----

----

| R      | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934  |
|--------|-----------------------------------------------------------------------------------------------|
|   |                                                                                          |
|   |                                                                                          |
|   | For the quarterly period ended March 31, 2011                                                 |
|   |                                                                                          |
|   | OR                                                                                            |
|   |                                                                                          |
|   |                                                                                          |
| *      | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |

| Federal                                                       | 20-3598485                        |
|---------------------------------------------------------------|-----------------------------------|
| (State or other jurisdiction ofincorporation or organization) | (IRS Employer Identification No.) |

| Yes | R |   | No | * |
|-----|---|--------|----|---|

| Large accelerated filer | * |   | Accelerated filer | R |   | Non-accelerated filer | * |   | Smaller Reporting Company | * |
|-------------------------|---|--------|-------------------|---|--------|-----------------------|---|--------|---------------------------|---|

| Yes | * |   | No | R |
|-----|---|--------|----|---|

WATERSTONE FINANCIAL, INC.

|                                                                                                                            | Page No. |   |   |
|---------------------------------------------------------------------------------------------------------------------------------|----------|--------|--------|
| PART I. FINANCIAL INFORMATION                                                                                              |     |   |   |
| Item l. Financial Statements                                                                                                    |     |   |   |
| Consolidated Statements of Financial Condition as of March 31, 2011 (unaudited) and December 31, 2010                           | 3        |   |   |
| Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010 (unaudited)                            | 4        |   |   |
| Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2011 and 2010 (unaudited) | 5        |   |   |
| Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited)                            | 6        |   |   |
| Notes to Consolidated Financial Statements (unaudited)                                                                          | 7-29     |   |   |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations                        | 30-43    |   |   |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk                                                         | 44       |   |   |
| Item 4. Controls and Procedures                                                                                            | 45       |   |   |
| PART II. OTHER INFORMATION                                                                                                      | 46       |   |   |
| Item 1. Legal Proceedings                                                                                                  | 46       |   |   |
| Item 1A. Risk Factors                                                                                                      | 46       |   |   |
| Item 6. Exhibits                                                                                                           | 46       |   |   |
| Signatures                                                                                                                      | 47       |   |   |
| Certification                                                                                                                   |     |
| Certification                                                                                                                   |     |   |
| Certification                                                                                                                   |     |   |
| Certification                                                                                                                   |     |   |

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

WATERSTONE FINANCIAL, INC AND SUBSIDIARIES

|                                                 |   | (Unaudited)                       |      |   |         |   |
|------------------------------------------------------|--------|-----------------------------------|-----------|--------|--------------|--------|
|                                                 |   | March 31,                         |      |   | December 31, |   |
|                                                 |   | 2011                              |      |   | 2010         |   |
| Assets                                               |   | (In Thousands, except share data) |      |
| Cash                                                 |   | $                                 | 116,104   |   |         |   | 65,900 |   |
| Federal funds sold                                   |   |                              | 8,738     |   |         |   | 9,426 |   |
| Short term investments                               |   |                              | -         |   |         |   | 5 |   |
| Cash and cash equivalents                            |   |                              | 124,842   |   |         |   | 75,331 |   |
| Securities available for sale (at fair value)        |   |                              | 206,269   |   |         |   | 203,166 |   |
| Securities held to maturity (at amortized cost),     |   |                              |      |   |         |   |   |   |
| fair value of $2,575 in 2011 and $2,501 in 2010      |   |                              | 2,648     |   |         |   | 2,648 |   |
| Loans held for sale (at fair value)                  |   |                              | 29,092    |   |         |   | 96,133 |   |
| Loans receivable                                     |   |                              | 1,274,393 |   |         |   | 1,306,437 |   |
| Less: Allowance for loan losses                      |   |                              | 32,094    |   |         |   | 29,175 |   |
| Loans receivable, net                                |   |                              | 1,242,299 |   |         |   | 1,277,262 |   |
| Office properties and equipment, net                 |   |                              | 28,005    |   |         |   | 28,196 |   |
| Federal Home Loan Bank stock (at cost)               |   |                              | 21,653    |   |         |   | 21,653 |   |
| Cash surrender value of life insurance               |   |                              | 35,537    |   |         |   | 35,385 |   |
| Real estate owned                                    |   |                              | 61,184    |   |         |   | 57,752 |   |
| Prepaid expenses and other assets                    |   |                              | 9,497     |   |         |   | 11,440 |   |
| Total assets                                         |   | $                                 | 1,761,026 |   |         |   | 1,808,966 |   |
|                                                 |   |                              |      |   |         |   |   |   |
| Liabilities and Shareholders’ Equity           |   |                              |      |   |         |   |   |   |
| Liabilities:                                         |   |                              |      |   |         |   |   |   |
| Demand deposits                                      |   | $                                 | 65,770    |   |         |   | 67,735 |   |
| Money market and savings deposits                    |   |                              | 105,776   |   |         |   | 103,403 |   |
| Time deposits                                        |   |                              | 957,862   |   |         |   | 974,391 |   |
| Total deposits                                       |   |                              | 1,129,408 |   |         |   | 1,145,529 |   |
|                                                 |   |                              |      |   |         |   |   |   |
| Short term borrowings                                |   |                              | 979       |   |         |   | 22,959 |   |
| Long term borrowings                                 |   |                              | 434,000   |   |         |   | 434,000 |   |
| Advance payments by borrowers for taxes              |   |                              | 8,767     |   |         |   | 2,379 |   |
| Other liabilities                                    |   |                              | 17,035    |   |         |   | 31,879 |   |
| Total liabilities                                    |   |                              | 1,590,189 |   |         |   | 1,636,746 |   |
|                                                 |   |                              |      |   |         |   |   |   |
| Shareholders’ equity:                          |   |                              |      |   |         |   |   |   |
| Preferred stock (par value $.01 per share)           |   |                              |      |   |         |   |   |   |
| Authorized 20,000,000 shares, no shares issued       |   |                              | —   |   |         |   | — |   |
| Common stock (par value $.01 per share)              |   |                              |      |   |         |   |   |   |
| Authorized - 200,000,000 shares in 2011 and 2010     |   |                              |      |   |         |   |   |   |
| Issued - 33,974,450 shares in 2011 and in 2010       |   |                              |      |   |         |   |   |   |
| Outstanding - 31,250,097 shares in 2011 and in 2010  |   |                              | 340       |   |         |   | 340 |   |
| Additional paid-in capital                           |   |                              | 110,224   |   |         |   | 109,953 |   |
| Accumulated other comprehensive income, net of taxes |   |                              | 1,234     |   |         |   | 1,558 |   |
| Retained earnings                                    |   |                              | 107,502   |   |         |   | 109,046 |   |
| Unearned ESOP shares                                 |   |                              | (3,202    | )      |         |   | (3,416 | ) |
| Treasury shares (2,724,353 shares), at cost          |   |                              | (45,261   | )      |         |   | (45,261 | ) |
| Total shareholders’ equity                     |   |                              | 170,837   |   |         |   | 172,220 |   |
| Total liabilities and shareholders’ equity     |   | $                                 | 1,761,026 |   |         |   | 1,808,966 |   |

Table of Contents

WATERSTONE FINANCIAL, INC AND SUBSIDIARIES

|                                                     |   | Three months endedMarch 31,             |       |
|----------------------------------------------------------|--------|-----------------------------------------|------------|
|                                                     |   | 2011                                    |       |   | 2010 |   |
|                                                     |   |  (In Thousands, except share data) |       |
| Interest income:                                         |   |                                    |       |   |   |   |
| Loans                                                    |   |  $                                 | 18,465     |   |   |   | 20,753 |   |
| Mortgage-related securities                              |   |                                    | 1,037      |   |   |   | 1,490 |   |
| Debt securities, cash and cash equivalents               |   |                                    | 835        |   |   |   | 806 |   |
| Total interest income                                    |   |                                    | 20,337     |   |   |   | 23,049 |   |
| Interest expense:                                        |   |                                    |       |   |   |   |   |   |
| Deposits                                                 |   |                                    | 4,099      |   |   |   | 5,845 |   |
| Borrowings                                               |   |                                    | 4,311      |   |   |   | 4,771 |   |
| Total interest expense                                   |   |                                    | 8,410      |   |   |   | 10,616 |   |
| Net interest income                                      |   |                                    | 11,927     |   |   |   | 12,433 |   |
| Provision for loan losses                                |   |                                    | 4,875      |   |   |   | 5,457 |   |
| Net interest income after provision for loan losses      |   |                                    | 7,052      |   |   |   | 6,976 |   |
| Noninterest income:                                      |   |                                    |       |   |   |   |   |   |
| Service charges on loans and deposits                    |   |                                    | 249        |   |   |   | 286 |   |
| Increase in cash surrender value of life insurance       |   |                                    | 152        |   |   |   | 182 |   |
| Mortgage banking income                                  |   |                                    | 6,163      |   |   |   | 3,591 |   |
| Other                                                    |   |                                    | 233        |   |   |   | 242 |   |
| Total noninterest income                                 |   |                                    | 6,797      |   |   |   | 4,301 |   |
| Noninterest expenses:                                    |   |                                    |       |   |   |   |   |   |
| Compensation, payroll taxes, and other employee benefits |   |                                    | 7,917      |   |   |   | 5,113 |   |
| Occupancy, office furniture and equipment                |   |                                    | 1,619      |   |   |   | 1,307 |   |
| Advertising                                              |   |                                    | 321        |   |   |   | 204 |   |
| Data processing                                          |   |                                    | 350        |   |   |   | 364 |   |
| Communications                                           |   |                                    | 258        |   |   |   | 233 |   |
| Professional fees                                        |   |                                    | 394        |   |   |   | 309 |   |
| Real estate owned                                        |   |                                    | 1,795      |   |   |   | 1,430 |   |
| FDIC insurance premiums                                  |   |                                    | 1,061      |   |   |   | 1,122 |   |
| Other                                                    |   |                                    | 1,639      |   |   |   | 1,019 |   |
| Total noninterest expenses                               |   |                                    | 15,354     |   |   |   | 11,101 |   |
| Income (loss) before income taxes                        |   |                                    | (1,505     | ) |   |   | 176 |   |
| Income taxes                                             |   |                                    | 39         |   |   |   | - |   |
| Net income (loss)                                        |   |  $                                 | (1,544     | ) |   |   | 176 |   |
| Income (loss) per share:                                 |   |                                    |       |   |   |   |   |   |
| Basic                                                    |   |  $                                 | (0.05      | ) |   |   | 0.01 |   |
| Diluted                                                  |   |  $                                 | (0.05      | ) |   |   | 0.01 |   |
| Weighted average shares outstanding:                     |   |                                    |       |   |   |   |   |   |
| Basic                                                    |   |                                    | 30,898,687 |   |   |   | 30,773,335 |   |
| Diluted                                                  |   |                                    | 30,898,687 |   |   |   | 30,773,335 |   |

