from $71.5 million at December 31, 2005. Loans receivable
      decreased $4.7 million to $147.1 million at September 30, 2006 from $151.8
      million at December 31, 2005. The Company’s investment in FHLB stock decreased
      $618,000 or 18.1% to $2.8 million at September 30, 2006 compared to $3.4 million
      at December 31, 2005. The change in the Company’s asset composition reflects
      management’s decision to have greater liquidity during the current inverted
      interest rate environment. The decrease in certificates of deposit was due
      to
      maturities in the portfolio. The decrease in securities was due to principal
      repayments and maturities. The decrease in loans occurred in the conventional
      fixed-rate, adjustable-rate and home equity mortgage loan types. This is
      primarily due to the fact that the Company is currently selling a majority
      of
      the 30- and 15-year conventional fixed-rate mortgages it originates, as well
      as
      reductions in the Company’s refinancing activity.




The
      allowance for loan losses was $1.6 million at September 30, 2006 and $1.7
      million at December 31, 2005. This represents a ratio of allowance for loan
      losses to gross loans receivable of 1.11% at September 30, 2006 and at
      December 31, 2005. The Company had non-performing assets of $3.0 million as
      of September 30, 2006 and $394,000 as of December 31, 2005. The
      increase in non-performing loans primarily reflects one borrower that was past
      maturity on two loans totaling $1.9 million. Both of these loans have since
      been
      repaid. The remaining increase in non-performing loans also reflects an increase
      in the principal balance of loans that are delinquent and a slight increase
      in
      the number of delinquent loans. The allowance for loan losses to non-performing
      loans was 55.15% at September 30, 2006 compared to 431.73% at
      December 31, 2005. The decrease in the allowance for loan losses to
      non-performing loans percentage at September 30, 2006 primarily reflects a
      temporary change due to the above-mentioned two loans..





Total
      liabilities at September 30, 2006 were $231.3 million compared to $229.7
      million at December 31, 2005, an increase of $1.6 million or 0.7%,
      reflecting an increase in deposits, offset by a decrease in FHLB advances.
      Total
      deposits increased $5.7 million or 3.0% to $196.1 million at September 30,
      2006
      from $190.4 million at December 31, 2005. The increase in deposits was primarily
      in certificates of deposits and, to a lesser degree


9
 *Index*


demand
      deposit accounts. FHLB advances decreased to $29.3 million at
      September 30, 2006 from $32.8 million at December 31, 2005. Advance
      payments by borrowers for taxes and insurance decreased $891,000 or 51.0% to
      $855,000 from $1.7 million at December 31, 2005, primarily as a result from
      the
      timing of payments.





Total
      stockholders’ equity increased $345,000 to $28.6 million at September 30, 2006
      from $28.3 million at December 31, 2005. The increase in stockholders’ equity
      was primarily due to net income of $742,000 for the nine months ended September
      30, 2006, and an increase in other comprehensive income due to the higher fair
      market value of securities held for sale, offset by common stock repurchases
      and
      dividends paid that took place during the nine months ended September 30, 2006.
      There were 13,235 shares of the Company's stock repurchased at an average price
      of $23.40 per share totaling $309,000. There were 3,216 shares that were
      repurchased from employee participants in the recognition and retention plan
      (“RRP”) to satisfy the tax liability due on the vesting of the underlying RRP
      shares. Shares repurchased in conjunction with RRP vesting are repurchased
      outside the Company’s publicly announced repurchase program. The Board of
      Directors has authorized the repurchase of 267,000 shares of the Company's
      stock, and has 59,305 shares remaining to be repurchased under the current
      repurchase plan. Repurchased shares are classified as treasury shares, but
      are
      not considered outstanding and are not included when calculating earnings per
      share or book value per share information.





The
      Company paid a quarterly dividend of $0.10 cents per share on August 25, 2006
      to
      stockholders of record as of August 11, 2006. In addition, the Company's Board
      of Directors announced that it has declared a fourth quarter dividend of $0.11
      cents per share payable on November 24, 2006, to stockholders of record on
      November 10, 2006. AJS Bancorp, MHC (the "MHC") waived 100% of the August
      dividend and intends to waive 100% of the November dividend declaration. At
      September 30, 2006, the Company’s principal assets consisted of its ownership
      interest in A. J. Smith Savings Bank. At September 30, 2006 the Bank’s tier 1
      capital and tangible capital ratio’s each were 10.8%, and its risk-based capital
      ratio was 23.0%.