Table of Contents

WATERSONE FINANCIAL, INC AND SUBSIDIARIES

|                                                                          |   |           |    |   |    |   |    |          |   |   | Accumulated |   |   |     |    |   |     |   |    |          |   |   |    |   |
|-------------------------------------------------------------------------------|--------|----------------|---------|--------|---------|--------|---------|---------------|--------|--------|-------------|--------|--------|----------|---------|--------|----------|--------|---------|---------------|--------|--------|---------|--------|
|                                                                          |   |           |    |   |    |   |    | Additional    |   |   | Other       |   |   |     |    |   | Unearned |   |    |          |   |   | Total   |   |
|                                                                          |   | Common Stock   |    |   | Paid-In |   |    | Comprehensive |   |   | Retained    |   |   | ESOP     |    |   | Treasury |   |    | Shareholders' |   |
|                                                                          |   | Shares         |    |   | Amount  |   |    | Capital       |   |   | Loss        |   |   | Earnings |    |   | Shares   |   |    | Shares        |   |   | Equity  |   |
|                                                                          |   | (In Thousands) |    |
| Balances at December 31, 2009                                                 |   |           | 31,250  |   |    | $      | 340     |          |   |   | 108,883     |   |   |     | (2,001  | )      |     |   | 110,900 |          |   |   | (4,269  | )      |   |   | (45,261 | ) |   |   | 168,592 |   |
|                                                                          |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
|                                                                          |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
| Comprehensive income:                                                         |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
| Net income                                                                    |   |           | — |   |    |   | — |          |   |   | —     |   |   |     | — |   |     |   | 176     |          |   |   | — |   |   |   | — |   |   |   | 176 |   |
| Other comprehensive income:                                                   |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
| Net unrealized holding gain on                                                |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
| available for sale securities arising during the period, net of taxes of $588 |   |           | — |   |    |   | — |          |   |   | —     |   |   |     | 1,043   |   |     |   | — |          |   |   | — |   |   |   | — |   |   |   | 1,043 |   |
| Reclassification of adjustment for net losses on                              |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
| available for sale securities realized during the period, net of taxes of $4  |   |           | — |   |    |   | — |          |   |   | —     |   |   |     | 7       |   |     |   | — |          |   |   | — |   |   |   | — |   |   |   | 7 |   |
| Total comprehensive income                                                    |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   | 1,226 |   |
|                                                                          |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
| ESOP shares committed to be released to Plan participants                     |   |           | — |   |    |   | — |          |   |   | (165        | )      |   |     | — |   |     |   | — |          |   |   | 213     |   |   |   | — |   |   |   | 48 |   |
| Stock based compensation                                                      |   |           | — |   |    |   | — |          |   |   | 413         |   |   |     | — |   |     |   | — |          |   |   | — |   |   |   | — |   |   |   | 413 |   |
|                                                                          |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
| Balances at March 31, 2010                                                    |   |           | 31,250  |   |    | $      | 340     |          |   |   | 109,131     |   |   |     | (951    | )      |     |   | 111,076 |          |   |   | (4,056  | )      |   |   | (45,261 | ) |   |   | 170,279 |   |
|                                                                          |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
|                                                                          |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
| Balances at December 31, 2010                                                 |   |           | 31,250  |   |    | $      | 340     |          |   |   | 109,953     |   |   |     | 1,558   |   |     |   | 109,046 |          |   |   | (3,416  | )      |   |   | (45,261 | ) |   |   | 172,220 |   |
|                                                                          |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
| Comprehensive income (loss):                                                  |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
| Net loss                                                                      |   |           | — |   |    |   | — |          |   |   | —     |   |   |     | — |   |     |   | (1,544  | )             |   |   | — |   |   |   | — |   |   |   | (1,544 | ) |
| Other comprehensive income (loss):                                            |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
| Net unrealized holding loss on                                                |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
| available for sale securities arising during the period, net of taxes of $51  |   |           | — |   |    |   | — |          |   |   | —     |   |   |     | (324    | )      |     |   | — |          |   |   | — |   |   |   | — |   |   |   | (324 | ) |
| Total comprehensive income (loss)                                             |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   | (1,868 | ) |
|                                                                          |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
| ESOP shares committed to be released to Plan participants                     |   |           | — |   |    |   | — |          |   |   | (160        | )      |   |     | — |   |     |   | — |          |   |   | 214     |   |   |   | — |   |   |   | 54 |   |
| Stock based compensation                                                      |   |           | — |   |    |   | — |          |   |   | 431         |   |   |     | — |   |     |   | — |          |   |   | — |   |   |   | — |   |   |   | 431 |   |
|                                                                          |   |           |    |   |    |   |    |          |   |   |        |   |   |     |    |   |     |   |    |          |   |   |    |   |   |   |   |   |   |   |   |   |
| Balances at March 31, 2011                                                    |   |           | 31,250  |   |    | $      | 340     |          |   |   | 110,224     |   |   |     | 1,234   |   |     |   | 107,502 |          |   |   | (3,202  | )      |   |   | (45,261 | ) |   |   | 170,837 |   |

Table of Contents

WATERSONE FINANCIAL, INC AND SUBSIDIARIES

|                                                                |   | Three months ended March 31, |     |
|---------------------------------------------------------------------|--------|------------------------------|----------|
|                                                                |   | 2011                         |     |   | 2010 |   |
|                                                                |   | (In Thousands)               |     |
| Operating activities:                                               |   |                         |     |   |   |   |
| Net income (loss)                                                   |   | $                            | (1,544   | ) |   |   | 176 |   |
| Adjustments to reconcile net income (loss) to net                   |   |                         |     |   |   |   |   |   |
| cash provided by operating activities:                              |   |                         |     |   |   |   |   |   |
| Provision for loan losses                                           |   |                         | 4,875    |   |   |   | 5,457 |   |
| Depreciation                                                        |   |                         | 466      |   |   |   | 465 |   |
| Deferred income taxes                                               |   |                         | 39       |   |   |   | (168 | ) |
| Stock based compensation                                            |   |                         | 431      |   |   |   | 413 |   |
| Net amortization of premium on debt and mortgage-related securities |   |                         | 135      |   |   |   | (6 | ) |
| Amortization of unearned ESOP shares                                |   |                         | 54       |   |   |   | 48 |   |
| Loss on sale of real estate owned and other assets                  |   |                         | 215      |   |   |   | 201 |   |
| Gain on sale of loans held for sale                                 |   |                         | (6,163   | ) |   |   | (3,455 | ) |
| Loans originated for sale                                           |   |                         | (182,970 | ) |   |   | (151,582 | ) |
| Proceeds on sales of loans originated for sale                      |   |                         | 256,174  |   |   |   | 160,817 |   |
| Increase in accrued interest receivable                             |   |                         | (80      | ) |   |   | (345 | ) |
| Increase in cash surrender value of bank owned life insurance       |   |                         | (152     | ) |   |   | (182 | ) |
| Decrease in accrued interest on deposits and borrowings             |   |                         | (166     | ) |   |   | (643 | ) |
| Decrease in other liabilities                                       |   |                         | (10,679  | ) |   |   | (3,417 | ) |
| (Increase) decrease in accrued tax receivable                       |   |                         | (67      | ) |   |   | 3,111 |   |
| Other                                                               |   |                         | 2,028    |   |   |   | 858 |   |
| Net cash provided by operating activities                           |   |                         | 62,596   |   |   |   | 11,748 |   |
|                                                                |   |                         |     |   |   |   |   |   |
| Investing activities:                                               |   |                         |     |   |   |   |   |   |
| Net decrease in loans receivable                                    |   |                         | 20,777   |   |   |   | 3,407 |   |
| Purchases of:                                                       |   |                         |     |   |   |   |   |   |
| Debt securities                                                     |   |                         | (25,382  | ) |   |   | (30,000 | ) |
| Premises and equipment, net                                         |   |                         | (287     | ) |   |   | (128 | ) |
| Proceeds from:                                                      |   |                         |     |   |   |   |   |   |
| Principal repayments on mortgage-related securities                 |   |                         | 9,727    |   |   |   | 9,567 |   |
| Sales of mortgage-related securities                                |   |                         | —  |   |   |   | 2,056 |   |
| Sales of debt securities                                            |   |                         | —  |   |   |   | 8,349 |   |
| Maturities of debt securities                                       |   |                         | 8,184    |   |   |   | 15,303 |   |
| Sales of real estate owned and other assets                         |   |                         | 5,609    |   |   |   | 4,650 |   |
| Net cash provided by investing activities                           |   |                         | 18,628   |   |   |   | 13,204 |   |

| Financing activities:                                           |   |   |    |   |   |   |
|-----------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
|   Net increase (decrease) in deposits                      |   |   | (16,121 | )      |   |   | 13,629 |   |
|   Net change in short-term borrowings                      |   |   | (21,980 | )      |   |   | (37,000 | ) |
|   Net change in advance payments by borrowers for taxes    |   |   | 6,388   |   |   |   | 7,415 |   |
|     Net cash used in financing activities             |   |   | (31,713 | )      |   |   | (15,956 | ) |
|     Increase in cash and cash equivalents        |   |   | 49,511  |   |   |   | 8,996 |   |
| Cash and cash equivalents at beginning of period                |   |   | 75,331  |   |   |   | 71,120 |   |
| Cash and cash equivalents at end of period                      |   | $      | 124,842 |   |   |   | 80,116 |   |
|                                                            |   |   |    |   |   |   |   |   |
| Supplemental information:                                       |   |   |    |   |   |   |   |   |
|   Cash paid, credited or (received) during the period for: |   |   |    |   |   |   |   |   |
|     Income tax payments (refunds)                |   |   | 67      |   |   |   | (3,111 | ) |
|     Interest payments                            |   |   | 8,575   |   |   |   | 11,259 |   |
|   Noncash investing activities:                            |   |   |    |   |   |   |   |   |
|     Loans receivable transferred to real estate owned |   |   | 9,311   |   |   |   | 7,248 |   |

Table of Contents

WATERSTONE FINANCIAL, INC AND SUBSIDIARIES

Table of Contents

|                                   |   | March 31, 2011 |    |
|----------------------------------------|--------|----------------|---------|
|                                   |   |           |    |   | Gross |   |   | Gross |   |   |   |   |
|                                   |   | Amortized      |    |   | unrealized |   |   | unrealized |   |   |   |   |
|                                   |   | cost           |    |   | gains |   |   | losses |   |   | Fair value |   |
|                                   |   | (In Thousands) |    |
| Mortgage-backed securities             |   | $              | 38,878  |   |   |   | 1,778 |   |   |   | (71 | ) |   |   | 40,585 |   |
| Collateralized mortgage obligations:   |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Government sponsored enterprise issued |   |           | 33,577  |   |   |   | 864 |   |   |   | (116 | ) |   |   | 34,325 |   |
| Private-label issued                   |   |           | 24,793  |   |   |   | 254 |   |   |   | (1,079 | ) |   |   | 23,968 |   |
| Mortgage-related securities            |   |           | 97,248  |   |   |   | 2,896 |   |   |   | (1,266 | ) |   |   | 98,878 |   |
|                                   |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Government sponsored enterprise bonds  |   |           | 63,736  |   |   |   | 235 |   |   |   | (52 | ) |   |   | 63,919 |   |
| Municipal securities                   |   |           | 38,591  |   |   |   | 815 |   |   |   | (1,188 | ) |   |   | 38,218 |   |
| Other debt securities                  |   |           | 5,000   |   |   |   | 254 |   |   |   | — |   |   |   | 5,254 |   |
| Debt securities                        |   |           | 107,327 |   |   |   | 1,304 |   |   |   | (1,240 | ) |   |   | 107,391 |   |
|                                   |   | $              | 204,575 |   |   |   | 4,200 |   |   |   | (2,506 | ) |   |   | 206,269 |   |

|                                   |   | December 31, 2010 |    |
|----------------------------------------|--------|-------------------|---------|
|                                   |   |              |    |   | Gross |   |   | Gross |   |   |   |   |
|                                   |   | Amortized         |    |   | unrealized |   |   | unrealized |   |   |   |   |
|                                   |   | cost              |    |   | gains |   |   | losses |   |   | Fair value |   |
|                                   |   | (In Thousands)    |    |
| Mortgage-backed securities             |   | $                 | 42,607  |   |   |   | 1,839 |   |   |   | (116 | ) |   |   | 44,330 |   |
| Collateralized mortgage obligations:   |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Government sponsored enterprise issued |   |              | 38,262  |   |   |   | 1,141 |   |   |   | (126 | ) |   |   | 39,277 |   |
| Private-label issued                   |   |              | 26,199  |   |   |   | 280 |   |   |   | (1,032 | ) |   |   | 25,447 |   |
| Mortgage-related securities            |   |              | 107,068 |   |   |   | 3,260 |   |   |   | (1,274 | ) |   |   | 109,054 |   |
|                                   |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Government sponsored enterprise bonds  |   |              | 57,327  |   |   |   | 391 |   |   |   | (20 | ) |   |   | 57,698 |   |
| Municipal securities                   |   |              | 31,804  |   |   |   | 721 |   |   |   | (1,405 | ) |   |   | 31,120 |   |
| Other debt securities                  |   |              | 5,000   |   |   |   | 294 |   |   |   | — |   |   |   | 5,294 |   |
| Debt securities                        |   |              | 94,131  |   |   |   | 1,406 |   |   |   | (1,425 | ) |   |   | 94,112 |   |
|                                   |   | $                 | 201,199 |   |   |   | 4,666 |   |   |   | (2,699 | ) |   |   | 203,166 |   |