RESULTS
      OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AND SEPTEMBER 30,
      2005





Net
      income decreased marginally by $5,000 to $248,000 for the quarter ended
      September 30, 2006 compared to the same period in 2005. However, the return
      on average assets increased slightly to 0.39% for the quarter ended
      September 30, 2006 from 0.38% for the same period in 2005. The increase in
      the return on average assets for the comparable periods was due to a decrease
      in
      the average asset balances while net income remained relatively stable for
      the
      three months ended September 30, 2006 compared to the three months ended
      September 30, 2005. Total interest income increased by $223,000 or 6.9% to
      $3.4 million for the quarter ended September 30, 2006 as compared to $3.2
      million for the same quarter in 2005. The increase was due to increases in
      interest income earned on loans, on interest-earning deposits and on federal
      funds sold, offset by a decrease in interest income earned on securities.
      Interest income earned on loans increased $113,000 for the comparable quarters,
      interest income earned on interest earning deposits increased $45,000, and
      interest income earned on federal funds sold increased $81,000 for the
      comparable period. Interest income earned on securities decreased $16,000 for
      the three months ended September 30, 2006 when compared to the same period
      in
      2005. Interest income earned on loans increased due to rising interest rates
      earned on the loan balances, while the average loan balances decreased for
      the
      three months ended September 30, 2006 compared to September 30, 2005. Average
      loan balances were $149.8 million for the three months ended September 30,
      2006
      compared to $156.3 million for the three months ended September 30, 2005, while
      the average yield on loans was 6.35% for the three months ended September 30,
      2006 compared to 5.80% for the same period in 2005. Interest income earned
      on
      interest-earning deposits increased for the comparable periods due to an
      increase in the average interest-earning deposit balances and an increase in
      the
      interest rate earned on the average interest-earning deposit balances. Average
      interest-earning deposit balances were $23.7 million for the three months ended
      September 30, 2006 compared to $22.0 million for the three months ended
      September 30, 2005, while the interest rate earned on interest-earning deposit
      balances was 4.92% compared to 4.49% for the same period in 2005. Interest
      income earned on federal funds sold


10
 *Index*


increased
      due to higher average balances and higher interest earned for the comparable
      quarters ending September 30, 2006 and 2005. Average balances of federal funds
      sold were $7.0 million for the three months ended September 30, 2006 compared
      to
      $1.0 million for the three months ended September 30, 2005, while the average
      yield earned on federal funds sold was 5.08% for the three months ended
      September 30, 2006 compared to 2.71% for the same period in 2005. Interest
      income earned on securities decreased $16,000 when comparing the two periods
      due
      to a decrease in the average securities balance. The average yield earned on
      securities increased to 4.08% from 3.79%, while the average balance of
      securities decreased to $69.1 million for the quarter ended September 30, 2006
      compared to $76.1 million for the quarter ended September 30, 2005. Net interest
      income decreased by $42,000 or 2.5% to $1.7 million for the quarter ended
      September 30, 2006 when compared to the same quarter in 2005. The decrease
      in
      net interest income was primarily due to the cost of average interest-bearing
      liabilities increasing at a faster pace than the average income earned on
      interest-earning assets, and the resulting decrease in the net interest rate
      spread. The return on average assets increased to 5.55% for the quarter ended
      September 30, 2006 from 5.08% for the same period in 2005, while the cost
      of interest-bearing liabilities increased to 3.22% for the quarter ended
      September 30, 2006 from 2.68% for the same period in 2005.