Table of Contents

|                                                     |   | Amortized      |    |   | Fair   |   |
|----------------------------------------------------------|--------|----------------|---------|--------|--------|--------|
|                                                     |   | Cost           |    |   | Value  |   |
|                                                     |   | (In Thousands) |    |
| Debt securities                                          |   |           |    |   |   |   |
|    Due within one year                    |   | $              | 6,779   |   |   |   | 6,783 |   |
|    Due after one year through five years  |   |           | 76,290  |   |   |   | 76,884 |   |
|    Due after five years through ten years |   |           | 8,645   |   |   |   | 9,021 |   |
|    Due after ten years                    |   |           | 15,613  |   |   |   | 14,703 |   |
| Mortgage-related securities                              |   |           | 97,248  |   |   |   | 98,878 |   |
|                                                     |   | $              | 204,575 |   |   |   | 206,269 |   |

|                                                        |   | March 31, 2011       |    |
|-------------------------------------------------------------|--------|----------------------|---------|
|                                                        |   | Less than 12 months  |    |   | 12 months or longer |   |   | Total |   |
|                                                        |   | Fair                 |    |   | Unrealized |   |   | Fair |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                                        |   | value                |    |   | loss |   |   | value |   |   | loss |   |   | value |   |   | loss |   |
|                                                        |   | (In Thousands)       |    |
| Mortgage-backed securities                                  |   | $                    | 12,995  |   |   |   | (71 | ) |   |   | — |   |   |   | — |   |   |   | 12,995 |   |   |   | (71 | ) |
| Collateralized mortgage obligations:                        |   |                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Government sponsored entities |   |                 | 12,181  |   |   |   | (116 | ) |   |   | — |   |   |   | — |   |   |   | 12,181 |   |   |   | (116 | ) |
|      Private-label issue           |   |                 | 200     |   |   |   | (1 | ) |   |   | 15,978 |   |   |   | (1,078 | ) |   |   | 16,178 |   |   |   | (1,079 | ) |
| Government sponsored enterprise bonds                       |   |                 | 17,934  |   |   |   | (52 | ) |   |   | — |   |   |   | — |   |   |   | 17,934 |   |   |   | (52 | ) |
| Municipal securities                                        |   |                 | 5,419   |   |   |   | (434 | ) |   |   | 3,731 |   |   |   | (754 | ) |   |   | 9,150 |   |   |   | (1,188 | ) |
|                                                        |   | $                    | 48,729  |   |   |   | (674 | ) |   |   | 19,709 |   |   |   | (1,832 | ) |   |   | 68,438 |   |   |   | (2,506 | ) |
|                                                        |   |                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                        |   |                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                        |   | December 31, 2010    |    |
|                                                        |   | Less than 12 months  |    |   | 12 months or longer |   |   | Total |   |
|                                                        |   | Fair                 |    |   | Unrealized |   |   | Fair |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                                        |   | value                |    |   | loss |   |   | value |   |   | loss |   |   | value |   |   | loss |   |
|                                                        |   |  (In Thousands) |    |
| Mortgage-backed securities                                  |   | $                    | 14,215  |   |   |   | (116 | ) |   |   | — |   |   |   | — |   |   |   | 14,215 |   |   |   | (116 | ) |
| Collateralized mortgage obligations:                        |   |                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Government sponsored entities |   |                 | 13,145  |   |   |   | (126 | ) |   |   | — |   |   |   | — |   |   |   | 13,145 |   |   |   | (126 | ) |
|      Private-label issue           |   |                 | — |   |   |   | — |   |   |   | 16,908 |   |   |   | (1,032 | ) |   |   | 16,908 |   |   |   | (1,032 | ) |
| Government sponsored enterprise bonds                       |   |                 | 7,553   |   |   |   | (20 | ) |   |   | — |   |   |   | — |   |   |   | 7,553 |   |   |   | (20 | ) |
| Municipal securities                                        |   |                 | 7,206   |   |   |   | (545 | ) |   |   | 3,619 |   |   |   | (860 | ) |   |   | 10,825 |   |   |   | (1,405 | ) |
|                                                        |   | $                    | 42,119  |   |   |   | (807 | ) |   |   | 20,527 |   |   |   | (1,892 | ) |   |   | 62,646 |   |   |   | (2,699 | ) |

Table of Contents

|                                                                                  |   | (in thousands) |   |
|---------------------------------------------------------------------------------------|--------|----------------|--------|
| Credit related impairments on securities as of December 31, 2009                      |   |           | 1,762  |   |
| Credit related impairments related to securites for which an other-than-temporary     |   |           |   |   |
|      impairment was not previously recognized                |   |           | -      |   |
| Increase in credit related impairments related to securities for which an other-than- |   |           |   |   |
|      temporary impairment was previously recognized          |   |           | -      |   |
| Reduction for increases in cash flows expected over the remaining life                |   |           |   |   |
|      of the securities                                       |   |           | (122   | ) |
| Credit related impairments on securities as of December 31, 2010                      |   | $              | 1,640  |   |
| Credit related impairments related to securites for which an other-than-temporary     |   |           |   |   |
|      impairment was not previously recognized                |   |           | -      |   |
| Increase in credit related impairments related to securities for which an other-than- |   |           |   |   |
|      temporary impairment was previously recognized          |   |           | -      |   |
| Reduction for increases in cash flows expected over the remaining life                |   |           |   |   |
|      of the securities                                       |   |           | -      |   |
| Credit related impairments on securities as of March 31, 2011                         |   | $              | 1,640  |   |

Table of Contents

|                         |   | March 31,      |      |   | December 31, |   |
|------------------------------|--------|----------------|-----------|--------|--------------|--------|
|                         |   | 2011           |      |   | 2010         |   |
|                         |   | (In Thousands) |      |
| Mortgage loans:              |   |           |      |   |         |   |
| Residential real estate:     |   |           |      |   |         |   |
| One- to four-family          |   | $              | 563,641   |   |         |   | 584,014 |   |
| Over four-family residential |   |           | 539,253   |   |         |   | 542,602 |   |
| Home equity                  |   |           | 68,889    |   |         |   | 71,952 |   |
| Commercial real estate       |   |           | 50,234    |   |         |   | 51,733 |   |
| Construction and land        |   |           | 55,209    |   |         |   | 56,794 |   |
| Consumer loans               |   |           | 135       |   |         |   | 154 |   |
| Commercial business loans    |   |           | 37,799    |   |         |   | 40,442 |   |
| Gross loans receivable       |   |           | 1,315,160 |   |         |   | 1,347,691 |   |
| Less:                        |   |           |      |   |         |   |   |   |
| Undisbursed loan proceeds    |   |           | 38,826    |   |         |   | 39,265 |   |
| Unearned loan fees           |   |           | 1,941     |   |         |   | 1,989 |   |
| Total loans receivable       |   | $              | 1,274,393 |   |         |   | 1,306,437 |   |

Table of Contents

|                     |   | As of March 31, 2011    |   |
|--------------------------|--------|-------------------------|--------|
|                     |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                     |   | 1-59 Days Past Due (1)  |   |   | 60-89 Days Past Due (2) |   |   | Greater Than 90 Days |   |   | Total Past Due |   |   | Current (3) |   |   | Total Loans |   |
| Mortgage loans:          |   | (In Thousands)          |   |
| Residential real estate: |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One- to four-family      |   | $                       | 27,966 |   |   |   | 3,470 |   |   |   | 36,422 |   |   |   | 67,858 |   |   |   | 493,842 |   |   |   | 561,700 |   |
| Over four-family         |   |                    | 2,953  |   |   |   | 1,037 |   |   |   | 10,948 |   |   |   | 14,938 |   |   |   | 524,315 |   |   |   | 539,253 |   |
| Home equity              |   |                    | 583    |   |   |   | 111 |   |   |   | 227 |   |   |   | 921 |   |   |   | 43,268 |   |   |   | 44,189 |   |
| Construction and land    |   |                    | 457    |   |   |   | 62 |   |   |   | 1,882 |   |   |   | 2,401 |   |   |   | 48,265 |   |   |   | 50,666 |   |
| Commercial real estate   |   |                    | 761    |   |   |   | - |   |   |   | 997 |   |   |   | 1,758 |   |   |   | 48,476 |   |   |   | 50,234 |   |
| Consumer                 |   |                    | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 135 |   |   |   | 135 |   |
| Commercial loans         |   |                    | -      |   |   |   | - |   |   |   | 868 |   |   |   | 868 |   |   |   | 27,348 |   |   |   | 28,216 |   |
| Total                    |   | $                       | 32,720 |   |   |   | 4,680 |   |   |   | 51,344 |   |   |   | 88,744 |   |   |   | 1,185,649 |   |   |   | 1,274,393 |   |
|                     |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                     |   | As of December 31, 2010 |   |
| Mortgage loans:          |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential real estate: |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One- to four-family      |   | $                       | 13,220 |   |   |   | 7,887 |   |   |   | 44,055 |   |   |   | 65,162 |   |   |   | 516,864 |   |   |   | 582,026 |   |
| Over four-family         |   |                    | 1,639  |   |   |   | 2,366 |   |   |   | 12,307 |   |   |   | 16,312 |   |   |   | 526,290 |   |   |   | 542,602 |   |
| Home equity              |   |                    | 497    |   |   |   | 96 |   |   |   | 207 |   |   |   | 800 |   |   |   | 45,349 |   |   |   | 46,149 |   |
| Construction and land    |   |                    | 586    |   |   |   | 1,326 |   |   |   | 2,754 |   |   |   | 4,666 |   |   |   | 49,295 |   |   |   | 53,961 |   |
| Commercial real estate   |   |                    | 574    |   |   |   | 222 |   |   |   | 1,101 |   |   |   | 1,897 |   |   |   | 49,836 |   |   |   | 51,733 |   |
| Consumer                 |   |                    | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 154 |   |   |   | 154 |   |
| Commercial loans         |   |                    | 394    |   |   |   | - |   |   |   | 1,432 |   |   |   | 1,826 |   |   |   | 27,986 |   |   |   | 29,812 |   |
| Total                    |   | $                       | 16,910 |   |   |   | 11,897 |   |   |   | 61,856 |   |   |   | 90,663 |   |   |   | 1,215,774 |   |   |   | 1,306,437 |   |

| (1)   | Includes $11.6 million and $3.5 million for March 31, 2011 and December 31, 2010, respectively, which are on non-accrual status. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Includes $4.7 million and $3.0 million for March 31, 2011 and December 31, 2010, respectively, which are on non-accrual status. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Includes $16.4 million and $15.8 million for March 31, 2011 and December 31, 2010, respectively, which are on non-accrual status. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------|

Table of Contents

|                              |   |                 |   |   |             |   |   |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |
|-----------------------------------|--------|----------------------|--------|--------|------------------|--------|--------|-------------|--------|--------|-----------------------|--------|--------|------------------------|--------|--------|----------|--------|--------|------------|--------|--------|--------|--------|
|                              |   | One- to Four- Family |   |   | Over Four Family |   |   | Home Equity |   |   | Construction and Land |   |   | Commercial Real Estate |   |   | Consumer |   |   | Commercial |   |   | Total  |   |
|                              |   | (In Thousands)       |   |
|                              |   |                 |   |   |             |   |   |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |
| Three months ended March 31, 2011 |   |                 |   |   |             |   |   |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |
| Balance at beginning of period    |   | $                    | 16,150 |   |             |   | 6,877  |        |   |   | 1,196                 |   |   |                   | 3,252  |   |     |   | 671    |       |   |   | 28     |   |   |   | 1,001 |   |   |   | 29,175 |   |
| Provision for loan losses         |   |                 | 2,948  |   |             |   | 1,323  |        |   |   | (5                    | )      |   |                   | (26    | )      |     |   | 284    |       |   |   | 5      |   |   |   | 346 |   |   |   | 4,875 |   |
| Charge-offs                       |   |                 | (1,033 | )      |             |   | (524   | )           |   |   | (73                   | )      |   |                   | (4     | )      |     |   | (176   | )          |   |   | (8     | )      |   |   | (185 | ) |   |   | (2,003 | ) |
| Recoveries                        |   |                 | 33     |   |             |   | 11     |        |   |   | 2                     |   |   |                   | -      |   |     |   | -      |       |   |   | 1      |   |   |   | - |   |   |   | 47 |   |
| Balance at end of period          |   | $                    | 18,098 |   |             |   | 7,687  |        |   |   | 1,120                 |   |   |                   | 3,222  |   |     |   | 779    |       |   |   | 26     |   |   |   | 1,162 |   |   |   | 32,094 |   |
|                              |   |                 |   |   |             |   |   |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                              |   |                 |   |   |             |   |   |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Three months ended March 31, 2010 |   |                 |   |   |             |   |   |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |
| Balance at beginning of period    |   | $                    | 17,875 |   |             |   | 5,208  |        |   |   | 1,642                 |   |   |                   | 2,635  |   |     |   | 720    |       |   |   | 43     |   |   |   | 371 |   |   |   | 28,494 |   |
| Provision for loan losses         |   |                 | 3,089  |   |             |   | 1,774  |        |   |   | (293                  | )      |   |                   | 355    |   |     |   | 105    |       |   |   | 3      |   |   |   | 424 |   |   |   | 5,457 |   |
| Charge-offs                       |   |                 | (1,668 | )      |             |   | (585   | )           |   |   | -                     |   |   |                   | -      |   |     |   | (117   | )          |   |   | (2     | )      |   |   | (1 | ) |   |   | (2,373 | ) |
| Recoveries                        |   |                 | 49     |   |             |   | -      |        |   |   | 1                     |   |   |                   | 2      |   |     |   | -      |       |   |   | -      |   |   |   | - |   |   |   | 52 |   |
| Balance at end of period          |   | $                    | 19,345 |   |             |   | 6,397  |        |   |   | 1,350                 |   |   |                   | 2,992  |   |     |   | 708    |       |   |   | 44     |   |   |   | 794 |   |   |   | 31,630 |   |

|                                        |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |
|---------------------------------------------|--------|----------------------|---------|--------|------------------|--------|---------|-------------|--------|--------|-----------------------|--------|--------|------------------------|--------|--------|----------|--------|--------|------------|--------|--------|--------|--------|
|                                        |   | One- to Four- Family |    |   | Over Four Family |   |    | Home Equity |   |   | Construction and Land |   |   | Commercial Real Estate |   |   | Consumer |   |   | Commercial |   |   | Total  |   |
|                                        |   | (In Thousands)       |    |
| Allowance related to loans                  |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |
| individually evaluated for impairment       |   | $                    | 6,811   |   |             |   | 2,803   |        |   |   | 213                   |   |   |                   | 2,212  |   |     |   | 142    |       |   |   | -      |   |   |   | 493 |   |   |   | 12,674 |   |
| Allowance related to loans                  |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| collectively evaluated for impairment       |   |                 | 11,287  |   |             |   | 4,884   |        |   |   | 907                   |   |   |                   | 1,010  |   |     |   | 637    |       |   |   | 26     |   |   |   | 669 |   |   |   | 19,420 |   |
|                                        |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at end of period                    |   | $                    | 18,098  |   |             |   | 7,687   |        |   |   | 1,120                 |   |   |                   | 3,222  |   |     |   | 779    |       |   |   | 26     |   |   |   | 1,162 |   |   |   | 32,094 |   |
|                                        |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                        |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                        |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans individually evaluated for impairment |   | $                    | 78,023  |   |             |   | 31,448  |        |   |   | 846                   |   |   |                   | 11,896 |   |     |   | 2,349  |       |   |   | -      |   |   |   | 1,323 |   |   |   | 125,885 |   |
|                                        |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans collectively evaluated for impairment |   |                 | 483,677 |   |             |   | 507,805 |        |   |   | 43,343                |   |   |                   | 38,770 |   |     |   | 47,885 |       |   |   | 135    |   |   |   | 26,893 |   |   |   | 1,148,508 |   |
|                                        |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total gross loans                           |   | $                    | 561,700 |   |             |   | 539,253 |        |   |   | 44,189                |   |   |                   | 50,666 |   |     |   | 50,234 |       |   |   | 135    |   |   |   | 28,216 |   |   |   | 1,274,393 |   |

Table of Contents

|                                        |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |
|---------------------------------------------|--------|----------------------|---------|--------|------------------|--------|---------|-------------|--------|--------|-----------------------|--------|--------|------------------------|--------|--------|----------|--------|--------|------------|--------|--------|--------|--------|
|                                        |   | One- to Four- Family |    |   | Over Four Family |   |    | Home Equity |   |   | Construction and Land |   |   | Commercial Real Estate |   |   | Consumer |   |   | Commercial |   |   | Total  |   |
|                                        |   | (In Thousands)       |    |
| Allowance related to loans                  |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |
| individually evaluated for impairment       |   | $                    | 5,775   |   |             |   | 2,548   |        |   |   | 311                   |   |   |                   | 2,112  |   |     |   | 162    |       |   |   | -      |   |   |   | 185 |   |   |   | 11,093 |   |
| Allowance related to loans                  |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| collectively evaluated for impairment       |   |                 | 10,375  |   |             |   | 4,329   |        |   |   | 885                   |   |   |                   | 1,140  |   |     |   | 509    |       |   |   | 28     |   |   |   | 816 |   |   |   | 18,082 |   |
|                                        |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at end of period                    |   | $                    | 16,150  |   |             |   | 6,877   |        |   |   | 1,196                 |   |   |                   | 3,252  |   |     |   | 671    |       |   |   | 28     |   |   |   | 1,001 |   |   |   | 29,175 |   |
|                                        |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                        |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                        |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans individually evaluated for impairment |   | $                    | 78,434  |   |             |   | 30,288  |        |   |   | 804                   |   |   |                   | 12,337 |   |     |   | 1,838  |       |   |   | -      |   |   |   | 2,030 |   |   |   | 125,731 |   |
|                                        |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans collectively evaluated for impairment |   |                 | 503,592 |   |             |   | 512,314 |        |   |   | 45,345                |   |   |                   | 41,624 |   |     |   | 49,895 |       |   |   | 154    |   |   |   | 27,782 |   |   |   | 1,180,706 |   |
|                                        |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total gross loans                           |   | $                    | 582,026 |   |             |   | 542,602 |        |   |   | 46,149                |   |   |                   | 53,961 |   |     |   | 51,733 |       |   |   | 154    |   |   |   | 29,812 |   |   |   | 1,306,437 |   |

|                 |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |
|----------------------|--------|----------------------|---------|--------|------------------|--------|---------|-------------|--------|--------|-----------------------|--------|--------|------------------------|--------|--------|----------|--------|--------|------------|--------|--------|--------|--------|
|                 |   | One- to Four- Family |    |   | Over Four Family |   |    | Home Equity |   |   | Construction and Land |   |   | Commercial Real Estate |   |   | Consumer |   |   | Commercial |   |   | Total  |   |
| At March 31, 2011    |   | (In Thousands)       |    |
|                 |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |
| Substandard          |   | $                    | 76,596  |   |             |   | 28,826  |        |   |   | 2,074                 |   |   |                   | 10,424 |   |     |   | 2,513  |       |   |   | -      |   |   |   | 1,513 |   |   |   | 121,946 |   |
|                 |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Watch                |   |                 | 23,969  |   |             |   | 27,782  |        |   |   | 1,537                 |   |   |                   | 8,725  |   |     |   | 2,042  |       |   |   | -      |   |   |   | 416 |   |   |   | 64,471 |   |
|                 |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Pass                 |   |                 | 461,135 |   |             |   | 482,645 |        |   |   | 40,578                |   |   |                   | 31,517 |   |     |   | 45,679 |       |   |   | 135    |   |   |   | 26,287 |   |   |   | 1,087,976 |   |
|                 |   | $                    | 561,700 |   |             |   | 539,253 |        |   |   | 44,189                |   |   |                   | 50,666 |   |     |   | 50,234 |       |   |   | 135    |   |   |   | 28,216 |   |   |   | 1,274,393 |   |
|                 |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                 |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                 |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| At December 31, 2010 |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                 |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Substandard          |   | $                    | 72,846  |   |             |   | 25,071  |        |   |   | 1,874                 |   |   |                   | 9,569  |   |     |   | 1,936  |       |   |   | -      |   |   |   | 2,557 |   |   |   | 113,853 |   |
|                 |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Watch                |   |                 | 24,343  |   |             |   | 30,877  |        |   |   | 1,401                 |   |   |                   | 14,394 |   |     |   | 892    |       |   |   | -      |   |   |   | 706 |   |   |   | 72,613 |   |
|                 |   |                 |    |   |             |   |    |        |   |   |                  |   |   |                   |   |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Pass                 |   |                 | 484,837 |   |             |   | 486,654 |        |   |   | 42,874                |   |   |                   | 29,998 |   |     |   | 48,905 |       |   |   | 154    |   |   |   | 26,549 |   |   |   | 1,119,971 |   |
|                 |   | $                    | 582,026 |   |             |   | 542,602 |        |   |   | 46,149                |   |   |                   | 53,961 |   |     |   | 51,733 |       |   |   | 154    |   |   |   | 29,812 |   |   |   | 1,306,437 |   |

Table of Contents

|                           |   | As of or for the Period Ended March 31, 2011 |    |
|--------------------------------|--------|----------------------------------------------|---------|
|                           |   | Recorded Investment                          |    |   | Unpaid Pricipal |   |   | Reserve |   |   | Charge-Offs |   | AverageRecordedInvestment |   | Int Paid YTD |   |
|                           |   | (In Thousands)                               |    |
| Total Impaired with Reserve    |   |                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One- to four-family            |   | $                                            | 47,684  |   |   |   | 49,311 |   |   |   | 6,811 |   |   |   | 1,627 |   |   42,079 |   |   | 163 |   |
| Over four-family               |   |                                         | 22,406  |   |   |   | 22,541 |   |   |   | 2,803 |   |   |   | 135 |   |   20,575 |   |   | 117 |   |
| Construction and land          |   |                                         | 9,560   |   |   |   | 9,560 |   |   |   | 2,212 |   |   |   | - |   |   9,373 |   |   | 59 |   |
| Commercial real estate         |   |                                         | 1,399   |   |   |   | 3,153 |   |   |   | 142 |   |   |   | 1,754 |   |   1,082 |   |   | - |   |
| Home equity                    |   |                                         | 599     |   |   |   | 599 |   |   |   | 213 |   |   |   | - |   |   605 |   |   | 3 |   |
| Commercial                     |   |                                         | 569     |   |   |   | 569 |   |   |   | 493 |   |   |   | - |   |   349 |   |   | 2 |   |
|                           |   | $                                            | 82,217  |   |   |   | 85,733 |   |   |   | 12,674 |   |   |   | 3,516 |   |   74,063 |   |   | 344 |   |
|                           |   |                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Impaired with no Reserve |   |                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                           |   |                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One- to four-family            |   | $                                            | 30,339  |   |   |   | 34,393 |   |   |   | - |   |   |   | 4,054 |   |   35,053 |   |   | 211 |   |
| Over four-family               |   |                                         | 9,042   |   |   |   | 12,215 |   |   |   | - |   |   |   | 3,173 |   |   9,885 |   |   | 41 |   |
| Construction and land          |   |                                         | 2,336   |   |   |   | 2,336 |   |   |   | - |   |   |   | - |   |   3,148 |   |   | 7 |   |
| Commercial real estate         |   |                                         | 950     |   |   |   | 1,118 |   |   |   | - |   |   |   | 168 |   |   882 |   |   | 15 |   |
| Home equity                    |   |                                         | 247     |   |   |   | 247 |   |   |   | - |   |   |   | - |   |   247 |   |   | 2 |   |
| Commercial                     |   |                                         | 754     |   |   |   | 1,229 |   |   |   | - |   |   |   | 475 |   |   1,129 |   |   | 4 |   |
|                           |   | $                                            | 43,668  |   |   |   | 51,538 |   |   |   | - |   |   |   | 7,870 |   |   50,344 |   |   | 280 |   |
|                           |   |                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Impaired                 |   |                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                           |   |                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One- to four-family            |   | $                                            | 78,023  |   |   |   | 83,704 |   |   |   | 6,811 |   |   |   | 5,681 |   |   77,132 |   |   | 374 |   |
| Over four-family               |   |                                         | 31,448  |   |   |   | 34,756 |   |   |   | 2,803 |   |   |   | 3,308 |   |   30,460 |   |   | 158 |   |
| Construction and land          |   |                                         | 11,896  |   |   |   | 11,896 |   |   |   | 2,212 |   |   |   | - |   |   12,521 |   |   | 66 |   |
| Commercial real estate         |   |                                         | 2,349   |   |   |   | 4,271 |   |   |   | 142 |   |   |   | 1,922 |   |   1,964 |   |   | 15 |   |
| Home equity                    |   |                                         | 846     |   |   |   | 846 |   |   |   | 213 |   |   |   | - |   |   852 |   |   | 5 |   |
| Commercial                     |   |                                         | 1,323   |   |   |   | 1,798 |   |   |   | 493 |   |   |   | 475 |   |   1,478 |   |   | 6 |   |
|                           |   | $                                            | 125,885 |   |   |   | 137,271 |   |   |   | 12,674 |   |   |   | 11,386 |   |   124,407 |   |   | 624 |   |