Total
      interest expense increased $265,000 to $1.8 million at September 30, 2006 from
      $1.5 million at September 30, 2005. The increase in interest expense was
      primarily due to the increased cost of deposits offset by a decrease in the
      cost
      of Federal Home Loan Bank ("FHLB") advances. The average cost of deposits for
      the quarter ended September 30, 2006 was 3.05% as compared to 2.43% for the
      quarter ended September 30, 2005. The increase in the cost of deposits was
      primarily due to rising short-term interest rates. Interest expense on FHLB
      advances decreased by $28,000 or 8.1% to $318,000 for the quarter ended
      September 30, 2006 from $346,000 for the same quarter in 2005. This was due
      to a decrease in the average FHLB advance balances for the quarter ended
      September 30, 2006 compared to the same quarter in 2005. The average FHLB
      advance balance was $29.3 million and the average cost was 4.35% for the quarter
      ended September 30, 2006 compared to an average balance of $33.3 million and
      an
      average cost of 4.14% for the same quarter in 2005. The average cost of
      interest-bearing liabilities increased to 3.22% for the three months ended
      September 30, 2006 from 2.68% for the same period ended 2005.





The
      net
      interest rate spread decreased 6 basis points to 2.34% from 2.40% while our
      net
      interest margin decreased 1 basis point to 2.69% from 2.70%. The net interest
      rate spread continues to shrink as short-term interest rates climb while
      long-term interest rates remain stable or rise at a slower pace than the
      short-term interest rates. The ratio of average interest-earning assets to
      average interest-bearing liabilities decreased to 112.31% for the three months
      ended September 30, 2006 from 112.51% for the same period in 2005.





The
      Company recorded a negative provision of $16,000 for loan losses for the three
      months ended September 30, 2006, and a negative provision of $37,000 for the
      three months ended September 30, 2005. The negative provisions were due to
      a
      combination of loan loss recoveries and our review of losses inherent in our
      loan portfolio. Loan provisions made are to maintain the allowance to reflect
      management's estimates of losses inherent in our loan portfolio. At this time,
      management believes no additional provisions are necessary. Should any
      unforeseen risks present themselves however, management may need to increase
      this provision in the future. At September 30, 2006 our allowance for loan
      losses was $1.6 million compared to $1.7 million at December 31, 2005, or
      1.11% of total loans at September 30, 2006 and December 31, 2005. Non-performing
      assets as a percentage of total assets was 1.15% at September 30, 2006 and
      0.15% at December 31, 2005.





Non-interest
      income remained fairly stable at $227,000 for the quarter ended
      September 30, 2006 compared to $228,000 for the comparable quarter in 2005.
      Insurance commissions increased $4,000 or 10.5% to $42,000 for the quarter
      ended
      September 30, 2006 compared to $38,000 for the quarter ended September 30,
      2005.
      Service charges on accounts increased by $10,000 or 8.3% to  $131,000
      for the quarter ended September 30, 2006 compared to $121,000, for the
      comparable period in 2005. Offsetting these increases was a $4,000 decrease
      in
      gain on loans held for sale, and an $11,000 decrease in other non-interest
      income items. The increase in service charges on accounts is primarily due
      to an
      increase in income from late charges earned on loans and an increase in income
      on NOW accounts. Income on late charges increased because of
      two


11
 *Index*


delinquent
      loans that paid late charges during the quarter ended September 30, 2006. Income
      on NOW accounts increased due to a change in the Company’s over-draft fee policy
      and a change in the order of how the checks post to the customers checking
      accounts. Both of these changes were implemented in the first quarter of 2006.
      Other non-interest income items decreased primarily due to a decrease in the
      gain on the sale of fixed assets. The Company sold one of the company-owned
      automobiles during the quarter ended September 30, 2005 and recorded a gain
      on
      the sale of fixed assets of $13,000.





Non-interest
      expense increased by $27,000 to $1.5 million for the quarter ended September
      30,
      2006 when compared to expense for the same quarter in 2005. The increase was
      primarily due to an increase in other non-interest expense items offset by
      a
      decrease in advertising and promotion expenses. Other non-interest expense
      items
      increased $38,000 or 16.4% to $270,000 for the quarter ended September 30,
      2006
      compared to $232,000 for the same quarter in 2005. The increase was primarily
      due to increases in legal fees, bank service charges and auto expense when
      comparing the two quarters. Legal fees increased due to the cost associated
      with
      protesting the real estate taxes on the Company’s buildings and due to an
      immaterial legal matter that is not expected to reoccur. Bank service charges
      increased as the Company decreased its compensating balance on its operating
      account in order to realize a better return on the excess funds. Auto expense
      increased in conjunction with the approval of an auto lease coverage for the
      President of the Company. Advertising and promotion costs fell $18,000 to
      $76,000 for the quarter ended September 30, 2006 compared to $94,000 for the
      same period in 2005. Advertising and promotion costs decreased primarily due
      to
      a reduction in newspaper advertising.




The
      Company’s federal and state taxes decreased $86,000 to $149,000 for the quarter
      ended September 30, 2006 from $235,000 during the same period of 2005. This
      is
      primarily result of an upward revision to the tax accrual estimate during the
      quarter ended September 30, 2005. The Company increased its tax accrual based
      on
      revisions to certain estimated deferred and permanent tax items from what had
      been estimated in the previous 2005 quarter.





RESULTS
      OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND SEPTEMBER 30,
      2005





Net
      income decreased by $211,000 or 22.1% to $742,000 for the nine months ended
      September 30, 2006, compared to net income of $953,000 for the same period
      in
      2005. The Company’s return on average assets decreased to 0.38% for the nine
      months ended September 30, 2006 from 0.48% for the comparable period in 2005.
      The decrease in net income resulted from a decrease in net interest income
      offset by an increase in non-interest income and a decrease in non-interest
      expense.





Net
      interest income was $5.0 million for the nine months ended September 30, 2006
      compared to $5.3 million for the same period in 2005. The decrease in net
      interest income was primarily due to the cost of average interest-bearing
      liabilities increasing at a faster pace than the average interest-earning asset
      yield increased, and the resulting decrease in the net interest rate spread.
      Average interest earning assets were $249.7 million and $257.4 million during
      the comparative 2006 and 2005 nine-month periods while the average yield was
      5.35% and 5.04%, respectively. Our net interest rate spread decreased 13 basis
      points to 2.32% from 2.45% while our net interest margin decreased 8 basis
      points to 2.65% from 2.73%. The ratio of average interest-earning assets to
      average interest-bearing liabilities decreased to 112.26% for the nine months
      ended September 30, 2006 from 112.34% for the same period in 2005. The decrease
      in our net interest rate spread and net interest margin is primarily due the
      inverted yield curve, which has resulted in rising short term interest rates
      with longer term interest rates remaining stable or rising at a slower rate
      than
      short term interest rates.





There
      was
      a negative provision for loan losses of $28,000 for the nine months ended
      September 30, 2006 compared to $129,000 negative loan loss provision for the
      nine months ended September 30, 2005. There were $28,000 in loan loss recoveries
      during the nine months ended September 30, 2006, and $54,000 in recoveries
      during the nine months ended September 30, 2005. Any loan loss provisions made
      are to


12
 *Index*


maintain
      the allowance to reflect management’s estimate of losses inherent in our loan
      portfolio. Management concluded that no additional provisions were necessary
      during the nine months ended September 30, 2006 or 2005. Management’s evaluation
      of the losses inherent in our loan portfolio reflected a decreased risk of
      loss
      in the loan portfolio, which required a reduction of the provision of loan
      losses for the nine months ended September 30, 2006 and 2005. Should any
      unforeseen risks present themselves however, management may need to make a
      provision for loan losses in the future.




Non-interest
      income increased to $716,000 for the nine months ended September 30, 2006 from
      $706,000 for the comparable period in 2005. The $10,000 increase was the result
      of increases in insurance commission income and gain on loans held for sale,
      offset by a decrease in other non-interest income items for the nine months
      ended September 30, 2006 when compared to the nine months ended September 30,
      2005. Services charges on accounts remained stable during the comparable
      nine-month periods. The increase in insurance commissions reflects slightly
      higher sales of variable- and fixed-rate annuities. Gain on loans held for
      sale
      increased primarily due to an increase in the volume of loans sold for the
      comparable nine-month periods. Other non-interest income items decreased $18,000
      to $141,000 for the nine months ended September 30, 2006 from $159,000 for
      the
      comparable period. Other non-interest income items decreased primarily due
      to a
      decrease in the gain on the sale of fixed assets. The Company sold one of the
      company-owned automobiles during the nine months ended September 30, 2005 and
      recorded a gain on the sale of fixed assets of $13,000.