Table of Contents

|                           |   | As of or for the Year Ended December 31, 2010 |    |
|--------------------------------|--------|-----------------------------------------------|---------|
|                           |   | Recorded Investment                           |    |   | Unpaid Pricipal |   |   | Reserve |   |   | Charge Offs |   | AverageRecordedInvestment |   | Int Paid YTD |   |
|                           |   | (In Thousands)                                |    |
| Total Impaired with Reserve    |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One- to four-family            |   | $                                             | 42,186  |   |   |   | 44,505 |   |   |   | 5,775 |   |   |   | 2,319 |   |   50,785 |   |   | 1,277 |   |
| Over four-family               |   |                                          | 20,200  |   |   |   | 20,460 |   |   |   | 2,548 |   |   |   | 260 |   |  24,305 |   |   | 191 |   |
| Construction and land          |   |                                          | 9,550   |   |   |   | 9,770 |   |   |   | 2,112 |   |   |   | 220 |   | 12,569 |   |   | 243 |   |
| Commercial real estate         |   |                                          | 976     |   |   |   | 2,730 |   |   |   | 162 |   |   |   | 1,754 |   |  938 |   |   | 3 |   |
| Home equity                    |   |                                          | 565     |   |   |   | 565 |   |   |   | 311 |   |   |   | - |   |   628 |   |   | 19 |   |
| Commercial                     |   |                                          | 584     |   |   |   | 584 |   |   |   | 185 |   |   |   | - |   |   313 |   |   | 30 |   |
|                           |   | $                                             | 74,061  |   |   |   | 78,614 |   |   |   | 11,093 |   |   |   | 4,553 |   |   89,538 |   |   | 1,763 |   |
|                           |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Impaired with no Reserve |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                           |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One- to four-family            |   | $                                             | 36,248  |   |   |   | 43,567 |   |   |   | - |   |   |   | 7,319 |   |   40,598 |   |   | 1,167 |   |
| Over four-family               |   |                                          | 10,088  |   |   |   | 13,527 |   |   |   | - |   |   |   | 3,439 |   |   13,947 |   |   | 481 |   |
| Construction and land          |   |                                          | 2,787   |   |   |   | 5,859 |   |   |   | - |   |   |   | 3,072 |   |   1,491 |   |   | 10 |   |
| Commercial real estate         |   |                                          | 862     |   |   |   | 1,030 |   |   |   | - |   |   |   | 168 |   |   2,084 |   |   | 27 |   |
| Home equity                    |   |                                          | 239     |   |   |   | 239 |   |   |   | - |   |   |   | - |   |   733 |   |   | 13 |   |
| Commercial                     |   |                                          | 1,446   |   |   |   | 1,446 |   |   |   | - |   |   |   | - |   |   2,409 |   |   | 16 |   |
|                           |   | $                                             | 51,670  |   |   |   | 65,668 |   |   |   | - |   |   |   | 13,998 |   |   61,262 |   |   | 1,714 |   |
|                           |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Impaired                 |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                           |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One- to four-family            |   | $                                             | 78,434  |   |   |   | 88,072 |   |   |   | 5,775 |   |   |   | 9,638 |   |   91,383 |   |   | 2,444 |   |
| Over four-family               |   |                                          | 30,288  |   |   |   | 33,987 |   |   |   | 2,548 |   |   |   | 3,699 |   |   38,252 |   |   | 672 |   |
| Construction and land          |   |                                          | 12,337  |   |   |   | 15,629 |   |   |   | 2,112 |   |   |   | 3,292 |   | 14,060 |   |   | 253 |   |
| Commercial real estate         |   |                                          | 1,838   |   |   |   | 3,760 |   |   |   | 162 |   |   |   | 1,922 |   |   3,022 |   |   | 30 |   |
| Home equity                    |   |                                          | 804     |   |   |   | 804 |   |   |   | 311 |   |   |   | - |   |   1,361 |   |   | 32 |   |
| Commercial                     |   |                                          | 2,030   |   |   |   | 2,030 |   |   |   | 185 |   |   |   | - |   |   2,722 |   |   | 46 |   |
|                           |   | $                                             | 125,731 |   |   |   | 144,282 |   |   |   | 11,093 |   |   |   | 18,551 |   |   150,800 |   |   | 3,477 |   |

Table of Contents

|                                                                              |   | As of March 31,        |   |   | As of December 31, |   |
|-----------------------------------------------------------------------------------|--------|------------------------|--------|--------|--------------------|--------|
|                                                                              |   | 2011                   |   |   | 2010               |   |
|                                                                              |   | (Dollars in Thousands) |   |
| Non-accrual loans:                                                                |   |                   |   |   |               |   |
| Residential                                                                       |   |                   |   |   |               |   |
| One- to four-family                                                               |   | $                      | 56,671 |   |               |   | 56,759 |   |
| Over four-family                                                                  |   |                   | 20,810 |   |               |   | 20,587 |   |
| Home equity                                                                       |   |                   | 1,455  |   |               |   | 712 |   |
| Construction and land                                                             |   |                   | 2,203  |   |               |   | 3,013 |   |
| Commercial real estate                                                            |   |                   | 1,476  |   |               |   | 1,577 |   |
| Commercial                                                                        |   |                   | 1,323  |   |               |   | 1,530 |   |
| Consumer                                                                          |   |                   | -      |   |               |   | - |   |
| Total non-accrual loans                                                           |   | $                      | 83,938 |   |               |   | 84,178 |   |
|                                                                              |   |                   |   |   |               |   |   |   |
|                                                                              |   |                   |   |   |               |   |   |   |
| Total performing troubled debt restructurings                                     |   | $                      | 33,875 |   |               |   | 33,592 |   |
|                                                                              |   |                   |   |   |               |   |   |   |
| Total non-accrual loans to total loans, net                                       |   |                   | 6.59   | %      |               |   | 6.44 | % |
| Total non-accrual loans and performing troubled                                   |   |                   |   |   |               |   |   |   |
|       debt restructurings to total loans receivable |   |                   | 9.24   | %      |               |   | 9.01 | % |
| Total non-accrual loans to total assets                                           |   |                   | 4.77   | %      |               |   | 4.65 | % |

|   | Real estate owned is summarized as follows: |
|--------|---------------------------------------------|

|                   |   | March 31,      |   |   | December 31, |   |
|------------------------|--------|----------------|--------|--------|--------------|--------|
|                   |   | 2011           |   |   | 2010         |   |
|                   |   | (In Thousands) |   |
|                   |   |           |   |   |         |   |
| One- to four-family    |   | $              | 28,559 |   |         |   | 28,142 |   |
| Over four-family       |   |           | 17,805 |   |         |   | 14,903 |   |
| Construction and land  |   |           | 10,143 |   |         |   | 9,926 |   |
| Commercial real estate |   |           | 4,677  |   |         |   | 4,781 |   |
|                   |   | $              | 61,184 |   |         |   | 57,752 |   |

Table of Contents

|                              |   | (In Thousands) |    |
|-----------------------------------|--------|----------------|---------|
|                              |   |           |    |
| Within one year                   |   | $              | 446,384 |   |
| More than one to two years        |   |           | 491,087 |   |
| More than two to three years      |   |           | 7,584   |   |
| More than three to four years     |   |           | 4,250   |   |
| More than four through five years |   |           | 8,557   |   |
|                              |   | $              | 957,862 |   |

|                                                       |   |   | March 31, 2011         |    |   | December 31, 2010 |   |
|------------------------------------------------------------|--------|--------|------------------------|---------|--------|-------------------|--------|
|                                                       |   |   |                   |    |   | Weighted          |   |   |   |   |   | Weighted |   |
|                                                       |   |   |                   |    |   | Average           |   |   |   |   |   | Average |   |
|                                                       |   |   | Balance                |    |   | Rate              |   |   | Balance |   |   | Rate |   |
|                                                       |   |   | (Dollars in Thousands) |    |
| Short term:                                                |   |   |                   |    |   |              |   |   |   |   |   |   |   |
| Bank line of credit                                        |   |   | $                      | 979     |   |              |   | 4.75 | % |   |   | 22,959 |   |   |   | 4.75 | % |
|                                                       |   |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Long term:                                                 |   |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Federal Home Loan Bank, Chicago (FHLBC) advances maturing: |   |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
|                                                       | 2016   |   |                   | 220,000 |   |              |   | 4.34 | % |   |   | 220,000 |   |   |   | 4.34 | % |
|                                                       | 2017   |   |                   | 65,000  |   |              |   | 3.19 | % |   |   | 65,000 |   |   |   | 3.19 | % |
|                                                       | 2018   |   |                   | 65,000  |   |              |   | 2.97 | % |   |   | 65,000 |   |   |   | 2.97 | % |
|                                                       |   |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase agreements maturing                             | 2017   |   |                   | 84,000  |   |              |   | 3.96 | % |   |   | 84,000 |   |   |   | 3.96 | % |
|                                                       |   |   | $                      | 434,979 |   |              |   | 3.89 | % |   |   | 456,959 |   |   |   | 3.94 | % |

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|                                                  |   | March 31, 2011    |    |
|-------------------------------------------------------|--------|-------------------|---------|
|                                                  |   |              |    |   |   |   |   |   |   |   |   |   |   | To Be Well-Capitalized |   |
|                                                  |   |              |    |   |   |   |   | For Capital |   |   | Under Prompt Corrective |   |
|                                                  |   | Actual            |    |   | Adequacy Purposes |   |   | Action Provisions |   |
|                                                  |   | Amount            |    |   | Ratio |   |   | Amount |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
|                                                  |   |              |    |   |   |   |   | (Dollars in Thousands) |   |   |   |   |   |   |   |
| WaterStone Bank                                       |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total capital (to risk-weighted assets)               |   | $                 | 178,983 |   |   |   | 14.52 | % |   | $ | 98,629 |   |   |   | 8.00 | % |   | $ | 123,287 |   |   |   | 10.00 | % |
| Tier I capital (to risk-weighted assets)              |   |              | 163,367 |   |   |   | 13.25 | % |   |   | 49,315 |   |   |   | 4.00 | % |   |   | 73,972 |   |   |   | 6.00 | % |
| Tier I capital (to average assets)                    |   |              | 163,367 |   |   |   | 9.22 | % |   |   | 70,856 |   |   |   | 4.00 | % |   |   | 88,570 |   |   |   | 5.00 | % |
| State of Wisconsin capital required (to total assets) |   |              | 163,367 |   |   |   | 9.30 | % |   |   | 105,407 |   |   |   | 6.00 | % |   |   | N/A |   |   |   | N/A |   |
|                                                  |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   | December 31, 2010 |    |
| WaterStone Bank                                       |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total capital (to risk-weighted assets)               |   | $                 | 180,718 |   |   |   | 14.13 | % |   | $ | 102,324 |   |   |   | 8.00 | % |   | $ | 127,905 |   |   |   | 10.00 | % |
| Tier I capital (to risk-weighted assets)              |   |              | 164,568 |   |   |   | 12.87 | % |   |   | 51,162 |   |   |   | 4.00 | % |   |   | 76,743 |   |   |   | 6.00 | % |
| Tier I capital (to average assets)                    |   |              | 164,568 |   |   |   | 8.83 | % |   |   | 74,567 |   |   |   | 4.00 | % |   |   | 93,208 |   |   |   | 5.00 | % |
| State of Wisconsin capital required (to total assets) |   |              | 164,568 |   |   |   | 9.12 | % |   |   | 108,228 |   |   |   | 6.00 | % |   |   | N/A |   |   |   | N/A |   |

Table of Contents

|                                                    |   | March 31,      |   |   | December 31, |   |
|---------------------------------------------------------|--------|----------------|--------|--------|--------------|--------|
|                                                    |   | 2011           |   |   | 2010         |   |
|                                                    |   | (In Thousands) |   |
| Financial instruments whose contract amounts represent  |   |           |   |   |         |   |
| potential credit risk:                                  |   |           |   |   |         |   |
| Commitments to extend credit under amortizing loans (1) |   | $              | 17,540 |   |         |   | 14,681 |   |
| Unused portion of home equity lines of credit           |   |           | 24,700 |   |         |   | 25,803 |   |
| Unused portion of construction loans                    |   |           | 4,543  |   |         |   | 2,832 |   |
| Unused portion of business lines of credit              |   |           | 9,584  |   |         |   | 10,630 |   |
| Standby letters of credit                               |   |           | 991    |   |         |   | 991 |   |

Table of Contents

|                                                      |   | Three Months Ended |   |
|-----------------------------------------------------------|--------|--------------------|--------|
|                                                      |   | March 31,          |   |
|                                                      |   | 2011               |   |   | 2010 |   |
|                                                      |   |               |   |
|                                                      |   |               |   |   |   |   |
| Net income (loss)                                         |   | $                  | (1,544 | ) |   |   | 176 |   |
| Net income (loss) available to unvested restricted shares |   |               | -      |   |   |   | 1 |   |
| Net income (loss) available to common stockholders        |   | $                  | (1,544 | ) |   |   | 175 |   |
|                                                      |   |               |   |   |   |   |   |   |
| Weighted average shares outstanding                       |   |               | 30,899 |   |   |   | 30,773 |   |
| Effect of dilutive potential common shares                |   |               | -      |   |   |   | - |   |
| Diluted weighted average shares outstanding               |   |               | 30,899 |   |   |   | 30,773 |   |
|                                                      |   |               |   |   |   |   |   |   |
| Basic earnings (loss) per share                           |   | $                  | (0.05  | ) |   |   | 0.01 |   |
| Diluted earnings (loss) per share                         |   | $                  | (0.05  | ) |   |   | 0.01 |   |

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Table of Contents

|                                    |   |              |    |   | Fair Value Measurements Using |                          |
|-----------------------------------------|--------|-------------------|---------|--------|-------------------------------|-------------------------------|
|                                    |   | March 31, 2011    |    |   | Level 1                       |                          |   | Level 2 |   |   | Level 3 |   |
|                                    |   | (In Thousands)    |    |
|                                    |   |              |    |   |                          |                          |   |   |   |   |   |   |
| Available for sale securities           |   |              |    |   |                          |                          |   |   |   |   |   |   |
| Mortgage-backed securities              |   | $                 | 40,585  |   |                          |                          | - |   |   |   | 40,585 |   |   |   | - |   |
| Collateralized mortgage obligations     |   |              |    |   |                          |                          |   |   |   |   |   |   |   |   |   |   |
| Government sponsored enterprise bonds   |   |              | 34,325  |   |                          |                          | - |   |   |   | 34,325 |   |   |   | - |   |
| Private-label issued                    |   |              | 23,968  |   |                          |                          | - |   |   |   | 4,175 |   |   |   | 19,793 |   |
| Government sponsored enterprise bonds   |   |              | 63,919  |   |                          |                          | - |   |   |   | 63,919 |   |   |   | - |   |
| Municipal securities                    |   |              | 38,218  |   |                          |                          | - |   |   |   | 38,218 |   |   |   | - |   |
| Other debt securities                   |   |              | 5,254   |   |                          |                          | 5,254 |   |   |   | - |   |   |   | - |   |
|                                    |   |              |    |   |                          |                          |   |   |   |   |   |   |   |   |   |   |
| Loans held for sale                     |   |              | 29,092  |   |                          |                          | - |   |   |   | 29,092 |   |   |   | - |   |
| Mortgage banking derivative assets      |   |              | 642     |   |                          |                          | - |   |   |   | - |   |   |   | 642 |   |
| Mortgage banking derivative liabilities |   |              | 71      |   |                          |                          | - |   |   |   | - |   |   |   | 71 |   |
|                                    |   | $                 | 236,074 |   |                          |                          | 5,254 |   |   |   | 210,314 |   |   |   | 20,506 |   |
|                                    |   |              |    |   |                          |                          |   |   |   |   |   |   |   |   |   |   |
|                                    |   |              |    |   |                          | Fair Value Measurements Using |   |
|                                    |   | December 31, 2010 |    |   | Level 1                       |                          |   | Level 2 |   |   | Level 3 |   |
|                                    |   | (In Thousands)    |    |
|                                    |   |              |    |   |                          |                          |   |   |   |   |   |   |   |   |   |   |
| Available for sale securities           |   |              |    |   |                          |                          |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities              |   | $                 | 44,330  |   |                          |                          | - |   |   |   | 44,330 |   |   |   | - |   |
| Collateralized mortgage obligations     |   |              |    |   |                          |                          |   |   |   |   |   |   |   |   |   |   |
| Government sponsored enterprise bonds   |   |              | 39,277  |   |                          |                          | - |   |   |   | 39,277 |   |   |   | - |   |
| Private-label issued                    |   |              | 25,447  |   |                          |                          | - |   |   |   | 5,146 |   |   |   | 20,301 |   |
| Government sponsored enterprise bonds   |   |              | 57,698  |   |                          |                          | - |   |   |   | 57,698 |   |   |   | - |   |
| Municipal securities                    |   |              | 31,120  |   |                          |                          | - |   |   |   | 31,120 |   |   |   | - |   |
| Other debt securities                   |   |              | 5,294   |   |                          |                          | 5,294 |   |   |   | - |   |   |   | - |   |
|                                    |   |              |    |   |                          |                          |   |   |   |   |   |   |   |   |   |   |
| Loans held for sale                     |   |              | 96,133  |   |                          |                          | - |   |   |   | 96,133 |   |   |   | - |   |
| Mortgage banking derivative assets      |   |              | 470     |   |                          |                          | - |   |   |   | - |   |   |   | 470 |   |
| Mortgage banking derivative liabilities |   |              | 63      |   |                          |                          | - |   |   |   | - |   |   |   | 63 |   |
|                                    |   | $                 | 299,832 |   |                          |                          | 5,294 |   |   |   | 273,704 |   |   |   | 20,834 |   |

Table of Contents

|                                                                   |   | Available for sale securities |   |   | Mortgage banking derivatives |   |
|------------------------------------------------------------------------|--------|-------------------------------|--------|--------|------------------------------|--------|
|                                                                   |   | (In Thousands)                |   |
|                                                                   |   |                          |   |   |                         |   |
| Balance at December 31, 2009                                           |   | $                             | 15,799 |   |                         |   | 41 |   |
|                                                                   |   |                          |   |   |                         |   |   |   |
| Transfer into level 3                                                  |   |                          | -      |   |                         |   | - |   |
| Unrealized holding losses arising during the period:                   |   |                          |   |   |                         |   |   |   |
|    Included in other comprehensive income               |   |                          | 5,261  |   |                         |   | - |   |
|    Other than temporary impairment included in net loss |   |                          | -      |   |                         |   | - |   |
| Principal repayments                                                   |   |                          | (881   | )      |                         |   | - |   |
| Net accretion of discount/amortization of premium                      |   |                          | 122    |   |                         |   | - |   |
| Mortgage derivative gain, net                                          |   |                          | -      |   |                         |   | 366 |   |
| Balance at December 31, 2010                                           |   |                          | 20,301 |   |                         |   | 407 |   |
|                                                                   |   |                          |   |   |                         |   |   |   |
| Transfer into level 3                                                  |   |                          | -      |   |                         |   | - |   |
| Unrealized holding losses arising during the period:                   |   |                          |   |   |                         |   |   |   |
|    Included in other comprehensive income               |   |                          | (53    | )      |                         |   | - |   |
|    Other than temporary impairment included in net loss |   |                          | -      |   |                         |   | - |   |
| Principal repayments                                                   |   |                          | (455   | )      |                         |   | - |   |
| Net accretion of discount/amortization of premium                      |   |                          | -      |   |                         |   | - |   |
| Mortgage derivative gain, net                                          |   |                          | -      |   |                         |   | 164 |   |
| Balance at March 31, 2011                                              |   | $                             | 19,793 |   |                         |   | 571 |   |

Table of Contents

|              |   |              |   |   | Fair Value Measurements Using |                          |
|-------------------|--------|-------------------|--------|--------|-------------------------------|-------------------------------|
|              |   | March 31, 2011    |   |   | Level 1                       |                          |   | Level 2 |   |   | Level 3 |   |
|              |   | (In Thousands)    |   |
|              |   |              |   |   |                          |                          |   |   |   |   |   |   |
| Loans (1)         |   | $                 | 69,543 |   |                          |                          | - |   |   |   | - |   |   |   | 69,543 |   |
| Real estate owned |   |              | 61,184 |   |                          |                          | - |   |   |   | - |   |   |   | 61,184 |   |
|              |   |              |   |   |                          |                          |   |   |   |   |   |   |   |   |   |   |
|              |   |              |   |   |                          | Fair Value Measurements Using |   |
|              |   | December 31, 2010 |   |   | Level 1                       |                          |   | Level 2 |   |   | Level 3 |   |
|              |   | (In Thousands)    |   |
|              |   |              |   |   |                          |                          |   |   |   |   |   |   |   |   |   |   |
| Loans (1)         |   | $                 | 62,968 |   |                          |                          | - |   |   |   | - |   |   |   | 62,968 |   |
| Real estate owned |   |              | 57,752 |   |                          |                          | - |   |   |   | - |   |   |   | 57,752 |   |

Table of Contents

|                                    |   | March 31, 2011 |      |   | December 31, 2010 |   |
|-----------------------------------------|--------|----------------|-----------|--------|-------------------|--------|
|                                    |   | Carrying       |      |   | Fair              |   |   | Carrying |   |   | Fair |   |
|                                    |   | amount         |      |   | value             |   |   | amount |   |   | value |   |
|                                    |   | (In Thousands) |      |
| Financial Assets                        |   |           |      |   |              |   |   |   |   |   |   |   |
| Cash and cash equivalents               |   | $              | 124,842   |   |              |   | 124,842 |   |   |   | 74,945 |   |   |   | 74,945 |   |
| Securities available-for-sale           |   |           | 206,269   |   |              |   | 206,269 |   |   |   | 203,166 |   |   |   | 203,166 |   |
| Securities held-to-maturity             |   |           | 2,648     |   |              |   | 2,575 |   |   |   | 2,648 |   |   |   | 2,501 |   |
| Loans held for sale                     |   |           | 29,092    |   |              |   | 29,092 |   |   |   | 96,133 |   |   |   | 96,133 |   |
| Loans receivable                        |   |           | 1,274,393 |   |              |   | 1,279,818 |   |   |   | 1,306,437 |   |   |   | 1,313,854 |   |
| FHLB stock                              |   |           | 21,653    |   |              |   | 21,653 |   |   |   | 21,653 |   |   |   | 21,653 |   |
| Cash surrender value of life insurance  |   |           | 35,537    |   |              |   | 35,537 |   |   |   | 35,385 |   |   |   | 35,385 |   |
| Accrued interest receivable             |   |           | 4,181     |   |              |   | 4,181 |   |   |   | 4,101 |   |   |   | 4,101 |   |
| Mortgage banking derivative assets      |   |           | 642       |   |              |   | 642 |   |   |   | 470 |   |   |   | 470 |   |
|                                    |   |           |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Financial Liabilities                   |   |           |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                |   |           | 1,129,408 |   |              |   | 1,135,188 |   |   |   | 1,145,529 |   |   |   | 1,153,065 |   |
| Advance payments by                     |   |           |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| borrowers for taxes                     |   |           | 8,767     |   |              |   | 8,767 |   |   |   | 2,379 |   |   |   | 2,379 |   |
| Borrowings                              |   |           | 434,979   |   |              |   | 464,467 |   |   |   | 456,959 |   |   |   | 482,933 |   |
| Accrued interest payable                |   |           | 2,161     |   |              |   | 2,161 |   |   |   | 2,326 |   |   |   | 2,326 |   |
| Mortgage banking derivative liabilities |   |           | 71        |   |              |   | 71 |   |   |   | 63 |   |   |   | 63 |   |
|                                    |   |           |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Other Financial Instruments             |   |           |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Stand-by letters of credit              |   |           | 5         |   |              |   | 5 |   |   |   | 5 |   |   |   | 5 |   |

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Table of Contents

|                                                     |   | Three months ended March 31, 2011 |      |
|----------------------------------------------------------|--------|-----------------------------------|-----------|
|                                                     |   | Community Banking                 |      |   | Mortgage Banking |   |   | Holding Company and Other |   |   | Consolidated |   |
|                                                     |   | (in thousands)                    |      |
|                                                     |   |                              |      |   |   |   |   |   |   |   |   |   |
| Net interest income                                      |   | $                                 | 11,739    |   |   |   | 67 |   |   |   | 121 |   |   |   | 11,927 |   |
| Provision for loan losses                                |   |                              | 4,860     |   |   |   | 15 |   |   |   | - |   |   |   | 4,875 |   |
| Net interest income after provision for loan losses      |   |                              | 6,879     |   |   |   | 52 |   |   |   | 121 |   |   |   | 7,052 |   |
|                                                     |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest income:                                      |   |                              | 580       |   |   |   | 6,217 |   |   |   |   |   |   |   | 6,797 |   |
|                                                     |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest expenses:                                    |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Compensation, payroll taxes, and other employee benefits |   |                              | 3,746     |   |   |   | 4,373 |   |   |   | (202 | ) |   |   | 7,917 |   |
| Occupancy, office furniture and equipment                |   |                              | 898       |   |   |   | 721 |   |   |   | - |   |   |   | 1,619 |   |
| FDIC insurance premiums                                  |   |                              | 1,061     |   |   |   | - |   |   |   | - |   |   |   | 1,061 |   |
| Real estate owned                                        |   |                              | 1,795     |   |   |   | - |   |   |   | - |   |   |   | 1,795 |   |
| Other                                                    |   |                              | 1,144     |   |   |   | 1,583 |   |   |   | 235 |   |   |   | 2,962 |   |
| Total noninterest expenses                               |   |                              | 8,644     |   |   |   | 6,677 |   |   |   | 33 |   |   |   | 15,354 |   |
| Income (loss) before income taxes                        |   |                              | (1,185    | ) |   |   | (408 | ) |   |   | 88 |   |   |   | (1,505 | ) |
| Income taxes                                             |   |                              | 135       |   |   |   | (96 | ) |   |   | - |   |   |   | 39 |   |
| Net income (loss)                                        |   | $                                 | (1,320    | ) |   |   | (312 | ) |   |   | 88 |   |   |   | (1,544 | ) |
|                                                     |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                     |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Assets                                             |   | $                                 | 1,747,227 |   |   |   | 40,584 |   |   |   | (26,785 | ) |   |   | 1,761,026 |   |

|                                                     |   | Three months ended March 31, 2010 |      |
|----------------------------------------------------------|--------|-----------------------------------|-----------|
|                                                     |   | Community Banking                 |      |   | Mortgage Banking |   |   | Holding Company and Other |   |   | Consolidated |   |
|                                                     |   | (in thousands)                    |      |
|                                                     |   |                              |      |   |   |   |   |   |   |   |   |   |
| Net interest income                                      |   | $                                 | 12,155    |   |   |   | 154 |   |   |   | 124 |   |   |   | 12,433 |   |
| Provision for loan losses                                |   |                              | 5,402     |   |   |   | 55 |   |   |   | - |   |   |   | 5,457 |   |
| Net interest income after provision for loan losses      |   |                              | 6,753     |   |   |   | 99 |   |   |   | 124 |   |   |   | 6,976 |   |
|                                                     |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest income:                                      |   |                              | 699       |   |   |   | 3,602 |   |   |   | - |   |   |   | 4,301 |   |
|                                                     |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest expenses:                                    |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Compensation, payroll taxes, and other employee benefits |   |                              | 3,411     |   |   |   | 1,909 |   |   |   | (207 | ) |   |   | 5,113 |   |
| Occupancy, office furniture and equipment                |   |                              | 856       |   |   |   | 451 |   |   |   | - |   |   |   | 1,307 |   |
| FDIC insurance premiums                                  |   |                              | 1,122     |   |   |   | - |   |   |   | - |   |   |   | 1,122 |   |
| Real estate owned                                        |   |                              | 1,430     |   |   |   | - |   |   |   | - |   |   |   | 1,430 |   |
| Other                                                    |   |                              | 1,173     |   |   |   | 848 |   |   |   | 108 |   |   |   | 2,129 |   |
| Total noninterest expenses                               |   |                              | 7,992     |   |   |   | 3,208 |   |   |   | (99 | ) |   |   | 11,101 |   |
| Income (loss) before income taxes                        |   |                              | (540      | ) |   |   | 493 |   |   |   | 223 |   |   |   | 176 |   |
| Income taxes                                             |   |                              | (176      | ) |   |   | 176 |   |   |   | - |   |   |   | - |   |
| Net income (loss)                                        |   | $                                 | (364      | ) |   |   | 317 |   |   |   | 223 |   |   |   | 176 |   |
|                                                     |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Assets                                             |   | $                                 | 1,836,836 |   |   |   | 45,909 |   |   |   | (37,807 | ) |   |   | 1,844,938 |   |