Non-interest
      expense decreased $71,000 to $4.5 million for the nine month period ended
      September 30, 2006 compared to $4.6 million for the same period in 2005. The
      decrease was primarily due to lower advertising and promotion costs, partially
      offset by an increase in other non-interest expense items for the nine months
      ended September 30, 2006 compared to the same period in 2005. Advertising and
      promotion costs decreased $111,000 primarily due to a reduction in newspaper
      advertising and a decrease in promotional give away items. Other non-interest
      expense items increased $65,000 when comparing the quarter ended September
      30,
      2006 to the same period in 2005. The increase was primarily due to increases
      in
      stationary, printing and office supply expenses and cleaning expenses.
      Stationary, printing and office supply expenses increased primarily due to
      in-house printing of promotional materials and the revision and reprinting
      of
      the Company’s rules of accounts and fee information. The printing of promotional
      materials in-house resulted in an increase in paper and toner costs.




Our
      federal and state taxes decreased $121,000 to $448,000 for the nine months
      ended
      September 30, 2006 from $569,000 in the same period of 2005. This is the result
      of lower pre-tax income that occurred during the nine months ended September
      30,
      2006.





NEW
      ACCOUNTING PRONOUNCEMENTS





In
      September 2006, the Securities and Exchange Commission (SEC) released Staff
      Accounting Bulletin (SAB) 108. SAB 108 permits the Company to adjust for the
      cumulative effect of immaterial errors relating to prior years in the carrying
      amount of assets and liabilities as of the beginning of the current fiscal
      year,
      with an offsetting adjustment to the opening balance of retained earnings in
      the
      year of adoption. SAB 108 also requires the adjustment of any prior quarterly
      financial statements within the fiscal year of adoption for the effects of
      such
      errors on the quarters when the information is next presented. Such adjustments
      does not require previously filed reports with the SEC to be amended. SAB 108’s
      cumulative provision is to be recorded in fiscal years ending November 30,
      2006
      through October 31, 2007. The Company is evaluating the potential impact of
      the
      standard of future periods.





In
      June
      2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in
      Income Taxes” - an interpretation of FASB No. 109” (FIN 48). FIN 48 prescribes a
      recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. The Interpretation is effective for fiscal years beginning after
      December 31, 2006. The company is currently evaluating the impact of the
      adoption of FIN 48, with respect to its results of operations, financial
      position and liquidity.


13
 *Index*








LIQUIDITY





The
      Bank
      must maintain an adequate level of liquidity to ensure the availability of
      sufficient funds to fund loan originations and deposit withdrawals, to satisfy
      other financial commitments, and to take advantage of investment opportunities.
      The Bank invests excess funds in overnight deposits and other short-term
      interest-bearing assets to provide liquidity to meet these needs. At September
      30, 2006, cash and cash equivalents totaled $28.5 million. At September 30,
      2006, the Bank had commitments to fund loans of $5.3 million, available lines
      of
      credit of $15.2 million, and standby letters of credit of $140,000. At
      September 30, 2006, certificates of deposit represented 63.8% of total
      deposits. The Bank expects to retain these deposit relationships. In addition,
      the Bank has borrowing capacity for an additional $38.8 million from the FHLB
      without providing additional collateral. The Bank considers its liquidity and
      capital resources sufficient to meet its outstanding short-term and long-term
      needs.