Table of Contents

Table of Contents

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

| Ÿ | regulatory action requiring maintenance of minimum regulatory capital ratios higher than required minimum ratios; noncompliance could result in additional regulatory enforcement action; compliance could result in lower future return on equity and dilution for current stockholders; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Ÿ | adverse changes in the real estate markets;                                                                                                                                                                                                                                               |
| Ÿ | adverse changes in the securities markets;                                                                                                                                                                                                                                                |
| Ÿ | general economic conditions, either nationally or in our market areas, that are worse than expected;                                                                                                                                                                                      |
| Ÿ | inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;                                                                                                                                                         |
| Ÿ | changes in interest rates that reduce loan origination volumes and, ultimately, income from our mortgage banking operations;                                                                                                                                                              |
| Ÿ | our ability to maintain adequate levels of liquidity given regulatory limits on sources of funding and rates that can be paid for funding;                                                                                                                                                |
| Ÿ | legislative or regulatory changes that adversely affect our business;                                                                                                                                                                                                                     |
| Ÿ | our ability to enter new markets successfully and take advantage of growth opportunities;                                                                                                                                                                                                 |
| Ÿ | significantly increased competition among depository and other financial institutions;                                                                                                                                                                                                    |
| Ÿ | changes in accounting policies and practices, as may be adopted by the bank regulatory agencies and the Financial Accounting Standards Board; and                                                                                                                                         |
| Ÿ | changes in consumer spending, borrowing and savings habits.                                                                                                                                                                                                                               |

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Table of Contents

|                                                                    |   | Three Months Ended March 31, |      |
|-------------------------------------------------------------------------|--------|------------------------------|-----------|
|                                                                    |   | 2011                         |      |   | 2010 |   |
|                                                                    |   | Average Balance              |      |   | Interest |   |   | Yield/Cost |   |   | Average Balance |   |   | Interest |   |   | Yield/Cost |   |
|                                                                    |   | (Dollars in Thousands)       |      |
| Assets                                                                  |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                                                |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable, net(1)                                                |   | $                            | 1,341,460 |   |   |   | 18,465 |   |   |   | 5.58 | % |   | $ | 1,442,353 |   |   |   | 20,753 |   |   |   | 5.84 | % |
| Mortgage related securities(2)                                          |   |                         | 103,249   |   |   |   | 1,037 |   |   |   | 4.07 |   |   |   | 113,067 |   |   |   | 1,490 |   |   |   | 5.35 |   |
| Debt securities,(2) federal funds sold and short-term investments       |   |                         | 224,900   |   |   |   | 835 |   |   |   | 1.51 |   |   |   | 170,736 |   |   |   | 806 |   |   |   | 1.91 |   |
| Total interest-earning assets                                           |   |                         | 1,669,609 |   |   |   | 20,337 |   |   |   | 4.94 |   |   |   | 1,726,156 |   |   |   | 23,049 |   |   |   | 5.42 |   |
|                                                                    |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-earning assets                                              |   |                         | 107,791   |   |   |   |   |   |   |   |   |   |   |   | 98,277 |   |   |   |   |   |   |   |   |   |
| Total assets                                                            |   | $                            | 1,777,400 |   |   |   |   |   |   |   |   |   |   | $ | 1,824,433 |   |   |   |   |   |   |   |   |   |
|                                                                    |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and equity                                                  |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                           |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand accounts                                                         |   | $                            | 36,376    |   |   |   | 7 |   |   |   | 0.08 |   |   | $ | 35,920 |   |   |   | 8 |   |   |   | 0.09 |   |
| Money market and savings accounts                                       |   |                         | 111,235   |   |   |   | 95 |   |   |   | 0.35 |   |   |   | 95,461 |   |   |   | 112 |   |   |   | 0.48 |   |
| Time deposits                                                           |   |                         | 964,549   |   |   |   | 3,997 |   |   |   | 1.68 |   |   |   | 1,010,528 |   |   |   | 5,725 |   |   |   | 2.30 |   |
| Total interest-bearing deposits                                         |   |                         | 1,112,160 |   |   |   | 4,099 |   |   |   | 1.50 |   |   |   | 1,141,909 |   |   |   | 5,845 |   |   |   | 2.08 |   |
| Borrowings                                                              |   |                         | 446,666   |   |   |   | 4,311 |   |   |   | 3.91 |   |   |   | 480,347 |   |   |   | 4,771 |   |   |   | 4.03 |   |
| Total interest-bearing liabilities                                      |   |                         | 1,558,826 |   |   |   | 8,410 |   |   |   | 2.19 |   |   |   | 1,622,256 |   |   |   | 10,616 |   |   |   | 2.65 |   |
|                                                                    |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing liabilities                                         |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non interest-bearing deposits                                           |   |                         | 29,216    |   |   |   |   |   |   |   |   |   |   |   | 23,358 |   |   |   |   |   |   |   |   |   |
| Other noninterest-bearing liabilities                                   |   |                         | 18,730    |   |   |   |   |   |   |   |   |   |   |   | 10,454 |   |   |   |   |   |   |   |   |   |
| Total noninterest-bearing liabilities                                   |   |                         | 47,946    |   |   |   |   |   |   |   |   |   |   |   | 33,812 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                       |   |                         | 1,606,772 |   |   |   |   |   |   |   |   |   |   |   | 1,656,068 |   |   |   |   |   |   |   |   |   |
| Equity                                                                  |   |                         | 170,628   |   |   |   |   |   |   |   |   |   |   |   | 168,365 |   |   |   |   |   |   |   |   |   |
| Total liabilities and equity                                            |   | $                            | 1,777,400 |   |   |   |   |   |   |   |   |   |   | $ | 1,824,433 |   |   |   |   |   |   |   |   |   |
|                                                                    |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                     |   |                         |      |   |   | $ | 11,927 |   |   |   |   |   |   |   |   |   |   | $ | 12,433 |   |   |   |   |   |
| Net interest rate spread (3)                                            |   |                         |      |   |   |   |   |   |   |   | 2.75 | % |   |   |   |   |   |   |   |   |   |   | 2.77 | % |
| Net interest-earning assets (4)                                         |   | $                            | 110,783   |   |   |   |   |   |   |   |   |   |   | $ | 103,900 |   |   |   |   |   |   |   |   |   |
| Net interest margin (5)                                                 |   |                         |      |   |   |   |   |   |   |   | 2.90 | % |   |   |   |   |   |   |   |   |   |   | 2.92 | % |
| Average interest-earning assets to average interest-bearing liabilities |   |                         |      |   |   |   |   |   |   |   | 107.11 | % |   |   |   |   |   |   |   |   |   |   | 104.89 | % |

| (1)   Interest income includes net deferred loan fee amortization income of $220,000 and $166,000 for the three months ended March 31, 2011 and 2010, respectively. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)  Average balance of mortgage related and debt securities are based on amortized historical cost. |
|----------------------------------------------------------------------------------------------------------------|

| (3)  Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)  Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. |
|-----------------------------------------------------------------------------------------------------------------------------|

| (5)  Net interest margin represents net interest income divided by average total interest-earning assets. |
|---------------------------------------------------------------------------------------------------------------------|

Table of Contents

|                                |   | Three Months Ended March 31, |   |
|-------------------------------------|--------|------------------------------|--------|
|                                |   | 2011 versus 2010             |   |
|                                |   | Increase (Decrease) due to   |   |
|                                |   | Volume                       |   |   | Rate |   |   | Net |   |
|                                |   | (In Thousands)               |   |
| Interest income:                    |   |                         |   |   |   |   |   |   |   |
| Loans receivable(1) (2)             |   | $                            | (1,413 | ) |   |   | (875 | ) |   |   | (2,288 | ) |
| Mortgage related securities(3)      |   |                         | (121   | ) |   |   | (332 | ) |   |   | (453 | ) |
| Other earning assets(3)             |   |                         | 226    |   |   |   | (197 | ) |   |   | 29 |   |
|  Total interest-earning assets |   |                         | (1,308 | ) |   |   | (1,404 | ) |   |   | (2,712 | ) |
|                                |   |                         |   |   |   |   |   |   |   |   |   |   |
| Interest expense:                   |   |                         |   |   |   |   |   |   |   |   |   |   |
| Demand accounts                     |   |                         | -      |   |   |   | (1 | ) |   |   | (1 | ) |
| Money merket and savings accounts   |   |                         | 17     |   |   |   | (34 | ) |   |   | (17 | ) |
| Time deposits                       |   |                         | (249   | ) |   |   | (1,479 | ) |   |   | (1,728 | ) |
| Total interest-bearing deposits     |   |                         | (232   | ) |   |   | (1,514 | ) |   |   | (1,746 | ) |
| Borrowings                          |   |                         | (327   | ) |   |   | (133 | ) |   |   | (460 | ) |
| Total interest-bearing liabilities  |   |                         | (559   | ) |   |   | (1,647 | ) |   |   | (2,206 | ) |
| Net change in net interest income   |   | $                            | (749   | ) |   |   | 243 |   |   |   | (506 | ) |

|   | ______________ |
|--------|----------------|

| (1) | Includes net deferred loan fee amortization income of $220,000 and $166,000 for the three months ended March 31, 2011 and 2010, respectively. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Non-accrual loans have been included in average loans receivable balance. |
|-----|---------------------------------------------------------------------------|

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|                                                            |   | As of or for the             |      |   | As of or for the |   |
|-----------------------------------------------------------------|--------|------------------------------|-----------|--------|------------------|--------|
|                                                            |   | Three Months Ended March 31, |      |   | Year Ended       |   |
|                                                            |   | 2011                         |      |   | 2010             |   |   | December 31, 2010 |   |
|                                                            |   | (In Thousands)               |      |
| Total gross loans receivable and held for sale at               |   |                         |      |   |             |   |   |   |   |
| beginning of period                                             |   | $                            | 1,443,824 |   |             |   | 1,516,800 |   |   |   | 1,516,800 |   |
| Real estate loans originated for investment:                    |   |                         |      |   |             |   |   |   |   |   |   |   |
| Residential                                                     |   |                         |      |   |             |   |   |   |   |   |   |   |
| One- to four-family                                             |   |                         | 2,969     |   |             |   | 700 |   |   |   | 11,390 |   |
| Over four-family                                                |   |                         | 10,119    |   |             |   | 17,806 |   |   |   | 69,602 |   |
| Home equity                                                     |   |                         | 1,189     |   |             |   | 1,392 |   |   |   | 5,528 |   |
| Construction and land                                           |   |                         | 1,589     |   |             |   | 100 |   |   |   | 8,355 |   |
| Commercial real estate                                          |   |                         | 4,512     |   |             |   | 375 |   |   |   | 5,813 |   |
| Total real estate loans originated for investment               |   |                         | 20,378    |   |             |   | 20,373 |   |   |   | 100,688 |   |
| Consumer loans originated for investment                        |   |                         | -         |   |             |   | 73 |   |   |   | 76 |   |
| Commerical business loans originated for investment             |   |                         | 5,559     |   |             |   | 3,393 |   |   |   | 11,204 |   |
| Total loans originated for investment                           |   |                         | 25,937    |   |             |   | 23,839 |   |   |   | 111,968 |   |
|                                                            |   |                         |      |   |             |   |   |   |   |   |   |   |
| Principal repayments                                            |   |                         | (47,201   | )      |             |   | (32,688 | ) |   |   | (169,093 | ) |
| Transfers to real estate owned                                  |   |                         | (9,311    | )      |             |   | (7,248 | ) |   |   | (41,781 | ) |
| Loan principal charged-off, net of recoveries                   |   |                         | (1,956    | )      |             |   | (2,320 | ) |   |   | (25,151 | ) |
| Net activity in loans held for investment                       |   |                         | (32,531   | )      |             |   | (18,417 | ) |   |   | (124,057 | ) |
|                                                            |   |                         |      |   |             |   |   |   |   |   |   |   |
| Loans originated for sale                                       |   |                         | 182,970   |   |             |   | 151,582 |   |   |   | 1,084,362 |   |
| Loans sold                                                      |   |                         | (250,011  | )      |             |   | (157,362 | ) |   |   | (1,033,281 | ) |
| Net activity in loans held for sale                             |   |                         | (67,041   | )      |             |   | (5,780 | ) |   |   | 51,081 |   |
| Total gross loans receivable and held for sale at end of period |   | $                            | 1,344,252 |   |             |   | 1,492,603 |   |   |   | 1,443,824 |   |