CAPITAL
      RESOURCES





The
      Bank
      is subject to capital-to-asset requirements in accordance with Office of Thrift
      Supervision regulations. The following table summarizes the Bank's regulatory
      capital requirements versus actual capital as of September 30,
      2006:




Actual
            
            
            
            Required
            
            
            
            Excess(Dollars
                in thousands)
            
            Amount
            
            %
            
            Amount
            
            %
            
            Amount
            
            %Core
                capital(to
                adjusted total assets)
            
            $
            28,136
            
            
            10.8
            %
            $
            10,451
            
            
            4.0
            %
            $
            17,685
            
            
            6.8
            %Risk-based
                capitalto
                (risk-weighted assets)
            
            
            29,756
            
            
            23.0
            %
            
            10,366
            
            
            8.0
            %
            
            19,390
            
            
            15.0





**ITEM
      3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
      MARKET RISK**





QUALITATIVE
      ASPECTS OF MARKET RISK





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





We
      have
      sought to manage our interest rate risk by more closely matching the maturities
      of our interest rate sensitive assets and liabilities. In the current low
      interest rate environment we have kept our purchases of investments in fixed
      rate notes and bonds to maturities within two to three years. In addition,
      we
      may emphasize fixed rate mortgages that mature in fifteen years or less by
      offering very competitive interest rates on those products while not being
      as
      aggressive in pricing those mortgages that mature in greater than fifteen years.
      We also offer one-, three- five-, and seven-year adjustable rate mortgage loans,
      and three- and five-year balloon loans. However, in a low interest rate
      environment, borrowers typically prefer fixed-rate


14
 *Index*


loans
      rather than adjustable-rate mortgages. We may sell some of our originations
      of
      longer-term fixed-rate loans into the secondary market. We do not solicit
      high-rate jumbo certificates of deposit or brokered funds. In
      past
      years, many savings associations have measured interest rate sensitivity by
      computing the "gap" between the assets and liabilities that are expected to
      mature or reprice within certain time periods based on assumptions regarding
      loan prepayment and deposit decay rates formerly provided by the Office of
      Thrift Supervision. However, the Office of Thrift Supervision now requires
      the
      computation of amounts by which the net present value of an institution's cash
      flow from assets, liabilities, and off-balance-sheet items (the institution's
      net portfolio value or "NPV") would change in the event of a range of assumed
      changes in market interest rates. The Office of Thrift Supervision provides
      all
      institutions that file a Consolidated Maturity/Rate Schedule as a part of their
      quarterly Thrift Financial Report with an interest rate sensitivity report
      of
      net portfolio value. The Office of Thrift Supervision simulation model uses
      a
      discounted cash flow analysis and an option-based pricing approach to measuring
      the interest rate sensitivity of net portfolio value. The Office of Thrift
      Supervision model estimates the economic value of each type of asset, liability,
      and off-balance-sheet contract under the assumption that the United States
      Treasury yield curve increases or decreases instantaneously by 100 to 300 basis
      points in 100 basis point increments. A basis point equals one-hundredth of
      one
      percent, and 100 basis points equals one percent. An increase in interest rates
      from 7% to 8% would mean, for example, a 100 basis point increase in the "Change
      in Interest Rates" column below. The Office of Thrift Supervision provides
      us
      the results of the interest rate sensitivity model, which is based on
      information we provide to the Office of Thrift Supervision to estimate the
      sensitivity of our net portfolio value.





The
      following table sets forth as of June 30, 2006 (the latest date for which
      information is available), the estimated changes in our net portfolio value
      that
      would result from the designated instantaneous changes in the United States
      Treasury yield curve. The Company anticipates that the September 30, 2006 Net
      Portfolio Value will be similar to the June 30, 2006 table shown
      below.





**Change
                in**
              **Interest
                Rates**
            
            
            
            
            
            
            
            **NPV
                as % of**
              **Portfolio
                Value of Assets****in
                Basis Points**
            
            **Net
                Portfolio Value**
            
            **NPV**
            
            **Basis
                Point****(Rate
                Shock)**
            
            **Amount**
            
            **$
                Change**
            
            **%
                Change**
            
            **Ratio**
            
            **Change**(Dollars
                in thousands)300
            
            
            28,358
            
            
            (8,506
            )
            
            (23
            )%
            
            11.38
            %
            
            (263
            )200
            
            
            31,181
            
            
            (5,683
            )
            
            (15
            )
            
            12.29
            
            
            (172
            )100
            
            
            34,054
            
            
            (2,810
            )
            
            (8
            )
            
            13.18
            
            
            (83
            )Static
            
            
            36,864
            
            
            
            
            
            
            
            
            14.01-100
            
            
            39,399
            
            
            2,535
            
            
            7
            
            
            14.73
            
            
            72-200
            
            
            40,818
            
            
            3,954
            
            
            11
            
            
            15.07
            
            
            106





The
      table
      above indicates that at June 30, 2006, in the event of a 200 basis point
      increase in interest rates, we would experience a 15% decrease in net portfolio
      value. A 200 basis point decrease in interest rate would result in an 11%
      increase in net portfolio value. All
      model
      outputs associated with the -300 basis point scenarios are not applicable
      because of the low prevailing interest rate environment.





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


15
 *Index*


intended
      to and do not provide a precise forecast of the effect of changes in market
      interest rates on its net interest income, and will differ from actual results.





**ITEM
      4.   CONTROLS AND PROCEDURES**





Under
      the
      supervision and with the participation of the Company's management, including
      the Chief Executive Officer, President and Chief Financial Officer, the Company
      has evaluated the effectiveness of the design and operation of it's disclosure
      controls and procedures (as defined in Rule 13a-15(e) and 15(d)-15(e) under
      the
      Exchange Act) as of the end of the period covered by this quarterly report.
      Based upon that evaluation, the Chief Executive Officer, President and Chief
      Financial Officer concluded that, as of the end of the period covered by this
      quarterly report, the Company's disclosure controls and procedures are effective
      to ensure that information required to be disclosed in the reports that the
      Company files or submits under the Securities Exchange Act of 1934 is recorded,
      processed, summarized and reported, within the time periods specified in the
      Securities and Exchange commission's rules and forms. There has been no change
      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.**





Periodically,
      there have been various claims and lawsuits involving the Company, such as
      claims to enforce liens, condemnation proceedings on properties in which the
      Company holds security interest, claims involving the making and servicing
      of
      real property loans, and other issues incident to the Company's business. In
      the
      opinion of management, after consultation with the Company's legal counsel,
      no
      significant loss is expected from any such pending claims or lawsuits. The
      Company is not a party to any material pending legal proceedings.





**ITEM
      1A.   RISK FACTORS.**





There
      are
      no changes in the risk factors previously disclosed in the registrant’s annual
      report on Form 10-K.
















16
 *Index*


**ITEM
      2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS.**





The
      Company's second repurchase plan was announced on May 18, 2004 and allows for
      the repurchase of 117,000 shares of the Company's stock, which represented
      approximately 5% of the Company's outstanding shares. Increases to the Company's
      second repurchase plan were announced on March 22, 2005 and on October 18,
      2005.
      They allow an additional 100,000 and 50,000 shares respectively, to be added
      to
      the current stock repurchase program.





Issuer
      purchases of equity securities during the prior three months:





**Maximum****Total
                number**
            
            **number
                of****of
                shares**
            
            **shares
                that may****purchased**
            
            **be
                purchased****Total**
            
            **Average**
            
            **under
                publicly**
            
            **under
                the****number
                shares**
            
            **price
                paid**
            
            **announced**
            
            **repurchase****purchased**
            
            **per
                share**
            
            **plan**
            
            **plan**July
                1 - July 31
            
            
            -
            
            $
            -
            
            
            207,695
            
            
            267,000August
                1 - August 31
            
            
            -
            
            
            -
            
            
            207,695
            
            
            267,000September
                1 - September 30
            
            
            -
            
            
            -
            
            
            207,695
            
            
            267,000


**ITEM
      3.   DEFAULTS UPON SENIOR SECURITIES**.





None





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





None





**ITEM
      5.   OTHER INFORMATION.**





None





**ITEM
      6.   EXHIBITS.**





(a)  Exhibits


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


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


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


32.1
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.




17
 *Index*


**SIGNATURES**








Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.








AJS
                BANCORP, INC.Date:
                November 9, 2006
            /s/
                Thomas R. ButkusThomas
                R. ButkusChief
                Executive Officer and Chairman of the BoardDate:
                November 9, 2006
            /s/
                Lyn G. RupichLyn
                G. RupichPresident
                and Chief Operating Officer








18