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Table of Contents

|                                              |   | At March 31,           |    |   | At December 31, |   |
|---------------------------------------------------|--------|------------------------|---------|--------|-----------------|--------|
|                                              |   | 2011                   |    |   | 2010            |   |
|                                              |   | (Dollars in Thousands) |    |
| Non-accrual loans:                                |   |                   |    |   |            |   |
| Residential                                       |   |                   |    |   |            |   |
| One- to four-family                               |   | $                      | 56,671  |   |            |   | 56,759 |   |
| Over four-family                                  |   |                   | 20,810  |   |            |   | 20,587 |   |
| Home equity                                       |   |                   | 1,455   |   |            |   | 712 |   |
| Construction and land                             |   |                   | 2,203   |   |            |   | 3,013 |   |
| Commercial real estate                            |   |                   | 1,476   |   |            |   | 1,577 |   |
| Commercial                                        |   |                   | 1,323   |   |            |   | 1,530 |   |
| Total non-accrual loans                           |   |                   | 83,938  |   |            |   | 84,178 |   |
| Real estate owned                                 |   |                   |    |   |            |   |   |   |
| One- to four-family                               |   |                   | 28,559  |   |            |   | 28,142 |   |
| Over four-family                                  |   |                   | 17,805  |   |            |   | 14,903 |   |
| Construction and land                             |   |                   | 10,143  |   |            |   | 9,926 |   |
| Commercial real estate                            |   |                   | 4,677   |   |            |   | 4,781 |   |
| Total real estate owned                           |   |                   | 61,184  |   |            |   | 57,752 |   |
| Total nonperforming assets                        |   | $                      | 145,122 |   |            |   | 141,930 |   |
|                                              |   |                   |    |   |            |   |   |   |
| Total non-accrual loans to total loans receivable |   |                   | 6.59    | %      |            |   | 6.44 | % |
| Total non-accrual loans to total assets           |   |                   | 4.77    | %      |            |   | 4.65 | % |
| Total nonperforming assets to total assets        |   |                   | 8.24    | %      |            |   | 7.85 | % |

|   | The following table summarizes troubled debt restructurings: |
|--------|--------------------------------------------------------------|

|   | TROUBLED DEBT RESTRUCTURINGS |
|--------|------------------------------|

|                                               |   | At March 31,           |   |   | At December 31, |   |
|----------------------------------------------------|--------|------------------------|--------|--------|-----------------|--------|
|                                               |   | 2011                   |   |   | 2010            |   |
|                                               |   | (Dollars in Thousands) |   |
|                                               |   |                   |   |   |            |   |
| Troubled debt restructurings - accrual             |   | $                      | 33,875 |   |            |   | 33,592 |   |
| Troubled debt restructurings - non-accrual         |   |                   | 5,660  |   |            |   | 2,879 |   |
| Total troubled debt restructurings                 |   | $                      | 39,535 |   |            |   | 36,471 |   |
|                                               |   |                   |   |   |            |   |   |   |
| Total non-accrual loans and accruing troubled debt |   |                   |   |   |            |   |   |   |
| restructurings to total loans receivable           |   |                   | 9.24   | %      |            |   | 9.01 | % |

Table of Contents

|   | LOAN DELINQUENCY |
|--------|------------------|

|                                           |   | At March 31,           |   |   | At December 31, |   |
|------------------------------------------------|--------|------------------------|--------|--------|-----------------|--------|
|                                           |   | 2011                   |   |   | 2010            |   |
|                                           |   | (Dollars in Thousands) |   |
|                                           |   |                   |   |   |            |   |
| Loans past due less than 90 days               |   |                   | 37,400 |   |            |   | 28,807 |   |
| Loans past due in excess of 90 days            |   |                   | 51,344 |   |            |   | 61,856 |   |
| Total loans past due                           |   |                   | 88,744 |   |            |   | 90,663 |   |
|                                           |   |                   |   |   |            |   |   |   |
| Total loans past due to total loans receivable |   |                   | 6.96   | %      |            |   | 6.94 | % |

Table of Contents

|                                                            |   | At or for the Three Months |   |
|-----------------------------------------------------------------|--------|----------------------------|--------|
|                                                            |   | Ended March 31,            |   |
|                                                            |   | 2011                       |   |   | 2010 |   |
|                                                            |   | (Dollars in Thousands)     |   |
|                                                            |   |                       |   |   |   |   |
| Balance at beginning of period                                  |   | $                          | 29,175 |   |   |   | 28,494 |   |
| Provision for loan losses                                       |   |                       | 4,875  |   |   |   | 5,457 |   |
| Charge-offs:                                                    |   |                       |   |   |   |   |   |   |
| Mortgage                                                        |   |                       |   |   |   |   |   |   |
| One- to four-family                                             |   |                       | 1,033  |   |   |   | 1,668 |   |
| Over four-family                                                |   |                       | 524    |   |   |   | 585 |   |
| Home Equity                                                     |   |                       | 73     |   |   |   | - |   |
| Commercial real estate                                          |   |                       | 176    |   |   |   | 117 |   |
| Construction and land                                           |   |                       | 4      |   |   |   | - |   |
| Consumer                                                        |   |                       | 8      |   |   |   | 2 |   |
| Commercial                                                      |   |                       | 185    |   |   |   | 1 |   |
| Total charge-offs                                               |   |                       | 2,003  |   |   |   | 2,373 |   |
| Recoveries:                                                     |   |                       |   |   |   |   |   |   |
| Mortgage                                                        |   |                       |   |   |   |   |   |   |
| One- to four-family                                             |   |                       | 33     |   |   |   | 49 |   |
| Over four-family                                                |   |                       | 11     |   |   |   | - |   |
| Home Equity                                                     |   |                       | 2      |   |   |   | 1 |   |
| Construction and land                                           |   |                       | -      |   |   |   | 2 |   |
| Consumer                                                        |   |                       | 1      |   |   |   | - |   |
| Total recoveries                                                |   |                       | 47     |   |   |   | 52 |   |
| Net charge-offs                                                 |   |                       | 1,956  |   |   |   | 2,321 |   |
| Allowance at end of period                                      |   | $                          | 32,094 |   |   |   | 31,630 |   |
|                                                            |   |                       |   |   |   |   |   |   |
| Ratios:                                                         |   |                       |   |   |   |   |   |   |
| Allowance for loan losses to non-accrual loans at end of period |   |                       | 38.24  | % |   |   | 41.57 | % |
| Allowance for loan losses to loans receivable at end of period  |   |                       | 2.52   | % |   |   | 2.25 | % |
| Net charge-offs to average loans outstanding (annualized)       |   |                       | 0.59   | % |   |   | 0.65 | % |
| Current year provision for loan losses to net charge-offs       |   |                       | 249.19 | % |   |   | 235.09 | % |
| Net charge-offs (annualized) to beginning of the year allowance |   |                       | 27.19  | % |   |   | 33.04 | % |

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Table of Contents

| Contractual Obligations                |   |
|----------------------------------------|--------|
|                                   |   |   |   |   |   |   |   | More than |   |   | More than |   |   |   |   |
|                                   |   |   |   |   |   |   |   | One Year |   |   | Three Years |   |   | Over |   |
|                                   |   |   |   |   | One Year |   |   | Through |   |   | Through |   |   | Five |   |
|                                   |   | Total |   |   | or Less |   |   | Three Years |   |   | Five Years |   |   | Years |   |
|                                   |   | (In Thousands) |   |
| Deposits without a stated maturity (4) |   | $ | 171,546 |   |   |   | 171,546 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Certificates of deposit (4)            |   |   | 957,862 |   |   |   | 446,384 |   |   |   | 498,671 |   |   |   | 12,807 |   |   |   | - |   |
| Bank lines of credit (4)               |   |   | 979 |   |   |   | 979 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal Home Loan Bank advances (1)    |   |   | 350,000 |   |   |   | - |   |   |   | - |   |   |   | 50,000 |   |   |   | 300,000 |   |
| Repurchase agreements (2)(4)           |   |   | 84,000 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 84,000 |   |
| Operating leases (3)                   |   |   | 239 |   |   |   | 239 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Salary continuation agreements         |   |   | 1,063 |   |   |   | 170 |   |   |   | 340 |   |   |   | 340 |   |   |   | 213 |   |
|                                   |   | $ | 1,565,689 |   |   |   | 619,318 |   |   |   | 499,011 |   |   |   | 63,147 |   |   |   | 384,213 |   |

| (1)  Secured under a blanket security agreement on qualifying assets, principally, mortgage loans.  Excludes interest which will accrue on       the advances.  All Federal Home Loan Bank advances with maturities exceeding one year are callable on a quarterly basis. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Other Commitments                                 |   |
|---------------------------------------------------|--------|
|                                              |   |   |   |   |   |   |   | More than |   |   | More than |   |   |   |   |
|                                              |   |   |   |   |   |   |   | One Year |   |   | Three Years |   |   | Over |   |
|                                              |   |   |   |   | One Year |   |   | Through |   |   | Through |   |   | Five |   |
|                                              |   | Total |   |   | or Less |   |   | Three Years |   |   | Five Years |   |   | Years |   |
|                                              |   | (In Thousands) |   |
| Real estate loan commitments (1)                  |   | $ | 17,540 |   |   |   | 17,540 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Unused portion of home equity lines of credit (2) |   |   | 24,700 |   |   |   | 24,700 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Unused portion of business lines of credit        |   |   | 9,584 |   |   |   | 9,584 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Unused portion of construction loans (3)          |   |   | 4,543 |   |   |   | 4,543 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Standby letters of credit                         |   |   | 991 |   |   |   | 945 |   |   |   | 46 |   |   |   | - |   |   |   | - |   |
|   Total Other Commitments                    |   | $ | 57,358 |   |   |   | 57,312 |   |   |   | 46 |   |   |   | - |   |   |   | - |   |

Table of Contents

Item 3. Quantitative and Qualitative Disclosures about Market Risk

|                                      |                                                                                 |    |   |
|-------------------------------------------|--------------------------------------------------------------------------------------|---------|--------|
|                                      | Percentage Increase (Decerease) inEstimated Annual Net InterestIncome Over 12 Months |
| 300 basis point gradual rise in rates     |                                                                                 | (0.34%) |   |
| 200 basis point gradual rise in rates     |                                                                                 | (1.60%) |   |
| 100 bassis point gradual rise in rates    |                                                                                 | (2.96%) |   |
| 100 bassis point gradual decline in rates |                                                                                 | (4.93%) |   |
| 200 bassis point gradual decline in rates |                                                                                 | (7.54%) |   |
| 300 bassis point gradual decline in rates |                                                                                 | (9.36%) |   |

Table of Contents

Item 4. Controls and Procedures

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 6. Exhibits

Signatures

|              | WATERSTONE FINANCIAL, INC.(Registrant) |
|-------------------|----------------------------------------|
| Date: May 6, 2011 |                                   |
|              |  /s/ Douglas S. Gordon            |
|              | Douglas S. Gordon                      |
|              | Chief Executive Officer                |
| Date: May 6, 2011 |                                   |
|              |  /s/ Richard C. Larson            |
|              | Richard C. Larson                      |
|              | Chief Financial Officer                |

Table of Contents

| Exhibit No. | Description                                                                                                                                                                                           | Filed Herewith |
|-------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|
| 31.1   | Sarbanes-Oxley Act Section 302 Certification signed by the Chief Executive Officer of Waterstone Financial, Inc.                                                                                 | X              |
| 31.2        | Sarbanes-Oxley Act Section 302 Certification signed by the Chief Financial Officer of Waterstone Financial, Inc.                                                                            | X              |
| 32.1        | Certification pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by the Chief Executive Officer of Waterstone Financial, Inc. | X              |
| 32.2        | Certification pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by the Chief Financial Officer of Waterstone Financial, Inc. | X              |